The transcript from this week’s, MiB:Lori Heinel, Global Chief Investment Officer at State Street Investment Management, 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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An Interview with Lori Heinel Executive Vice President & Global Chief Investment Officer, State Street Investment Management Hosted by Barry Ritholtz  ·  Bloomberg Radio

ANNOUNCER  (00:00:02):  Bloomberg Audio Studios — podcasts, radio, news.

BARRY RITHOLTZ  (00:00:08):  This week on the podcast — another banger. Lori Heinel is Executive Vice President and Global Chief Investment Officer at State Street Investment Management. She oversees $5.7 trillion in assets, and that’s as of the end of 2025 — obviously the market has appreciated since then. She oversees index funds, ETFs, active strategies, alternatives, multi-asset solutions, and really drives an incredible organization. I thought this conversation was fascinating, and I think you will also. With no further ado, my interview with State Street’s Lori Heinel.

Lori Heinel — welcome to Bloomberg.

LORI HEINEL  (00:01:00):  Thanks for having me.

BARRY RITHOLTZ  (00:01:02):  So let’s start out with your early career and your academic background. You studied religion at Princeton before getting your MBA at Carnegie Mellon. What was the career plan with religious studies?

LORI HEINEL  (00:01:17):  Well, that’s a long story, but I’ll try to keep it short. Bottom line is I went to Princeton because I wanted to get more of a liberal arts education, and what I realized pretty quickly is it didn’t really matter what I majored in — I could major in economics, I could major in history. And I happened to take a religious studies course, which I just absolutely adored. And from a personal standpoint, I had a number of people in my family who were incredibly staunch practicing Catholics or other kinds of Christian religions, and they would do things that, to me, were quite odd at times. And so I thought, from a personal perspective, it would be an interesting way to get more insight into what was going on with some of these family members. So the short answer is that I decided to pursue that as an academic undertaking.

And then I got to a place where I needed to think about a career. My first thought was, well, geez, maybe I’ll go to law school. Then I realized I needed to make some money. So my second thought was, well, geez, there’s this analyst program thing that they have on Wall Street — surely they recruited at fine institutions like Princeton. And lo and behold, that catapulted me into what became a really long career in finance, by just moving from an institution like Princeton into an analyst program.

BARRY RITHOLTZ  (00:02:34):  So let’s move forward. You started at Credit Suisse First Boston, where you ran equity and fixed income sales, then you ended up working in trading at Parker Hunter in Pittsburgh. Am I getting that right?

LORI HEINEL  (00:02:48):  Well, I didn’t start by running anything. I started out as a two-year grunt, right? I think most of your listeners know what these analyst programs look like. I was effectively in investment banking for public finance, so we worked with hospitals, airports, municipal authorities. But I did all the grunt work, if you will — all the numbers-crunching behind the scenes, helping to run the deal models and things of that nature. And I just found that fascinating. I thought it was really amazing to connect what’s going on in the world with how finance supports that.

And so I did that for a couple of years, and at the end of the two-year program, you’re typically expected to go back to business school. Well, I still needed to make money, because I had student loans to pay off, so I decided I wanted to stay. And that led me to an opportunity on the trading desk at First Boston, which really was an incredible opportunity, because that was my first real introduction to markets.

BARRY RITHOLTZ  (00:03:41):  So what did working on the trading floor teach you about markets?

LORI HEINEL  (00:03:46):  So many things. I think the first and most important thing is I was there during the ’87 Black Monday crash, and I happened to be working in fixed income. So it was a really interesting day, because of course, at that time, the First Boston trading floor was on two different levels — all the fixed income was on one level, all the equities was on a different level. And we went dead silent in the first part of the day, and suddenly people were starting to realize what was happening, with the market crashing 20-plus percent — 22 percent —

BARRY RITHOLTZ  (00:04:18):  Yeah.

LORI HEINEL  (00:04:18):  — over the course of a day, which of course today we’ve got circuit breakers that don’t let that happen anymore. But then, all of a sudden, towards the end of the day, things in the fixed income market started going crazy, because now you had the Fed coming out — Alan Greenspan saying, we’re going to go ahead and provide liquidity, we’re going to make sure that there’s active engagement to forestall any further recessions or other things that might be caused by this kind of major crash. So I guess the first lesson I learned was that there are winners and there are losers in every market event, and it’s better to be on the winning side. I happened to be, at that time, on the bond side, which was the big winner that day. But then I think the other thing that I learned was that you have to be really careful about things like moral hazard, because we became accustomed in that moment to this idea of the Fed put. And I think many years later, we are still wondering about what that really does mean in terms of the reaction function.

BARRY RITHOLTZ  (00:05:17):  So take me back to 1987 for a second. I was in grad school at the time, but I can only imagine the fixed income trading floor. Were people sitting around with their feet on their desks, sipping lattes? Or did anyone say, let’s go down to the equity floor and look at the chaos and carnage?

LORI HEINEL  (00:05:38):  Well, the first thing we were doing — we were sitting there doing the crossword puzzles. There were lots of days like that. I was in muni bond trading, so it was a little bit of trade-by-appointment. Very sleepy at times. Obviously, fixed income markets got a lot more interesting throughout my career, but at that time it was not uncommon: in the early morning, we’d do a few trades, and then we’d have a little break, we’d go get some lunch, we’d do a little crossword puzzle. So that day was different. We had our normal morning, but by the time you got to the early afternoon, it’s like, wow, something’s really happening here. And you started to see major moves in bond markets, including in the muni market. And so suddenly it was very different — more chaotic, even on our floor.

BARRY RITHOLTZ  (00:06:19):  So money was flying out of equities — did it roll right into just safe harbor in bonds?

LORI HEINEL  (00:06:24):  Well, cash was the big place. So we had these variable-rate demand note offerings, which were seven-day resets, and so they acted like a form of cash. We saw massive demand almost immediately in that particular market, because it was a cash substitute — but with the tax advantages.

BARRY RITHOLTZ  (00:06:42):  What was the yield back in ’87? Oh gosh — seven, eight, nine percent?

LORI HEINEL  (00:06:46):  Those would have been in the sevens, probably — because you look at the spread, seven tax- —

BARRY RITHOLTZ  (00:06:49):  Free.

LORI HEINEL  (00:06:50):  On a tax-free basis.

BARRY RITHOLTZ  (00:06:51):  Exactly — that’s 10, 11, 12 percent. Wow. Amazing. So after Credit Suisse, but before State Street, you had a couple of really interesting positions. You were head of investments at Citi Private Bank, you ran global investment products for SEI, you led new business development at Mellon Financial, and you were chief investment strategist at OppenheimerFunds. What’s the through-line — what’s the common thread in all of those?

LORI HEINEL  (00:07:20):  Well, some of those were personal. At the time that I was in New York, I met my then-to-become husband — we’ve since divorced, but at the time we were engaged — and we ended up moving to Pittsburgh. He got a job there, and so I followed him there. So Parker Hunter was really personal reasons — I needed to find something to do, totally different city. I had grown up in Pittsburgh, so in some ways it was a real blessing, because that’s where we ended up having our two children. And so it was great to have that support network at a time where I wanted to continue to work through my early childbearing years, if you will.

And then after that, we consolidated on the East Coast, because we both realized — he was in finance as well; he stayed in investment banking — that we wanted to have more opportunities. And Pittsburgh’s a great city for many, many reasons, but it’s not a place where you have a lot of opportunities in finance. So we ended up settling in Philadelphia. So once again, I was on the prowl for a role, and that led me first to Mellon Financial, where I did business development and started from scratch, built a book over a couple of years, and then got very fortunate — recruited by a headhunter to go to SEI Investments. And I would say that that was where I really got the bug in asset management.

SEI has two primary business lines — or at least at the time they did. They were a back-office outsourcing firm, and then they also had a pretty meaningful investment management arm, which was an outgrowth of their early consulting days. And so I was hired to basically build the asset management franchise for their community and regional banking division. I would travel around the country, meeting with trust officers and financial advisors and other kinds of practitioners at these small regional and community banks, and encouraging them to transition their business from do-it-themselves — buying individual stocks and bonds — onto a platform like SEI. So for me, that was a really eye-opening experience. One, it just really opened up my eyes to all of America — I traveled literally around the country — but also just looking at the different needs that these types of clients had and how we could serve them.

BARRY RITHOLTZ  (00:09:31):  So you’re starting with the client’s objectives and perhaps their future liabilities. You have to determine what’s the most efficient combination of vehicles and risk exposure. What’s that process like? And is that sort of the through-line of all these different positions?

LORI HEINEL  (00:09:50):  The major through-line of all the positions is that focus on the client first. Maybe if I can regress just a half a beat: one of my most formative experiences was when I was an investment banker at First Boston. We were working on a deal for the Arlington Airport Authority, and at the time they were doing what was called a pre-funding, where they were basically issuing new debt to pay for old debt and trying to reduce their debt servicing costs over time — a pretty common activity. And we kept running all these numbers, and we kept showing the director these amazing discounted net-present-value savings that she was getting from the deal. And every time, she would leave the room and say, this is not what I expected, this is not what I wanted, this is not the deal that I need to have happen.

And I’m the most junior person, running the numbers. We’ve got the VPs, the MDs, everybody else around the room — and they’re all men, turns out — and they’re like, she’s crazy, what’s wrong with this woman? We’re delivering amazing net-present-value savings. So I happened to run into her in the ladies’ room and said, you know, it would really help me if I understood better why this isn’t working for you. And it turned out that, statutorily, they could only keep the savings in the first year for the authority, and then every subsequent year’s savings would basically reduce the tax liens against the fees that they were collecting at the airport. So they didn’t actually get savings from anything after the first year. I was like, okay, got it — front-loaded. We’re going to front-load, and off we go.

So that taught me a lot of lessons. One: listen to the client. Don’t just think, because you’re the expert, you know all the answers — they might need something different that you haven’t thought of. And it also taught me that it doesn’t have to be the most experienced person in the room that’s going to have that insight, because it took me five minutes to figure out what we’d spent meeting after meeting trying to gel through. Nobody asked that question, right? Because they just thought they knew better — because every other client wanted max net-present-value savings, period. So that’s one of the big threads that went throughout my entire career: you’ve got to really listen. Sometimes the problem is not what you thought the problem was, and sometimes the answer, even though it’s not optimal, is the best answer.

BARRY RITHOLTZ  (00:12:12):  So how did you find your way to global CIO at State Street?

LORI HEINEL  (00:12:16):  Well, the good news is — once again, sort of another theme in my career once I got to more of a senior level — I mostly got recruited, because I would have exposure and I’d get sort of known in the industry. And so I got a call out of the blue from a headhunter. And at the time, I was very happy. I was living in New York City — I had actually gotten divorced by that point in time — was living in Jersey City and working in lower Manhattan. So I had a fabulous six-minute commute across the ferry, which I relished. But I felt like maybe I didn’t have the next step available to me at OppenheimerFunds, which of course is now part of Invesco.

And so I got a call, and they were looking for someone who would run their investment professionals more from the sales and commercial side — the people that they called portfolio strategists; some people know these people as client portfolio managers — but they also wanted somebody who could be groomed for other opportunities within the investment organization. And one thing led to another — did a little flyer up to Boston, had a couple of conversations. And what I really liked about what State Street had to offer at that point in time was that it was a very broad platform. They covered all asset classes. State Street, as you know, had a prime position in ETFs and indexing — this would have been 2014 — and while certainly those instruments were very widely available and adopted by investors, it was nothing like the ramp-up in terms of growth that we’ve seen over the last decade-plus. And so what I saw was a place where I could have the ultimate toolkit, working with the ultimate global client base, to solve problems for those clients using my expertise.

BARRY RITHOLTZ  (00:14:06):  And just as a point, State Street has the SPDRs — SPY, which is the biggest institutional ETF for the S&P 500, and the gold SPDR, GLD; obviously gold is way off its highs, but that’s another giant ETF. What is it like overseeing what really have become the standard-bearers for both index funds and ETFs?

LORI HEINEL  (00:14:35):  Well, look, there’s a lot of complexity, as you well know, to running ETFs. But one of the benefits is that it’s one large pool of capital, so you can run it as a single proposition, if you will — you have one account. So there’s definitely complexity there, but in some ways that’s more straightforward than the separate-accounts book of business that we manage for institutional clients, where literally every S&P exposure, Russell exposure, Agg exposure is going to be customized to that particular client. So what’s really interesting about our platform is that we have both these large-scale funds, if you will — ETFs — but we also have this massive separate-account management business, which we can deliver to institutional clients in a very price-competitive and very customized way.

BARRY RITHOLTZ  (00:15:28):  Really interesting. Coming up, we continue our conversation with Lori Heinel, Executive Vice President at State Street, discussing a day in the life of a global CIO helping to oversee $5.7 trillion in client assets. I’m Barry Ritholtz. You’re listening to Masters in Business on Bloomberg Radio.

BARRY RITHOLTZ  (00:15:51):  I’m Barry Ritholtz. You are listening to Masters in Business on Bloomberg Radio. My extra-special guest today is Lori Heinel. She is Executive Vice President and Global Chief Investment Officer at State Street, where she helps to oversee $5.7 trillion in assets. So let’s talk a little bit about State Street. I recall way back when they launched SPY — I want to say that was mid- —

LORI HEINEL  (00:16:15):  Over 30 years ago.

BARRY RITHOLTZ  (00:16:16):  Mid-nineties, something like that — the first U.S. ETF. And they’ve been a pioneer of indexing and ETFs ever since. How do you look at the role of indexing in portfolios? How has this changed, not only over your tenure at State Street, but over your entire career?

LORI HEINEL  (00:16:36):  Well, I think the first thing I would say is that once upon a time, it wasn’t really possible for people to get index replication. That was the great innovation of something like SPY, where suddenly every individual investor could buy one security and effectively get the market. And for much of my career, particularly in the early part of my career, it was all about beating the market — let’s get the best active managers who could beat that index. And what you find, for decades now, is that in many markets, especially large-cap U.S., it’s really challenging to do that net of fees. And so I’ve thought for many decades now that this combination of index exposure — where it was really hard to find managers who could consistently outperform — coupled with maybe some satellite managers or specialist managers, or managers in other parts of the market — think emerging markets, small cap — adding your risk budget and your active management budget there, just made a lot of sense. So when I think about portfolio construction, it really is: I want to accomplish some sort of risk-based outcome for that client, but I also want to do it in a way that covers fees and provides opportunities for alpha, or outperformance, but does so in a measured way.

BARRY RITHOLTZ  (00:17:53):  So State Street saw record inflows in 2025 — I think this is the ETF and index business — $180 billion in net inflows, management fees up 13 percent. Where do you see the growth coming from in this space? I keep hearing indexing is over, ETFs have had their day — and yet, year after year, it seems to be the big winner.

LORI HEINEL  (00:18:20):  Well, I think there’s still lots of room for indexing to run, because if you think about places like fixed income, we’ve only started to scratch the surface relative to what you see on the equity side of things. So increasingly, we’re even seeing quote-unquote exotic fixed income — things like emerging market debt, things like high yield, which we’ve had index products for for quite a long time — become much more adopted by clients globally, because they see that as a great way to get access, again, to a market in a way that they can really understand the risk and manage it within the portfolio context. So I think there’s still plenty of room for indexing to run.

I think the other thing is we’ve seen a major shift in terms of the client segmentation, if you will. Once upon a time, the big investors were the large institutional investors — the defined benefit plans, sovereign wealth funds. Those investors are still important, but increasingly, the net incremental dollar is coming from the retail client, whether it’s through defined contribution or rollovers or other kinds of assets that they might have. And that’s happening globally. And those investors are really early in the ETF journey, if you will, and have lots of opportunity there. And then, most recently, you’ll have seen that we were selected for the Trump accounts as the default investment. So that’s another vector of investor that we think comes online onto the indexing platforms.

BARRY RITHOLTZ  (00:19:41):  Hmm — really, really interesting. I want you to push back on my understanding of indexing in equity and indexing in fixed income. Here’s what I have been led to believe over many, many years of academic study and research, and lots and lots of great academic analysis: It’s really, really hard to beat the market through active management of equities. It’s relatively easy to beat the market — through reducing risk, changing duration, improving credit quality — through active management of fixed income. How accurate or inaccurate are those statements?

LORI HEINEL  (00:20:28):  So this is a classic “it depends on how you think about the problem,” right? First, it is absolutely empirically true that in many spaces in equities, the average manager just does not outperform. We have all those studies, from all the various research, that substantiate that. In fixed income, to your point, there is more evidence that active managers can add value. But what’s been interesting over the last decade or so is this rise of better understanding of factor-based investing —

BARRY RITHOLTZ  (00:20:59):  On fixed income factors.

LORI HEINEL  (00:21:00):  On fixed income factors. I mean, factor investing’s been around for a long time — decades — but within fixed income in particular, I think we’ve gotten more and more sophisticated models that help us to disaggregate where those returns are coming from. And what we found is that a lot of those active alphas, if you will, out of fixed income managers are really one of two things: they go down in credit quality, or they extend duration. And when you actually neutralize for those two things, suddenly the active fixed income managers don’t look quite as heroic as they did before you adjusted for those things. So one of the big trends that we’re really leaning into in fixed income is applying that factor-based lens to fixed income, to be able to more stylize the portfolio, but do so at a very competitive fee level and deliver alpha — but alpha through indexing plus some factor exposures, versus just classic, fundamental, bottom-up security selection.

BARRY RITHOLTZ  (00:22:00):  Really, really interesting. So what’s kind of fascinating about your role is that much of the capital you oversee is deliberately designed to not take an active view. What does it mean to be a CIO at a firm like that? Where do your views show up?

LORI HEINEL  (00:22:19):  Well, the first thing I need to make sure everybody understands is that we do have active capabilities as well. They’re certainly not the massive amount of the assets that we oversee, but if you look at our fixed income, equity, and multi-asset-class strategies that are active in some way, that’s a couple hundred billion dollars. So it’s not tiny — it would still make us a pretty significant player in this market, even if that’s all we did. So we do believe that there are opportunities for active managers to outperform. It’s just one of those things where you need to understand how much to allocate to those active managers, and make sure you’re picking the very best, because obviously there are some that can outperform.

But I think, from a view perspective, it’s actually very valuable having all the different perspectives at the table. We have a chief economist and a chief geopolitical analyst — they really help us with: what are the expected growth rates around different economies in the world, what are our inflation expectations going to look like, what’s the backdrop against which we’re trying to invest — so that we have some sense of whether rates are likely to move up or down, whether growth is likely to be supportive for earnings — some of those macro, factor-setting types of things. And then within our active teams — we have a multi-asset-class team in particular — they’re deploying capital into equities, fixed income sub-sectors, commodities, gold, cash. And so they have a view on which of those areas are going to do best. And obviously, we have lots of discussion amongst ourselves about whether I personally agree with those views or don’t agree with those views, but ultimately it really is a committee that gets together and makes those macro calls. And then, within our individual active capabilities — we’ve got fundamental and quantitative equity and fixed income — those portfolio managers are basically charged with doing the hard work to figure out how they’re going to generate alpha. And we’ve been quite successful: about 65 percent of our strategies are outperforming on a trailing one- and three-year basis.

BARRY RITHOLTZ  (00:24:23):  Hmm — really interesting. You mentioned a variety of different colleagues — portfolio managers and economists and strategists — but really, it’s just the tip of the iceberg. You lead a team of over 600 investment professionals, and they’re located around the world. How do you keep an investment organization that large and that dispersed all on the same page — all coherent, all moving together?

LORI HEINEL  (00:24:51):  Well, I have a lot of help. I think any manager will appreciate that the most important job you do once you’re in a leadership position like mine is you hire well, right? And you let your good people do their work, and you pressure-test their theses, and you make sure, as you said, that everybody’s singing from the same hymn book where they need to be — or that they’re doing their own thing when that’s appropriate. And you provide guidance and oversight, opportunities to collaborate, all those good things. Our business, in one sense, is a simple business: we’re here to serve our clients, and we have all the tools at our disposal to serve our clients. We gather together routinely to develop thematics and market outlooks and other kinds of collateral that both myself and the other senior executives can take to our clients, as ways to engage with them and demonstrate our facility with markets and our capabilities and insights. And then, basically, I let the team do what it does best, which is deliver the results.

BARRY RITHOLTZ  (00:25:50):  So walk us through a day in the life of a global CIO with $5.7 trillion. I would imagine that day-to-day events are just so overwhelming — no two days really look exactly alike.

LORI HEINEL  (00:26:05):  No, it’s a bit of a crazy day — it’s one of the things I love about the job. But I would say the first thing is I spend a lot of time with clients. In the first quarter of 2026, I was on 45 planes, traveling around the globe — the Middle East, luckily before the war started, Asia, Europe, multiple times across the U.S. as well. So I spend a lot of time talking to clients of all types. We have, as I mentioned earlier, a large institutional base of business — some of the largest central banks and sovereign wealth funds across the globe — but we also have a lot of private clients. We have private banks that we work with, large broker-dealers that we work with. Sometimes I’ll even meet directly with end clients, depending upon the forum. So that’s probably a good chunk of my time.

I spend a lot of time on things like strategy. We have an executive management team, which gets together and talks about, from a business standpoint, where do we want to emphasize, and what does that require all of us to do? For investments, one of our big efforts over the last couple of years has been innovation. Since Yie-Hsin Hung joined us as CEO in 2022, we’ve been very aggressive in terms of launching new products in new spaces, including partnerships with firms like Bridgewater and Apollo. So a lot of the strategy for what we want to do to be relevant to our clients globally — ultimately, it comes from the investment team’s ability to execute against those mandates. And so we spend a lot of time talking about what kind of resources we need; what kind of research we can do that addresses the client problem we’re trying to solve; how we partner effectively with these third parties, where they might contribute some content — we ultimately own the portfolio construction, and we might have our own research that we want to bring into the mix, so one plus one equals three — but ultimately, we’re accountable for that to our clients.

And then talent. I mentioned earlier that you need to have really good people. We just came off of our annual talent reviews, where I get all my CIOs in a room, we work with our HR business partner, and we go through our top talent, succession planning — what kind of vectors do we see coming on the horizon? AI right now is a huge theme — how are we readying our teams to be good stewards and users of AI, and to adopt it in ways where we can make better efficiencies and better judgments?

And then the last part of it is there’s a lot of reading, listening, consuming information. Again, I am expected to be the face of State Street Investment Management from a client standpoint, and so I need to know what’s going on in the world. And as you know, the world’s been a really crazy place this year.

BARRY RITHOLTZ  (00:28:59):  It certainly has. You mentioned Apollo and Bridgewater. The criticism about privates in things like 401(k)s or target-date products is: they’re expensive — all right, so you don’t have the illiquidity issue, but they’re complex. What’s the case for putting private assets into a 401(k)?

LORI HEINEL  (00:29:22):  I think there are a couple of things. First and foremost, if you look at the equity side of the ledger, more and more capital creation is happening in private markets, meaning —

BARRY RITHOLTZ  (00:29:33):  Pre-IPO, before —

LORI HEINEL  (00:29:34):  — companies come public. Back in the early part of my career — and I’m sure yours as well — if a company came public at a hundred million, that was a big number, let alone a billion. Well, fast forward, and now we’re talking literally in the hundreds of billions, or even a trillion dollars. So if you think about just the magnitude of opportunity that’s lost if you can’t participate in those markets, it’s just incredible. So that’s number one.

If you look on the fixed income side — we’ve launched PRIV, which is a collaboration with Apollo. And there again, this is investment-grade credit that just happens to be issued in private markets instead of public markets, for all manner of reasons: it could be that the company wanted to move quickly, or they didn’t want to go through the filing process, or there might be some specific assets that they want to collateralize the loan with. And so those are really high-quality, investment-grade assets, but they collect a premium for an investor because they’re done through the private markets instead of the public markets. So to us, those are just natural extensions of what clients should have access to.

BARRY RITHOLTZ  (00:30:45):  Makes a lot of sense. And we mentioned earlier GLD — what an incredible run gold had in the 2010s, pretty much right up through last year. It’s since off — I don’t know, about 20, 23 percent, something like that. When you are thinking about equity and fixed income and alternatives, and you see a metal which has been widely traded for thousands of years — can I say 10,000 years? — that some people have called barbaric, how do you contextualize how GLD trades, and what is driving the psychology of those investors, versus all these other asset classes?

LORI HEINEL  (00:31:30):  So again, I want to take us back a little while, because we were advocating for a position in gold in client portfolios for six, seven years — so long before we had this run-up to 5,000-plus. And at the time, obviously, interest rates were very low, so you didn’t have an opportunity cost; today, that’s different. But what we were seeing was that fixed income wasn’t likely to play the role it historically played diversifying portfolios. You had no income; you likely didn’t have a lot of diversification benefit from fixed income, because how much lower could rates go if the market crashed? And we weren’t even sure it was going to provide capital preservation — and we were right; if you fast forward a couple of years, that turned out to be a bit of a challenge as well. And so we were looking for other exposures to put into the portfolio that would provide some of that cocktail of diversification benefit that fixed income just wasn’t likely to provide. And so we settled on gold, for lots of reasons.

And, oh, by the way, we were also writing a lot at that point in time about concerns with fiscal profligacy and the fact that the U.S. debt burden was getting large — and this is several years ago now; it’s obviously much bigger now. And gold, to us, was kind of an interesting asset that would benefit from any kind of debasement concerns or any of these other sorts of issues. So we advocated for clients to add it many years ago — of course, very few of those clients did. Until it went up to 3,000 — then suddenly you started to see more interest; and then 4,000 — you start to see a bit more interest. But I would say gold still plays an important role in a portfolio. It doesn’t have to be a huge exposure. It protects against a number of different tail risks in a portfolio. Yes, it’s expensive from a carry-cost standpoint right now, given the give-up in fixed income, but we still have, in our strategic allocation portfolios, a couple percent allocated to gold, because we do think that it provides very distinctive benefits in certain kinds of crises.

BARRY RITHOLTZ  (00:33:41):  So today we have Bitcoin cut in half from the high, and a lot of the narrative around crypto sounds like sort of a digital refresh of the historic narratives around gold. How do you think about crypto? Some of your competitors have aggressively pushed into it; others have very much steered clear. It might be a little early to declare which side is winning — although anything that gets cut in half kind of comes with a little bit of a black mark on it. How do you think about crypto these days?

LORI HEINEL  (00:34:17):  So I want to just first share a story. Back in 2012 — so this is many years ago now — my daughter and her boyfriend started mining Bitcoin. And of course, being in this industry, I thought they were crazy.

BARRY RITHOLTZ  (00:34:34):  Was it a hundred bucks back then?

LORI HEINEL  (00:34:35):  It was under a thousand — I think it might have been five or six hundred. So it wasn’t quite as low, but it was still very, very low. And I thought, you can’t just manufacture money — money doesn’t grow on trees; you can’t just manufacture it on a computer. But it turns out you can. So I was very skeptical, but I kicked myself for not having at least bought a couple, because at the time, I could have put $10,000 into it and I’d be, you know —

BARRY RITHOLTZ  (00:34:58):  Right.

LORI HEINEL  (00:34:59):  — $10 million. We might not even be having this conversation today. Who knows?

BARRY RITHOLTZ  (00:35:03):  You would just be on your yacht off of St. Barts.

LORI HEINEL  (00:35:05):  Well, there you go — which wouldn’t be half bad, right? So, in any event, I’ve never really understood the case. Now, what I will acknowledge is that over the years, I did learn of a couple of use cases that made sense to me. I can remember seeing a woman from Pakistan present, and she was talking about why Bitcoin is so popular in Pakistan. It was because at least they had a stable currency — because it was pegged to the dollar, effectively — and so people preferred being paid in Bitcoin instead of getting paid in Pakistani rupees. So I thought, okay, well, that’s interesting — but that’s a tiny little use case. But I never really understood it, because you don’t have anybody who’s got the taxing authority or the backing of it. Whereas even with gold, you’ve sort of got the central bankers, as the collective, in some sense backing gold — they’re still massive buyers of gold, and in fact, that’s surpassed Treasury holdings. So I never really got it.

But you fast forward, and suddenly you’ve got an asset that’s up to 30,000, 40,000 — over a hundred thousand at one point in time — and you’re like, am I wrong? What am I missing? So I don’t know — the jury’s out. We do believe in the digital ecosystem very much — we’re trying to work on tokenization, and we’re working on all kinds of other digital-finance types of endeavors. So there’s something about the digital that is very compelling. And in a weird way, it may be that once that digital infrastructure gets more evolved, it’ll make Bitcoin even less important — because now, suddenly, you’ll get all the benefits of Bitcoin in terms of the tradability and all those kinds of things, without having to have the exposure to an asset that I don’t know how to price.

BARRY RITHOLTZ  (00:36:52):  Wildly volatile, to say the very least. Really, really interesting. Coming up, we continue our conversation with Lori Heinel, Global CIO at State Street, talking about the current market environment. I’m Barry Ritholtz. You’re listening to Masters in Business on Bloomberg Radio.

BARRY RITHOLTZ  (00:37:11):  I’m Barry Ritholtz. You are listening to Masters in Business on Bloomberg Radio. My extra-special guest this week is Lori Heinel. She’s Executive Vice President and Global Chief Investment Officer at State Street Investment Management, the asset management arm of State Street, with $5.7 trillion — with a T, trillion — in assets. And that’s as of year-end 2025 — and we’re up 10, 12 percent since then in the market, so do the math; I’m going to say over $6 trillion. Let’s talk a little bit about the current market environment. Your global market outlook was titled “Forward with Focus.” That sounds like you were constructive on risk assets — but, and I always put a question mark where I see a “but,” you must stay agile. Explain what that means.

LORI HEINEL  (00:38:02):  Well, so to your point, we did see 2026 as being still a pretty good year for investors. We thought that earnings were going to continue to do well. We thought that inflation, while not quite back to the 2 percent target that the Fed had set, was marching in that direction and would possibly give some more room for rate cuts in 2026. And so when we talked about being agile, it was: focus on equities over fixed income, but do so in a bit more broad-based way. Don’t just put all your eggs into the large-cap U.S. trade — look at small caps, maybe even look at things like emerging markets, places where you might get a bit of broadening out of the market as we saw maturation in 2026.

Of course, the war with Iran turned that a bit on its head, and so for a short moment, we were revisiting whether that was going to be true. Obviously, inflation became a bigger sticking point once again — or a bigger concern once again — and there were concerns about whether you were going to get that broadening out, or whether investors would just sort of go back to the trades that they knew and loved and had more security in. But I think as we get into the middle of the year, we’re seeing that our views were largely rewarded — that moving to small cap and other parts of the market certainly has done quite well on a year-to-date basis. And we obviously are still worried about fixed income and rates, and what that might mean as inflation remains a bit more tricky. But the prints that we’re having every month are all over the place — just as we’re speaking, we’re having a good CPI print. So while we think that the Fed is likely on hold for the balance of the year, we don’t see rate hikes in the offing.

BARRY RITHOLTZ  (00:39:46):  Huh — kind of interesting. We’ll talk a little bit about CPI and PPI in a bit. You mentioned something that I want to explore, because it’s so interesting. So the Magnificent Seven: in 2025, only two of the seven outperformed the S&P 500 — I think it was Nvidia and Google. And this year, whether you’re looking at small cap or mid cap, growth or value, Europe, developed ex-U.S., or EM — everything seems to be outperforming large-cap U.S. growth. Is this just the reason to have a diversified portfolio, or is it indicating a cyclical shift — or is this suggesting something else?

LORI HEINEL  (00:40:31):  Well, our view is generally to have a diversified portfolio. At the margin, we might favor large cap, or favor Europe, or favor emerging markets at different points in time, based on relative-value trading. But we do think that it’s incredibly difficult to time those inflection points perfectly. And as you noted, coming into this year, you still had a lot of momentum and flows into the things that had done well in the past, including some of those large-cap names that you mentioned. So I’m kind of a traditionalist in that way — I do believe you want to be diversified and have exposures to multiple places.

But I do think that this AI enthusiasm — I believe in it in terms of a technology, but when you look at the massive amount of spending that is now being undertaken by some of these companies — they’ve gone from leveraging balance-sheet cash to make those investments, to now accessing fixed income markets in a massive way, and even, in some cases, issuing equities — you do have to sort of wonder whether that vein alone is going to be where the money’s going to be made going forward. I’m not saying that they can’t still generate good earnings, but there are plenty of other places: if you think about energy, if you think about utilities — you think about all the ecosystem required to enable that AI transformation. And then, perhaps most importantly, the real economy, and how sectors like finance or healthcare or other things are going to benefit from these technologies. I think we’re just at the tip of the iceberg in terms of what that will mean for innovation and productivity.

BARRY RITHOLTZ  (00:42:11):  So when you’re looking at this enormous capital spend that you referenced — and we didn’t even bring up all the private credit that’s been pouring hundreds of billions of dollars into that — how do you judge when the spending is productive and producing sufficient returns? Given the fire hose of capital, there has to be some misallocation, and there are going to be some winners and losers. But when does the next incremental dollar become bad money after good? How can we tell?

LORI HEINEL  (00:42:41):  We’re watching for: when does that CapEx not translate into incremental —

BARRY RITHOLTZ  (00:42:49):  Earnings. So let’s stay with the idea of artificial intelligence. You work at a very large asset manager. I would imagine the biggest shops have a little bit of a lasting advantage in deploying AI — not only looking at their own language models that they’ve created internally, but just the ability to deploy that technology in a way that makes their capital more efficient, more productive. How are you looking at AI from the perspective of the finance sector?

LORI HEINEL  (00:43:27):  This is a whole podcast in its own right, but let me just share a couple of thoughts. First and foremost, we’ve been on the AI journey for over a decade. We’ve been using machine learning and natural language processing and other types of technology in our active strategies for over a decade. And I think it’s important to also know, as a G-SIFI, we’re a highly regulated institution, so we’ve also spent many, many years on the infrastructure, governance, and other things needed to deploy these types of tools — being mindful of cybersecurity threats, privacy, and all the other things that you would expect a large bank to be worried about.

So where we are now: I would say the biggest places that we’re seeing AI support our business are in things that are more operational in nature — repeatable processes where we can deploy some technology and free up people to do other, more interesting things. If you think about some of the marketing elements — things like RFPs, or commentary writing, or other kinds of client-servicing elements — they lend themselves beautifully to leveraging this technology, because you have a database of information, the question might get asked in a slightly different way, and the AI can actually feed back the most relevant answers. And then you have a human in the loop — always, in our environment today — that ultimately owns the final product. So those are, I think, the early wins for us: that kind of efficiency gain, leveraging people to do more higher-order things.

Down the road, will this get more integrated into our investment process and philosophy? We’re experimenting with a lot of things. We’ve got the concept of a research copilot, which lets a portfolio manager survey dozens, hundreds of research reports, and do so very efficiently, using an AI type of tool. They still have to pressure-test whether the results they’re getting back make sense, and they still ultimately make the decision about what they’re going to do with that information from a portfolio standpoint. But we see lots of opportunities for that kind of augmentation of the human as well.

BARRY RITHOLTZ  (00:45:40):  Let’s talk a little bit about inflation. We’ve had a series of things that have contributed to it — tariffs, war in the Middle East, et cetera. We got the best CPI print we’ve had in five years, but that’s primarily been because we briefly thought the war was over and oil prices plummeted. Now the war is back on, and I track things like the producer price index, which is 6.5 percent — we know that’s just going to push into final prices over the next few quarters. So how do you think about inflation, and fixed income specifically? And has macroeconomic forecasting in this environment just become — I don’t want to say impossible, but so challenging?

LORI HEINEL  (00:46:30):  Well, macroeconomic forecasting is always difficult, and I would say what we’ve also seen over the last several years is data revisions coming in at a massive level, too. So what you see in a print one day — whether it’s the payroll data or the GDP or whatever — a quarter later might be changed pretty dramatically. So you have to be a bit humble in this kind of environment when you’re making any kind of bold calls. But I would say our core view is that inflation will still trend lower over time. We think it might not get back to the 2 percent level, but we aren’t necessarily thinking that 6 percent is something that’s sustainable. The good and the bad news here is that when you have an inflation shock coming from things like commodity prices, they rebase — so you get that one-time shock, and then you’re done, unless there’s another shock on top of that. So at some point, that sort of recalibrates in its own right.

I think the thing that we’ve been most surprised by this year is the underlying resilience of the U.S. economy. In particular, we were thinking that labor markets were going to be under a lot more pressure than they ultimately have been — at least so far. We thought that the inflation coming from the war would filter into other places, like fertilizer and food and other things — which may still happen, right? We haven’t gotten through the farming cycle here in the U.S. But we’re not seeing the consumer — while they’re stretched — we’re not seeing the consumer necessarily pull back the way that we thought that they might. So the second half will be a very interesting second half.

BARRY RITHOLTZ  (00:48:03):  To say the least. Let’s stay with the consumer. There are a couple of things that I’ve noticed that are kind of interesting. If we look at the second-quarter sector breakdown: consumer discretionary — worst performer of the group, essentially flat. If you look at consumer spending, there’s a greater reliance on credit and credit cards than just salary increases. And then consumer sentiment — and I think we can all agree the University of Michigan sentiment measure has become broken over the past few years, but still — whether you call it the vibes, the sentiment, whatever, it seems to be shockingly negative. I don’t disagree with you about the resilience of the economy, but how do we figure out what’s going on with the consumer, and their importance to the ongoing resilient economy?

LORI HEINEL  (00:48:58):  Well, I think the first thing is that I agree with everything you’re saying, but there are also offsets. So people are getting tax refunds; you’ve got other benefits coming through from the One Big Beautiful Bill. So you do have some other things that are still propping up the consumer at the margin, and employment still is pretty strong here in the U.S. —

BARRY RITHOLTZ  (00:49:18):  4.2 percent.

LORI HEINEL  (00:49:19):  Unemployment is pretty good. So you still have pretty good underpinnings, if you will. But it’s clear that the average consumer is feeling like they’re losing ground. There have been lots of articles about even couples that are making over a hundred thousand dollars feeling like they have food insecurity. Well, that’s a problem, for sure, and it probably means they’re going to pull back somewhere else. But my point is that, in the aggregate — whether it’s from CapEx and other corporate spending, or the sort of K-shaped consumer economy, where the upper echelon, if you will, is benefiting from housing prices and asset prices, which have come up a lot and are still going up — there’s still a lot of resiliency there.

BARRY RITHOLTZ  (00:49:58):  So I’m glad you brought both of those up. The pushback I get from bearish colleagues is: A, yeah, the economy looks good, but it’s almost all driven by the upper quartile — and I think that’s being generous on the quartile side. And the other criticism is: hey, all of this AI-related CapEx is masking underlying weakness — although I don’t see that weakness in much of the data. What’s your response to those sorts of criticisms?

LORI HEINEL  (00:50:29):  Look, I think the good and the bad news is that you don’t need a hundred percent of the consumers to participate to have the consumer economy doing just fine. So that’s a sad thing in a lot of ways, but it’s just the reality. And, by the way, companies are generating productivity from things like the deployment of AI already, and we think that that’s very constructive.

BARRY RITHOLTZ  (00:50:52):  And then, speaking of productivity — everybody talks about the Magnificent Seven, but what about the other 493 companies in SPY that are becoming more efficient, more productive, more profitable? How do we contextualize that?

LORI HEINEL  (00:51:09):  Well, we think we’re in the very, very early innings. So I mentioned earlier, we’ve got active teams, right? And this is their domain. These are people who are in the tech sector, in the healthcare sector, in the finance sector, doing the hard work to understand who the winners and losers are going to be. And the mantra, over and over again, is that the companies that adopt technology — for efficiency gain, for innovation, to create competitive moats — are going to have a really good runway from that deployment. So we are quite optimistic in terms of what that means for long-term prospects.

BARRY RITHOLTZ  (00:51:38):  So before I get to my favorite questions, there were a couple of items I had to ask you about that are a little more off the beaten path. You were chosen to lead State Street’s Fearless Girl campaign. Explain what that is, and why you were chosen to take that role.

LORI HEINEL  (00:52:02):  So this is true serendipity, right? As with anything, these things take a village. We had this placement of what is now the iconic statue of the Fearless Girl — initially down on Bowling Green, facing off against the bull. And I had been one of several people who had been involved in that effort, and I got a call the night before the statue was going to be placed, and somebody said, can you go to New York, like, now, and be there when we place the statue — just in case there’s attention, just in case some of the networks pick it up.

BARRY RITHOLTZ  (00:52:38):  Sure. And just to flesh that out a little bit: everybody knows the Wall Street Charging Bull is actually not on Wall Street — it’s on lower Broadway. It’s a massive, 25-ton statue. The Fearless Girl is proportional, real life — a 10-year-old little girl, sort of just standing up to the bull.

LORI HEINEL  (00:53:02):  In her little power pose —

BARRY RITHOLTZ  (00:53:02):  Right — hands on her hips, almost like a Degas sculpture.

LORI HEINEL  (00:53:06):  Exactly.

BARRY RITHOLTZ  (00:53:07):  Standing, staring down the bull. So tell us what happened when you flew down to New York.

LORI HEINEL  (00:53:12):  So I fly down, I show up the next morning bright and early, and there’s a little bit of milling around. It happened to be a rainy day, so there weren’t too many people out and about, but suddenly it started to get a little bit of interest. And so we had a couple of reporters come by and say, what’s happening? We explained to them that this was a moment where we were trying to advocate for everybody’s future, and we used it as an opportunity — given it was International Women’s Day, specifically; that was the timing of the placement. And so one thing led to another, and before you know it, I’m booked on three or four or five news programs over the next 48 hours, telling the story about how the Fearless Girl came about, and why we did it, and how important it was to stand up for those who perhaps couldn’t stand up for themselves.

BARRY RITHOLTZ  (00:53:59):  Very successful campaign. And where is the Fearless Girl today?

LORI HEINEL  (00:54:03):  Well, she is now opposite the New York Stock Exchange. One of the things that happened is that she started to attract so much attention that they were worried about the safety risk — because, as you know, where the bull is, it’s a very narrow street there, and people were milling onto the street. So we got a permanent — or semi-permanent, at least for now — placement in front of the New York Stock Exchange, and that’s where she’s been since.

BARRY RITHOLTZ  (00:54:25):  That makes a lot of sense — that’s a good location for that. So I know you serve on a couple of boards. The one that really jumped out at me: the Boston Ballet. Tell us a little bit about what that’s like.

LORI HEINEL  (00:54:37):  So I’ve always been a great fan of the arts. I was a gymnast as a child — I wasn’t a ballerina, but I think there’s a lot of rhyming there — and I’ve always been a fan of ballet as an art form. And the Boston Ballet is very interesting, because they are trying to consolidate both the legacy classical repertoire with a lot of more modern, contemporary, avant-garde kinds of repertoire. And so they did a collaboration with the Rolling Stones, for example, where we did a ballet set to some of the Rolling Stones’ music. And so it’s just been a great way to meet people in the cultural community in Boston, but also to be part of art-making that I find just fascinating.

BARRY RITHOLTZ  (00:55:18):  Huh — really, really interesting. So I only have you for a few more minutes; let me jump to my favorite questions. Starting with: who were your early mentors? Tell us about who helped shape your career.

LORI HEINEL  (00:55:29):  So I would say I didn’t really think about mentors when I was younger. I would say my bosses were my mentors, in the sense that they stretched me, they gave me opportunities. I talked earlier about that situation at First Boston, where we were in front of the airport authority — I would not have had the opportunity to be in a room like that at a lot of companies, but I think my boss felt that I’d done the work and I deserved a place at the table. So throughout particularly my early career, I would say it was my bosses who stretched me, gave me opportunities.

And then, about mid-career, I — with another colleague — created this group called Connected Women. It was a very informal type of a thing, where a number of women of sort of similar vintages got together regularly —

BARRY RITHOLTZ  (00:56:15):  “Vintages” — if I’ve ever heard that.

LORI HEINEL  (00:56:16):  We drank a lot of wine, so I can use the word “vintages.” So it was really a wine-drinking club, but there was a benefit: we got to know each other well — our professional and our personal stories — and so we could help each other out. So when we were looking at career situations, it was a good circle of friends that I could turn to — who were in similar stages in their careers, trying to make it on the corporate ladder — that I could lean on.

BARRY RITHOLTZ  (00:56:42):  Really, really interesting. Let’s talk about books. What are some of your favorites? What are you reading currently?

LORI HEINEL  (00:56:47):  So I tend to like biographies — I’ve read a bunch of the Chernow, you know, Titan and The House of Morgan, and the Walter Isaacson Steve Jobs. I like biographies because they meld history with leadership, with whatever the topic is. So obviously with Titan and The House of Morgan, it’s a finance-centric kind of a story, and with Jobs, it was technology-centric. But seeing how those leaders navigated innovation, their time, the people around them — I just find that fascinating. Much better than reality TV, in my opinion.

BARRY RITHOLTZ  (00:57:29):  To say the least.

LORI HEINEL  (00:57:30):  It is reality TV.

BARRY RITHOLTZ  (00:57:31):  Speaking about TV — are you streaming any Netflix or Amazon Prime–type shows?

LORI HEINEL  (00:57:37):  Right now, I am on a bit of a hiatus. I’ve been trying to read some fiction, so I’m doing some Toni Morrison right now — I went to Princeton, as you probably remember. And so I’ve been trying to do a bit more reading in my spare time.

BARRY RITHOLTZ  (00:57:54):  Our final two questions. What sort of advice would you give to a recent college grad interested in a career in either investing or asset management?

LORI HEINEL  (00:58:03):  Well, the first thing I would say is it’s a fantastic career. You can do so many different things. You get access to technical acumen; you have the interpersonal piece of things; you have to solve problems — I love the problem-solving aspect of it. And I think it’s something where, no matter what your preferences are, you can find your vein, right? I happened to make my way to Global Chief Investment Officer, but there are people in marketing, or people in distribution, or people in processing, and all of those are just absolutely fascinating careers. It’s never a dull moment.

BARRY RITHOLTZ  (00:58:34):  And our final question: what do you know about the world of investing and asset management today that might have been useful back in the nineties, when you were first getting started?

LORI HEINEL  (00:58:44):  Well, I wish I’d have started investing earlier and more often. I was a net debtor for many, many, many years, because I wanted to have nice clothes and jewelry.

BARRY RITHOLTZ  (00:58:54):  I can’t tell you how often I hear that — which is really just a backdoor admission of the power of compounding.

LORI HEINEL  (00:59:01):  And maybe that Bitcoin — that was my other thing I probably should have done, in 2012.

BARRY RITHOLTZ  (00:59:05):  Well, if you had a crystal ball. But what’s the big insight that would have been useful to know, generally, about markets?

LORI HEINEL  (00:59:12):  You know, I’m not joking about the early and often. And truth be told, I’m a hundred percent equity invested, even now.

BARRY RITHOLTZ  (00:59:21):  I’m a big fan of that as well.

LORI HEINEL  (00:59:22):  So back in my day, it was the “100 minus your age,” which would put me squarely not in the hundred-percent-equity category if I followed that rubric. But I think a lot of people would just be served by being in equities — over the long term, unless you only have a couple of years, and who knows — that’s where the money is.

BARRY RITHOLTZ  (00:59:40):  This is a little hindsight bias, but I am always shocked — it’s literally a chapter in the book — by people who are 20, 30, 40 years old that have a substantial fixed income allocation. I understand it’s ballast that offsets the volatility of equity, but really, until you’re over 50 — maybe even over 60 — and getting closer and closer to retirement, do you really need to have 40 percent of your portfolio in bonds? It doesn’t make a whole lot of sense.

LORI HEINEL  (01:00:08):  Well, look — I mean, for a lot of institutional clients, it makes perfect sense. They’re liability-matching, right? And they need that fixed income. And I think if you need liquidity, or you’re going to have your children’s college education or weddings or things like that in a couple of years, absolutely, fixed income plays a role. But if you have the ability to not touch that investment capital, I think equities is the way to go.

BARRY RITHOLTZ  (01:00:29):  Thank you, Lori, for being so generous with your time.

If you enjoyed this conversation, well, check out any of the 649 podcasts we’ve done over the past 14 years. You can find those at Apple Podcasts, Spotify, Bloomberg, YouTube — wherever you get 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.

~  END  ~

~~~

The post Transcript: Lori Heinel, Global Chief Investment Officer at State Street Investment Management appeared first on The Big Picture.

I’m categorically against self-checkout.

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It’s my own personal protest. And as a matter of fact, many retail stores are eliminating self-checkout because of the shrinkage problem.

Which means I have to wait in line and…

I need to plan to go to Costco. It’s an adventure, not a ramble around the block. I’ve got to find a parking space, navigate the people and their carts and hope what I want is in stock and wait to check out, but…

I needed more Vitarain Zero. There’s nothing worse than running out of a staple. Like Chobani coffee yogurt.

I’ve got a formula, encompassing Chobani and a skyr not to be named, it’s hard enough to find as it is. As a matter of fact, I bought in excess of twenty when I went to Gelson’s last Saturday. But they had no Chobani, never mind blueberries. Is there another blueberry shortage? There was one a couple of years back.

So instead of driving home I went to Ralphs.

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But I won’t buy VitaminWater Zero there, it’s too much of a rip-off. Funny how I’ll spend so much money on a restaurant meal and then haggle over a few dollars, but I hate being ripped-off, it’s an insult. I’ll pay full price for what I want, but don’t f*ck me in the ass.

So I calculated my Vitarain Zero stock and my coming obligations and realized today was the day, I had to go to Costco.

Now I thought of getting gas there. Aren’t the prices dropping? But the cars were stacked six or seven deep, it wasn’t worth the wait.

But I went into the store and…

I told myself only to buy that which I needed, to not dilly-dally, but I had to look at the TVs.

They’re selling an 83″ Samsung OLED for $3999. EIGHTY THREE INCHES! And you wonder why people don’t want to go to the movie theatre.

And I found my Vitarain Zero and couldn’t resist the chopped fruit, it’s summer after all, and then, lo and behold, they had Grillo’s pickles! So I bought a bucket of them.

And then it was off to the poke. They make this sriracha ahi… And it’s very hot. In reality, I should not be eating it, I pay the price afterward, but it’s so damn good! It’s rare that you can find store bought stuff with enough heat.

And they had a salmon mango ceviche too…

And a spicy tuna ahi salad…

But how much fresh fish could I buy?

I contemplated this question and then decided on just the sriracha ahi and the salmon mango ceviche and then…

After sampling a few things that did not float my boat, I had to strategize my exit.

Like I said, I refuse to use self-checkout. If for no other reason than the other people tend to get flummoxed and not be so fast.

So…

I’ve analyzed the checkout at this store. And my plan is to go to the lane closest to the entrance. You see most people tour the store in a U, and end up on the opposite side. But I’ve had good luck going back crosstown in the store and using the far left lane.

And I’m racing a guy with liquor. Did you know you don’t need to be a member to buy liquor in a California Costco?

And when I get to the registers, each one has four people ahead of me.

Oh well…

I decide I’m going to time my exit. It’s 12:27. How long is it going to take me?

Turns out Costco has in-store wifi, so I fire that up and am just starting to peruse Instagram Reels when a woman comes up to me with a handheld scanner. What’s up? I’m way back in line.

She asks me for my membership card.

I guess they’re rooting out fraud.

But then she starts scanning all the items in my cart. What exactly is going on? Why is she doing this?

And then she walks away, to do the same in the next line over.

So I leave my basket and go over to her and ask what is going on.

She said just to show my Costco card at checkout.

Huh?

Yup, she already scanned all my items, they were in the system, and when the clerk scanned my membership card the bill would come right up and I could pay, no extra scanning necessary.

Now I was confused when the clerk scanned my card and then started checking out the items in my cart. So I asked him why he was doing this. He was counting the merchandise, to make sure there was no stealing involved.

And then I scanned my ATM card, got ahold of my cart and checked my phone.

It was 12:29!!!! I’d been checked out in two minutes!

And now I’m starting to smile, feeling so good. Like I’ll come back more often on smaller runs.

But what I really felt good about was Costco. They were doing every little thing to enhance the consumer experience.

At Ralphs, it was like the clerk was stoned. Going through the motions, seemingly wanting to be anywhere but there.

It was like she was encased in molasses while she was bagging my stuff. There was no separate bagger, that would cost too much!

But at Costco? They know me and want to keep me as a customer. They just don’t see it as a store, but a religion. I believe in Costco like I used to believe in bands, because they’re not doing it the same way as everybody else, they’re not resting on their laurels, they’re constantly innovating.

And when I get to my car…

Those flats of Vitarain Zero are heavy, so I want to get as close to my machine as possible.

However, not too close. I remember my 2002 getting a scratch in the door from an errant grocery cart, it always bugged me.

And the cart looked steady, but just when I was done loading my car, I saw it resting against the rear bumper.

Oh no… The bumper is plastic, but still…

So I leaned in close to investigate.

Turns out the Costco carts have rubber bumpers, for this express reason, so they don’t damage your automobile!

Now maybe they have these bumpers at other grocery stores, but I’ve never encountered them.

So this is where we are today. We’re enamored of brands more than people. Because they understand the relationship is everything.

Apple… You pay a fortune, but it looks good and it just works. And you have recourse if it doesn’t, you can call or go to an Apple store.

Of course there are Android fanatics, but I read in today’s “Wall Street Journal” that the iPhone has more than 60% market share in the U.S., and it’s the most expensive handset, except for a few rivals. And Apple has four of the five best selling smartphones worldwide, and over sixty percent of the profits.

We’ve got a relationship with Apple. You may not, but many do. And when we see that dreaded green bubble, we wonder why that user didn’t get the memo.

Costco doesn’t complain.

That’s what today’s entertainers are doing constantly, complaining. About not making enough money, getting ripped-off, getting dissed. But Costco is above it all, just preaching to the choir, its choir, which is not everybody, but a hell of a lot of people.

Costco is thinking about ME!

As for Apple and its prices… No one is forcing you to buy an iPhone, and none of them are cheap. Where else do we see this? With concert tickets! But in that sphere the acts won’t own the value of a ticket to their show, there’s endless finger-pointing, someone is at fault. But the bottom line is people are lining up to pay, they’re dying to go to the show and they’re willing to pay for it!

But all we’ve got is ill will.

Ain’t that America, someone is at fault, someone is holding you back, ripping you off.

But not at Costco.

~~~

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 Lefsetz on Costco appeared first on The Big Picture.

In this guest post, Jeremy Eppley of Silverstone Financial shares some of the key milestones of his growth journey, as told through the lens of lessons he gleaned and then applied to his practice while listening to all 500 episodes of the Financial Advisor Success podcast. He highlights 20 episodes as a starting point for those who want to binge on the most salient practice management lessons (and another 30 'bonus' episodes for those who want to go deeper).

Jeremy begins by underscoring the importance of key structural decisions you make about how to build the firm in the first place. The channel you choose (e.g., RIA versus broker-dealer) impacts what tools you can use or solutions you can offer to clients in the first place (Episode 192). Having a fee structure that generates enough revenue per client (by AUM, planning, or subscription fees) is essential to be able to scale in the future (Episode 244). But you don't have to get paid for everything you do, just enough to make the business work; thus the appeal of giving away parts of the initial planning process for free… because clients who really want and need your help will just ask you to implement for/with them, anyway (Episode 20)! All of which only works if you're careful in managing your own spending and lifestyle creep as an advisor (so your personal upkeep doesn't undermine the stability of the business, especially in its early years, per Episode 1).

Operationally, choosing the right platforms also matters, from selecting a tech-forward custodian (Episode 350), to truly making your CRM system the hub of the advisory business (Episode 272) – as does establishing the right team structure to leverage the lead advisor's time while deepening (and diversifying) how many different people the client has a relationship with at the firm (Episode 248). Recognizing that not every client will be the right fit for the firm, it's okay (for your business, and your personal health and sanity) to refer out the clients whose incoming phone call you're already dreading anyway (Episode 233).

This creates the space to home in on how you want to serve your particular clientele – and the more clear you are about who your ideal client is, the easier it is to create a specialized offering (Episode 173). Which in the case of Silverstone Financial, means giving clients confidence by running their numbers in two different financial planning software platforms (Episode 285), raising at least 12 months of cash each year to give them more confidence in the midst of market volatility (Episode 391), and partnering with an external tax preparation firm to offer clients a "one-stop shop", but not actually bringing the tax preparation in-house with your own CPA or EA (Episode 421)!

Ultimately, the key point is simply to recognize that while every advisory firm is different, almost every problem experienced by one advisor/founder has probably been experienced by another in a manner that is similar enough that we can all learn something by hearing each other's journey. Podcasts like the Financial Advisor Success series  provide an excellent library of lessons to absorb, whether you're walking the dog, mowing the lawn, cooking in the kitchen, commuting, or exercising. Or as Jeremy puts it, "an hour and a half of walking [with the Financial Advisor Success podcast] … is a great way to pay down some of your health debt and build up some educational assets at the same time".

Read More...

This week, I speak with Lori Heinel, Global Chief Investment Officer at State Street Investment Management. We discuss her unlikely journey from majoring in religious studies at Princeton to working in finance and investing.

She tells us about her role as CIO at State Street and how she balances active and passive management views. The case for private markets’ involvements in 401(k)s also comnes up as how Lori sees AI affecting her business managing trillions of dollars worth of assets.

Lori’s current reading includes two by Ron Chernow: “The House of Morgan: An American Banking Dynasty and the Rise of Modern Finance” and “Titan: The Life of John D. Rockefeller, Sr.” as well as “Steve Jobs” by Walter Isaacson.

A transcript of our conversation is available here Monday..

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

Be sure to check out our Masters in Business next week with Som Seif Purpose Investments, founder/CEO, Toronto-based asset manager launched in 2012. He grew his first firm, Claymore Investments to $8B in assets by creating 34 ETFs over 6 years, establishing it as Canada’s leader in low-cost exchange-traded funds; he sold to BlackRock in 2012. Next, he co-founded Wealthsimple, which became the default investing app for a generation of Canadians. His wealth management firm, Purpose, was founded at the end of 2012, and manages>$31B in ETFs, mutual funds, alternatives, private assets, and digital assets. Som was named to Canada’s Top 40 Under 40 in 2011.

The post MiB: Lori Heinel, Global Chief Investment Officer at State Street Investment Management appeared first on The Big Picture.

July 4, 2026 saw the official launch of Sec. 530 "Trump Accounts" (TAs), a new type of 'starter' retirement account designed to be opened and funded on behalf of minor children so they can start accumulating tax-deferred retirement savings at an early age. Under the rules for TAs, parents and other individuals, employers, and government and charitable organizations can make contributions to a child's TA up until the year before their 18th birthday, after which the account effectively converts into a traditional IRA – giving the account's owner an incentive not to touch the account for many years, since distributions prior to age 59 ½ will be subject to a 10% penalty tax.

But although TAs may be similar to standard IRAs in many aspects (and effectively become IRAs after the pre-age-18 "growth period" ends), the process of opening and funding TAs is very different. Because unlike IRAs, which can be opened at any major broker-dealer or custodian and have no limits on the number of different IRAs that any individual can have open at one time, TAs can only be opened in a single location (a website and app administered by the retail broker-dealer Robinhood), and while other institutions will eventually be able to offer TAs of their own, they will only be available for 'rollover' purposes (i.e., to transfer into once the initial account is opened at Robinhood's site).

The process of opening a TA starts by filing IRS Form 4547, a form that can be filled out (generally by a parent or legal guardian) either on the government's official Trump Account app, online via the IRS's website, or as an actual tax form to be filed along with the account opener's tax return. Next, after the IRS approves the Form 4547, the account opener must 'activate' the account on the Robinhood-administered website, www.trumpaccount.com. Finally, when the account is open, the parent can contribute and invest funds on the child's behalf (with the only current investment option being an S&P 500 index ETF, although broader U.S. equity funds will purportedly be available in the future).

After the TA has been opened, funded, and invested, the account can be kept at Robinhood or, likely starting sometime in 2027, transferred to a different custodian. However, once the account beneficiary reaches age 18, the TA will be automatically rolled over to a traditional IRA, at which point the responsibility for choosing investments, tracking the account basis (since there will likely be a mix of 'pre-tax' and 'after-tax' funds in the account), and designating a beneficiary shifts to the now-18-year-old account owner. In other words, at age 18, the TA beneficiary will 'get' not just control over the account and its funds, but also a new set of responsibilities for maintaining it as they cross into adulthood.

The key point is that although TAs may look in some ways like the IRAs that many people are familiar with, the real mechanics of opening, funding, and maintaining a TA (not to mention the eventual 'handoff' to the beneficiary at age 18) are much different than what many parents have likely encountered. For financial advisors, it's worthwhile to understand how these mechanics work and where parents are likely to get tripped up along the way – because while not every parent will want to open a TA for their children (since other options like 529 plans or UTMA accounts might be a better fit for their goals), the ones who do will appreciate their advisor being able to walk them through the process and get them started smoothly on saving for the next generation!

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 195th episode of Kitces & Carl, Michael Kitces and client communication expert Carl Richards discuss how to choose the method and frequency of client touchpoints. There is a balance to be struck: if an advisor under-communicates, then clients may not know if or how to contact an advisor between meetings. On the other hand, overcommunication can quickly drown an advisory team’s capacity as a client base grows.

The latest Kitces Research on Advisor Productivity suggests that successful advisors had frequent contact with their clients, but it was almost all standardized, such as newsletters and webinars, that allowed efforts to amplify on a one-to-many basis. This allows touchpoints to scale with the client base… and can provide an organic place for an advisor to both provide guidance and commentary to their client base. Similarly, sending brief messages that affirm that a component of a client’s plan was reviewed (even if no action is needed) can reassure the client that their plan is being monitored.

This approach has two benefits: first, it can illuminate the otherwise invisible work of the advisor. Second, it can free up the advisor’s time so that when the client does reach out, the advisory team can provide a thorough and timely response. The latter is particularly important as the capacity to automate all communication continues to grow – in other words, the advisor will need to carefully determine where it is important to have human, one-to-one availability. Advisors may be surprised by just how differentiating it is to have a blend of consistent communication that accumulates in fast, human-centered interaction.

On the other hand, these scheduled communications may receive relatively low engagement. Clients may not open emails or log into their portals as frequently as advisors would like, which can make advisors wonder if the effort to continually provide some level of communication is worthwhile. This is where discernment is crucial for what types of communication really make difference… yet it can be helpful to remind clients that the advisory team is actively monitoring the situation and is available.

Ultimately, the key point is that an advisor has many avenues through which they could communicate with clients, but it may be more effective to do a few things consistently than many things infrequently. A cornerstone of communication, combined with great, accessible service, is the key to delivering exceptional advice that scales with the firm!

Read More...

Also in industry news this week:

• A report from Russell Investments puts the value of a financial advisor at 4.92% (a figure that exceeds many other estimates of this elusive figure), with an advisor's ability to keep clients invested during turbulent market periods identified as a particularly valuable service
• CFP Board has submitted a proposal for public comment that would explicitly allow its Disciplinary and Ethics Commission to consider the expungement of a criminal conviction as a mitigating factor when considering an individual's fitness for certification

From there, we have several articles on retirement planning:

• Fidelity's latest estimate of retirees' lifetime health costs jumped 7.5% this year to $185,500, though the fact that many of these expenses are often spread out over the course of a retirement could make them more manageable outlays to plan around
• Why dental expenses can be an underestimated part of a retiree's budget and how advisors can help clients evaluate potential solutions to mitigate them
• How advisors and their clients can balance the relative unlikelihood of experiencing an extended long-term care event with the potential costs if one does occur when it comes to saving for and/or insuring against this contingency

We also have a number of articles on client communication:

• How advisors can handle a client's 'hot' investment idea tactfully and in a way that demonstrates respect while keeping them on track to meet their investment goals
• While portfolio diversification is a core tenet of many advisors' investment strategies, clients might have a different understanding of what it actually means for their investments
• How creating a communications matrix can help advisors organize the different types of client communications they produce during the year and better meet particular clients' needs

We wrap up with three final articles, all about technology and modern society:

• While hybrid workplace arrangements appear to represent a 'sweet spot' between working in the office full time and fully remote work for many employees (with potential productivity boosts for their employers as well), experiences can vary significantly based on an individual's unique circumstances
• How the rise of algorithmic-based recommendations could be driving real-world cultural trends (and leading some individuals to spend significant time waiting in lines)
• Why "skill nostalgia" can develop when technological innovations lead to a reduction (or even elimination) of certain occupations, and how this isn't necessarily a modern concept

Enjoy the 'light' reading!

Read More...

Overnight, the Trump Administration announced a new, massive set of tariffs, claiming authorization by Section 301 of the Trade Act of 1974. The full list of the 60 countries tariffs were levied on is at The Independant.

These are as likely unlawful as the IEEPA tariffs were, but for different and more technical reasons. Congress did give the Executive branch limited authority to impose these sorts of tariffs, but with a very specific set of guidelines and procedures to follow.

The documents filed claim these were followed properly, but their own language makes it clear this is unlikely.

The new strategy is to use the complexity of Section 301 to provide SCOTUS cover to allow what is plainly a usurpation of Congressional authority.1   It was impossible for any credible court to have supported the IEEPA tariffs, as they were so clearly unconstitutional.2 

This time, the tactic was slightly cleverer, and enumerated by the WSJ’s Greg Ip:

“To Trump, though, court rulings are road maps, not roadblocks. February’s court ruling simply rerouted him to tools the court hadn’t explicitly prohibited. And fortunately for Trump, Congress has over the years scattered many such tools through the law books, many largely forgotten or unused.”

When the WSJ accuses the White House of abusing rules to accomplish their agenda, regardless — well, that’s really something.

Note that the document filed at 12:01 am last night was the USTR’s final “Notice of Action.” It references the evidentiary findings in a separate June 2, 2026 document titled “Acts, Policies, and Practices…” (See sources below)

On March 12, 2026, the USTR initiated, on its own, 60 simultaneous investigations. This is not the comprehensive document it appears to be at first glance. About 360 of the 431 pages (page 73 on) are the tariff schedule.

Rigorous, they are not.

All 60 country-specific “Determinations of Action” are identical boilerplate. Each is a single paragraph, and the template is word-for-word the same — only the country name, the rate (10% or 12.5%), and the cross-references change. No country-specific evidence, no discussion of any particular economy’s laws, enforcement record, or forced-labor exposure appears. Somehow, every major trading partner qualifies for tariffs — which is the reveal that this is not specific to any one nation’s behaviors.

Technically busy, analytically thin boilerplate is no way to manage trade policy…

Sorry, but nobody really believes that this administration performed 60 investigations, created a comprehensive report, analyzed 1,600 comments, and held a hearing, all in ~4 months, with seven weeks from proposed action to final tariffs that was anything more than just going through the motions. None of the 60 economies received individualized analysis or consideration in that window as required by statute.

A West Coast friend who alerted me to this late last night had already done the deep dive into the Federal Register and the 431-page United States Trade Representative document. His conclusion?

“The most recent research shows US economy paid 95% of the tariffs cost, and while more than half of that was initially borne by companies in lower profits, by this spring it was mostly consumers paying. His voters are innumerate, as is he… It basically concedes there were no USTR investigations, DJT picked the countries, and picked the rates.”

A document whose superficiality confesses that none of the applicable laws or procedures were followed should not withstand court scrutiny. No true analysis of various countries (only 1/2 page each); no calibration of tariffs in response to specific illegality; most important of all, no analysis of how the behavior in question negatively impacted US companies as required by section 301.

To actually determine what countries are using forced labor and its economic impact on US companies would take a lot more time, personnel, and intellectual firepower than the 4-month attempt applied here.

This was simply a response to the IEEPA loss at the Supreme Court. And if SCOTUS acts as it has since 2024, by the time they get around to striking this down in 2028, the damage will have already been done.

~~~

You would be wrong to think of these critiques against tariffs as merely a leftist tirade or partisan attack. The conservative Reason Foundation, a libertarian organization, observed: Trump Imposes Massively Harmful and Illegal Section 301 Tariffs, stating, “The new policy is based on sham investigations, and runs afoul of the major questions and nondelegation doctrine.”

Of course, these tariffs should be struck down, but if SCOTUS takes another year (again), there will be real economic and reputational harm done.3

Previously:
Winners & Losers of SCOTUS Decision Striking Down Tariffs (February 20, 2026)

Part II: IEEPA Tariff Ruling’s Losers (February 23, 2026)

Tariffs archive

See also:
Trump’s Trade Wars Are Back—Despite the Supreme Court
By Greg Ip
WSJ, July 23, 2026

Sources:
Report in Section 301 Investigations Acts, Policies, and Practices of Various Economies Related to the Failure to Impose and Effectively Enforce a Prohibition on the Importation of Goods Produced with Forced Labor
USTR, June 02, 2026

USTR Makes Findings and Proposes Action in 60 Section 301 Investigations Relating to Failures to Take Action on Trade in Forced Labor Goods.
Press Release
USTR, June 02, 2026

Notice of Actions in Section 301 Investigations of Acts, Policies, and Practices of Various Economies Related to the Failure of Each Economy to Impose and Effectively Enforce a Prohibition on the Importation of Goods Produced with Forced Lab
OFFICE OF THE UNITED STATES TRADE REPRESENTATIVE, July 24, 2026
Docket Nos. USTR–2026–0265, USTR–2026–0266

__________

1. t is very difficult to predict what a renegade, corrupt, partisan court will do.

2. And yet it still attracted three votes in favor: Justices Clarence Thomas, Samuel Alito, and Brett Kavanaugh ignored the plain text of the Constitution.

3. There is a real chance SCOTUS allows this to slide, 5-4.

The post Tariffs, Yet Again appeared first on The Big Picture.

I have been fortunate to get to know Joe Davis, chief economist at investing giant Vanguard, over the years. He has been on MiB a few times, and I have referenced his research many times.

I had been to the VG campus a few times before — once to interview Jack Bogle for MiB (along with all of the subsequent CEOs), and two other times to speak at Vanguard events.

I drove down to Malverne to join Joe Davis and his co-host, Rebecca Choo Quan, on their show “Better Vantage by Vanguard.”

This part one of two…

Better Vantage by Vanguard | The costliest mistakes even experienced investors make

Even experienced investors make costly mistakes—and often, the problem isn’t the market, it’s behavior. In this episode of Better Vantage by Vanguard, Barry Ritholtz joins Joe Davis to break down the most common forms of investor misbehavior, from overconfidence and recency bias to chasing noise. They explore why these unforced errors can derail long term outcomes and share practical frameworks to help advisors and investors stay disciplined, humble, and focused on what really drives long term success. We are a community of 50 million* who think—and feel—differently about investing. Together, we’re changing the way the world invests.

Previously:
MIB: Joe Davis, Vanguard’s Chief Economist (February 16, 2019)

Vanguard Group (full archive)

The post Vanguard: The Costliest Mistakes Even Experienced Investors Make appeared first on The Big Picture.

At The Money: Investing in Wheat (July 22, 2026)

Do you want to own a core food staple as a geopolitical hedge, an inflation offset, or simply as a diversifier? There’s an ETF for that!

Full transcript below.

~~~

About this week’s guest:

Sal Gilbertie began trading agricultural and energy commodities in 1982 at Cargill, DLJ, Merrill Lynch, and Bear Stearns. He founded Teucrium in 2009, launching commodity-based AG products like the Teucrium Corn Fund (CORN) and the Teucrium Wheat Fund (WEAT), as well as soybeans and sugar futures markets through ETFs.

For more info, see:

Personal Bio

Professional 

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: Buying and Selling Wheat in Your Investment Accounts
With Sal Gilbertie, Founder, CEO & Chief Investment Officer, Teucrium Trading

“To die, before the Harvest the crop the grains fields of rippling wheat.
Wheat. All there is in life is wheat.”
“Sonia, Here’s your chance to do something kind for a dying boy but I don’t really love Boris I mean I love him but I’m not in love with him
Wheat lots of wheat fields of wheat a tremendous amount of Wheat”

-Love & Death

BARRY RITHOLTZ: Ever since Russia invaded Ukraine, grain prices have exploded. Gaining exposure to a grain like wheat is usually a challenge. Futures are an entirely different animal than stocks or bonds — they have a very different risk profile, not only from stocks, but even against options. There’s a whole lot more downside with futures. The wheat ETF doubled after the war started and has come back down to pre-war levels. Is wheat a fit for your portfolio? I’m Barry Ritholtz, and on today’s edition of At the Money, we’re going to explore the question of buying and selling wheat in your investment accounts.

To help us unpack all of this and what it means for your portfolio, let’s bring in Sal Gilbertie. He’s founder, CEO, and Chief Investment Officer of Teucrium Trading, best known for creating exchange-traded funds that give investors direct exposure to agricultural futures. He’s also an old-school commodity trader, going back to 1982. So what was the problem that the wheat fund — symbol WEAT — was designed to solve for investors who wanted exposure to wheat, but are a little skittish about holding futures directly?

SAL GILBERTIE: Well, thanks for having me, Barry. So futures of any kind are tough to trade, right? You’ve gotta have a margin account. They’re volatile. It requires a different expertise. And when I heard about ETFs — I didn’t even know what an ETF was when I founded this company — I found out and said, wow, that’s brilliant, ’cause I always traded commodities and futures, and I said, anybody can buy these things in their stock account. That’s amazing. And so we package these things inside of ETFs, and the wheat ETF’s been very popular. I don’t know if you know Andy Hecht, but he basically says wheat is a more political commodity than oil. It’s older — I think it’s mentioned 50 or 70-something times in the Bible. Wheat is wheat — it’s a big deal. Also, of the crops, I think a higher percentage of wheat is directly consumed by humans than, say, corn or soybeans, which also go to animals and fuel and all that. Now, as an aside, you can run wheat through an ethanol plant if it’s lousy and it’ll turn into ethanol, but that’s not a common thing. Wheat is so integral to human life, basically — bread, tortillas — it’s a big deal. You’ve gotta have wheat.

And so we thought there should be a wheat fund. We started this fund and we structured it — we think properly — so people can buy it in their stock account. They don’t need a margin account; like any other ETF, they can buy it. We worry about the futures inside of it. It’s designed to track wheat prices through wheat futures: when they go up, the fund’s designed to go up, and when the wheat futures go down, the fund’s designed to go down — less some fees and expenses and a little bit of static. But it generally works pretty well.

BARRY RITHOLTZ: So you mentioned prices. You’re not talking about the cash price of physical wheat — you’re talking about the CBOT price, the futures price. What’s the distinction between the two? How do investors see this reflected in their grocery prices?

SAL GILBERTIE: Well, there’s kind of a disconnect — not a direct disconnect — but wheat prices are gonna move up and down on a bulk level, on a wholesale level. Investors can’t buy that. I mean, you want to buy a truckload of wheat or a cargo load of wheat somewhere and ship it around? It’s impossible. So you use futures as a proxy. They have delivery points; each delivery location is gonna be a different price. But the advantage of futures — and the CME futures are the global standard, basically, for soft red winter wheat — is that all you have to do is look at that price. Every farm, every location has a different price for physical wheat; it doesn’t matter. It all gets to be a futures-equivalent price when you factor in delivery. And so futures is the standard to look at to know where wheat’s going. That’s what you’re looking at.

BARRY RITHOLTZ: You mentioned soft red winter. When I was doing some research for this conversation, I was kind of shocked at how many distinct wheat markets there are: hard red winter, hard red spring, soft red winter, white wheat, durum. What are all these different wheats?

SAL GILBERTIE: So in general, all you need to know is that the wheat everybody looks at is the soft red, and that’s used for baking — in general, just home baking, that kind of stuff. The hard wheats are used more for specialty things like pasta. But unless you’re a chef, who cares? You’re gonna buy your wheat in your grocery store, and that’s fine — generally you’re buying soft, unless you’re buying a specialty wheat for whatever you want to do. And soft wheat is the benchmark for wheat prices — global wheat prices — on the CME.

BARRY RITHOLTZ: Huh. The USDA does forecast out for the rest of the year into next year. They’re forecasting hard red winter wheat at its lowest price since 1957–58. How on earth is that possible — that 75 years later, wheat prices are still the same? It just seems crazy to me.

SAL GILBERTIE: So, farming advancements — and we’ve kept up with demand. That’s what’s happened. That’s why the ags get a bad name, because people say, well, inflation-adjusted, your return is zero or negative. Well, okay, but if you’ve got that commodity, it’s very cyclical. It trades at a flatline — basically it trades at breakeven, because farmers are subsidized. And then when it doesn’t rain somewhere, or there’s a political upheaval like in Ukraine, the price explodes higher — when there’s a drought in the upper Midwest. Granted, wheat is grown in virtually every country. And wheat probably has —

BARRY RITHOLTZ: It’s the most consumed staple food crop — it’s in everything, and everybody eats it.

SAL GILBERTIE: Everything, and everybody uses it. What matters to the price of wheat is how much is available for export. And wheat, versus corn and soybeans, probably has more countries that export it in volume than the other two big ones. And so it’s important to know that a disruption in the United States wheat belt, a disruption in China or India — and I believe India is the number one grower of wheat in the world, but they don’t export it.

BARRY RITHOLTZ: Oh, that’s really interesting.

SAL GILBERTIE: Well, there’s a big difference between how much wheat is grown in a certain spot and how much wheat is exported from a certain spot. What investors care about is how much is exported. And that’s why, during the Ukraine war, wheat prices exploded higher — because of the amount exported out of the Black Sea from Russia and Ukraine, which are both in the top five global wheat exporters. Russia’s number one by far. The EU is right up there as a bloc. So most of the world’s exports come out of that whole area. Australia is an enormous exporter. In fact, I believe the record-high wheat price is still intact, even after COVID and the Ukraine war — we’d have to go look it up, but it was intact for years, based on back-to-back droughts in Australia back in, I think, the early two thousands or —

BARRY RITHOLTZ: Nineties. Wow, that’s amazing. So you had mentioned futures trading and how different it is from traditional options trading — where there is a similarity: different maturities, different expiration dates. WEAT holds three distinct contracts across three different maturities, about a third each — a little more, a little less. Why go with that structure? That’s really kind of interesting, that sort of spread you’ve created.

SAL GILBERTIE: Two reasons. One is, as we’ve said, these are more strategic allocation products. So they trade flatline for quite a while at your breakeven, and then they explode higher. So investors kind of layer in a percent or two in their portfolio when they’re low, and they just sit on them — and then, when they go higher, they get out. In fact, there’s an expression: weight it into your portfolio when they’re at breakeven — W-E-I-G-H-T — then wait, W-A-I-T, and when there’s drought, get out. So it’s weight, wait, drought out. And that could take —

BARRY RITHOLTZ: A couple of years. Weight, wait, drought out. Yeah.

SAL GILBERTIE: Weight, wait, drought out. An RIA told us that — we didn’t make that up. So what happens is, when you layer these things into your portfolio, you’re kind of sitting on them for a while. If we just held spot-month futures, there’d be a lot more volatility, and what you really want is the general price appreciation when the price goes up. You’re buying this thing for the price to go up, and you’re buying it for portfolio stability — you’re gonna have more stability. Because if you own out the curve and there’s some temporary dislocation in the front month, your portfolio isn’t gonna move as much. So you’re gonna have less volatility in that holding. Yet if there’s a true supply disruption and the whole structure of the curve moves up over the course of half a year or a year, you’re gonna participate in that. And so that’s what we designed for investors.

The other practical matter is that these things have limits. Agricultural commodities have very strict limits in terms of how many contracts you can own per month, and if we just concentrated this fund in one month, we wouldn’t be able to handle all the money that comes in. Before the Ukraine war, we had about $80 million in this fund. Within weeks after the Ukraine war broke out, we had $800 million in the fund.

BARRY RITHOLTZ: Wow.

SAL GILBERTIE: And so it was easy to move in, easy to move out. These are incredibly liquid instruments because of the underlying commodity, so you can write as big a ticket as you want and put it in there. Just — as with any ETF — don’t use a market order, ever. Put in your limit, and don’t trade in the first 15 minutes of the market. Let the markets open, because everything’s electronic, and if there’s some price glitch in one component, you’re not gonna get the best price. So just sit on your hands until 9:45 East Coast time every morning when you’re trading an ETF, and don’t put a market order in.

BARRY RITHOLTZ: It’s so funny you say that. I started on a trading desk, and some of the rules us newbies had to learn were: no market orders, always limit orders — although I have a few funny stories about market orders that got executed; the MCI WorldCom deal, pretty stupid — be really careful around the open, and no trading IPOs. I mean, those were the three rules, everybody.

SAL GILBERTIE: Those are good rules.

BARRY RITHOLTZ: Those were pretty good rules. Yeah. One of the things I’ve always been fascinated with in commodities and futures — the thing that probably confuses laypeople the most: backwardation and contango. Explain what those two things are and how you manage around them.

SAL GILBERTIE: All right — so I didn’t think you were gonna bring that up, but that’s the reason we have three exposures. It’s complicated, but that mitigates backwardation and contango. In a nutshell — let’s keep this to 30 or 60 seconds — when I was working at Cargill, we called it the cost of carry. That’s contango. They both begin with a C; that’s how I remember it. But it’s the cost of carry. If you’re a grocer and you buy a can of peas and put it on a shelf until somebody buys it, you had a cost: you had to buy the can of peas, you’ve got insurance for your store, you’ve gotta pay all these other bills until it goes off the shelf. That’s a cost of carry.

BARRY RITHOLTZ: Simple inventory — you pay for it until you sell it. You laid out the cash.

SAL GILBERTIE: Absolutely. So over time, it costs you money to keep that thing on the shelf. Actually, if grocers didn’t care about consumer sentiment and just cared about market prices, they would raise the price of that can of peas once a month. They’d say, well, heck, that cost me a penny more to hold it and pay for the heating and air conditioning — and my cost of money; I could earn interest on that money or put it to better use. So the price, as you go out the futures curve, should go higher, because you have to store corn, for instance — it costs roughly about a nickel a month to store corn. So if you buy corn at $4 a bushel, at the end of a year you’d better get $4.60 for that corn if you stored it, because it cost you a nickel a month — it cost you another 60 cents to hold that corn. If you look at a futures curve, by and large that’s priced in. So cost of carry — contango — is a normal market. Prices go up slightly as you go out, just to reflect the cost of buying and holding that commodity. Remember, commodities are real things; it’s not just paper. It doesn’t matter in gold, ’cause gold’s worth so much and you just put it in a big pile, and there’s a guy with no neck and a gun guarding the pile — it doesn’t cost much. But in terms of moving corn around and sticking it in a grain silo and holding it, that’s a big deal. You’ve gotta keep the humidity right and all that.

So backwardation is when that system breaks, and that system generally breaks when you’re afraid there’s not gonna be enough corn the next month. So you buy all your corn this month. Okay, well, now you’ve broken the supply-demand economics, because as more buyers come in, the price goes higher. So if the price nearby goes higher than the price that’s further out, that’s backwardation.

BARRY RITHOLTZ: It’s not lower left to upper right — suddenly it’s upper left to lower right. That’s what the chart looks like.

SAL GILBERTIE: Correct. And backwardation is not a natural occurrence. It’s an occurrence during a disruption of some sort, be it a supply disruption or a political disruption.

BARRY RITHOLTZ: Huh — really intriguing. So of all the commodities we’ve talked about, wheat is probably the most global commodity. Not only does it go into everything from bread to pasta to whatever — it’s just such a basic food staple. How do you look at the global changes in wheat production? You mentioned Australia, obviously Russia and Ukraine, lots of parts of Europe, Argentina and South America, plus the United States and Canada. Given the global production, how do you track all the weather and all the factors driving total global production?

SAL GILBERTIE: If you’re in the business, you hire an analyst. If you’re a normal person, you look at the USDA report once a month. And if you’re everybody else, just look at the futures price — it all gets built in, because all the people doing the first two things I just said are building that into the price. So just look at the futures and you’ll see what’s out there. But yeah, really watch the weather. If it’s dry in western Canada, if it’s dry in the Dakotas or in Kansas, if it’s dry in Ukraine or Russia, if it’s dry in Australia, if it’s dry in Argentina — you’re gonna have a wheat problem.

BARRY RITHOLTZ: Huh. Really, really interesting. So obviously the price volatility is driven by changes in supply and demand, and there’s a little bit of geopolitical risk premium. We talked about tariffs and export restrictions and sanctions, and obviously war. But how do we generally think about prices of wheat? What are the key drivers that are gonna affect this going forward? Is it simply weather, or is that pretty much the only thing that’s driving it?

SAL GILBERTIE: Honestly, for wheat, it’s weather and geopolitics. And again, as we saw, you see the choke points — and the Black Sea is the primary choke point. So that’s the geopolitics part. And look, understand: even during the height of the Ukraine war and the political fallout in the first year of that, you could still buy Russian wheat. Anybody who wanted to could buy Russian wheat. Sanctions don’t go on food — you don’t do that. Even during war, nobody puts sanctions on food. You can import food from your enemy; it’s perfectly legal. But you might not get a ship to go in there because of the war premium and all that. But you can buy it — nobody’s gonna put restrictions on food. So as soon as people figured out, well, wait a minute, there’s gonna be free flow, that price came back down.

Where you have an issue is when it doesn’t rain. Because again, that pile at harvest is small. You’ve only got, on average, six months of excess supply at any given time in the world of wheat. If you have a major problem — a major crop problem, be it drought or disease in a major producing area — suddenly you have five months or four months. What if that happens two years in a row? Then you have one month or two months. That’s why the price is so responsive. And that’s why, when you see these things flatlined at the low long-term price levels, that’s when you need to look at maybe an allocation to those things.

BARRY RITHOLTZ: Huh. So WEAT, the ETF, is an unleveraged product, but obviously wheat futures trade with leverage and a lot of volatility. What sort of time horizon and risk tolerance should an investor that this is suitable for really be thinking about?

SAL GILBERTIE: Sure. Well, again, it’s a strategic allocation. So I think that if you do the math, every four to seven years there’s a drought. If you look at the charts, things flatline at certain prices, and with wheat, your breakeven is generally roughly a dollar a bushel more than corn — and that varies a little bit. But if you see corn down at four bucks, if you see wheat down approaching $5, you’re looking at — based on history — limited historical downside and pretty significant historical upside. It’s not that these things can’t move lower; they just tend not to stay there, because of the usage, and the farmers will just ship crops.

So I think that it’s a strategic allocation — it’s something that you move money into when prices are low. And it’s in the headlines when you run out of food, so it’s not gonna be lost in your portfolio, and the price will spike. You’ve got a 1% allocation of corn or wheat or whatever it is, and all of a sudden it’s 2%. When you look at your rebalance quarterly, you take some action.

BARRY RITHOLTZ: Huh. Really interesting. So to wrap up: investors looking to hedge against the cost of food inflation, against geopolitical turmoil, against exposure to other asset classes that are all fairly correlated, might want to consider commodity ETFs such as wheat. I’m Barry Ritholtz. You’ve been listening to Bloomberg’s At the Money.

~~~

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

The post At The Money: Investing in Wheat appeared first on The Big Picture.

We are all systematically blind to how often things fail. (Thank you to Joachim Klement for bringing this to my attention)

The Failure Gap goes into great detail about this. The paper’s authors reviewed over 30 “life domains”; they determined that failure occurs about 61% of the time. But ask people what the failure rate is, and they wildly underestimate it: About 41% is the average number they give.

This is a variant of a question we discussed here two years ago: “What do people actually know relative to what they believe they know?“ The chart nearby looks remarkably similar to the one above…

We collectively underestimate restaurant closures, college non-completion (true rate ~64% at the 20 largest U.S. colleges), OTC painkiller inefficacy (~52% get no meaningful relief), hospital hand-hygiene lapses (~50%), and TSA screening misses. We even estimated NHL teams collectively lose only 44% of games — a logical impossibility in a league where every game produces a winner and a loser.1

Why else would anyone ever invest in a restaurant and/or a play? For every Hamilton, there are 100,000 plays that never get anywhere. Every successful restaurant you see is an exception, not the rule. Long hours, razor-thin margins, lots of management headaches, and ever-changing trends make it an extremely difficult business. A great restaurant may be a good business, but the industry itself is incredibly difficult. It’s a lousy business, defined by its most notable exceptions — and fast food.2

To find out, the authors scanned 2.4 million news articles, plus social media and online reviews, and found failure under-reported relative to its actual occurrence in every domain. One shocking example: glowing Advil reviews on Amazon collapsed their inefficacy estimates from 30% to 7% vs. a 52% actual rate.

In our age of social media, we see a further driver of this yet: Failure is under-shared. This somehow creates an unholy combination of survivorship bias and availability heuristic, making our collective failure estimations not just wildly wrong, but consistently so, and in the same direction.

I have been using the phrase denominator blindness, but the paper implies a new variant: “Base-rate blindness.”

~~~

Check out the full paper below…

Previously:
Another Reason Why Polling is So Bad (August 15, 2024)

Source:
The Failure Gap
Eskreis-Winkler, Woolley, Kim & Polimeni
Journal of Personality and Social Psychology (2025)

See also:
The failure gap
Joachim Klement
Jul 17, 2026

__________

1. I discuss this extensively in How Not to Invest. In addition to survivorship steering us to underestimate how often things fail, we further underestimate just how fragile and rare success can be.

2. Unlike World Cup soccer, the NHL produces zero ties…

The post The Failure Gap appeared first on The Big Picture.

The transcript from this week’s MiB: Jason Wenk, Altruist founder and CEO, 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 Jason Wenk, Founder & CEO, Altruist

Hosted by Barry Ritholtz  ·  Bloomberg Radio  ·  Interview Transcript

BARRY RITHOLTZ (00:00:08): This week on the podcast, yet another extra special guest. Jason Wenk is founder and CEO of Altruist, a new artificial-intelligence-driven custodian challenging a lot of the legacy entities like Fidelity and Schwab that are stuck with all of their old hardware and software. I thought the conversation was fascinating, and I think you will also. With no further ado, my interview of Jason Wenk.

Jason Wenk, welcome to Bloomberg.

JASON WENK (00:00:50): My pleasure. Such a great intro.

BARRY RITHOLTZ (00:00:52): So I’m fascinated by the through line of your career. You are constantly focusing on creating lower-cost, tech-enabled financial advice. But I’m gonna put a pin in that and come back — I gotta start with your background. You studied computer science at Grand Valley State University. What was the original career plan? Was it technology and computers, or finance?

JASON WENK (00:01:19): No, so I’d never taken a finance class. I’d never met anybody who had money. My family never owned any stocks or mutual funds. I didn’t know what an IRA was, or even a 401(k) for that matter. But I grew up in the eighties and nineties, so I remember getting our first personal computer in the mid-nineties. The internet started to pick up a little bit of speed in the late nineties, and that was my dream — to go to Silicon Valley and work at a dot-com. You probably recall the market peaked out around 1999, and then a pretty major crash ensued.

So very accidentally, I did an internship at Morgan Stanley at 19 years old. I was a bit of an odd duck in that I took a lot of college classes when I was in high school, so I was already doing internships my first year of university. And I was presented an opportunity to move here to New York and to join Morgan Stanley. That was really my crash course in finance.

BARRY RITHOLTZ (00:02:20): And you were 19 or 20?

JASON WENK (00:02:22): Nineteen as an intern, and officially joined at age 20.

BARRY RITHOLTZ (00:02:25): What drew you to financial services instead of technology? Was it simply the dot-com implosion, and there were no jobs to be had in technology?

JASON WENK (00:02:35): I was still working in technology. My role — the internship — was productivity software; it just happened to be for a big investment bank. And then I spent about two years building different types of technology within the Morgan Stanley ecosystem. By the time I joined, they were Morgan Stanley Dean Witter, so they had this big retail wealth business. They also had prop trading and a number of other divisions, too.

So I didn’t really get too involved in personal wealth until maybe the last six months I was there, when I was put on a project. We were doing a lot of work with Morningstar, which back then was still sending out CD-ROMs to branches around the country. And if you had a big branch, that’d be hard — who had the CD-ROM? So we were just building networked versions of essentially the Morningstar database.

But I remember around that time, I was doing some pre-built prompts inside of these research platforms. And the way my mind worked, which was more around math, physics, computer science — I looked at these prompts and I thought, these are terrible prompts. In other words, the prompt would be: let’s build a screen so that financial advisors can easily build a portfolio, and the screen will be something like, find funds that have been around for five years, with turnover under 100 percent, with the same manager for five years or longer, that’s in the top quartile of their peer group. And on the surface you go, well, that seems pretty reasonable and fair — but that is no prediction of the future result. That is a terrible predictor of future outcomes. But it was sort of built as though it was a good predictor.

BARRY RITHOLTZ (00:04:18): Well, you have the data — past performance is right there. We have to do something with it.

I give Morningstar credit — they had an internal survey that more or less said, hey, don’t worry about the stars. The data shows if you just buy the least expensive fund, that’s the one most likely to give you the highest level of performance. And to their credit, they published that. I wanna say that was 2011, 2012. Really fascinating.

So you never really rotated through the departments where you’re smiling and dialing? Did you ever work as a broker?

JASON WENK (00:04:51): So I got licensed. I took the Series 7, Series 8, Series 24, Series 3 — all the classic licenses.

BARRY RITHOLTZ (00:04:58): The 24 — you wanted to be a supervisor?

JASON WENK (00:04:59): Yeah, and I’m not sure why. I was also a registered options principal — why I did that, I have no idea. Managed futures — again, not sure why I did that. But yeah, I did all of the research to understand the space, and I did go through the broker training program, sort of 2021 —

BARRY RITHOLTZ (00:05:26): 2021?

JASON WENK (00:05:27): Excuse me — 2001. Yeah, a little bit of a mistake there. And part of it was ’cause I wanted to move back to the Midwest. I think I had this romantic notion of going back home and helping people that I knew. The reality is nobody I knew had any money, so that wasn’t really going to work anyway. And really, before I even got started, I made the decision to leave and go start another business — kind of in the space, but adjacent. I didn’t do direct work with clients.

BARRY RITHOLTZ (00:05:52): So let’s talk about that. What was the first thing that you noticed in financial advice that led you to say, hey, this is broken, and I think I could use technology to build something better?

JASON WENK (00:06:04): Two things in particular. One was, around that time there was a transition from commission-based sales — brokers, if you will — to more fee-oriented financial planners. And for me, that really resonated. So this notion of, hey, can you give people more comprehensive planning advice —

BARRY RITHOLTZ (00:06:27): And be a fiduciary?

JASON WENK (00:06:28): Yeah. And also, I looked realistically at the way asset management worked, and I very much agreed with the Morningstar study that they published some 10 years later. A lot of this goes all the way back to Jack Bogle’s work. But just looking at a couple of years’ worth of research around asset management, I didn’t see a discernible benefit to stock picking or market timing. High cost, high turnover, high taxes — these things all eroded wealth. So part of me thought, well, is there a way that you can just get more people access to empirical, evidence-based investing? Maybe that also helps people do better.

The other part was accessibility. Again, I grew up in a farming town. There were no brokers, there were no bank advisors, there were no Edward Jones offices — there was really no access to advice. And I could see the direction the internet was taking us, really flattening the world. Everybody should be able to find advice and help through the internet.

So really, the first business, from an accessibility perspective — it was gonna be internet-based, it was a subscription service, and it was designed for people with 401(k)s. Because when I looked at the people I knew, that was about the closest thing they had to Wall Street, to a brokerage account — their defined contribution plan. So the idea was, let’s make it easy for people that have a 401(k) plan to get the absolute best results they can from their 401(k). And I spent almost three years building that business.

BARRY RITHOLTZ (00:08:07): This is Retirement Wealth Advisors?

JASON WENK (00:08:08): No, this is the one that doesn’t exist on my LinkedIn profile.

BARRY RITHOLTZ (00:08:12): This is before that.

JASON WENK (00:08:14): Yeah. So I spent from 2021 until 2024 —

BARRY RITHOLTZ (00:08:24): 2001 to 2004.

JASON WENK (00:08:25): 2001, yeah. Gosh, it shows how old I am. My mix-up — it only gets worse. The decades, the dates —

BARRY RITHOLTZ (00:08:30): The names. It just trends in one direction.

JASON WENK (00:08:32): Yeah. So 2001 till 2004. And honestly, when I look back at it, it was maybe a little bit too early. This was pre-robo-advisor, right? Pre-blogging — pre a lot of things that just got more people connected.

BARRY RITHOLTZ (00:08:50): Blogging was just starting around then. We went from GeoCities to things like TypePad.

JASON WENK (00:08:55): Yeah. You were a real trailblazer in that regard.

BARRY RITHOLTZ (00:08:58): It was compulsion — I had no choice. I had to.

JASON WENK (00:09:02): So look, pay-per-click advertising was just coming out. So you had things like Overture, which is kind of pre-Google, but you could buy the keyword for a phrase like “how to manage my 401(k)” for a penny, and you could be the top-ranked search. People would then land on my website, which was called Smarter Than Wall Street back then. And it would allow you to say, I work at General Motors, answer a few questions, and it would say, here’s how to allocate your 401(k). They’d get an email once a month if there was anything they should do differently. Of course, the emails never said that they should ever do anything differently.

And after about a year, I had built a pretty good-sized subscription business, but I started to have some churn, because people were like, why am I paying you every month to just send an email that says the same thing as the email the month before? And eventually I started asking people, well, what would be more valuable — sort of a churn survey, if you will. And people would say, look, if you would just do this for me, I’d pay you a lot more than 20 bucks a month. And that was really the genesis of Retirement Wealth. That’s even why it was called Retirement Wealth — because a lot of these 401(k) folks were retirement-focused.

BARRY RITHOLTZ (00:10:10): And that scaled up pretty rapidly. Was that the $4 billion advisory shop? No? So where did that go?

JASON WENK (00:10:18): So I ended up going to about 1.1 or 1.2 billion in assets. But yeah, it grew really fast. I started it in November — December of 2004 was when I got my registration — and ran that for about six years, roughly.

BARRY RITHOLTZ (00:10:34): And a billion in AUM is not insubstantial. That puts you into a category of —

JASON WENK (00:10:39): Especially back then.

BARRY RITHOLTZ (00:10:40): Yeah. Inflation-adjusted, we’re probably talking about 3 billion today. But that’s real revenue, that’s real clients. What made you say, all right, I’ve kind of done this — now let’s look at FormulaFolios?

JASON WENK (00:10:55): So I was always driven probably more by impact than by the size of assets or revenue. That company was bootstrapped. I built every single thing myself, wrote all of the code. Although the name was Retirement Wealth, it was a fairly tech-forward platform. I built my own proposal systems to really analyze the portfolio and then propose a new solution, digitized a lot of onboarding to really automate getting new clients on, and it was mostly virtual. So it was also before its time in the sense that it was built mostly from blogging, back in like the 2006-to-2010 era. It was a lot of things — it was doing well before its time.

And what ended up happening — really the catalyst to moving into the next business — was I was invited to speak at TD Ameritrade’s national conference. They were my custodian at the time. I loved the people there. They saw the unusual growth, and also that I was still in my twenties, and they thought, hey, we’d love to have you come speak and share a bit of how you’re doing what you’re doing. So I went to San Diego and I gave a session where I just said, hey, here’s how I’m getting new clients. I’m writing these blog posts — here’s the framework, how I do it. Here’s how I take these people from a stranger from the internet into a defined financial planning process, and then a defined portfolio. And it was so structured that I could then train other advisors. So I hired a few other advisors, and they came in and they could then run the process.

And at that time, a bunch of other advisors — I’d say hundreds of other advisors — started to reach out inbound: hey, how can I get access to your “system,” they would kind of call it. And the reality was, I didn’t want to hire 50 financial planners. I’ve always been a bit reclusive.

BARRY RITHOLTZ (00:12:56): You don’t wanna manage 50 people. But selling them the software — that’s a fair relationship.

JASON WENK (00:13:01): That seemed a lot better, right? So that’s where the idea was spawned — hey, maybe it makes more sense to license the software, make it easier for people to run their own business, but leveraging a lot of our technology.

BARRY RITHOLTZ (00:13:15): Was that FormulaFolios?

JASON WENK (00:13:15): Correct. Yeah.

BARRY RITHOLTZ (00:13:17): All right. And how big did that scale up to?

JASON WENK (00:13:19): It went zero to 4 billion in five years. And today it’s, I think, 14 billion or something like that.

BARRY RITHOLTZ (00:13:25): So I know that you were a programmer in college. You describe yourself as a developer and a math geek — you very much have a little bit of a hacker mentality. How did that technical — I don’t want to use the word self-identity, but just your self-perception — how did that affect your view of, here are the services that make sense for investors, for advisors, for this whole ecosystem that had been, especially in the two thousands, mostly ignored by Wall Street? It took 25 years for the fiduciary side to pass the commission-based brokerage side. So how did the technology background affect your perception of that market?

JASON WENK (00:14:10): Sure. Look, I think I’ve always been a little bit idyllic — you name your company Altruist, you probably have some generally idealistic tendencies. I think people who know me well would say I’m a bit of a macro thinker, but I don’t like working in the day-to-day weeds of most things. So for me, I’ve always thought in decades, and it wasn’t hard to look at the market in the early two thousands and say, well, this is the future. Even though, to your point, the RIA fiduciary channel back in 2004, when I started my first firm — it was maybe six to 800 billion in assets. Today it’s probably 10 trillion. So today it seems very obvious, but back then it was a relatively small part of the market. It was not obvious, maybe, to everybody.

But I looked at the demographics of the country, and there will be such a huge number of people who are going to need good-quality advice and planning. And if you think in first principles, which is a very common technology metaphor, and you have no bias about the way things had been done historically — to say, well, what is the right way to do things? — that just seemed like the obvious and only and objective future for this industry. And I wanted to be on the forefront of that.

So now, some 20-plus years later, the market is very obvious. A lot of people want to build in this space, and it’s the place that seems to be growing the fastest. That was crystal clear to me 20 years ago. And I think a lot of that comes from, again, that more first-principled, sort of Silicon Valley way of seeing the world.

BARRY RITHOLTZ (00:15:55): Coming up, we continue our conversation with Jason Wenk, founder and CEO of Altruist, discussing how he built the firm to compete with the big guys. I’m Barry Ritholtz. You’re listening to Masters in Business on Bloomberg Radio.

I’m Barry Ritholtz. You are listening to Masters in Business on Bloomberg Radio. My guest this week is Jason Wenk, founder and CEO of the new custodian Altruist.

So Altruist describes itself as a modern custodian — emphasis on modern — for independent financial advisors. What does that mean in the real world? This has always been such a boring, plumbing type of industry. What was broken that required your attention?

JASON WENK (00:16:45): Well, I guess the opposite of modern is not modern, and the whole rest of the industry is pretty old. If you think about most of the infrastructure that’s used by financial professionals, the majority of it is 50 to 70 years old.

BARRY RITHOLTZ (00:17:01): That’s amazing.

JASON WENK (00:17:02): And it operates on mainframes, not cloud-native platforms. So I think the starting point is — and with no disrespect, these were innovative companies 50 years ago. They’re just not that innovative today.

BARRY RITHOLTZ (00:17:16): You’re saying the electric typewriter isn’t cutting-edge anymore?

JASON WENK (00:17:19): I mean, they’re still fun to use — the click and the clack.

BARRY RITHOLTZ (00:17:21): They make a nice noise.

JASON WENK (00:17:22): Right? It feels very — it reminds me of my grandparents’ house in the nineties or something. So look, getting to the problem statements: having been in this space a long time, for the longest time I would look at the industry and go, that just doesn’t make any sense. Why do we do it this way?

BARRY RITHOLTZ (00:17:42): Again, we’ve always done it that way.

JASON WENK (00:17:43): Yeah, exactly. It doesn’t mean it’s the right way. And so some examples of that. I think it’s a bit crazy — if you’re a financial advisor or wealth manager… and I think if someone’s listening to this and they’re not one of those people, they’ll think, this is literally crazy. But this is the way it works. So first you have to have a custodian, right? This is a place where you’ll open accounts for your clients. They’ll safeguard your client assets, do all your record keeping, process trades —

BARRY RITHOLTZ (00:18:06): A trusted third party who is not managing the money. And that creates a built-in checks and balance.

JASON WENK (00:18:13): Somewhat — or it could be a built-in limitation, keeping that advisor from doing high-quality work. Which is what I sort of discovered as I peeled back the layers of the onion.

So these custodians — one would think a very simple thing they should be able to do is, let’s say you have three accounts with your financial planner. You’ve got an IRA, maybe a Roth IRA, a joint account with your partner, and you wanna know: how am I doing over the past 12 months? You’d think you could just log on to Schwab or Fidelity or Pershing or wherever and just click a button, and it would tell you that. But the reality is that you cannot get that information from your custodian. The custodian will only be able to tell you what you have today. It will give you access to your statements. The statements are not bundled at the household level. And what the custodian will tell you is that if you want that type of information, you need to buy a third-party portfolio accounting software: we’ll send them a daily file of all of your positions and transactions, that third party will reconcile all that data, and it will then allow you to run reports for your clients. And you’re gonna have to pay, depending on the size of your firm, anywhere from tens of thousands to millions of dollars for this third-party software. And this just fundamentally makes no sense at all. The custodian has all of the data. It should easily be able to reconcile that and run reports for advisors. But they can’t, and they won’t.

And you could go down this long list of things that they should be able to do, just as logic would tell you. For example, if you wanna bill a fee to your client — the client signs a fee agreement that says, I’m willing to pay my advisor 1 percent, hypothetically, and I’m willing to pay them that every quarter, calculated on the average daily balance, and bill me in arrears. Something simple. The custodian will say, that’s cool — what you need to do is, we’ll send your data to a third party, they can reconcile the data, you can then run a billing schema, it’ll create a CSV file, you can then upload that to our system, and we’ll then debit those fees from the accounts. But this whole process can take days. And by the time you go to debit those fees, sometimes a client will have had a distribution in their account, or a trade or something, and the fees get busted. It creates an account that gets overdrawn.

And fundamentally, again, there’s hundreds of these things, and you go, this makes no sense. Why is this the way things operate? This is largely the genesis of why you would build a brand-new custodian from scratch. And if you were going to build it in a modern way, you would probably make sure all of these things are just built in automatically.

BARRY RITHOLTZ (00:20:39): So that raises a really fascinating observation. Altruist first came to market 2020 — was it ’21?

JASON WENK (00:20:48): We wrote the first lines of code in January of 2019. I think we went into beta in early 2020, and then launched the product right in the heart of the pandemic, in 2020, 2021.

BARRY RITHOLTZ (00:20:58): So I remember when the firm first launched, and I remember hearing about it, and the initial reaction was — I don’t wanna say crickets, but kind of low-key: yeah, someone’s gonna disrupt these guys? We’ve got $10 trillion, we know what we’re doing custody-wise. And what started out as sort of a shrug — it didn’t take very long before there was a little bit of a freak-out. Like, wait a second, what’s going on here? They’re actually winning clients. How is this a thing? From your perch within building the company, how did you see the rest of the custodian market react to Altruist launching and just rolling out one new capability after another?

JASON WENK (00:21:48): So — and I wish I could remember where to properly attribute this — there’s a great saying: first they ignore you, then they laugh at you, then you win. So it’s not surprising, when somebody makes a big, bold declaration that they’re going to change an industry and make it better, if you are effectively a duopoly or oligopoly, as our industry was. Almost all the assets were held by, at the time, three custodians. Back then it was Schwab, Fidelity, and TD Ameritrade. TD Ameritrade, shortly after we launched, was acquired by Schwab, really making the power dynamic two companies that have 80-plus percent market share. So, respectfully, I think there’s going to be a natural rent-seeking sort of mentality from those people who are the dominant players. Why would they ever want there to be any change? Why would they want to change their cost structure? Why would they want to modernize their systems? Things were great for those companies. So you’re not surprised that some folks may have been dismissive.

But advisors never were. When we first started putting prototypes out into the public and sharing our vision, we had thousands of advisors that signed up for our waitlist, hundreds that decided to become design partners — very early design partners — to help us build the platform. And we have this very loyal base of users that are very loud about how happy they are with the product. And we’ve done this by co-creating it with the advisors. It’s not lost on me that there are literally thousands of features that you have to build to support the wealth management industry. We can’t possibly know all thousand internally, so you need to have some awesome partners that can help shine a light on what the most important things are. So yeah, in the end, I think we have more than caught their attention. I think now there’s a fairly deep-rooted fear, actually, from a lot of the bigger boys.

BARRY RITHOLTZ (00:23:51): Yeah. So you have the three big incumbents — it’s a little bit of an oligopoly of Schwab, which is now Schwab-TD combined, Fidelity, and Pershing–Bank of New York. Everybody kinda looked at them and said, there’s no way we’re going up against those behemoths. You are one of the first companies to say, we’re gonna take on the custodians, because their legacy platforms just can’t do the things that we can do at scale. How do you think about the challenges of going up against — what is Fidelity, 18 trillion? And Schwab is 12 trillion? These are monsters. Bank of New York Pershing is the oldest bank — that’s Hamilton’s bank, literally. These are not, oh, I think I could disrupt Nokia with a better product. These are just the most entrenched, well-thought-of partners for advisors. What gave you the confidence to say, we could beat them at their own game?

JASON WENK (00:24:58): I think a big part of the confidence came from that early advisor reaction. But the truth is that these companies don’t have high NPS — these aren’t companies loved by their customers.

BARRY RITHOLTZ (00:25:14): NPS — net promoter score. We do one of those surveys every year, and I know that’s become super popular everywhere the past 20 years.

JASON WENK (00:25:22): You don’t have to look very far and wide, or have too many conversations, to hear wealth managers gripe about their custodians. Again, I was running one of the largest — I think when I stepped down from FormulaFolios, at the time it was the fastest-growing RIA in the history of the entire industry. We were growing at 16,000 percent on a three-year growth rate. So it was a true rocket ship in the sense of the RIA space. And I felt tremendous pain. My biggest pain point was my custodian — onboarding new clients. They were making you download forms from a form library, populate the forms by hand, send them out via DocuSign at best, sometimes requiring wet signatures or medallion stamp signature guarantees. It was literally like going backwards in time 20 years. Meanwhile, you had companies like Robinhood, where you could download an app on your phone at 18 years old, have your account open in 30 seconds, fund it with a hundred dollars, and buy fractional shares of Berkshire Hathaway stock commission-free.

It was so obvious to me that the old way custodians had been operating — they were still charging commissions, using paper — this was definitely not the right way to do things. And if you started looking at the impact to clients: what is the impact of forcing people to use whole shares? Why would the big custodians force you to use whole shares versus fractional shares? Fractional share trading had been around for over 20 years.

BARRY RITHOLTZ (00:26:47): It’s just math. It’s not that difficult to execute.

JASON WENK (00:26:49): Correct. This isn’t even hard — it’s arithmetic, geometry, algebra, right?

BARRY RITHOLTZ (00:26:53): You’re not talking about exponential algos or anything like that.

JASON WENK (00:26:56): Precisely. But a lot of it is, you just start going, okay — and maybe this is a good tinfoil-hat theory here, but I’d say, what would the benefit to them be of not enabling fractional shares? Maybe that means more cash will be in client accounts — maybe they make half of their revenue from the cash spread, right? The net interest income on the cash that sits in client accounts. Maybe it also forces you — if you do want to use fractional shares, the only vehicle that trades in fractional shares, in other words where you can do notional, dollar-based buying, is mutual funds. And these mutual funds pay tremendous fees for distribution through these brokerage platforms. What if they are not allowing fractional shares because they really don’t want to disintermediate packaged products in general — to make things like direct securities more accessible to more people?

I just went down this rabbit hole, but the end result is, it costs investors a ton of money. You end up limiting the amount of tax benefits, you end up increasing the average client account size — so if you really want to have great efficacy in investment outcomes, you’d have to have tens of millions of dollars. And if you had fractional shares — as just one example — all of a sudden, a ton of that entrenched history goes away completely. Everybody can get access to the same type of investment strategies: individually managed accounts, lot-level tax trading so you can get the best possible after-tax outcomes. You can compress cash down to the lowest amount, so you’re reducing cash drag — this increases outcomes.

So I think in the end, if you put yourself on the right side of the client and you have time on your side, you will absolutely win. I think one of the best examples of that in our industry is Vanguard. What they did — they were laughed at for decades, a long time, and they didn’t even really reach massive scale until 25, 30 years into their journey. But again, if you just put yourself on the right side of the client — the end client — hey, we are going to do things that objectively and obviously produce better outcomes on an after-fee, after-tax, after-cash-drag basis; we’re going to provide delightful experiences with a true partnership with our advisors and clients — these things will work.

And again, I think you have to have a certain amount of craziness. One of our early investors — you might know Omani Carson, formerly known as Ron Carson.

BARRY RITHOLTZ (00:29:23): I was gonna say — Omani is his new name, his post-retirement name.

JASON WENK (00:29:26): And I love him dearly. But I remember, I met him very early in building Altruist, and we met for coffee in Venice, California, where the company was started. And Omani looks at me after I explained the company, and he’s like — pardon my French — “This is the craziest effing idea I’ve ever heard. I’m in. How do I give you money?” I think there’s a certain number of people who — when we’ve been doing this a long time, you eventually become numb to the status quo. And the status quo was totally shitty, right? It was not good for anybody.

BARRY RITHOLTZ (00:29:59): Except for the custodians themselves.

JASON WENK (00:30:00): Yeah, there was one party that really was happy with the status quo, right? And so I think as soon as we shed a little bit of light — now, there’s a ton of challenges you have to overcome, but again, there was no doubt in my mind this was gonna work when I started.

BARRY RITHOLTZ (00:30:11): You mentioned Robinhood and zero commission, which I wanna say was 2014 or 2015, and then Schwab rolled out commission-free trading in 2019. What did that shift in cost structure do to the relationship between investors and custodians, advisors and custodians? Did that change the way everybody looked at this? Or was this just, okay, I guess this is an even lower-margin business?

JASON WENK (00:30:42): So I think that’s a huge misconception. What’s interesting is that I wrote this piece in 2018, and we had one of our designers draw an infographic behind it. And it was the classic tip of the iceberg, where we showed what you see above the waterline and then what exists below the waterline.

BARRY RITHOLTZ (00:31:04): I just did one of those two weeks ago.

JASON WENK (00:31:06): It’s a pretty metaphor.

BARRY RITHOLTZ (00:31:08): It really is just so perfect — hey, here’s what you’re focusing on, but you gotta look at the things that matter even more.

JASON WENK (00:31:15): So we did this for custodians. And the thing people saw was the commission. So there was this belief — and advisors even didn’t know the facts. They would go to clients and say, hey, when you work with us and our independent third-party custodian, here’s how they get paid: they get paid $7 if you do a trade. It’s a pretty cheap, one-price —

BARRY RITHOLTZ (00:31:36): What about spreads? What about payment for order flow? I mean, the big money — the commission is just a break-even.

JASON WENK (00:31:42): A hundred percent, right. If you look at the big public companies that were in the space, maybe five to 10 percent of the revenue was from transactions, and commissions were maybe half of the transaction revenue.

BARRY RITHOLTZ (00:31:55): And that’s before we get to the float, which everybody loves.

JASON WENK (00:31:57): Correct. So there’s a ton of things that had, I’d say, historically been ignored or unknown. The biggest revelation when everybody went commission-free was that people started asking the question, well, how the heck do you make money? How does this business actually work if you’re giving away everything for free? Only then did people start to go, oh, wait a minute — that wasn’t even how you made money. That was literally just a complete smoke-and-mirrors way to fool me into believing you only made $7 a trade, when the reality was all of the real money was made by paying me 0.01 percent interest on my idle cash; making me trade whole shares, which makes me have more cash in my account than I really should; making me buy these different funds that all have a bunch of conflicts of interest through all of their various forms of 12b-1 and 15c-3 revenue-sharing agreements — just very esoteric stuff that very few people ever talk about. And to your point, on float and liquidity through PFOF — payment for order flow.

It really opened everyone’s eyes to the fact that the clearing and custody business, it turns out, wasn’t a high-scale, low-margin business at all. In fact, it was a very high-margin business, and that was just one kind of irrelevant piece that confused people into believing that was the full price of admission.

BARRY RITHOLTZ (00:33:20): I recall a couple of years ago — it was after Schwab went zero-commission, commission-free trading — I don’t remember if it was TD or Schwab, but one of the public companies, in a quarterly earnings report, 57 percent of their gross came from the float — came from what they got paid on the difference between what they were paying investors, 0.0-whatever, and the actual rate that they could generate internally. How does Altruist deal with that?

JASON WENK (00:34:00): So I think the key is doing whatever you’re doing transparently, and whenever you can, giving as much of the economics to the client. I’m a big believer in the flywheel, made popular by Good to Great, one of my favorite books. And our flywheel is: the first spoke is, invest in innovation that drives better outcomes for advisors. The second is, invest in innovation that drives better outcomes for end consumers — the end client. If we do those two things, it will drive the highest satisfaction amongst our user base. This will increase the amount of assets on our platform, which gives us the scale to invest more in innovation — which drives better outcomes for advisors, better outcomes for clients.

If you’re going to do that, you have to earn revenue, of course. But in our case, we built a very integrated wealth platform. So yes, we have custody and clearing revenue. We make money on net interest income — the float, if you will. We make some revenue on payment for order flow, but we built what’s called the Wheel order routing system. It’s 100 percent optimized to drive the best possible execution for every single client transaction. If we happen to get a better execution through Citadel or Jane Street, whomever, we might make a tiny amount — literally measured in fractions of basis points, mills. It’s the lowest amount of revenue we earn, but there is something there. We do earn money, again, on float, but we offer fractional shares, so we have the lowest cash holdings in the entire industry — people can hold virtually nothing. We also have some earnings from things like mutual funds, but we have the lowest amount of mutual funds in the entire industry, because we offer fractional shares — people can buy ETFs, they can buy individual securities. So we have very, very little in the way of rev share through fund companies. But there’s definitely money that is made at that clearing layer.

Where we’ve really innovated is that we also do all of the software layer for advisors, and we offer an asset management layer for advisors. So each component of the Altruist business is generally going to be 60 to 80 percent cheaper than if these things were bought individually. So you may recall, when I shared the story about how you go to a custodian and you say, why can’t you do my fee billing? That makes no sense — you have to buy a third-party software. We built all of these things natively, and most of them are either free or very low cost, because we have this benefit, if you will, of stacking the various forms of services that advisors and their clients need.

BARRY RITHOLTZ (00:36:26): On a modern platform.

JASON WENK (00:36:27): Correct. And we do it with, I’d say, fairly insane amounts of automation. So the knock I made on using PDFs — there’s no PDFs necessary at Altruist.

BARRY RITHOLTZ (00:36:40): You’re not exporting CSVs and then having to upload them to Claude to get a report once a quarter or a year.

JASON WENK (00:36:48): A hundred percent. You can open an entire family’s accounts, do all of their account transfers, link all their bank accounts, and do the whole thing in under two minutes. The accounts are being real-time validated, the transfers are being real-time validated — in 98-plus percent of these workflows, there’s no human being ever involved. So every time we build a new innovation or automation, we’re able to operate with a much higher amount of operating leverage than anyone else in the industry. This allows us to invest back into more innovation, which allows us to offer more services at lower price points.

So look, we earn revenue just like everyone else does. I think one interesting tidbit we don’t talk a lot about is the fact that, on the aggregate, Altruist earns more revenue than, I believe, any other RIA custodian on a per-dollar basis — meaning, per dollar on our platform, we earn more revenue than the big players. And it’s not because we charge more. In fact, we have the lowest fee schedule in the entire industry. But it’s because we do more for those advisors than just provide custody and clearing. We’re offering software and services, AI products, asset management services, automations around things like tax management and tax-loss harvesting. So because people use more surface area, we end up having more — and more diverse — revenue as a business, and we have much better operating leverage, because we have so much automation that we don’t have to hire a lot of people to actually offer this at scale. So these are a lot of the benefits of modern, right? If you build in this day and age, you’re not going to build the same way you would if you did it 50 years ago.

BARRY RITHOLTZ (00:38:17): You are earning more revenue as the custodian per dollar on the platform, yet at the same time the advisor is paying less cost per dollar on the platform — of course, because they’re not working with five or ten third-party add-ons. It’s just one turnkey solution, correct?

JASON WENK (00:38:36): Yeah, it’s material. And consumers, if they’re using the platform correctly, are getting better results as well. Because they don’t have things like cash drag, because they can be more fully invested, because they can reduce the need for third-party investment products — they can hold securities directly on the platform, reducing expense ratios — and because we have automation around tax management, they can drive down the tax consequences of investing materially. So again, it’s one of these things where it almost sounds too good to be true, right? But yes — advisors should be able to run more efficient, better businesses, we can have a great business, and consumers can win, too. That is very much a real possibility. There doesn’t have to be a loser. It’s a win ecosystem.

BARRY RITHOLTZ (00:39:20): Let’s talk about AI and automation and your platform, Hazel. I know my team loves it — everybody’s super positive about it. Is Hazel a standalone AI bet? Is it part of the long-term vision? Is it planning and custody and other services as one seamless workflow on a single platform? Tell us all about Hazel.

JASON WENK (00:39:48): So first, to answer your question: it’s very tightly integrated with Altruist, but it’s available totally separately, so really any wealth manager can use it. We have people using it all over the world, in many different industries. We have large CPA firms that are using Hazel, and obviously large financial advisory firms.

Part of the thinking here is that the Altruist business will eventually be a very large, scaled business with trillions of dollars in assets, but the total size of our industry is going to be tenfold that, right? So we don’t want to limit the power of AI to just whatever percentage of market share Altruist has — we want everybody to benefit from these innovations. And the things that are really cool with Hazel — again, it can be used by any financial advisor, or really a lot of different segments of financial services. It’s been a ton of fun to build. And a lot of what we’re doing is just taking the hardest, most laborious, non-glamorous but important work that used to be really hard to get if you didn’t have tens of millions of dollars, and we’re bringing the unit cost down to like three to five dollars. So you can do incredibly complex tax planning, and do it for, again, effectively a dollar to five dollars. This makes it accessible to everybody. And AI — people have their fears about what could go wrong, but we like to think this is a lot of the “what can go right.”

BARRY RITHOLTZ (00:41:19): Coming up, we continue our conversation with Jason Wenk, founder and CEO of Altruist, discussing how he built the firm to compete with the big guys. I’m Barry Ritholtz. You’re listening to Masters in Business on Bloomberg Radio.

I’m Barry Ritholtz. You are listening to Masters in Business on Bloomberg Radio. My guest this week is Jason Wenk, founder and CEO of the new custodian Altruist.

I’ve seen some crazy numbers as to what advisors manage. I don’t wanna talk about mutual funds — I wanna talk about straight-up RIAs, who are your prime clients as a custodian. Ten, 12, $20 trillion — just crazy numbers out there. What is the total addressable market there, and how much does the oligopoly — the big three — have of that total market?

JASON WENK (00:42:17): So the approximate number is 10 trillion today. It’s about 35,000 firms. Roughly half of these firms are SEC-registered investment advisors, meaning —

BARRY RITHOLTZ (00:42:27): More than a hundred million each.

JASON WENK (00:42:28): More than a hundred million. And then the other half are state-registered firms that are sub-100 million. Some of those are just new entrants — firms at their first registration that will probably mature into the SEC within a year or two. And others just operate small, independent businesses serving a loyal but small group of clients.

At the top of the market — I think Pershing oftentimes gets lumped into the big three. They don’t have much market share of the RIA segment. It’s a bit muddy, but the reason is they support all of the big broker-dealers, which usually have a companion corporate RIA, and that’s kind of how they get in here. But for true standalone RIAs, 85 percent of the assets are with just two companies: Schwab being the largest — they’re north of 50 percent market share — and then Fidelity being the second largest. So it’s your very classic disruption setup. If you were to just say, hey, what would be the recipe for disruption? You’d say: big, fast-growing market, dominated by old companies, using old infrastructure, with generally low NPS — low customer satisfaction. That is exactly the market that we are in today.

BARRY RITHOLTZ (00:43:39): Huh. Really, really fascinating. So given the fact that you got to build a clean-sheet custodian — you’re not built on this legacy hardware that can’t do all these things fast and easy — what’s the biggest take-up from advisors? Where are they still inefficient? Is it just paperwork and portfolio management? Is it tax? Is it compliance? Is it client service and disbursements? Where are the biggest advantages? Or is it just the whole thing?

JASON WENK (00:44:11): So we break this down into two elements. With Altruist, we have our core wealth business — this is the custody and the software related to custody. We started there. It’s a super big, hairy build. It just takes a long time — hundreds of thousands of engineering hours. There are no shortcuts. Very expensive, time-consuming.

BARRY RITHOLTZ (00:44:34): Was that a BHAG reference I heard?

JASON WENK (00:44:34): Oh, absolutely. This is as big and hairy as they get, right? And again, there are no shortcuts. But that infrastructure is so critical, because what it allows you to do, if it’s done the right way, is tackle all the other work. So I’ll start with the custody part. You can open accounts super fast and do all of the automation around onboarding clients. This is great, but you only onboard a client once — ideally. And so if you serve a client for 30 years, the custody part is really a pretty small part of the picture. It was a huge friction point, because it was oftentimes one of the first experiences that a client would have with their advisor. And if it was a bad experience — as it often was — it’s usually not fast, you don’t have a lot of clarity: hey, when is my transfer going to be done? Why did this thing get rejected? Why am I redoing this paperwork? So we solved a lot of the infrastructure.

Now, with our AI products — Hazel — we’re tackling the rest of the 30 years, right? So maybe there’s 5 percent or less of a client relationship that’s really connected to the custodian: you’re onboarding the client, you’re setting up rules around trading and rebalancing and tax management. But a lot of the work really is all of the one-to-one, hard-to-scale work. So you meet a new client — they’re a prospect at this point. You need to uncover a bunch of data that they have, you need to then analyze that, build a financial plan, create a proposal. Once they agree to it, then you do that onboarding, and now you have to serve that client for decades. And there are going to be all of these life events that happen, all of these emotions that these folks will live through with you. It could be massive changes in macro conditions; it could be changes to their family — whether it’s death, divorce, new children, etc. There are so many things that happen, and advisors have to be able to react — ideally, be proactive, but react to all these things — and make sure your money’s aligned at all times.

And this is where AI is incredibly powerful, where you can take a ton of that work that used to be heavily compromised… And compromise is interesting, because every advisor, whether they want to admit it or not, historically has been making compromises for their clients. And it goes one of two directions. One compromise is: I wanna save the world, I’ve got a hero complex, I’m gonna take every client under the sun. If I do that, the compromise is I can’t possibly give the highest level of quality, care, and service to every client — it’s just not possible; you can’t earn enough money and revenue from the lower end of your client base. The other compromise might be: I am not willing to compromise on the quality and service and attention, but as a result, I can only serve 50 families, and so my minimum is going to have to be $10 million or something like that. Where the compromise is, I can’t actually give my advice to as many people as I’d like to.

AI is this great equalizer. You think about all the infrastructure we built at Altruist, and you then layer on all of the agents that can do things like gather data for you, build financial plans, build tax plans, help you be incredibly responsive to client emails and questions — to build a level of intelligence across your client base that no human being could ever possibly attain. So it’s very easy to have an incredibly precise and highly personalized perspective on every unique client that you serve. So these are the things that we’re building. I think in the end, the clearing and custody business will end up becoming very agentic. These agents will be the ones who are probably logging on, if you will, and they’ll be performing functions that today humans have to log in to do. But it’s a pretty exciting time to build.

BARRY RITHOLTZ (00:48:22): Really interesting. I recall a couple of years ago — and I don’t wanna put words into anyone’s mouth, but it was the CEO of either BlackRock or Vanguard or somebody that size — was asked, what keeps you up at night? And the answer was cybersecurity and fraud. And I totally understand — no one wants to wake up one day and a billion dollars is missing. How do you integrate that into Altruist? How do you think about the human element — deepfakes and synthetic identity and voice fraud and cloning and all that stuff? What can the modern custodial platforms do that, hey, some of the big guys don’t have the integration with technology to do, to engage in this arms race against the bad guys?

JASON WENK (00:49:18): I mean, I think the biggest reason they’d have that paranoia is that they’re working on a 50-year-old tech stack. And we see this with the latest Anthropic models — you connect those models, they sit on top of some legacy infrastructure, and they’ll find hundreds of critical vulnerabilities that no human being could have ever identified, because the code base is essentially one giant monolithic code base. It is just this huge albatross that these companies have been dealing with for decades. And replatforming is really hard. If you’re already big, you’re at scale, and you’ve got tens of trillions of dollars, it is nearly impossible to replatform and go from physical, mainframe-based technology into a cloud-based infrastructure using smaller, more manageable microservices. So yeah, it’s a huge risk. If I was running a giant old bank or brokerage, I would probably have the same primary paranoia.

If you’re building today, the best defense is oftentimes a strong offense. So why not just build, again in first principles, a bunch of protocols to make it much harder for bad actors to even get in the door? And this is overstating the obvious, but just having modern multi-factor authentication and requirements for security keys — even eliminating some of the highest-risk channels; for example, phone calls are a lot easier to dupe, ironically, than a properly built multi-factor authentication program. So I think there’s a lot that will change. We don’t rest on the fact that, oh, we’re a tech company, therefore we’re impenetrable. Of course we have bad actors trying to come after our clients all the time. And I think that if you’re not building — especially AI that can help identify other AI and other bad actors — you’re in a bit of a quandary. And it’s really hard to do that if your core platform, again, has tens of millions of lines of code written in languages that honestly nobody uses and hasn’t used for decades. That is a major problem with financial services.

BARRY RITHOLTZ (00:51:29): So you’ve raised a decent amount of venture capital money. I wanna say the 2025 Series F gave you a just-under-$2-billion valuation. I think it was the Series F — I don’t remember.

JASON WENK (00:51:42): Yeah, correct. Last year.

BARRY RITHOLTZ (00:51:42): Discuss the need for capital to build out. And we’re not talking about the hyperscalers that are spending ungodly amounts of hundreds of billions of dollars — this is just a nice little startup that’s taking on a couple of big, entrenched companies and working off a clean sheet. What has the capital spend been like on the technology side?

JASON WENK (00:52:08): So we’ve raised a little over 600 million in capital over the last seven years. I don’t think we’ll need any additional capital going forward — we still have a lot of cash on the balance sheet.

BARRY RITHOLTZ (00:52:20): You’re cash-flow positive now?

JASON WENK (00:52:23): Our broker-dealer’s been profitable for about three years.

BARRY RITHOLTZ (00:52:26): Profitable — I wasn’t even talking profitable. I was just asking if you’re at least holding your head above water.

JASON WENK (00:52:31): Yeah. Well, look, in our industry, every broker-dealer’s financial records are public, so you can go look up our balance sheet — it’s not hard to find. But we still use cash on the balance sheet for R&D investments, to keep building more tools. You can imagine, if we backed off from our aggressive building of products and features, it wouldn’t be a hard business to run standalone for decades.

But there’s a serious cost to starting a custodian. Beyond the cost of building all of the technology, there are also the regulatory requirements and the capital requirements. When you run a brokerage business, every time you add a new client, a new dollar to your platform, you have to have reserve capital in your broker-dealer. And so there’s no shortcut. This is something where I tell people every now and again — they’ll ask me, hey, what would it take for someone to compete? I’d say, well, it’ll take about five years and at least $250 million just to have a shot — just to have any shot in the dark of making it. And that assumes, of course, you do it right, and what you build is somehow substantially better than anything else in the market, and you can get enough clients to run it on. But just to give yourself a shot — it’s, again, non-trivial.

And just to pick up on it, ’cause you made a comment about these sort of hyperscalers building these foundation models — I’m not so sure that when we look back in 20 years — or maybe 30 years, 40 years, 50 years, some amount of time in the future — at what were the most impactful companies that made the biggest difference for society, I’m not so sure those are the ones that we’ll be talking about. Really, I think it’ll be businesses like Altruist that we’ll be talking about, and going, wow, they have managed to unlock trillions of dollars for consumers. And that is not something that any of us can be convinced is possible with foundation models yet, at this point. All they are are money-guzzling machines that have yet to figure out how to turn inference into profits. In other words, their costs are higher than what they’re reselling their products and services for. I’m as big a fan and believer and user of AI products as anybody, but when we really start measuring impact — what changes the world — that’s very possible, but there’s nothing proven about it.

What we’re doing is very proven. You can very objectively say, if we give every single client, I don’t know, 1 percent back in economic advantage, and you scale that across trillions of dollars for decades, you can start measuring your impact in hundreds of billions of dollars. That, to me, is more than a small startup. It’s incredibly ambitious, but it’s incredibly good for humanity. I hope more people do this type of stuff.

BARRY RITHOLTZ (00:55:10): That’s Eric Balchunas’ column, which became a book — the Vanguard Effect. I wanna say it was like 2016, 2018: Vanguard has saved $2 trillion in fees for clients. I mean, that’s an insane, insane number. And you guys are looking to push into the same space.

I want to be respectful of your time. Before I jump to my favorite questions, I just have to ask one other question. You’ve built multiple businesses in the wealth management and fintech space. What’s the repeatable lesson that carries over from one to another? Or is each one a completely different animal?

JASON WENK (00:55:51): I mean, these are all pretty connected businesses. If someone looks at the evolution arc of my career, it’s sort of like each time I find a problem —

BARRY RITHOLTZ (00:56:01): Go on to the next one.

JASON WENK (00:56:02): Yeah. You kinda go, okay, well, that was an interesting problem, but this is an even bigger problem, and this is an even bigger problem. I’m curious — now, I think there’s going to be a reasonably good need for a highly specialized LLM, specifically narrowly trained for our industry. I’m not sure the big LLMs will do it, so maybe we’ll do that at some point in the future. But the point is, there’s always something that has the potential to make a bigger impact.

And one thing I’ll say — for me, I don’t spend a ton of time trying to compare what I do to what other entrepreneurs do, so I can’t really say if there’s a lesson to be learned broadly. But with each venture that I’ve been involved with, I’ve started with a pretty simple North Star, which is: I want to help people. These are all mission-driven organizations, and I’m very passionate about that. This allows you to attract other people that are also mission-driven — these are your missionaries versus mercenaries. And we have some of the most incredible people. I could never even dream of assembling a team like what we have at Altruist, but it’s because they share that same core ethos of serving clients, driving better outcomes — again, sort of being on the right side of the customer, doing things that really matter.

BARRY RITHOLTZ (00:57:18): So given that, look out five to 10 years. Where is Altruist? What are you doing? How big is Altruist at that point?

JASON WENK (00:57:28): It’s hard to predict with precision just how big, but I suspect we’ll be very large. If we look at the trajectory of the business today — again, we don’t talk a lot about our numbers publicly, so people have to sort of take Jason’s word for it — but in our first five years of operating, from when we opened our first account, we had more assets on our platform than Robinhood, Betterment, Wealthfront, Public, Stash, M1, and Acorns combined. So when people wonder, is this working? It’s scaling very, very rapidly, and it’s growing at a really, really fast pace. People sometimes don’t understand the sort of network effect you get when you serve advisors and those advisors are growing fast. Firms like yours are growing super fast, the clients are adding deposits to their existing accounts, and the market tailwind is pretty material.

BARRY RITHOLTZ (00:58:19): Fifteen percent a year for the past 15 years.

JASON WENK (00:58:20): Yeah. And it’s better for advisor clients than it is for self-directed clients. So these are all things that create enormous tailwinds for businesses like ours. So I think 10 years out, we’ll be multiple trillions in assets, serving many millions of end clients. And likely, where advisors have kind of capped out at a hundred or 125 or 150 clients, those laws of physics will sort of be removed. And I think that’s a net great thing.

BARRY RITHOLTZ (00:58:44): All right, I wanna be respectful of your time, and I’m gonna jump to our speed round — we’re gonna do these really quickly. Starting with: who are your mentors who helped shape your career?

JASON WENK (00:58:55): So, Nick was our first investor at Altruist. He was also a big supporter of me at my last company. He’s a partner at Venrock, and he’s just awesome.

BARRY RITHOLTZ (00:59:04): What are your favorite books? What are you reading currently?

JASON WENK (00:59:07): Right now I’m reading Life 3.0 by Max Tegmark. It’s a book from 2016, 2017. He’s a professor at MIT and one of the real forward, early thought leaders in AI. There are three phases of AI, and I’d say we’re in Life 2.0 right now — so, human-powered. Go read the book and you’ll find out what comes with 3.0. It’s a good one.

BARRY RITHOLTZ (00:59:33): That’s interesting. And you mentioned Good to Great. Anything else you wanna mention?

JASON WENK (00:59:37): Yeah — these are a little bit cornier, but some of the most important books for me… I’m a total math nerd, so I can live in a Max Tegmark book forever. But I had to learn a lot of soft skills to be a better entrepreneur, and I learned a lot of those from reading Seth Godin’s books. One of my favorites.

BARRY RITHOLTZ (00:59:51): Seth is great — amazing books, great blog as well. Let’s talk about what you’re listening to, streaming, or watching. What’s keeping you entertained on these cross-country flights?

JASON WENK (01:00:02): So I don’t watch much TV, although I did watch your Knicks. Congratulations.

BARRY RITHOLTZ (01:00:07): Talk about perfect timing and a fairly easy path — it was the perfect storm.

JASON WENK (01:00:14): They avoided my Pistons — I’m a Detroit Pistons fan. But yeah, I don’t watch a lot of TV. I do listen to a lot of podcasts. I listen to yours. I’m a big fan of Harry Stebbings, so 20VC is a good one I listen to quite a bit. And then I listen to Lenny’s Podcast — if you’re a tech person; Lenny is a product person who goes deep into how different tech companies are being built, especially product-led companies. So those are some things I listen to a lot.

BARRY RITHOLTZ (01:00:42): Huh, really interesting. Final two questions. What sort of advice would you give to a recent college grad interested in a career in — fill in the blank — entrepreneurship, fintech, or even financial services?

JASON WENK (01:00:55): I think in any career, I would become the most AI-forward person in your field that you could possibly be. It does not matter if you’re working in sales, if you’re working in tech, if you’re working in financial services. If you can become the person who, when you walk into the room, is the absolute master of Claude for your job function, I think that’s one of the most important things for any person. I think young people have an actual advantage there, and it’s one they should definitely be leveraging.

BARRY RITHOLTZ (01:01:25): You’re not gonna be replaced by AI — you’re gonna be replaced by someone who uses AI better than you do.

JASON WENK (01:01:30): It’s getting cliché, but it’s very true.

BARRY RITHOLTZ (01:01:33): And our final question: what do you know about the world of technology, entrepreneurship, or financial technology today that would’ve been helpful back in the two thousands when you were first ramping up?

JASON WENK (01:01:47): I mean, I don’t know that there’s necessarily some innovation that I wish I knew. I just wish I would’ve spent more time getting proximate to really high-caliber people. Now that I’m older and I’ve done a few things, I’ve gotten the chance to meet some just outstanding people. Man, if you can get close to those people early in your career, it’s just going to be such a massive accelerant, because your way of thinking is going to be so much better and sharper and inspired. That’s what I’d do.

BARRY RITHOLTZ (01:02:16): Thank you, Jason, for being so generous with your time. We have been speaking with Jason Wenk. He is founder and CEO of fast-rising custodian Altruist. If you enjoyed this conversation, well, check out any of the previous 648 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 put these conversations together each week: Alexis Noriega is my video producer; Anna Luke is my podcast producer; Sean Russo is my head of research. I’m Barry Ritholtz. You’ve been listening to Masters in Business on Bloomberg Radio.

~~~

The post Transcript: Jason Wenk, Altruist founder and CEO appeared first on The Big Picture.

In this guest post, Rich Chen, founder of Brightstar Law Group, explores how real-world M&A deals are negotiated for advisory firms, and what, exactly, can lead to material divergences between the valuation multiple externally reported in a deal, and what the seller actually gets for the business, with the aim of helping sellers better prepare how to negotiate with buyers.

The starting point is to recognize that when a buyer offers a seller a multiple of revenue or profits (EBITDA), the buyer and seller still have to agree on how to actually calculate revenue or profits. And as it turns out, determining exactly what the revenue base or EBITDA base will be – against which the multiple is then applied – is not as straightforward as simply looking at the firm's profit-and-loss statement for the trailing-12-month period.

When it comes to determining a revenue base, trailing-12-month revenue may be a common starting point, but buyers generally only want to pay for revenue they will receive after the purchase is closed – i.e., recurring revenue that will perpetuate in the future. As a result, any one-time receipts are often discounted or removed entirely from the valuation process. Similarly, any other revenue streams that come "off the top" of the advisory firm – revenue-sharing arrangements to referral sources, fees paid to a sub-advisor, etc. – are also commonly  removed, as buyers want to pay for net revenue, not the gross that they won't get to keep anyway. And to the extent that revenue is set, buyers will often apply a haircut to the revenue calculation for any clients who don't actually consent to the acquirer's advisory agreement (often with a 1-percent-not-retained-equals-2-percent-reduction-in-value penalty).

For firms that are valued as a multiple of EBITDA, the adjustments can be even more complex. If the advisory firm doesn't pay its own founder a "fair market rate", acquirers will typically impute a salary into the business to pay the founder and reduce earnings accordingly… which can materially curtail the valuation of the firm as a whole. (And ironically, in this context, acquirers often want to impute a very high salary for the founder, as they more than make it back in a reduced purchase price when the higher salary reduces earnings being multiplied.) On the plus side, any personal expenses routed through the business are often adjusted out (increasing EBITDA and the business valuation). The most controversial adjustments are expenses that are nominally "one-time" in the business, but that buyers may claim represent a recurring need for reinvestment – from paying for technology consultants, to office transitions, to non-cash compensation for key employees (that the acquirer fears will turn into cash compensation obligations in the future).

The end result of these adjustments is that the final dollars a seller receives on their adjusted EBITDA or revenue base could be substantially lower than what a headline number implies; a firm that thought it was getting 4X revenue that really gets 4X adjusted revenue might only get 3.1X its original revenue, and a firm that anticipated getting 10X EBITDA may only receive 8X after adjustments are done.

The key point is to recognize that buyers don't simply buy an advisory firm blindly; with experienced buyers in particular, it is a meticulous exercise of scrutinizing the financial details of the firm, to ensure what they're paying for will really drive a favorable outcome for their business as the acquirer. So beware putting too much weight into media headlines that showcase seemingly high multiples… as often the reality is that those multiples were calculated after adjustments specific to the business, and are not necessarily representative of the going rate for unadjusted top-line revenue or profits!

Read More...

My guest on today's podcast is Ryan Townsley. Ryan is the owner of Town Capital, an RIA based in Bel Air, Maryland, that oversees approximately $200 million in assets under management for 155 client households.

What's unique about Ryan, though, is how he has grown his firm to $2 million of revenue largely as a solo (only recently making a new hire to provide planning support), in part by leveraging an AI-integrated tech stack and outsourcing tasks that he doesn't necessarily need to do himself.

In this episode, we talk in-depth about how Ryan moved past IT and compliance bottlenecks by using outsourced providers (which offers a secondary benefit of greater peace of mind that these functions are performed correctly by experts), why Ryan decided to make a hire to take on planning-related tasks in his firm (which he found to be a harder bottleneck to solve), and how Ryan has achieved greater efficiency by engaging in mass communication with his clients (for example, by conducting webinars during market declines so he can relay his perspective and action plan without having to repeat it individually for each client).

We also talk about how Ryan has achieved an efficiency boost by leveraging the Zocks AI automation system alongside Claude and Wealthbox to help him prepare for client meetings quickly, draft effective follow-up emails, and create checklists based on common tasks for his clients, how Ryan uses the workflow platform Hubly to create repeatable processes so that nothing falls through the cracks (and why it's important to create and describe processes in a way that future employees can pick up quickly), and how Ryan combines tax data access tool TaxStatus with tax planning software Holistiplan to efficiently gather client tax data and prepare tax planning recommendations.

And be certain to listen to the end, where Ryan shares how he approaches creating retirement income plans for his analytically minded clients (including the value of creating a 'slush fund' that they can tap for one-time expenses), how Ryan has found that becoming an enrolled agent and earning the Tax Planning Certified Professional designation has been a powerful combination by giving him more advanced tax-planning knowledge and the ability to provide tax advice, and how Ryan has managed an influx of referrals to his firm in part by maintaining a waitlist (allowing him to continue to provide a high level of service to current clients while allowing for continued growth for his firm).

So, whether you're interested in learning about outsourcing certain tasks to free up time for more high-impact activities, building a tech stack that creates further efficiencies, or providing significant value by upping your game when it comes to tax planning, then we hope you enjoy this episode of the Financial Advisor Success podcast, with Ryan Townsley.

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This week, I speak with Jason Wenk, founder and CEO of Altruist, a modern custodian for independent financial advisors. We discuss why Jason started the company and his plans to change asset management through technology. He weighs in on the state of RIAs, and how AI is going to change everything.

A list of his current reading/favorite books is here; A transcript of our conversation is available here on 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 Lori Heinel, Global Chief Investment Officer of State Street Investment Management, the asset management arm of giant State Street Corp. She oversees over $5.7 trillion in assets (as of year-end 2025), which includes everything from index funds and ETFs to active strategies, multi-asset solutions, and alternatives. She was named to Forbes’ 2025 “50 Over 50” list.

Current Reading/Favorite Books

Life 3.0: Being Human in the Age of Artificial Intelligence

This Is Marketing: You Can’t Be Seen Until You Learn to See by Seth Godin

Our Mathematical Universe: My Quest for the Ultimate Nature of Reality by Max Tegmark

Good to Great: Why Some Companies Make the Leap…and Others Don’t by Jim Collins

Books Barry Mentioned

The Bogle Effect: How John Bogle and Vanguard Turned Wall Street Inside Out and Saved Investors Trillions by Eric Balchunas

The post MiB: Jason Wenk, Altruist founder and CEO appeared first on The Big Picture.

Perhaps the question I hear asked most often is: “Are we in a bubble?” and “What’s happening with this artificial intelligence thingie?”

I picked a few of my favorite charts that shed light on this issue. All of these were pulled from my Q3 Review & Update quarterly call, which I do for RWM clients.

I have heard a lot of kvetching (sorry about the technical jargon) about the S&P’s big 5, mag 7, and top 10. Let’s see if the noise contains any signal.

The top five is now ~27% of the index, about where we were in the late ’60s and early ’70s, but up substantially from where we were in the 1990s and 2000s. What sent concentration down over the 30-years from 1960-90 wasn’t a market crash; I believe it was mostly a serious lack of Anti-Trust enforcement.1

Giant conglomerates were not in favor; M&A was cautiously watched. Most vertically integrated industries were carefully monitored; anywhere the consumer was disadvantaged, they were often not allowed to proceed. You simply could not just merge or buy whoever you wanted.

Concentration really began to tick up after a very significant regime change in M&A and antitrust enforcement in the late ’80s and early ’90s. Fast forward to what’s taken place since the GFC — it’s really gone postal.

Chart via Deutsche Bank Research Institute

I showed Eric Balchunas’ table last year, which revealed the M&A history of the Magnificent Seven: 846 mergers had taken place over the prior 15 years (as of a year ago!). In an era of traditional (read: Serious) antitrust enforcement, we simply wouldn’t have 7 companies become the giant conglomerates that dominate everything (as we have now).

Instead, these companies would be several hundred competitive firms, and if you believe what Adam Smith had to say, this would lead to better services at lower prices. The Mag 7 are in reality something like ~100 standalone companies, most of which would be S&P 500 companies in their own right.2

So while the bears are focused on concentration, they are ignoring the history of how these companies got so huge. The concentration memeists mistake these 900ish companies for just 7 giant vertically integrated firms; that is a conceptual mistake…

~~~

Let’s see how market concentration around the world looks. This chart is quite telling.

Many of the world’s largest and/or most advanced economies have a concentration of their top 10 companies at 60, 70, even 80% — Canada, France, the UK, Germany, Italy, Hong Kong, Taiwan, and Korea. Yes, equity market concentration is something we should all pay attention to — but the US is on the relatively low end of the scale compared to the rest of the world.3

~~~

Perhaps the most interesting answer to the question “Are we in a bubble?” comes from comparing the four biggest companies pre-dotcom dot-com peak versus today.

Intel and Microsoft (before they entered the Dow) sported P/E ratios of 47 and 60, respectively. Oracle was at 120, Cisco, 130.

Today, Microsoft is under 20. Wait — you’re telling me that heading into the dot-com implosion, Microsoft was 3X as expensive as it is today? Apple at 33, pricey, but they are not only one of the biggest companies in the world, but one of the most profitable. Google at 25. Nvidia at 18? That sounds reasonable.

Ed Yardeni reminds us that the forward P/E of the technology sector today is 22; for the entire S&P 500, it is 20.4. In 2000, we were looking at 55 and 25 — Technology was 2.5 X as expensive as it is now.

~~~

Home in on Nvidia, the poster child for the claim of an artificial intelligence bubble. It has grown into its price. It now sports the same P/E ratio it did way back in 2019 — before the pandemic, before the CARES Act, the semiconductor bill, and way before ChatGPT became a household name. It’s back to that exact same P/E ratio.

That is an astonishing data point I find hard to ignore.

Its earnings have caught up to its price — and, more precisely, it’s given up a trillion dollars in market cap this year, so its price has become a whole lot more rational relative to earnings.

Again, when you see a chart like this, does it scream bubble to you?

~~~

Finally, I want to share an astonishing chart via the Deutsche Bank Research Institute. It shows how much the US has been spending on private AI investment relative to the rest of the world. This is a red flag for the people hyper-focused on a bubble.

The more accurate way to think about it (IMO) is that every new technology comes with massive overinvestment and an over-allocation of capital toward that technology.  This turns out not to be a bad thing (unless it’s your capital).

We built thousands of miles of railroad track in the 1800s, and most of those rail companies went bankrupt. The survivors bought up all that railway and connected those tracks into a giant coast-to-coast network for pennies on the dollar. Then came the Telegraph companies; into the 20th century, you had Telephone, Radio, Oil, Automobiles, Television, Aviation, Semiconductors, Computers, etc.

My favorite example is bandwidth and fiber. Global Crossing and Metromedia Fiber laid 1000s of miles of dark fiber for thousands of dollars per mile — then went bankrupt. The telecos and cable cos bought it up for pennies per mile. If that did not happen, YouTube, Facebook, Netflix, Instagram, and all the rest of the bandwidth-intensive firms would not be free or even reasonable.

Would you subscribe to Netflix or Disney+ if they were $400 per month? Without those cheap, fat pipes, those services would not exist. Somebody had to spend billions to build them and then go belly up…

Misallocation of capital is ultimately a positive. My friend Dan Gross wrote a book called Pop: Why Bubbles Are Great for the Economy — this chart could come right out of his book. Look at US investment in AI: it’s 20 times greater than China’s, which in turn is more than double the UK’s, or Canada’s, or France’s.

There’s a reason the US is the leader in this space: so much money is sloshing around, and that money is finding its way to investments like AI. Is there overinvestment in this space? Probably. There is endless amounts of capital. Go to any of the wealthier areas of the country — the Hamptons, Palm Beach, Newport, Nantucket — and it’s astonishing how much money is out there. Some of it buys beach houses, but a lot of it gets misinvested.

~~~

Does that mean this is a bubble? Does that mean AI is going to put everybody out of work?  Does that mean this is a disaster?

Historically, probably not. Most of the data I see does not say we are in the midst of a bubble remotely like 1999-2000.

That doesn’t mean capital won’t get misallocated, and it doesn’t mean this can’t become a bubble.  I can promise you it DOES NOT mean that this bull marekt will not end one day. But so far, so good.

Previously:
The Magnificent 493 (August 12, 2025)

Stocks, Bubbles & Market Myths (January 16, 2026)

Rational Exuberance? (November 24, 2025)

A Short History of Bubbles (October 24, 2025)

NOTE: My biases should be self-evident, but here they are: The firm’s clients are long (a few have long/short holdings with AQR); my 401K is long only; tax-free munis make up my entire bond portfolio. My only short is an ongoing bet against silver (I thought Gold was way ahead of itself at $5,000; then Silver spiked even more, and the trade was obvious).

___________

1. Some of the lower prices and lower concentration seem to be related to both A) De-Conglomerization, and B) higher inflation post 1073 Arab Oil Embargo.

2. Facebook would have to compete not just with TikTok, but with Instagram, WhatsApp and Messenger, Reels, Threads, etc. Google may have started out as search, but its leveraged that into dominant positions in enterprise software, Storage, Google Drive, YouTube, Google Cloud, Chrome, Android, Google Play, Google Maps, Gemini AI, Nest, Motorola, Waymo, Wiz, etc.

The same is true for Amazon — which includes streaming Amazon Prime, mega firm Amazon Web Services,  as a giant standalone entity.

Look at Apple: while the phone is a big part of their revenue, Apple Services alone would be an S&P 500 company. The earbuds, Beats, and the rest of their audio business would be its own standalone company. This is to say nothing of Microsoft, which owns so much stuff it’s almost impossible to keep up.

Google bought YouTube ~20 years ago in 2006 for the then-outrageous price of $1.65 billion. On its own, YouTube would be one of the biggest companies in the S&P 500.

3. The caveat here is that the US population is less than 5% of the global population, and yet we’re 25% of world GDP and 50% of world market cap. Perhaps other countries don’t have room for so many companies, and only their big winners show up. I can’t fully explain it — I can just point out that if this is a problem in the US, it’s a much bigger problem in the rest of the world.

AI Disclosure:  I wrote this myself. I used Claude and ChatGBT for research.

The post Overvalued, Bubble, or Revolution? appeared first on The Big Picture.

Also in industry news this week:

• RIA M&A activity continued its brisk pace during the first half of 2026, though a survey suggests that there could be a widening gap in the valuation expectations of buyers and sellers
• A survey suggests that there could be an opening for financial advisors who offer tax planning services related to real estate transactions to build mutually beneficial relationships with real estate professionals (and perhaps receive more referrals in the process)

From there, we have several articles on evaluating the new Trump Accounts:

• How the ultimate dollar value of an individual's Trump Account could vary widely depending on the pattern of contributions made during their early years and withdrawals made in adulthood
• How the tax treatment of Trump Accounts compares to that of other tax-advantaged accounts
• Why some clients interested in building savings for their children might prefer investing in taxable custodial accounts rather than Trump Accounts

We also have a number of articles on generating referrals:

• How helping clients understand who their advisor serves best and how to actually introduce a friend or family member can be particularly effective ways to generate more client referrals
• Five ways advisors can build a scalable client referral 'flywheel', from providing clients with jargon-free language to describe who the advisor works with to creating a process that offers value to both clients and the individuals they refer
• A step-by-step approach for how advisors can build a systematic COI referral partnership program

We wrap up with three final articles, all about intergenerational relationships:

• How individuals can thrive when their care responsibilities are gone and become members of the "open sandwich" generation
• While having an adult child move back in with their parents can provide financial benefits, managing the privacy and other implications of this arrangement becomes paramount
• Why the differing lifespans and 'healthspans' of family members across generations suggest that individuals might consider prioritizing certain activities and goals rather than putting them off for the future

Enjoy the 'light' reading!

Read More...

I have been busy on a few projects, most of which are wrapping up. Blogging has been light, but I have some fun things teed up in the near future.

I wanted to come out of hiding to share a few recent media mentions of “How Not to Invest,” along with a broader list of summer reading.

The 7 Best Investing Psychology Books from Next Book included HNTI, plus the latest work from my colleagues Ben Carlson (Risk & Reward) and Nick Magiulli (Just Keep Buying).  Along with those three, the top 7 list also includes Nudge by Nobel laureate Richard Thaler; Thinking in Bets by Annie Duke, Fooled by Randomness by Nassim Taleb and Trading in the Zone by Mark Douglas.

The other mention was from Jason Zweig of the WSJ. His Summer Reading List has a dozen books worth your time this summer.

In addition to “How Not to Invest,” it includes Robin Wigglesworth, A Fabulous Debt: The Epic Story of How Bonds Built the Modern World; Joseph Moore, How to Get Rich in American History; Morgan Housel,The Art of Spending Money and Alex Edmans, The Madness of Markets: Why Smart Investors Make Crazy Decisions and How to Exploit Them. 

A lot of good choices!  I have the Wigglesworth and Moore books on my desk, queued up for my hammock reading…

Sources:
Best Investing Psychology Books: 7 for Managing Your Own Behavior
NextBookList, July 19, 2026

A Summer Reading List
by Jason Zweig
Wall Street Journal, July 14, 2026

The post Summer Reading List appeared first on The Big Picture.

At The Money: When Should Do-It-Yourself Investors Fire Themselves? (July 15, 2026)

DIY investors have been a force in the market, pouring trillions into indexing and remaking asset management. But at a certain point in their lives, their needs become more complex and may require help. How can they tell when it’s time to bring in some professional assistance?

Full transcript below.

~~~

About this week’s guest:

Dr. Jordan Grumet is a physician who works at the intersection of money, mortality, purpose, and regret. His work focuses on internal medicine and hospice care. His recent book is “Taking Stock: A Hospice Doctor’s Advice on Financial Independence, Building Wealth, and Living a Regret-Free Life.”

For more info, see:

Personal Bio

Professional website

LinkedIn

Podcast

~~~

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:

Doctor, my eyes have seen the years
And the slow parade of fears, without crying
Now I want to understand

Barry Ritholtz: Are you a do-it-yourself investor whose needs have become more complex? Is the world making you concerned about your portfolio? How do you know when it’s time to bring in some professional help?

To help us unpack all of this and what it might mean for your portfolio, let’s bring in Dr. Jordan Grumet, a physician whose specialty is the intersection of money, mortality, purpose, and regret. He’s trained and worked in both internal medicine and hospice care. His prior books include Taking Stock: A Hospice Doctor’s Advice on Financial Independence and Living a Regret-Free Life, and The Purpose Code.

So, Doc G, let’s start very basically: what does it mean to fire yourself as a DIY investor?

Jordan Grumet: I grew up in the financial independence, retire early movement. These are the young, scrappy people who are trying to save enough so that they never have to work again. And so we were kind of cheap back in the day, right? This idea of, why pay someone else to do what you can do for yourself? That was good sense, because it made us deeply understand our investments. But as I get older, I realize that sometimes it makes sense to fire yourself. In other words, bring in the help when you need it, because you can’t know everything.

Barry Ritholtz: I know you’ve worked with other financial advisors. What has your own experience taught you about what financial advice should and should not address?

Jordan Grumet: I had Roger Whitney on my podcast, and he is one of the financial advisors I really respect. And we were talking about this idea of the balcony of your life — this idea that you want to stand on that balcony with your financial advisor, look out at your future, and start to plan.

This doesn’t look like, “Boy, I want my net worth to be this many millions of dollars.” It’s more a question of, how do I see the landscape of my life appearing in the future? That has to do with money, but that also has to do with family. It has to do with travel. It has to do with career. And so it’s really this holistic approach. As a doctor, we used to see people and we talked about the biopsychosocial model — the idea of not just seeing what’s hurting a patient, but how they fit in their environment and their needs. And I think with the financial advisor, it’s actually very similar.

Barry Ritholtz: What are the tasks that a smart do-it-yourself investor can probably handle by themselves – and what areas do they tend to run into trouble?

Jordan Grumet: So the truth of the matter is, when you’re young and you’re in the accumulation phase, it’s almost hard to mess up, right? You have to do it. Nick Maggiulli says, “Just keep buying.”

So when we’re young, there’s lots of room for error. Starting to understand the stock market, starting to understand index investing, writing out your investor statement or plan — basically, accumulation is really something that most people can manage.

The caveat is that you have to be able to control your emotions. Anyone who’s going to sell the minute the stock market drops on any given day probably needs financial advice right away. But assuming that you have the solidity of your character enough to be able to realize, okay, the market dropped, but I’m going to stay where I am and leave my money where it is — as long as you can pass that hurdle, a lot of accumulation and being young is quite possible to do it yourself.

Barry Ritholtz: How can a do-it-yourself investor recognize the difference between being reasonably capable and becoming overconfident? What are the red flags that they should pay attention to?

Jordan Grumet: Well, here’s something I think we don’t normally think about. When we’re talking about building wealth, what we’re really talking about is concentrating risk. For your average person, you’re going to be concentrating risk in your career, right? You’re going to be building and getting promotions and making more. You’re going to be concentrating risk in your business if you’re a founder or have a side hustle.

What you don’t want to be doing, unless you’re a professional, is concentrating risk in the stock market. Overconfident people seek alpha. They’re saying, boy, I don’t want to just take what the market has to give me — beta — but I’m going to seek alpha. And that’s exceedingly hard.

Some of the signs are: you’re zooming in and out of positions, you’re looking at lots of multiple stocks instead of thinking about index funds, you’re falling into the trap of FOMO, right? You’re starting to fear missing out. And so you’re making very reactive decisions.

If you’re setting it and forgetting it and maybe evaluating every six to 12 months, you’re probably on the right track. But if you’re looking at that stock market every day and buying and selling on a regular basis, you’re probably overconfident.

Barry Ritholtz: So this conversation is a giant exercise in confirmation bias for me. I’ve spent, I don’t know, three decades telling people you can do it yourself — but there’s an important caveat. You have to have a plan. You have to be disciplined. And when things start to head south, you must manage your own behavior.

Is that oversimplifying advice for do-it-yourselfers, or is it more or less a path to success you’ve seen in your career?

Jordan Grumet: No, I think it’s a beautiful assessment of how things should be.

Really, there are two things you need to watch out for as a young person. The first is your own behavior, which we just talked about. And the other is when you go from accumulation to decumulation — that’s a hard stop in my brain. That’s when you should really say, okay, do I need some professional help?

But when you’re a young person, those are really the two red flags. I think if you can keep those under control, doing it yourself is very reasonable.

Barry Ritholtz: We’ve built a firm over the past 13 years, and perhaps the biggest surprise to me has been how difficult it’s been to get people with plenty of money — lots of runway, they’ll never outlive their cash — to actually turn around and spend the money when they want. Whether it’s taking the whole family back to the old country to see where they came from, or buying a vacation property, or a boat. I got a phone call from somebody who wanted to buy a Ferrari, and I’m not exaggerating: he could buy a Ferrari every month for the rest of his life and never run out of money.

It’s shocking to me how challenging that is. Why is that decumulation phase — why is that spending the money that’s there to spend, even if it’s setting up a trust for your kids and grandkids, or giving it to philanthropy — why is that so challenging?

 Jordan Grumet:  I have this theory, and I call it escape velocity. If you listen to personal finance gurus, if you sit there and debate the 4% rule and talk about safe withdrawal rates and all those kinds of things, you’re under the assumption that the whole idea behind building a net worth is to have enough money so that you can decumulate during retirement.

I think that’s all false. Actually, all of our talk of safe withdrawal rates and net worth — all it is is the amount of money that gives you enough courage to walk away from the life you don’t want and start living the life you do want.  Believe it or not, I don’t even think that amount of money has anything to do with what you’re going to spend. It’s the amount of money that gives you the courage.

What we tend to find is, when people finally get the courage to leave the life that they’re living, that they don’t like, and then live the life they want to live, it’s actually just not that expensive. You can do a lot of the things you love without spending much money.

One thing is, it’s just not that expensive. The other thing is, we actually like having a safety net. People like having a lot of money in the bank — even to the extent that they’ll pass up on things they say they want to do — because that security and that good feeling, that identity of having a lot of money in the bank, actually serves them.

A lot of people see this as negative. And I agree, in a sense: this idea of working so hard and accumulating this much money and not spending it sounds bad at the forefront. But I’ll tell you, I know lots of happy people who are underspending, and yet they’re still happy. They’re still giving to charities. They’re still going on great vacations. They’re just not spending everything down. And one thing I think we need to come to peace with is, maybe that’s okay; maybe it’s fine if you die and you bequeath tons to either your kids or charity. And that just is what it is.

Barry Ritholtz: So I have a family member — I won’t mention their name, but they’re in their 50s, and, I don’t know, maybe the portfolio is $10 million. And I can’t get him — he’s constantly asking me about convertibles, and he sees the cars I drive, which are not crazy expensive but a lot of fun. I can’t get him to spend $25,000 or $50,000 on a convertible that he’s jonesing for and that will have no impact on his net worth. How do you advise a person like that?

Jordan Grumet: I just had a conversation with Jean Chatzky, who wrote a book that’s forthcoming soon called “The Forever Paycheck.” She makes a brilliant point with some of these people. What you have to do is set up a paycheck, so they feel like they have money that they either can spend or have to spend. You take someone with a net worth of $10 million or $11 million. The idea is to structure their assets in such a way that they feel like they’re getting a paycheck every year, and they have the freedom to spend that paycheck till it’s at zero.

Barry Ritholtz:  A muni bond portfolio or something like that, that just kicks out regular yield?

Jordan Grumet: You can do it in so many different ways. You can do it with annuities. You can do it with a mix of annuities, their Social Security, muni bonds, what have you.

Or you can even go the other way, which is have your adviser say, I’m just going to liquidate this much in equities every year, regardless of where the market is, and we’re going to call that your paycheck. It’s funny — this is not a math problem, this is a brain problem. And so the question is, how can you set these things up?

A good friend of mine made the joke. He said, well, I have something called the fun bucket, and I put as much money as I think I can spend every year in the fun bucket, and whatever is left, I either spend it or I have to donate it to a political candidate I hate. And that is the trick he plays on himself to make sure he spends it.

Barry Ritholtz: The fun bucket – I love that idea. So you mentioned the transition from accumulation to decumulation. What are the other big transitions — retirement, inheritance, selling a business, divorce — where the people who are doing it themselves might be most vulnerable?

Jordan Grumet: I think there are really two situations. One is where emotions play a big role. For some people, retirement — they just get very emotional, they don’t make great decisions. A family member dies and they get an inheritance, and you tend to make emotional decisions, especially at the beginning.

One is any place — whether it’s a divorce or a death or even retirement — where you feel exceedingly emotional. This is going to be different for each person.

The other time where I think it’s really important is when the room for error is small. And so, for instance — and this is why I always say, when we go from accumulation to decumulation, we have to be really thoughtful — because you might be depending on health care subsidies. If you decumulate incorrectly, you may find that those subsidies are no longer there.

Or you might be making complex Roth conversions, and if you do that wrong, it can really mess you up and put you in different tax brackets. Or if you have a disabled child, you’re starting to plan for the fact that you’re not going to have any income anymore. The room for error can be very small in those situations. And so that’s an indicator that a financial advisor, a professional — even if all they do is look over your work — is important.

We tend to forget: hiring a financial advisor doesn’t mean you hire them and they do everything for the rest of your life. It’s a continuum. You can hire a financial advisor to look over your work. You could pay them hourly. They can give you some recommendations, and then you can carry it all out yourself. There’s really a continuum of how we use a financial advisor in the first place.

Barry Ritholtz: You mentioned several behavioral mistakes. I’m curious: what do you see as the most common behavioral mistakes from young DIY investors? And what do you see amongst the more financially sophisticated investors?

Jordan Grumet: In the young investors, it’s definitely an overconfidence issue. We talked about this a little bit — it’s the seeking alpha when they should be concentrating on beta. It’s this idea that I know better than everyone else. And maybe they haven’t been around the block enough times to see a stock go to zero.

You see this all the time in alternative assets, too. We’re experiencing this right now with multifamily syndications. For years, people were telling me and everyone else, multifamily syndications are the way to go — very little work, very little risk. And what are we seeing now? We’re seeing some of these go to zero. Literally, people are losing everything. It’s overconfidence, and a lot of times it’s seeking alpha.

As you get older, believe it or not, I think the bigger problem in really mature DIY investors, is you get complacent. The world changes. For instance, I am a big believer in index funds, and I want to believe that index funds will be able to ride that wave for the next 50 or 75 years.

But I’m also open to the idea that we can become complacent, and we have to keep our eyes open, and we have to look for how the world is changing. Will index funds be the way to go in 50 years? I don’t know. I’m going to keep paying attention.

That doesn’t mean I’m changing things. That doesn’t mean reacting to little changes in the market. But I’m keeping my eyes open — especially as I get older and I’m in decumulation, we’re really talking about risk modification. So I’m not as worried about returns as I used to be; I’m worried about losses. I want to modify my risk in such a way that I don’t have those really deep losses anymore. Whereas if my money returns 4% one year, 8% one year, 6%, but the market does 7 or 7.5%, I might be okay with that.

Barry Ritholtz:  Last question. As a physician, you compare good advice to a diagnosis. What should the diagnostic process look like before someone either recommends a portfolio or recommends a change in course of financial behavior? Tell us what that looks like.

Jordan Grumet: So when a person comes into the office and has a medical problem, I can assess that medical problem, give them a quick treatment, and send them off. And that’s very transactional — it solves the problem for the moment, but doesn’t solve the greater problem.

I talked about this idea of the biopsychosocial model. We need to put a person in the context of who they are, who their family is, what their stressors are, and what their goals are.

When you walk into a financial advisor’s office and you’re trying to assess, is this the right financial advisor for you or not . . . One of the first questions they should be asking you is, “Tell me about your goals. What are your dreams?”

It shouldn’t be, “What is your goal net worth? It shouldn’t be, how many millions do you want to have by the age of 50 or 55?” Because that’s only one of many questions. The bigger questions are “What do you want to accomplish? What’s important to you? Who are the important people in your life? And what are the must-haves?”

Once you get past that, that’s when we can start looking at your specific financial goals. What are the trade-offs? Is retirement important to you? Or maybe you’re willing to work longer to enjoy life more now. All of those are bigger questions. It’s equivalent to the biopsychosocial model.

We really have to put people in context, and any good advisor is going to put you in the context of your life and try to stand on that balcony with you, look across the fields of your future, and try to help you plot out that best life — not just financially, but generally.

Barry Ritholtz: To wrap up: if you’re a do-it-yourself investor, there are a handful of mistakes you need to avoid. When you’re younger, you have to be aware of overconfidence and alpha chasing. When you’re older, complexity — changes in life, changes in the world — might lead you to seek additional help.

You can do it yourself if you’re disciplined, have a plan, and manage your own behavior. But there are times when you might need various types of help, and lots of it is available across all sorts of different price points. If you need assistance, go find it.

I’m Barry Ritholtz, and 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: When Should Do-It-Yourself Investors Fire Themselves? appeared first on The Big Picture.

The transcript from this week’s, MiB: McKeel Hagerty, CEO and Chairman of Hagerty , 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: McKeel Hagerty, CEO & Chairman, Hagerty

Barry Ritholtz (00:00:08): This week on the podcast, another extra special guest. McKeel Hagerty is chairman and CEO of Hagerty specialty insurance. Fascinating company. They took a little niche wooden boat insurer and turned it into a publicly traded company by embracing the community around collector cars, trucks, boats, et cetera. I thought this conversation was really quite fascinating, not just as a car guy, but as a business guy. And I think you will also. With no further ado, my conversation with Hagerty’s McKeel Hagerty.

McKeel Hagerty, welcome to Bloomberg.

McKeel Hagerty (00:00:56): Thanks for having me.

Barry Ritholtz (00:00:58): So let’s start with your background. You get a BA in English and philosophy from Pepperdine, and then you get a master’s in theology at St. Vladimir’s Orthodox Theological Seminary. What was the plan — to become a priest?

McKeel Hagerty (00:01:14): I think about my academic career in a couple of phases. I was an entrepreneur from the time I was young — I had a bunch of businesses when I was very young — and thought I would go study business in college. And I ended up falling in love with philosophy and literature and all these things; I was a philosophy and English major. I was a good student and I thought I’d get my PhD, but I needed a little break to work on languages and some things. And I learned about St. Vladimir’s, which is just north of New York here — it’s up near Rye or Scarsdale. And it was this incredible experience, because I got to work on my languages. I learned a lot about leadership, actually, at the seminary, because there are some pretty extraordinary individuals there. And there is no doubt about it — you are there to study to become a priest. And while that was not my driving reason to go there, it’s a little bit like Michael Corleone — they kind of drag you in, and before you know it, you’re suddenly thinking about becoming a priest.

I didn’t become a priest, because then I moved on and started my doctoral work in philosophy up in Boston, and did not complete that because the family business called. I had worked in it during the summers up until then, with mom and dad and my two sisters. And all of a sudden I found myself no longer thinking about exams and a dissertation and all those things, and thinking about this really cool business.

Barry Ritholtz (00:02:44): So let’s talk about this business. The hagiography is: your parents, Frank and Louise, started Hagerty Insurance Agency in Traverse City, Michigan (Yes.) for what I never would have guessed was an actual business — collector wooden boats. (That’s right.) Are there enough collector wooden boats to sustain a full business?

McKeel Hagerty (00:03:07): There are enough wooden boats to insure to sustain a very small family business, with a few employees. It was kind of a retirement gig for my mom and dad. They had had a general insurance agency, and they sold that, and they wanted something else to do. But there were a couple of principles in the back of their mind: they wanted a national business instead of a local one. They wanted one that was in a niche, rather than sort of general purpose. And they wanted one that could have real sustainability over a long period of time. So wooden boats was an unoccupied business space — a literally unmet need. They matched the unmet need with an underlying interest in wooden boats and in cars — my dad was a wooden boat, vintage boat guy and also a car guy. And so this was just the fun of combining the business knowledge with a passion. And again, my sisters and I all kind of helped out when it was much smaller, and we kind of stumbled into the car insurance business, which was much, much larger than the wooden boat business.

Barry Ritholtz (00:04:10): Even the collector car business is orders of magnitude —

McKeel Hagerty (00:04:13): Oh, orders of magnitude larger. Millions of vehicles.

Barry Ritholtz (00:04:15): But let’s not jump quite that far ahead. You and your dad used to work on cars — rebuilding projects. You mentioned you had a couple of side hustles: lawn mowing, things like that.

McKeel Hagerty (00:04:29): Yeah, my apple orchard.

Barry Ritholtz (00:04:30): You spent 500 bucks buying a 1967 Porsche 911S when you were 13. (Yes.) I wouldn’t be allowed to buy a car at 13 — I was lucky I had a bike. And then you and your father rebuild this.

McKeel Hagerty (00:04:46): That’s right. I will also note it was the only really good car deal I’ve ever done in my life, so just for what it’s worth.

Barry Ritholtz (00:04:52): So I’m going to assume that was the spark that started your enthusiasm for cars.

McKeel Hagerty (00:04:58): Yeah, it was. And you know, my dad was a do-it-yourselfer, hobbyist, restorer guy in the garage. And both my sisters also restored cars with him — they were older than I was. And then I was the third along, and we convinced this older gentleman in our town to sell us this 911S for 500 bucks. And I had to mow an awful lot more lawns and sell a lot more apples out of my orchard to buy the parts to restore the car. But by the time I could drive, it was ready.

Barry Ritholtz (00:05:27): Good planning.

McKeel Hagerty (00:05:27): It was great planning. And I can tell you, there was nobody in my high school driving a Porsche, so I would sneak it into the teachers’ parking lot, because no one would believe that a student had a Porsche. (That’s hilarious.) But back then, in the eighties, cars like that were not expensive. They were not considered to be necessarily that valuable. They were just kind of cool older cars. And so we kind of approached it as a family — like, hey, you can get a lot of car for not a lot of money, and you can have something really fun to enjoy. And so that was just my life growing up.

Barry Ritholtz (00:05:59): I love that. The 300 SLs from the fifties were being sold at a depreciated price in the sixties and seventies. (Oh, of course.) It’s astonishing.

McKeel Hagerty (00:06:07): Well, the most valuable car today, people will tell you, is the Ferrari GTO — 1962. They’re worth tens and tens of millions of dollars. But in the 1970s, you could buy them for 15 grand. They were nothing. And now they’re 50 million, 60 million dollars.

Barry Ritholtz (00:06:22): Unbelievable. That 911S you restored — still have it?

McKeel Hagerty (00:06:27): Still have it.

Barry Ritholtz (00:06:27): Still drive it?

McKeel Hagerty (00:06:28): Of course. It’s my first car out every season and the last one I put away.

Barry Ritholtz (00:06:32): Wow, that’s amazing. We could spend a lot of time talking about what else you drive, and we’ll get to that later. I’m curious — when did you first realize Hagerty could become something a whole lot larger than a niche wooden boat insurer?

McKeel Hagerty (00:06:50): Oh, we had already started the car business in the early 1990s. I’ve had a couple of aha moments, and this one — I remember it like we were sitting here today. It was the fall of 1995. I was doing my doctoral work in Boston, and we were reading Plato’s Republic in Greek. So I’m up at Boston College, we’re working on Plato’s Republic in Greek — that’s a big slog, I can tell you. And I was trying to help out the family business kind of from a distance.

And the challenge with insurance — insurance is an incredible industry. It’s stable. There’s a lot more interesting stuff to it than people think. But it is just not very sexy to talk about. Nobody loves talking about insurance. And even with these big brands and stuff today, they still don’t want to talk about it very much. And so I was literally sitting in this Plato’s Republic class, and on the side of my notebook I wrote this thing: if we would just stop acting like an insurance business and start acting more like a club for car owners, it would just transform the conversation that you’re having with people — because then you’re acting more like a car person, instead of an insurance person trying to sell a car person something. And I literally wrote this idea of: turn Hagerty into a car club. I wrote it in my notebook, and I closed my notebook. I went home that night to my apartment, and I dropped out of my PhD program right then and there, and I went home the next week.

Barry Ritholtz (00:08:12): Well, let me validate that — not that you, as a public company, need my validation. Full disclosure: I have a few of my cars insured with Hagerty. I’m a member of the club. I get the Driver’s Club magazine. But it’s obvious in hindsight — oh, of course you’re going to focus on this niche that is kind of ignored (Yes.) by the major insurance companies. How challenging was it to convince the rest of the family — hey, this is the way to go; we are not an insurance company selling to car collectors, we’re car people checking a few of their boxes?

McKeel Hagerty (00:08:53): It took me a few years. You know, we were a very close family. It was really fun to work together with everybody in those early days. My dad retired in kind of that late nineties; my mom retired shortly thereafter. I was working with my sisters. So they gave me enough rope to go test it out — that if we just changed the dialogue and acted like we’re going to build an automotive branded business that happens to sell insurance, and we’re going to do it around this membership concept.

It wasn’t like no one had ever done something like that. If you think in the early days, AAA was kind of like that — the motor club (they’re very different than that now). Or if you were to even think of something like AARP, which is a different sort of segment — they sell a lot of insurance and they treat this group of people well. USAA, serving military families. It’s just, nobody had ever done it in a business like ours. And so it took a little while to convince them that that was the way to go to market, and that we could change the way we were thinking.

But you mentioned something — there was another piece in this, which was the next aha. And the next aha was that most of these cars were insured by the big insurance companies. So think State Farm, Allstate — today, Progressive, Geico, everybody. And we’re a little company. I mean, we had a tiny family business. How the heck are you going to compete against these monsters? And so after we got the club up and running, I realized — well, what if we just partnered with these companies rather than competing against them, and said: look, we are going to do one thing and one thing only. We’re going to be expert in these cars. We know the customers really well. We’re building a really big, rich bunch of data. What if we partnered with them? And so the first big partnership like this, we landed 22, 23 years ago, and that was with Allstate. And Allstate’s huge — again, huge company. I knew they insured hundreds of thousands of these cars.

Barry Ritholtz (00:10:50): Spun out from Sears so long ago.

McKeel Hagerty (00:10:51): Exactly. Lots of interesting things in that company. And I met the CEO at the time, through people who helped connect us. And I said, look, I think I can make you better at this one tiny little thing if you just give us a chance. And they’re still a partner today — that program still grows every year. And now we’ve just moved through the entire insurance industry. We’ve partnered with virtually all of the big insurance companies. And so today, if you insure your home and your auto and everything with one of them, but you have a vintage car, collector car, whatever you want to call it, that usually comes to us. And so the big scalability of the business was: one, show up like a club, this member organization; and two, partner rather than compete. Because if you’re small, it’s impossible to compete against a huge company. But if you partner with them, it changes the game.

Barry Ritholtz (00:11:45): Well, when you say it’s impossible to compete — one of the fascinating things about insuring an old ‘Vette or an old Porsche is, any of the big firms are going to charge you 1,500, 2,500 a year. Alright, so I have a ’67 ‘Vette, which is actually my least favorite car to drive.

McKeel Hagerty (00:12:08): I’ve got to ask — which motor?

Barry Ritholtz (00:12:10): The 327. Yeah, but with a stick. Nassau blue over white. (Very nice. Spectacular.) But it’s a pig to drive. But it doesn’t matter, because I think Progressive was like 2,200 — you guys were 500 and change. Because of the data: you guys know how often these are driven, know the value, know they’re really not going to get stolen. (That’s right.) As much as Gone in 60 Seconds made it look sexy, everybody knows these cars, their VINs, where they are — especially something rare and valuable, which the ‘Vette is not. It’s really fascinating that nobody else saw this until you guys did. How did the pricing model come along?

McKeel Hagerty (00:12:58): Well, you talked about how you drive your car, but you probably don’t drive it very much. You probably have daily drivers that you drive more, and you are less concerned about where you park them and that sort of thing. My late mother passed away just two years ago. I remember asking her every year — her memory wasn’t so great towards the end of her life — like, Mom, what made this business special? And she would just say: because people take good care of their toys. (Of course.) And that is the core emotional nugget of this business. People have a toy, they spent real money on it, and they take good care of it. And wherever there is care, there is better insurance risk. So you can charge less. You can build marketing around that. You can get a little bit of momentum.

Barry Ritholtz (00:13:41): But not just a little less. It’s not like you’re beating them by 10%. It’s a fraction of what you pay for regular insurance.

McKeel Hagerty (00:13:48): Well, right. And look, the typical ’67 Corvette owner probably drives that car a thousand, maybe 1,500 miles a year. Some years less.

Barry Ritholtz (00:13:56): Half the guys in my car group — and they’re almost all guys, but not exclusively — some of these guys have 10, 20, 30 cars.

McKeel Hagerty (00:14:07): Exactly.

Barry Ritholtz (00:14:07): So if they’re driving a car, it’s something different. Maybe they’re putting 500 miles a year on each car, at most.

McKeel Hagerty (00:14:16): So, one of the things you asked about — pricing. Not only is the pricing on the physical car less expensive with us; the liability is too. And it’s exactly to that point: you can only drive one car at a time. Liability follows the person, not the car. And so we had an ad very early on in the program — there was a now-late collector out in the Pacific Northwest with over 2,000 cars. We put his name and face on one of our ads, and it said: here’s Harold LeMay, our worst nightmare, because he has 2,000 cars, but we charge him only one time for liability.

Barry Ritholtz (00:14:50): So how do you — is that a fleet insurance? How do you do something —

McKeel Hagerty (00:14:52): Kind of like that, yeah.

Barry Ritholtz (00:14:53): If someone has more — and I think the line I heard about tattoos applies to cars: two tattoos is either too few or too many. And if you have half a dozen or a dozen cars, it’s probably too many to manage yourself, but too few to hire a full-time Jay Leno-like guy to run it. (That’s right.)

McKeel Hagerty (00:15:15): Most people are space limited. If they have enough money to be into it, they end up buying everything that they can afford and still store.

Barry Ritholtz (00:15:24): The storage is the problem. I’m waiting for permission to build a garage. (There you go.) A detached garage, as opposed to my built-in garage. And if that gets approved by the town, that’s going to be both dangerous and expensive.

McKeel Hagerty (00:15:39): Well, I’m going to love it though, because then I’ll have more to insure for you.

Barry Ritholtz (00:15:41): That’s six more cars’ storage for you guys. Yes. Really, really interesting.

Coming up, we continue our conversation with McKeel Hagerty, CEO of the specialty insurance firm, talking about how he built the company into a one-and-a-half-billion-dollar revenue driver. I’m Barry Ritholtz. You’re listening to Masters in Business on Bloomberg Radio.

Barry Ritholtz (00:16:10): I’m Barry Ritholtz. You’re listening to Masters in Business on Bloomberg Radio. My extra special guest this week is McKeel Hagerty. He is the chairman and CEO of Hagerty collector car insurance. The firm insures every collectible vehicle — and a handful of boats — for almost 3 million collectors. So: 2025 revenues of 1.5 billion. 1.3 billion in written premium — a record. 371,000 new members. Net income plus 91%. This is a real publicly traded company — HGTY. (Yes.) Wow.

McKeel Hagerty (00:16:49): I used to have hair when we started all of that. But, you know, things are going well.

Barry Ritholtz (00:16:53): So I guess if you’re not pulling your hair out of your head, you’re not public. Let’s talk about how you’ve driven this. One of the interesting insights that seems to have shaped your strategy was that collector cars aren’t just financial assets — they’re emotional assets. You described them as favorite toys. How did that shape how the firm developed?

McKeel Hagerty (00:17:20): Well, we started in the simplest possible way, which was as an insurance agency — you might have mentioned that in the first intro, and that’s true. That’s the easiest way to get into one of these things. As I mentioned, we started with kind of a specialty product, which was insuring special cars. The insurance policy forms were unique; our pricing — we had a unique approach. We had this Driver’s Club model that started really helping that compounding aspect of it. But one of the big pieces that I guess I dreamed of is that if we actually started taking real risk and became the insurance company itself — not just an agency selling policies for somebody else — it would be the same customer coming in, but we’d have so much more of a chance to really build revenue behind it.

So the other big piece — my first aha was the Driver’s Club; the second aha was really realizing we needed to partner rather than compete with the big insurance companies — was: how do we start taking risk? That’s been a multi-year, really decade-long journey that we started in 2017, got up and running, and it was really a big key piece of how we went public in 2021. Everybody knew we had a unique angle on this market, that our economics looked great in the business, but that we could realize even that much more. And so that’s really been the next big piece of all of this. And it all kind of compounds on itself, because if you insure a car, we use the club to kind of engage people. You mentioned reading the Hagerty Driver’s Club magazine — by the way, I don’t think the word insurance is mentioned in that magazine anywhere.

Barry Ritholtz (00:19:06): Not at all. It’s cars and roads, really.

McKeel Hagerty (00:19:07): Yes. And it is now the highest-circulation car magazine in the world. (No kidding.) It is. Yeah.

Barry Ritholtz (00:19:13): I did not know that. That’s really interesting. So the evolution from insurance to an automotive lifestyle brand goes beyond the club membership, goes beyond the magazine — events, auctions, valuation data. Walk us through how that all evolved.

McKeel Hagerty (00:19:33): Yeah — I was a big fan of car magazines, a big fan of automotive media. I mean, that’s how I read my way into understanding the car world, and going to events. And I always remember somebody told me once that if you’re going to go into a niche business that you’re really proud of, you kind of need to have the high ground on your side. And for me, the high ground was, if I could have a media property where we would kind of have that intellectual high ground, that would help.

The other piece is the data aspect of it. When I was growing the business and the team — you know, we have incredible teams — we’re out there trying to figure it out. Valuing these cars was so tricky, because there were a lot of opinions about what cars were worth, but not a lot of really good data. And so as we were investing in the media pieces — talking about cars and entertaining people — we built the data resources. We call it our Automotive Intelligence group. We have by far the richest sets of data about how to value these things, and it’s down to that VIN or serial number.

You mentioned — well, how does a big insurance company… why didn’t they do it? I remember this conversation years ago, in one of those partner discussions, where the CEO was a car guy, really wanted to kind of compete with us, wasn’t sure if he wanted to partner with us. And I said, well, do you know what a 1969 Camaro is? And he said, I sure do — he was pretty happy with himself. And I said, you may not know that in 1969, the Camaro came in 147 different variants. (Wow.) And that year, the least expensive one was worth about 11 grand, and the most valuable one was worth about 1.1 million. And you can’t tell the difference by looking at them from the outside. You have to understand what that serial number is. And I said: we built a patented serial number decoder for all cars pre-1981, so that we could understand our universe and start providing that data. And that’s why our partners like us.

But it’s a real asset to have that kind of data, and then build on it every year. You mentioned 371,000 new customers — we’ll do quite a bit more than that in 2026. Those are all — it’s not just insurance revenue, it’s also data coming our way. What are people buying? What are they insuring them for? What do they sell? When somebody sells a car, it’s also a data point. And so for us, that data piece — and it’s all a big… not just because I’m a car person — I view it as a flywheel. It all kind of spins, and insurance is a beautiful thing, but the rest of it speeds up the flywheel.

Barry Ritholtz (00:22:01): Yeah, to say the very least. So the valuation tools you have are really interesting. The Bull Market List you have has become very influential. I actually reference some of your valuation tools in a chapter of my book, on selection bias. Every time some car goes for a new record high, there’s always a bunch of media coverage, and they talk about — look at what a great investment this is. And it’s like, no, that’s all survivorship bias. Show me the other 10. Don’t show me what was the best car of the past 50 years — what car are you going to buy now to put away for the next 50 years? (Yes.) That’s a much harder question, because you don’t know the answer. But your valuation tools have been really helpful, that sort of stuff. How did you build that capability? Is it simply just — hey, every data point we come across from clients, we’re going to suck into a database and figure out?

McKeel Hagerty (00:22:57): That was exactly it. I mean, most media outlets that weren’t part of our world — if they were covering the space, they were using a lot of anecdotal information, kind of dealer-fed information, or just looking at public auctions. And I love public auctions too — you can learn a lot from watching what all the different auction companies do. And now, with so many good online places, it’s even more data. But what we realized, with our scale, is we just had way more data points than all of that. Because again — people buying cars, insuring them with us, adding, deleting — it was just this big flow. And yeah, it took a lot of people a lot smarter than I am to build not just the database stuff, but the analytics capability around it. And now, with AI, it’s even better. And then, as we started realizing we could get other data sources that help us validate even more — not just in the US, but outside of the US — it’s really been a fun part of the business. I’ll tell you what — it’s a smart team, and I love learning from them. They teach me stuff every day that I need to know.

Barry Ritholtz (00:24:00): You mentioned auctions and online auctions. In addition to Bring a Trailer and Cars & Bids and PCARMARKET, you guys are now going to get into online auctions for your clients’ cars? Or are you just partnering with someone?

McKeel Hagerty (00:24:16): Oh, no, no. We have our own — the Hagerty Marketplace platform, which is online auctions. And then also now —

Barry Ritholtz (00:24:24): You’ve had online classifieds for a long time. (Yes.) How rapidly is the auction side growing?

McKeel Hagerty (00:24:29): It’s growing rapidly now. We have such a supply — we have way more supply than you think. And if you think about some of those other great companies — Bring a Trailer has been such a darling in this space; Cars & Bids, the number two in the US — there’s a supply and demand balance that everybody has to strike. Because if you flood a digital marketplace with too much supply, then the bidders go away. And if the bidders go away, then nobody’s happy — people won’t put their cars on it. So it’s a fast build, but it’s steady.

The live auction side of the business — Broad Arrow, which was an acquisition we did after going public — that’s a remarkable business, because I had followed that industry for a long time around the world. But it’s all about getting the right team. And in my mind — because I’m very protective of our brand and our reputation — we had to have the kind of team that wasn’t just prepared to build the number one live auction business; they have to do it in a way that I’m proud of. Because things will go wrong. You have to make things right for customers. Sometimes cars that people bring to you to sell aren’t described exactly as they actually are, and you have to find that out and politely tell them — well, I’m not sure this is a million-dollar car; it’s a hundred-thousand-dollar car. And sorry — if you want us to sell it for a hundred thousand, we will, but we’re not selling it for a million. Because it’s our reputation too.

And so the way I think about it now is: most people come to us to insure a car. Then they buy the membership thing, and we engage them and do media and a lot of fun stuff, invite them to our events. And about every seven years, on average, somebody buys or sells a car. And that’s where I want to be there and present in their minds, so that we help them on that transactional side. Plus, you’ve probably been to auctions or watched them on television. (Sure.) They’re fun. Car auctions are super fun. It’s live, it’s vibrant, it’s interesting. Sometimes there are multimillion-dollar cars up there selling, where you can’t even believe anybody would pay multimillion dollars for this car. And we do that too — that’s why we have Broad Arrow. We connected it with some of our concours events — in many cases, around the world. We just had our Broad Arrow auction at the Villa d’Este concours, the Concorso d’Eleganza. And that was a really successful sale, and a super cool place to have an auction — right on Lake Como. (Yeah.) In Italy.

Barry Ritholtz (00:27:01): Looked beautiful. You’ve been a judge at Pebble Beach for a while, I know.

McKeel Hagerty (00:27:08): 25 years — I think this is my 25th year.

Barry Ritholtz (00:27:09): Wow. And I know there was an affiliation with one of the local concourses here. Maybe it’s Greenwich?

McKeel Hagerty (00:27:14): Greenwich, yeah. That is an event we own. So we produced that just recently.

Barry Ritholtz (00:27:19): That’s — it’s too close to a holiday weekend, otherwise I would be there.

McKeel Hagerty (00:27:24): Oh, you’ve got to come.

Barry Ritholtz (00:27:25): I’m usually out at the beach on Memorial Day weekend. But we’ll circle back to that. I’m also a big fan of your YouTube channel. I really like Jason Cammisa’s work. I’ve learned a lot about cars that I think I know — and then he does a deep dive into a particular model, and I’m like, I didn’t know that about the Toyota Supra. Who would’ve guessed? How did YouTube become such a major part of your brand?

McKeel Hagerty (00:27:54): Well, it’s really the de facto platform for people watching kind of introductory-level automotive content, and obviously lots of brands are putting stuff out there. But what we realized — if you think about the big arc of how people have learned about or consumed automotive media, where it’s shifted since the nineties: magazines were the main platform for a long time. Then you got the first dedicated cable networks — Speed, Speedvision, AutoWeek — you started seeing auctions on there. But then a lot of that content started migrating to YouTube. What I wanted to do was do it at the same high quality we were doing in the magazine. So hire total pros, shoot the stuff really well — great cameras, great locations, all of that.

Barry Ritholtz (00:28:48): It is obvious high production value. There are a lot of YouTube channels that are kind of interesting, cars or otherwise, but the appeal has always been: two iPhones, a wireless mic, and a GoPro — you could cobble something together. I’ve seen a bunch of channels that are using these. You guys really put a lot of thought and a lot of time, effort, and money into it.

McKeel Hagerty (00:29:19): Well, we do. And they’re not all just drag races — nothing wrong with drag races; I like them too. It’s a kind of data point about what makes a car cool. But I think Jason just takes it to a whole new level. We also have — by the way, we have a FAST channel on Samsung TV, on Amazon Prime; our content is available out there like a digital television show. Our Barn Find Hunter show, for years — you’ve probably seen it — which is this incredible talent, Tom Cotter, going around and finding great cars in barns and kind of doing the big reveal. Like an Antiques Roadshow kind of concept, but in the garage, rather than brought to some studio somewhere. And people like it. There’s some interesting fascination with the US television audience of finding the treasure in the garage — and don’t you wish it was you who found it? I find them fascinating.

You may have even seen one of the shows we produced for a long time — they’re kind of winding down — called Redline Rebuild. (Yep.) It was where we would do these time-lapse rebuildings of an engine, where you take a big dirty engine apart, and it would all kind of appear to assemble itself on an engine stand, and then it would start. It was just mesmerizing.

Barry Ritholtz (00:30:34): That’s the word I was about to say.

McKeel Hagerty (00:30:36): Just mesmerizing. Yes.

Barry Ritholtz (00:30:37): There’s another channel that does the same thing with old watches (Oh wow, interesting.) and rebuilds them. And it’s the same sort of — why is this so fascinating? It’s the exact same thing as Redline.

Coming up, we continue our conversation with McKeel Hagerty, CEO and chairman of Hagerty specialty insurance, discussing the collector car community today. I’m Barry Ritholtz. You’re listening to Masters in Business on Bloomberg Radio.

Barry Ritholtz (00:31:11): I’m Barry Ritholtz. You are listening to Masters in Business on Bloomberg Radio. My extra special guest today is McKeel Hagerty. He is the CEO and chairman of the namesake specialty insurance company specializing in collectible cars — automotive everything, from cars, trucks, military vehicles — including classic wooden boats. Are those all Chris-Crafts, or are there some other brands that make their way through that?

McKeel Hagerty (00:31:35): Well, Chris-Craft and Century were the two big manufacturers in the United States. There were sort of some more boutique brands, like Gar Wood and Hacker-Craft, which were really high end.

Barry Ritholtz (00:31:46): I’ve been in a Hacker-Craft. Those are big — they tend to be a little bigger.

McKeel Hagerty (00:31:49): Right, a little bit bigger — triple-cockpit kind of style boats. And for those who are really into the artisanal cheese of the boat world — the Canadian brands. There was a whole group of really fine boat builders up there: Minett-Shields, Ditchburn, Greavette — brands that most Americans would not know of. But if you ever get a chance to go up to the Muskoka Lakes, which is just north of Toronto, they’re just exquisite, beautifully built boats. They’re considered like national treasures up there. So you don’t see many of them in the US. But that was part of my upbringing. When my mom and dad were building the boat business and I was a teenager, it was like — huh, we’re going to a boat show, going to Canada, going to Lake Tahoe, going to the Finger Lakes of New York.

Barry Ritholtz (00:32:37): That’s so interesting. I took some friends to the boat show last year, and the new Chris-Crafts are shockingly beautiful. (Oh yes.) They have aged into modernity really well. It’s almost like a retro-mod, because it’s very contemporary and very modern, but clearly the design language from way back when.

McKeel Hagerty (00:33:02): I think it’s a little bit like that Hinckley crowd (Yes.), where they’re trying to find a retro-modern boat, but with kind of retro looks.

Barry Ritholtz (00:33:10): And I love it. So let’s keep this on cars, away from boats. There’s a quote of yours that I have to start with, because I really like it: “The best piece of advice is to buy the car you want to drive, and then buy the best example you can afford. This may sound obvious, but not all vintage cars drive the way people hope they would.” There’s nothing in that I disagree with. Discuss.

McKeel Hagerty (00:33:41): Yeah. I think there are so many people that envision — someday, when they have that little bit of extra resources — you know, that’s going to be my toy; I want to get into the car world. And if they weren’t a hundred percent in this their whole life, or their parents weren’t into it, or you didn’t have an uncle or somebody in your life who let you drive in these things, I often recommend people try to get a chance to drive what you think you want. Because the older cars do drive very differently. (Yes.) And even if you think of, say, muscle cars from the sixties — they were very fast. I mean, these are cars that are —

Barry Ritholtz (00:34:14): In a straight line.

McKeel Hagerty (00:34:15): In a straight line — a lot of power. They do not stop or turn as well as you think, and you just have to get used to that. I mean, I love cars of all generations. I love driving very early cars; I have some newer cars. And I always just have to kind of center myself when I get behind the wheel, to remember — okay, this is not my Porsche Taycan, which is this incredible piece of technology, an electric car. It’s a vintage internal-combustion car with funky brakes, and you have to be ready for it. So I always recommend people drive them. And recognize that maybe it had air conditioning, maybe the air conditioning doesn’t work — it doesn’t matter. Roll down the window and just enjoy yourself.

Barry Ritholtz (00:35:00): Manually —

McKeel Hagerty (00:35:01): Manually roll down the window.

Barry Ritholtz (00:35:02): I tell the story — the ‘Vette, the ’67: it’s a lap belt, not a three-point belt. They couldn’t be bothered to put a passenger-side mirror on, because, you know, what are you even going to see? And the steering is just beastly. But I also like the concept of buy the best example you can afford. And I find myself constantly saying to people: a cheap Aston Martin is the most expensive car you could possibly buy. (Yeah.) But people don’t really get that.

McKeel Hagerty (00:35:35): Yeah. And look — different areas of cars come with their own challenges sometimes. As we’re seeing this onslaught of new generations coming in and wanting to buy slightly newer cars — I mean, it’s 60-whatever percent of all of our new quotes and new cars coming into the space are all relatively newer cars: 1980s, nineties, two-thousands cars. Some of those cars, for example — it may not be a mechanical issue that can drive you a little crazy; it’s an electrical issue that’ll drive you a little crazy. If you think of some of the screens and the CD players and all the little control things that, back in 1990-whatever, were the biggest whiz-bang feature — well, it doesn’t work so well anymore. The car runs fine, but you’re not going to be able to use the antiquated nav system. I just tell people: relax, it’s fine. Enjoy the car, drive it. All my kids always ask — well, does the radio work in this thing? I’m like, I have no idea. It’s never been on. I’m there to drive. And it’s such a fun activity, as you know, to go and just enjoy driving a car for pleasure.

And the first thing I tell people who are sort of new to the space — they say, well, I want to take it out to dinner. And I’m like, make sure you take it out during the day first a few times, because sometimes cars leave you in the restaurant parking lot at night. So people always ask, why don’t you drive them at night? And I’m like — because I’m not sure I’m going to get home.

Barry Ritholtz (00:37:06): If you’re used to modern cars, you will be shocked at how terrible the headlights are — on, forget sixties, even eighties-era cars. Those were not really great headlights.

McKeel Hagerty (00:37:19): They weren’t great. They’re not dangerous or anything. You just have to be aware (Right.) that they don’t have all the modern technology.

Barry Ritholtz (00:37:24): When all the headlights were that way, you just said, this is what the lighting is, and you had to be aware of it. (That’s right.) It’s when you go backwards, you take a lot of things for granted — forget the blind-spot warnings and the backup cameras, just your expectation of field of vision (Yes.) is so different.

McKeel Hagerty (00:37:43): It’s a different kind of attention, driving a vintage car.

Barry Ritholtz (00:37:47): It’s much more focused.

McKeel Hagerty (00:37:48): It’s more focused. And I love it. And I encourage people — just try it out. It’s a great experience.

Barry Ritholtz (00:37:55): So what are some of the bigger trends you’re seeing in collecting? What’s changing these days?

McKeel Hagerty (00:38:02): Well, again, big story — contrary to data that we were reading a few years ago, the next generations are absolutely into cars. They like them. They’re just into different kinds of cars than our parents were, or we were.

Barry Ritholtz (00:38:13): Well, doesn’t every generation sort of lust after the cars from the high school parking lot?

McKeel Hagerty (00:38:19): I think that’s right. And they’re different. One of my little cottage industry things that I do: if I’m ever driving anywhere near a high school parking lot, I look to see where the young car people park their cars. And they usually park them in the back of the parking lot, not up near the school, and they all park next to each other, so they can go hang out afterwards. And what you’re going to see right now, with the 17- and 18-year-old car people in these high schools: you’re going to see BMWs, you’re going to see Audis, you’re going to see various performance Japanese cars. You’re not going to see anything fancy — they can’t afford them. But those are the cars they’re starting with.

Trucks are, of course, another big entry point, and it’s been another huge trend. So not just pickup trucks, but kind of vintage SUVs. So Jeeps are still, right now, one of the hottest brands — it’s huge. Broncos are one of the hottest things, of course, if they can afford them. A Land Rover, or International Scouts — these are the cars that people are interested in, because so many cars today are SUVs anyway, and the vintage versions of them are these kind of more off-road vehicles. And there’s a big industry of modifying them, making them work a little bit better. So that’s another big trend — next generation, trucks, I guess I would say.

And flying over the top of the whole industry, at the top end of the market — just to add on to the answer to your question — the ultra-luxury, kind of supercar manufacturers are making more cars than ever before. And so you think of those brands — like Ferrari or Lamborghini or Bentley, or even Porsche, my beloved 911s — those companies are just building a lot more cars and pumping them out into the market, at price points that are different than they used to be. When Ferrari or Lamborghini were building hundreds of cars a year — well, now Ferrari is a 14,000-unit-a-year manufacturer. Lamborghini, when you add their SUV in, is an eight or nine thousand vehicle manufacturer. I mean, when I was a kid, you never saw a Lamborghini unless you just happened to be in Beverly Hills or Palm Beach or something. And now they’re everywhere. I mean, even in my little town in northern Michigan, there are a couple of Lamborghinis driving around. I’m like, oh my goodness. That’s amazing.

Barry Ritholtz (00:40:34): What’s crazy is, where I live, I am 15 minutes from a Ferrari dealer, two Porsche dealers, the Bentley-Lamborghini dealer. And I take it for granted — I see these cars all the time. But as a kid, you hardly ever saw these around. A Porsche was an exciting thing.

McKeel Hagerty (00:40:54): It was. So they are building my next generation of customers. Every one of these manufacturers is like my best friend, because they’re building the cars that I will be insuring this year — and 25 years from now.

Barry Ritholtz (00:41:07): So your boy Jason Cammisa mentioned he’s only a manual driver. I embrace that — makes the car even that much more difficult to steal. But I’m curious — amongst the trends in collecting, I’ve been hearing about a move towards analog, towards manual, away from the big dominant screens. What does your data say?

McKeel Hagerty (00:41:33): Well, it’s true. And in fact, you think about some of those very same supercar manufacturers that signaled years ago — we’re getting rid of manuals; everything’s going to become this super electronic sort of driving experience —

Barry Ritholtz (00:41:46): Faster on a track. Faster on a track.

McKeel Hagerty (00:41:48): Yeah. And they are. And by the way, the one nice thing about the PDK — if you drive them in the winter… I happen to love driving Porsches in the winter. PDK is pretty nice in the snow, for what it’s worth. But setting that aside — I’m just totally impressed that many of these car companies are kind of going back on what they said they were going to be doing, and starting to — not reintroduce manuals, but they’re producing another extra model with the manual in it.

Barry Ritholtz (00:42:15): At a very high price. At a very high price. You look at the Porsche S/T, or all the GT3s, if you want a manual. My GTS was the last year it came with a manual, which was ’24. And the Turbo — I think 2013 was the last year with a manual, something like that. So it’s amazing — they took the supply away and said, all right, if you want a manual, we’ll give it to you, but it’s $300,000.

McKeel Hagerty (00:42:46): Yes, yes. And what they saw — they were looking at the auction data, from our auction companies and others, and suddenly the manual version of something: huge, absolute premium.

Barry Ritholtz (00:42:55): And now manual swaps are showing up in V12 Aston Martins and 430 Ferraris. I see these all the time.

McKeel Hagerty (00:43:08): Absolutely. So again, I think it’s the return of the analog — people more interested in driving. I mean, I think we’re all trying to absorb what COVID did. COVID was a boom —

Barry Ritholtz (00:43:20): I’m sure.

McKeel Hagerty (00:43:20): — time for these kinds of cars. But even afterwards, I think people were embracing slower hobbies, slower things: playing music, camping, hiking, outdoor pursuits. And in some of these things, cars sort of fit into that a little bit. Something to just go out and take a long, slow Sunday afternoon drive is not something from the rush-rush world of what mileage does it get and what’s the lease payment on it. It just comes from a different place, and there’s a bigger audience than people think who are willing to spend real money on it.

Barry Ritholtz (00:43:59): There’s a data point you guys have referenced that I want to ask you about. Quote: “We estimate that approximately 12 million enthusiast vehicles will transfer to a new generation in the United States over the next 15 years, either via estate plans or inheritances.” What is this generational handoff — from, I guess we could call them boomer collectors, to millennials and Gen Z — what does this mean for the car collecting community?

McKeel Hagerty (00:44:31): Well, I think we’ve all read that there’s this huge, gigantic wealth transfer, whatever the headline number is. I’ve heard —

Barry Ritholtz (00:44:37): 65 trillion.

McKeel Hagerty (00:44:38): I’ve heard a hundred trillion, 70. And our estimate, just on that number of 12, 13 million vehicles, is about $570 billion worth of car value right now. Most of those are held in the hands of the generation of baby boomers. I’m an older Gen Xer — Gen Xers are starting to come into their peak wealth years, past peak earnings, buying a lot of cars. But 15 years from now, about a third of that whole market will come loose. And again, we’re seeing this. Certainly the entry points are different than they were a generation ago — people are interested in sporty cars, trucks, younger kind of “youngtimer” cars, as they refer to them in Europe. We’re seeing the data. We want to position ourselves well to see that the transfers are kind of smooth, where you’re kind of helping the next generation get into these cars. We’re actually doing things like teaching manual driving classes — because it’s not just an anti-theft device, or some slow hobby like brewing beer or whatever it is. We need to teach the next generation how to drive manuals. And it’s not that hard to do it.

Barry Ritholtz (00:45:58): Not only is it not that hard, it’s just so much more engaging. And not to be a stick snob, but it really is a very different experience. And yeah, I know the GT3 in the PDK is faster than the stick — but how often am I taking my car on a track? If that’s once or twice a year, it’s a lot. What about the other 360 days a year?

McKeel Hagerty (00:46:24): Well, and even if you did — you and I, neither of us are good enough drivers to really make a difference.

Barry Ritholtz (00:46:30): Speak for yourself, McKeel!

McKeel Hagerty (00:46:31): Okay, one second — different than the laptop.

Barry Ritholtz (00:46:35): Whatever it is. It’s funny, because I’ve done all the high-performance driving classes, and the reality is, if you’re in a Roush Mustang up at Lime Rock, they said: put it into third, leave it there for the whole track. (Right, right.) So really, driving the stick isn’t that much different. But if you’re really doing a competitive course, of course not. First of all, the car doesn’t stop — the dual clutch is so fast, the engine is always engaged. (Yes.) So you’re not losing that tenth of a second when the clutch is down and you’re losing power. But it still just feels so much more engaging.

Related question to the analog and the manual: you do a Bull Market List every year — the 2025 Bull Market List. The average model year of featured cars used to be in the late eighties, early nineties. All of a sudden, it’s 2001. How did that happen? What’s driving that shift in bull market attractiveness? Is it that pre-screen, analog, manual feel — but not quite as old as the seventies, eighties cars?

McKeel Hagerty (00:47:52): I think so. But it’s also a combination of what’s driving demand. One, there’s absolutely a new cohort of people getting in, making a little bit of money, buying these things. At the top end of the market, though, it’s not just — oh, the new young tech guy who’s going to be in the OpenAI IPO and is going to make money and go buy a car. Older-generation collectors are also buying a lot of these new cars at auction. And it’s interesting — I’ve seen this twice in my career. In the big muscle car era, which was 2005, ’06, ’07, right before the great financial crisis, everybody said, oh, it’s a new generation of people buying all these American muscle cars and paying a lot of money for them. And that was true. But it was also the older generation of collectors, who liked earlier cars, saying — well, maybe those are cool and I want one too. And by the way, I have more money than you, so I’m going to outbid you at auction, and it’s mine.

Same thing right now in this, let’s say, supercar segment, where a lot of these cars from the nineties and two-thousands — we see these values going up. It is the newer money, newer collector. But it’s also an older generation of collectors saying, well, I don’t want to be left without a cool car. In fact, one guy told me recently — he bought a Bugatti Veyron and a couple of newer cars — he said, well, I want to have a car that my grandkids think is cool. And so I’m like — got it.

Barry Ritholtz (00:49:15): And that’s not the Bugatti Veyron?

McKeel Hagerty (00:49:18): Grandkids don’t like that? He says he loves it. He said, I’m taking my grandkids for rides in the Bugatti Veyron. And so they think it’s cool.

Barry Ritholtz (00:49:25): Yeah, I can imagine. Alright, last question before I get to my favorites, because I know (Yep.) we’re watching the time. So you guys crunch so many numbers, so much data. What do you think the casual observer of collector cars misses that your data is revealing?

McKeel Hagerty (00:49:44): Well, I think those big headline cars attract so much attention, and people just think it’s this crazy, very high-end market of very, very rarefied cars. And while that is true — those are the headline-grabbing numbers — the big story is that there’s just a much, much wider opportunity for people who want to play in this space. Every single price point, every little bit of reliability, and everything from pickup trucks — like I said, if you live in that part of the world and that’s something that’s interesting to you. It’s a very broad-based hobby.

It’s also — this was a hobby that for many, many years was very much male-oriented, male-driven. And I can see that in the data of who our insureds are and everything else. There’s a really rising cohort of young women — women who want to have these cars and have it be part of their lives too. I think that’s probably one of the most exciting trends. So: very broad-based.

Barry Ritholtz (00:50:43): I’ve noticed a lot more women YouTubers talking about cars.

McKeel Hagerty (00:50:47): And coming to cars and coffee with their cars, and that sort of thing. So there’s just a lot more to it. It’s much broader-based. And sure, it’s fun to see a multimillion-dollar whatever sell someplace, but that’s just not the average reality. The average is actually much broader-based and much more interesting.

Barry Ritholtz (00:51:04): So I want to get to our favorite questions, but I’ve got to throw some other stuff first. Let’s just do a quick speed round. Someone comes up to you and says: hey, I’m interested in a fun weekend car. I don’t have a lot of money, but I’d like a convertible, stick shift. What do you say?

McKeel Hagerty (00:51:19): Mustang.

Barry Ritholtz (00:51:22): Mustang, of course. Other than a Ferrari, you say “of course” — because I would’ve said Miata.

McKeel Hagerty (00:51:26): Oh yeah. Well, Mustang or Miata. And I always tell people — the oldest Miata is now 33 years old, something like that. And they made over a million of them for the US market. Super reliable. If you want to go track driving, they’re the great track cars. If you want to just cruise around on a weekend, they’re inexpensive — 10, 15 thousand dollars. (Right.) But same thing with the Mustang.

Barry Ritholtz (00:51:49): And a little more horsepower in the Mustang.

McKeel Hagerty (00:51:51): A little bit more horsepower. They made a lot of convertibles. They’re manuals — they’re automatics, if you don’t feel comfortable with that. And very, very affordable cars, and easy to get serviced. So those would be my two recommendations. Of course, the most collected car, though, still in the United States is the Corvette. They’ve been making them forever. There are lots of them. Easy to service.

Barry Ritholtz (00:52:13): And not that expensive — especially like a C6 or C7. Not for a semi-modern car.

McKeel Hagerty (00:52:19): They’re amazing. They’re amazing cars.

Barry Ritholtz (00:52:22): Someone says, I’m interested in something European, a little more interesting, sporty. Where do you send them?

McKeel Hagerty (00:52:29): Well, I’m a Porsche person, so I would say: great, you want a 911, but let’s start you in a Boxster — some more entry point there. And that younger generation that I talked about — the 3 Series BMWs: super fun cars, lots of them built, with a lot of quality, and they kind of have style. They look good. That’s where people go.

Barry Ritholtz (00:52:53): Yeah, those have aged beautifully — the design of the early BMWs. Someone who has a little more scratch, a little older, says: hey, I’m looking for something fun, but it’s going to retain its value, and I’m willing to spend more than my kid buying a Boxster.

McKeel Hagerty (00:53:12): Well then — again, my bias here — I’d still probably say 911, but you’re going to pick a year that was maybe slightly off. They’re going to hold their value well. I actually did a kind of market-cap comparison between every 911 ever built versus every Ferrari ever built. Because people talk about Ferrari GTOs and all this sort of thing, which are worth tens of millions, but I’m like —

Barry Ritholtz (00:53:36): 275s. Yeah. And they were just spectacular.

McKeel Hagerty (00:53:39): They are. I love them. But when you look at all the 911s that were built — they were really undervalued for a long time. I mean, people used to give me a hard time, because my ’67 911S — when I spent over a hundred thousand dollars having it professionally restored, not that many years ago — I mean, after my very amateurish high school restoration — I spent a hundred thousand, or a little bit more than that, and it was worth about 70. (Right.) Well, now it’s worth about 300. (No kidding.) Yes — 250, 300 for a ’67 S. And people say, what’s your 911 worth? I’m like, I don’t care. It’s my baby. I and my family will have that car forever.

Barry Ritholtz (00:54:22): I have a bias against garage queens, but I’m curious as to your thoughts — people who buy cars, put them in a garage, never drive them.

McKeel Hagerty (00:54:30): I think those are really sad cars.

Barry Ritholtz (00:54:32): Right? They’ve got to be great for business, because there’s zero risk.

McKeel Hagerty (00:54:35): Yeah, the claims are low. But they’re sad cars. And especially — by the way, there’s almost not a single generation of cars that fares well when it sits around for a long, long period of time. Tires age, belts and hoses age. And some of those nineties and two-thousands cars, they age particularly badly when they sit in the garage. Lots of maintenance required. So my view is — if you’ve got a car, unless it’s got six miles on it, or 15 miles, and you just think that’s what makes it cool (and there are a lot of customers that we have that like that), my view is: go drive it. We sold at our Amelia sale one of the two record-setting Ferrari Enzos. We sold it for $15 million. The car had, I think, 249 miles on it. A Ferrari Enzo. And everybody’s like, what do you think of that? I’m like — I would rather have the 20,000-mile Ferrari Enzo that I could go drive. I mean, that’s just personally myself. And I congratulated the buyer — wonderful buy, sir. But I would like the —

Barry Ritholtz (00:55:30): Please drive it. Please drive it. Doug DeMuro said something really interesting about his Carrera GT. When he was hunting for one, he found one with higher mileage, because he said: I won’t go through the process of “I’m not going to drive this because I’m depreciating it.” Starting out higher mileage, you’re more inclined to put miles on it.

McKeel Hagerty (00:55:50): I have one vintage car that has super low miles on it. It’s a Jaguar E-Type, 1966. (Lovely.) It had 13,000 miles on it when I bought it, and it has about 15,000 miles on it now. And it just bugs me, because I feel like it should be driven — and then I worry that I’m just putting a bunch of miles on it. So I don’t know — I have the same quandary. So I just like to drive cars.

Barry Ritholtz (00:56:11): So we are recording this right after Ferrari dropped their new Elettrica — electric appliance, I don’t even want to call it. My Ferrari buddies are not big fans of all the new versions that have been coming out. I still think the 458 is really handsome. I love the 812 GTS — if I ever get that garage built, one of those has my name on it. But the question for you is: when you see these new cars coming out, and they’re so technology-heavy and so screen-focused, how do you think these will fare as collectibles 20, 40, 60 years from now?

McKeel Hagerty (00:57:01): Well, I can tell you, I will never bet against Ferrari. Not ever once. Because it is just — forever, since the day the first one was built, there’s been something magical about that brand. I love the history — the fact that when Enzo Ferrari, back in the day, would show up with one, everybody knew: well, that’s the car to beat, period. And even though sometimes you beat them, sometimes you didn’t, they were just the car to beat. And I also remind people that companies like Ferrari have always had different lines of cars. Ferrari always had race cars, but they also always had their, like, businessman’s car — a front-engine, slightly less performance —

Barry Ritholtz (00:57:40): The 550s, 599s, 612s. Exactly. Even the 575.

McKeel Hagerty (00:57:44): Well, and the SUV — the Purosangue, right? People said they’ll never build an SUV. And I remember I was talking to Bob Lutz, and he just said: watch. I’m like, why do you think they will build an SUV, Bob? And he said: because they have to.

Barry Ritholtz (00:57:58): I was going to say — the Cayenne and the Macan saved Porsche.

McKeel Hagerty (00:58:02): They saved Porsche.

Barry Ritholtz (00:58:03): All right. (Yes.) Ferrari had to be watching that. They had to be seeing the Urus sales. (Yes.) Which is essentially a rebadged truck from Audi with a whole lot more horsepower. I mean, how do they not do that?

McKeel Hagerty (00:58:18): They had to. And I think — I get it. This particular electric car has not necessarily had the most favorable initial reviews. But my view is, I will never count Ferrari out. And I think they probably are seeing some things in their data, and with some certain customers who want this. And we’ll see.

Barry Ritholtz (00:58:34): We’ll certainly see. So let me jump to my favorite questions (You bet.) so I don’t make you late for your trip back to the Midwest. Who were your early mentors who helped shape your career?

McKeel Hagerty (00:58:48): My mentors went from kind of macro mentors to micro mentors. In the early days, of course, it was my parents. My parents had very different skill sets, and I was so blessed that I got to work with both of them. There were some teachers early on who were really extraordinary professors, who I think triggered my love of learning. One gentleman — his name was Gary Hart, still living; I kind of look after him in his old age — he just fundamentally taught me how to be a good student.

But what I found, though, is my mentors have become more micro mentors now. Less of — it’s my whole life, learning everything about something from this person. Now I find somebody who’s really good at one thing, and I learn from them. I become friends with them. My current lead director on our public company board, Bill Swanson — he was the chairman and CEO of Raytheon. Wonderful man, car collector, and just brilliant at board governance and how to think things through. And I’m just learning so much listening to him. And so he is a real mentor of mine. And so I think I’m very much of that tribe-of-mentors approach. I’ve had many, and I love mentoring myself.

Barry Ritholtz (00:59:58): Huh — really, really interesting answer. What are some of your favorite books? What are you reading right now?

McKeel Hagerty (01:00:02): So I’m an avid reader. I read 30 to 50 books a year, typically. (Wow.) And a lot of biographies. In the last four or five years, I was definitely on a music biographies stint — so, a lot of rock and roll biographies.

Barry Ritholtz (01:00:17): Give us a few names.

McKeel Hagerty (01:00:18): Oh, everything from the Keith Richards to Slash to — you name it. I read a lot of biographies: Springsteen, anybody. Then I did an interesting kind of parallel set, which was music producers. And that was fun. So everything from — there’s a famous book on Warner Brothers music called Sonic Boom, which was about all of the music producers that did that — to Clive Davis, to those types of folks.

For this year, though, my reading theme is all about the founding of America. So I’m reading a lot of kind of American founding stuff — I just figured it’s a good time to do that. (Sure.) So, biographies so far this year on George Washington, Benjamin Franklin; there were a bunch of other books around a lot of the founding fathers. I’m also wading through Wealth of Nations again, for the first time since college — because it was also published in 1776. I’d forgotten that.

Barry Ritholtz (01:01:13): That’s a little bit of a slog.

McKeel Hagerty (01:01:14): Yeah, that’s a beast. That’s a beast. But I would say one final piece — I was a sci-fi fan forever. (Oh really? Same.) And I decided, for the last two years, to start rereading a bunch of the great series that I read a long time ago. So I just read the entire Dune series for the third time in my life. (Wow.) And that was fun. The Foundation series, all of Clarke. I think what I had forgotten is that almost all of those sci-fi authors knew each other. (Yes.) They all kind of subscribed to some of the same magazines, and they’d get together for these little get-togethers, and they were all kind of envisioning a future together. And a lot of the same themes — and especially right now, the challenges with AI — are all embedded behind the Foundation series, and even in Dune. You kind of have to read into it, but it’s fascinating stuff.

Barry Ritholtz (01:02:08): Larry Niven, Philip K. Dick — any of those?

McKeel Hagerty (01:02:12): Yes. And of course, Hitchhiker’s Guide to the Galaxy — for a little bit of humor.

Barry Ritholtz (01:02:17): Classic. Yes. What are you streaming these days? Give us your favorites — either YouTube or Netflix, or even podcasts. What’s keeping you engaged?

McKeel Hagerty (01:02:25): Yeah — so my workout companion is a lot of podcasts. And they’ve kind of shifted, I guess, a little bit. During COVID, it was a lot of sort of habits-and-mindset stuff and that sort of thing. And then I discovered people like Scott Galloway — his very humorous way (Sure.) to think about business. Tyler Cowen, I think, is just absolutely brilliant — so, great podcast there. I’ve also been impressed with — Audible has a number of their own. Again, back to the musical biography thing — they have a lot of these short-format podcasts, kind of quasi-musical performances that are both kind of spoken word and music in one. It’s actually called the Words and Music series. And that’s been really fun to listen to some of those.

Barry Ritholtz (01:03:13): Words and Music. Yes — I’m going to have to check that out. All right, our final two questions. What sort of advice would you give a recent college grad interested in a career in either automobiles or insurance, or business?

McKeel Hagerty (01:03:27): I’ve just been to two different commencement ceremonies. One was my daughter’s, and another was some friends’. And all of the commencement speakers right now are so focused on AI, and trying to tell them it’s going to be okay. And not only do I think it’s going to be okay — as I always remind them, and people, of my own career: my core business is what some people would call a relatively boring industry, insurance. You don’t have to go into the cool stuff. I think there are so many opportunities in these industries that are established, they’re stable, and they need really smart people who want to work hard and remake what they are. So don’t overlook things that you consider boring today. Look at some of those, and think about the types of people that are going into them, where you can make a great career. I never imagined I’d be doing what I am today, and I think I have the coolest job you can have.

Barry Ritholtz (01:04:23): Huh. Really, really interesting. And our final question: what do you know about the world of automobiles or insurance today that might have been useful 30, 40 years ago when you were first ramping up?

McKeel Hagerty (01:04:36): I think the world has been predicting the demise of certain parts of the automobile industry for years. And we saw it very recently with this almost, like, holy war of how people view the difference between EVs and internal-combustion cars. And I’m very agnostic about all of that stuff. And it’s very easy to kind of get sucked into those arguments — like, well, what do you think of EVs? I’m like, I don’t know. There were EVs back in 1908. (That’s right.) There were steam cars in 1910. And now, you know, we’ve been on internal combustion for a long time. I think there will be more electric cars in the future, but I also think there are going to be great internal-combustion cars. So I think I would just continue playing the big long game, and don’t worry about some of the little petty arguments that people can have. It makes for good cocktail party talk, maybe, but I’d like to see the big picture.

Barry Ritholtz (01:05:29): McKeel, thank you for being so generous with your time. We have been speaking with McKeel Hagerty, chairman and CEO of Hagerty specialty insurance. If you enjoy this conversation, well, be sure and check out any of the 648 we’ve done previously. You can find those at YouTube, Apple, Spotify, Bloomberg — 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 Transcript: McKeel Hagerty, CEO and Chairman of Hagerty Insurance appeared first on The Big Picture.

My guest on today's podcast is Christine DeMao. Christine is the Chief Operating Officer of Gibson Capital, an RIA based in Wexford, Pennsylvania, that oversees approximately $3 billion in assets under management for 200 client households.

What's unique about Christine, though, is how her firm since its early days has taken an intentional approach to succession planning, including by creating a "Path to Partnership" document that clearly outlines what the firm is looking for in new partners.

In this episode, we talk in-depth about how Christine's firm has had four rounds of partnership offerings (which have included not only executives and senior advisors, but also operations professionals as well), how Christine's "Path to Partnership" document lists the prerequisites for becoming a partner (including embracing a client-first philosophy, having strong character, being effective in one's functional job, and adding to enterprise value) as well as other positive factors (such as making intellectual or culture contributions to the firm), and how Christine's firm introduces this document to new hires early in their tenure to set expectations (and to help color performance management conversations).

We also talk about how Christine and her partners keep an open dialogue going to identify team members who might make good partners one day, how Christine's firm cultivated next-generation leaders by bringing them into management conversations on a regular basis before offering them a partnership opportunity, and how Christine created a "role grid" to map out responsibilities across the firm (which helps avoid pitfalls that can come with a distributed leadership structure).

And be certain to listen to the end, where Christine shares how Gibson Capital's culture has changed for the better following its post-pandemic transition to a hybrid environment, how Christine has found significant value from participating in groups with other operations professionals in the wealth management community, and how a near-death experience led Christine to pursue better work-life balance (and model a healthier approach for staff at her firm).

So, whether you're interested in learning about creating a clear path to partnership for next-gen employees, building the firm infrastructure to serve high-net-worth clients, or adding enterprise value to a firm from the operational side of the business, then we hope you enjoy this episode of the Financial Advisor Success podcast, with Christine DeMao.

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Broadly, documentation that is important to a financial advisory firm can be thought of in three tiers: documents that are required by the regulatory requirements of the practice (Tier 1), documents that describe actions taken and client communications (Tier 2), and documents that explain an advisor’s rationale for recommendations or actions (Tier 3).

Tier 1 documents that are required by regulators are likely to be those the advisor is most familiar with and can include a signed client agreement, Form ADV Part 2 delivery acknowledgment, conflict of interest disclosures, privacy notices, and other files as required by various governing bodies. The goal of this tier is to prove that the documentation required for legal and regulatory purposes was, in fact, delivered to the client, and these documents are often filed on a company intranet or in their CRM.

Next, Tier 2 documents catalogue interactions with a client and can include meeting notes, email communications, and copies of analyses delivered to the client. In this tier, a few of the important things to capture are what happened, when it happened, and who was involved. These details create a verifiable timeline of the client relationship that neither the advisor nor the client may be able to reconstruct with full accuracy from memory alone (which can be helpful evidence if a client [incorrectly] claims down the line that an advisor did or did not make a particular recommendation).

Finally, Tier 3 documents include the rationale for why an advisor recommended a specific action. While it is helpful to understand what recommendations were made (Tier 2 documents), describing the rationale behind them in writing can both provide the advisor with insight into their thinking if the recommendation is revisited down the line and also provide helpful background insights if another advisor or team member begins working with the client.

While financial advisory firms will likely already have Tier 1 documents established (though they might need to be updated from time to time), implementing a process across the firm for creating Tier 2 and Tier 3 documents can ensure these are produced consistently. For instance, building in time before client meetings (to record the thinking behind their recommendations) and after (to document decisions that were made and the reasons behind them) can ensure these tasks don’t slip through the cracks. Also, while some advisors might enjoy the writing process, firms might encourage those who are less adept at this task to take advantage of dictation tools (e.g., Windows Talk-to-Text and Pulse360) to organize their thoughts and avoid procrastinating this task.

Ultimately, the key point is that the benefit of maintaining proper documentation isn’t just a matter of staying in line with relevant regulations but also an opportunity to better serve clients and promote business continuity by maintaining accurate records of client communications and recommendations, as well as the reasons behind them!

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Our growth at Kitces.com has faced similar capacity challenges in recent years, amplified by our ongoing commitment not to use AI in the development of educational content… which means we have no choice but to continue to build our on-team talent, coupled with our network of industry experts, who can deliver human-expert-crafted content that is up to our Quality, Nerdy, and Relevant standards at Kitces.

Yet also similar to many advisory firms, we have found that our recent growth has increasingly been constrained by legacy technology decisions we made years ago that no longer served the current needs of the business. And so in 2025, we kicked off a two-year cycle in which we have been systematically rebuilding nearly all the core technology components of our business.

Last year, we started with a total from-the-ground-up rebuild of our Members Section, which now features a new CE catalog, new CE quiz system, enhanced reporting on the status of your CE programs and whether they've been submitted to the accrediting organizations, and an improved My Account interface to manage all of your various CE numbers. With our new framework built, we're now also working on a number of additional enhancements, including:

• a new "Research Scorecard" report that will allow advisors who participate in our research surveys to see how their firms compare to other (anonymized) advisor peer groups
• updates to our Live Events page to make it easier to see all of our scheduled live Kitces offerings in one place.

We're also excited to introduce two new programs getting underway in the second half of 2026: Level Up, and the Financial Advisor Technician podcast!

Our new Level Up program is specifically designed to help solve the industry's talent (or what we believe is actually a training) shortage: Every other week all year long, we'll conduct a live case-study reviews of real-world client scenarios, giving new advisors a chance to "get their rep(etition)s in" on more complex clients, with an opportunity to compare notes and role-play scenarios with peers, all guided by a Kitces instructor who will debrief the case study to highlight key planning opportunities, and how those recommendations could be framed and communicated most effectively to the client. This month, we'll be starting a three-month pilot program for Level Up, which is already sold out, but you can sign up now for the waitlist as we prepare for a broader rollout in 2027!

Our other new launch is the Financial Advisor Technician podcast (or "F-A-T" for short), which will be our first podcast eligible for CFP (and other) CE credit! Hosted by our own financial planning nerd Adam Van Deusen, each week a new episode of F-A-T will interview the author of our Wednesday articles (on various advanced planning topics), exploring the important information and key insights, and how advisors can take action with their clients. And because our Wednesday articles are already CE-eligible (readers must successfully complete the requisite accompanying CE quiz), listeners to the F-A-T podcast will also be able to earn the same CE credit by logging into the Members Section to take the quiz! Stay tuned for the first F-A-T episode to drop on Wednesday, July 22!

In the meantime, we continue to grow our full breadth of CE, practice management, and advisor development programs now, including our series of nine on-demand Training Courses, quarterly virtual events including our two half-day, virtual Practice Management Summits (one on Marketing and the other on Financial Planning Value) and our two full-day CE Intensives (one on Tax and the other on Ethics to fulfill your CFP Ethics and IAR Ethics requirements), our bi-weekly webinars, growing Directors of Financial Planning (DFP) community and its monthly peer group meetings, and the full breadth of our daily articles and two (soon-to-be three) podcasts! And we remain an active provider for all of your (multi-designation/multi-license) CE needs, including CFP, CPA, all the designations from IWI, College for Financial Planning, the American College, and state-based IAR CE obligations.

Likewise, our own Team of Nerds continues to expand. We recently hired several new team members, including Director of Member Success Kristin Dammacco, Director of People Operations Libby Sparks, and Senior Technical Editor Natalie Trevisan, and are actively hiring now for a new Executive Assistant to work directly with yours truly, Michael Kitces! If you know someone who would be a fit for our open Executive Assistant role, or are wondering how you can get more involved with the Kitces team, you can also sign up for our separate Career Opportunities mailing list (via our Career Opportunities page) to be notified when new positions open up! And for those who don't want to join the team full-time but would simply like to "Nerd out" with us for a bit and share what they do or know with their fellow advicers, remember to check out our "How To Contribute" page to see how you can engage with the Kitces platform as a guest writer, presenter, or podcast guest!

Throughout it all, we remain focused on advancing our core mission – to "Make Financial Advicers Better, And More Successful" – through our four strategic pillars of supporting ‘Nnovation of AdvisorTech tools, delivering insightful Education, conducting original advicer Research, and facilitating the Development of financial advicer skills across the spectrum of experience and firm sizes (and yes… our organizational strategy does spell N-E-R-D). We look forward to continuing the journey with you in 2026 and beyond!

Read More...

This week, I speak with McKeel Hagerty, CEO and Chairman of Hagerty. We discuss how he transformed the family boat insurance business into a “sexy” driver-forward business. We also discuss our love of collectable cars and his love of his first car, a Porsche, that he bought at the age of 13.

A transcript of our conversation is available here on Tuesday; A list of his current reading 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.

Be sure to check out our Masters in Business next week with Jason Wenks, founder and CEO of Altruist, a modern custodian built as a clean sheet from the ground up, fully integrated with artificial intelligence. He began his career at Morgan Stanley before launching Retirement Wealth Advisors, and then FormulaFolios. The through-line of his career has been creating lower-cost, tech-enabled, financial advice.

Current Reading/Favorite Books

Lots of musical bios:  Keith Richards, Slash others
Hitchhiker’s Guide to the Galaxy
Sonic Boom
George Washington
Benjamin Franklin
Wealth of Nations
entire Dune series
The Foundation series,

The post MiB: McKeel Hagerty, CEO and Chairman of Hagerty Insurance appeared first on The Big Picture.

Also in industry news this week:

• The IRS unveiled a new automatic process to provide penalty relief for taxpayers with a history of filing and paying on time
• A survey of broker-dealer advisors finds that effective firm-wide rollouts of AI-powered tools are associated with more time to spend with clients as well as greater advisor satisfaction and loyalty

From there, we have several articles on asset location:

• While strategic asset location could add approximately 0.3% of portfolio value annually, the value of this approach depends on several factors unique to each client
• While some investors might hold foreign stocks in taxable accounts to be able to access the foreign tax credit, sizable dividends or capital gains distributions could still make tax-advantaged accounts an attractive location for these investments
• How an investor's time horizon plays an important role in determining whether holding stocks in a taxable or tax-advantaged account might be the most tax-efficient choice

We also have a number of articles on estate planning:

• Why advisors and their clients might (re)consider certain trust strategies in a post-OBBBA world
• How irrevocable trusts can create challenges during divorce proceedings, and how advisors can help clients in this situation ensure they receive a fair financial outcome
• How a recent court case shows why following a retirement plan's specific instructions for making beneficiary changes is necessary to avoid inadvertently leaving assets to an unintended recipient

We wrap up with three final articles, all about self-confidence:

• Ways financial advisors can overcome self-doubt, from finding a peer group (who might be going through similar issues) to building skills that are valuable for their specific clients
• How creating a financial planning "playbook" can help newer advisors organize the insights and wisdom they encounter during their early years on the job (and ultimately help them create their own unique style)
• Why making an impact in the lives of friends, family, and clients could provide a greater sense of meaning than achieving 'fame' amongst a broader (but more anonymous) audience

Enjoy the 'light' reading!

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What a fun conversation!

I sat down with Jon Erlichman (formerly of Bloomberg, now at Ticker Take) to discuss the biggest mistakes investors make.

Here is the overview:

Most investing advice tells you what to buy. Barry Ritholtz would rather tell you what NOT to do. This week on Ticker Take, we sit down with Ritholtz, co-founder and chairman of Ritholtz Wealth Management and the author of How NOT To Invest. Barry walks us through 9 mistakes investors (including pros) often make — from trying to time the market to anchoring to what you paid. Plus, he walks us through the simple approach he uses to avoid making mistakes. As always, this is not financial advice.

Chapters:  0:00 Intro
0:16 What you should NOT do as an investor.
0:54 Why avoiding mistakes is the key to investing!
1:39 Some of the ways to be a successful investor.
3:34 Pros make these mistakes too!
4:44 Mistake 1 – Timing the market
7:34 Mistake 2 – Complex over simple
9:11 Mistake 3 – Politics over patience
11:33 Mistake 4 – Ignoring compounding
14:08 Mistake 5 – Survivorship bias
17:00 Mistake 6 – Panic selling
19:03 Mistake 7 – FOMO buying
20:29 Mistake 8 – Action bias
21:52 Mistake 9 – Anchoring to cost

Video below…

Apple Podcasts

Spotify

YouTube

The post Ticker Take: The Biggest Mistakes Investors Make appeared first on The Big Picture.

This week, I speak with David Risher, CEO of Lyft, about his career path from Microsoft and Amazon to leading the ride-sharing platform. We discuss Lyft’s financial turnaround, cost-cutting measures, and strategies for expanding market share. Plus customer-centric features, the mechanics of ride data, and the decade-long transition toward autonomous vehicle networks.

A transcript of our conversation is below; His current reading is “Apple in China: The Capture of the World’s Greatest Company” by Patrick McGee, and “Good People: A Novel” by Patmeena Sabit.”

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 Master’s in Business this weekend with McKeel Hagerty, CEO/Chairman of Hagerty Specialty Insurance. He transformed a family specialty-insurance agency into an enthusiast-driven platform focused on collectible cars, events, valuation data, and auctions. HGTY is now a public company that insures everything from classic cars to boats, trucks, tractors, and military vehicles for over 2.8M collectors.

Spotify

MASTERS IN BUSINESS An Interview with David Risher, CEO of Lyft
Hosted by Barry Ritholtz  ·  Bloomberg Radio

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

BARRY RITHOLTZ (00:00:16):  This week on the podcast — man, was this a fascinating conversation. David Risher has been CEO of Lyft for the past three years; he’s been on the board for the past five years. What a fascinating discussion about a company that is probably an app on your phone, and you may not be aware of all the different things they do — from bike share, to autonomous vehicles, to fleet management, and everything in between. I thought this was absolutely fascinating, and I think you will also. With no further ado, my conversation with Lyft’s CEO, David Risher.

DAVID RISHER (00:00:55):  Thank you, Barry. I am happy to be here.

BARRY RITHOLTZ (00:00:56):  I’m thrilled to have you. Before we start talking about your technology background, I gotta roll a little further back: a bachelor’s in comparative literature from Princeton. That doesn’t sound like the sort of career plan for someone who’s gonna work his way through technology companies. What was the original idea?

DAVID RISHER (00:01:16):  So this goes way back, and the funny thing is, it even goes to high school. My mother bought an Apple II computer a million years ago to help her run a small business, and I sort of got into technology that way. I will admit, part of it, I think, is I had terrible handwriting. And so when I used the computer to print out stuff for my high school English teacher, she could finally read what I was writing. It probably gave me a better grade as a result. So I sort of got into computers a little bit as a kid, ended up at Princeton, writing my thesis on a computer — again, this is a million years ago, when that wasn’t normal. And so I found myself just interested in technology, and after going to a consulting firm for a couple years to learn about the business world and going to business school, I found myself as an intern at Microsoft — again, back in 1990 — and the rest is sort of history.

BARRY RITHOLTZ (00:02:09):  So, Harvard Business School — we know what that typically leads to. I’m curious how the humanities background helped shape the way you think about business, about leadership, about working with people. What was the upside of humanities for you?

DAVID RISHER (00:02:26):  You know what, I really appreciate the question, and I actually think it’s more relevant now than ever. Look, the humanities is all about curiosity and understanding, and maybe even empathy, right? If you read a book, you have to understand — you’re exposed to different people’s perspectives. It’s almost like you’re crawling inside someone else’s brain, particularly if you’re reading fiction. And so, to a certain extent, I think nothing could prepare you better. Now, you have to have an analytical brain. You might also have to be good with numbers in business. But the humanities world — I sort of think of it as this kind of magic vaccination against irrelevance, because that curiosity is always gonna matter. And it certainly helped me through my whole career.

BARRY RITHOLTZ (00:03:05):  I love that answer. So you intern at Microsoft. You end up beginning your career there, where you helped to launch their first database product, Access. Tell us about that.

DAVID RISHER (00:03:17):  Sure. So Microsoft was famously ahead — or at least getting ahead, let’s say — with the launch of Windows, in word processing, in spreadsheets, of course. And again, this is sort of ancient business history, but it’s a fascinating tale of a technology shift, completely reshuffling the deck away from old companies like WordPerfect and Lotus 1-2-3. We don’t even know who those companies are anymore, because Microsoft took over that space. And it’s really because Windows shifted the platform — we might come back to that idea when we talk about autonomous cars. But they didn’t have a database, and that was sort of the third big product that a lot of companies wanted. I helped develop it; I was the first product manager on it. And really, all that meant is my job was to go around and watch other people use competing products at the time — Paradox, dBase, again, products that don’t even exist anymore — and try to pay attention to what they were doing with these products. How were they using them? Where were they stumbling? That was my first role. And in a sense, it has been one of the most important jobs I ever had, ’cause it’s what sort of taught me about understanding what customers want.

BARRY RITHOLTZ (00:04:17):  Huh, interesting. And then you founded Microsoft Investor and launched that product. That is so far afield from databases. What led to that transition?

DAVID RISHER (00:04:29):  Okay, so you’re making me realize that there’s a theme of my life I hadn’t really thought of before, which is platform shifts. So when I joined Microsoft, Windows was the product, right? This was the thing that was gonna run software, and of course it became incredibly successful. But then 1995, 1996, 1997 comes around — the internet is here. And Microsoft, like any tech company at the time, had to figure out its internet strategy. And it decided that there were a couple of key products that needed to be available on the World Wide Web. Actually, I think “the information superhighway” literally was the way people talked about it. It’s crazy. So —

BARRY RITHOLTZ (00:05:04):  Cliché. It’s amazing.

DAVID RISHER (00:05:05):  So cliché. But there it was — no one even knew how to talk about the thing. So anyway, I had been a little bit interested in personal finance, and a couple of threads came together. Microsoft tried to buy a company called Intuit — still very successful — and was unsuccessful, blocked because of the Justice Department. And so we decided we needed personal finance. And I said, you know what, why don’t we develop this product — a personal finance product — for the internet, not as packaged software.

BARRY RITHOLTZ (00:05:29):  Huh. Really, really interesting. And then, staying with the theme of platform shifts: employee number 37 at Amazon. That is just an absolutely bonkers number. Senior VP of US retail — when you joined the firm, revenue was $15 million. You helped ramp that up to $4 billion. Obvious question: when you joined Amazon, did you have any idea what the behemoth it would become? Or was it still, hey, we’re hanging on by our fingernails and maybe this’ll work out — or anywhere in between?

DAVID RISHER (00:06:07):  It was sort of both at the same time, and it was almost always gonna be one or the other, right? So I remember — I’ll tell you a little of the story of how I got there. My phone rings one day at Microsoft, and it’s this guy Jeff, and he’s doing a reference check of a woman who used to work, actually, at Microsoft in the personal finance group. So it all kind of connects. And so we get to talking, and one thing leads to another, and he is very precise about the way he’s asking questions. Remember, the company had maybe 10 people at this point. It was very, very small. But he had a big vision. You know, he was gonna be Earth’s biggest bookstore.

BARRY RITHOLTZ (00:06:42):  At the time — wait, hold on, let me just stop you. When you say “this guy, Jeff” — this isn’t just some guy in HR. Jeff Bezos is calling you to do a background check on a potential hire.

DAVID RISHER (00:06:55):  Exactly.

BARRY RITHOLTZ (00:06:56):  So go on — Jeff calls.

DAVID RISHER (00:06:58):  So Jeff calls me, and literally, at the time, he was just this guy, Jeff.

BARRY RITHOLTZ (00:07:02):  “Hey David, some guy named Jeff on the phone. Pretty much a background check for an employee.” So what was that conversation like?

DAVID RISHER (00:07:09):  Well, he had — to take you back then, but in a sense it’s still the Jeff of today — he had a plan, and it was a 25-question plan for the phone call, right? And to this day, the question I remember the most clearly was: “It’s very clear you are a fan of this person — give me an example of a job that she wouldn’t be a good fit for.” And it was such a clever question, because inevitably in background checks, you’re trying to say nice things about the person, right? But this is an invitation to say, well, you know, maybe a very detail-oriented job might not be the best fit. Or maybe something that manages a lot of people. It’s something like this that would give him some sense of where an area to probe more is. Anyway, at the end of that conversation — literally 45 minutes into it — he says, you know, you sound like a good guy. I said, oh, you sound like a good guy as well. And so a couple days later, he and MacKenzie, his wife at the time, and Jen, my wife currently still, and I went out to dinner, got to know each other, and over the course of the next year, got to know each other a little bit better. And then I ended up applying for this job to help Amazon grow beyond just books. That was really the job.

BARRY RITHOLTZ (00:08:16):  And how’d that work out?

DAVID RISHER (00:08:18):  It worked out pretty well. But you know what, it wasn’t obvious at the time. During the interview, I remember he said — look, if we play our cards right — and as you say, it was a $15.6 million store at the time, so tiny, tiny little thing — he said, if we play our cards right, maybe by the year 2000 — this is in 1996 — we might be a billion-dollar company. Maybe, maybe. But a lot has to go right in order for that to happen. Obviously we got there, and then we got, you know, far beyond. But there were all kinds of people who frankly were sort of rooting for our failure — competitors, Barnes & Noble at the time, a bunch of Wall Street analysts who thought this was just some sort of crazy Ponzi scheme, whatever.

BARRY RITHOLTZ (00:08:56):  It was, “No one’s gonna buy anything on the internet. What are you guys doing? This is a dumb idea.”

DAVID RISHER (00:09:00):  Totally, totally. Well, and not only that, but also: the costs are gonna be huge. You’re gonna have to build out these distribution centers and warehouses. The internet is unproven technology. All sorts of things that just —

BARRY RITHOLTZ (00:09:12):  No one’s giving you a credit card over the internet, correct?

DAVID RISHER (00:09:14):  Correct. Who’s gonna trust you?

BARRY RITHOLTZ (00:09:15):  I remember getting an Amazon gift certificate from my college roommate — this was decades ago, right after Amazon formed. And the first time you go through the experience of buying something, it’s like, oh, this makes perfect sense. I don’t have to go to the store, I don’t have to waste time. This is great. I mean, there are certain stores that are fun to browse, but for the mundane sort of stuff, he was just decades ahead of everybody else.

DAVID RISHER (00:09:46):  In that way — and in realizing that it’s really the customer experience and customer obsession that’s gonna drive your continued growth. Because all those things are true. And as he would say, famously, you’re always one click away from competition. So that’s the downside, right? How do you continue to compete in a world where theoretically someone else could start, and someone else could start, and someone else could start — and you don’t have any geographic advantage over them?

BARRY RITHOLTZ (00:10:09):  And they kind of owned that space for the longest time. Really, it was only the pandemic, when people were outta things, that forced everybody: all right, now I have a Target account, now I have a Walmart account, now anybody else who could deliver. And what’s been surprising is how they’ve just powered right through. Hasn’t really slowed him down very much.

DAVID RISHER (00:10:27):  That’s right. That’s right.

BARRY RITHOLTZ (00:10:31):  So you go from Amazon — you kind of tap out a couple of years later. You teach at the University of Washington’s business school; you were elected Professor of the Year in 2004. And then you spend 13 years running Worldreader, a nonprofit dedicated to helping children learn to read in underserved communities. This is yet another pivot — platform shift, right? What was it? Just like, all right, I have my Microsoft stock came in, Amazon recovered from the dot-com implosion, that’s doing fine — I could just do something for fun? What was the thinking behind the shift?

DAVID RISHER (00:11:11):  No, it wasn’t that, actually — it was sort of a different thing. So you asked me a couple questions ago what my career idea was as a kid. Honestly, if I had had to guess, I might have said, you know, maybe I’ll be an English professor someday, or something like that. I’d wanted to teach, and I loved reading. And so this was a way for me to bring together a couple of different things in my life — obviously books and literacy, ’cause that was sort of the passion and focus, but also technology. The thesis of the company was: kids are gonna read using tech. And that’s how it’s gotten to be — millions and millions of kids later are all reading on the platform. It started out with Kindle, a product I know something about because of my Amazon days, and brought sort of technology and reading together. So that was really the focus.

BARRY RITHOLTZ (00:11:53):  And then what ultimately ended up bringing you back into the corporate sector, after a long time in academia and nonprofits?

DAVID RISHER (00:12:01):  Yeah. So here it was — one day my phone rings, and a guy named Sean Aggarwal is on the other end of the line. Sean and I had worked together many years before, back at Amazon. He was my kind of finance partner. He had subsequently become an investor and then the board chair of Lyft. And he and John and Logan, the co-founders of Lyft, really were looking to do something quite unusual at the board level, which was: bring someone in who is a real customer advocate. So boards — for those of you who haven’t gotten a chance to be exposed to a board — typically are made up of kind of finance people, business strategists, maybe people who’ve built companies before. But often, by the time you get to sort of the board level of a company, you’re pretty far away from the customer. And John and Logan, again to their credit, said, you know what? We need some more customer advocacy right from the top. We need some more support, frankly, for that kind of vibe, as well as someone who’d helped scale a company like Amazon. You know, I also learned a lot about competing at Microsoft, and even at Worldreader — nonprofits, people sort of look at them and think they’re not very much, but it’s very, very difficult to actually scale a nonprofit, because the funding is always tight and so forth. So I think they were looking for someone with a combination of scaling experience but also real customer advocacy. And so I joined the board as a result.

BARRY RITHOLTZ (00:13:18):  And then eventually, a couple of years later, you get offered the role of CEO. What was that like? How did that come about? Infrequently do board members become CEOs.

DAVID RISHER (00:13:36):  So, funnily enough — and this one I’ll sort of slow the story down again, because it actually was Sean Aggarwal again, same board chair — he calls me up. It happened to be on Valentine’s Day, of all days, so I remember the day, in 2023. And the backstory here is John and Logan, again, the co-founders of Lyft — this is what they had been doing for 15 years nonstop. It was literally their first job outta college: founding this whole new company, withstanding the onslaught of an incredibly competitive environment, an incredibly operationally complex environment, 24 hours a day, seven days a week, for year after year. So at the end of the prior year, they said to the board, you know what, it’s time for us to move on. We’ve sort of done what we need to do. And frankly, the company was going through a bit of a tough time financially and operationally, and I think they realized that they were sort of getting to the end of where they could really help. So the board did what it does — boards do this — they form a special committee, they start to recruit, look around. I wasn’t on the committee; I was sort of watching from the side. But, as they say, then my phone rings one day, and it’s Sean on the phone with John and Logan, and they basically say: you know what we’ve been thinking? As we’ve been looking at external people, frankly, we think we might have the right person to at least apply for the job — let’s be clear, apply for the job — sitting right here, you know, on the board. And I said, what are you talking about? They said, we’re talking about you, David. I said, absolutely not.

BARRY RITHOLTZ (00:14:56):  Really — your first reaction was, hey, thanks, but no thanks?

DAVID RISHER (00:14:58):  Zero percent chance. I literally said, you should hang up the phone right now, because you’ve got better things to do. There’s just no way. But you know what? As the day wore on, I found myself saying, you know what, this is a really interesting opportunity. How many people get this opportunity? To run a — and I’d never run a public company before. I mean, my God. But at the same time, I had learned some things at Microsoft. I’d learned some things at Amazon. I learned some things at Worldreader. I learned some things in various different ways in my life. And I had a lot of passion for the company, having been on the board — and also a real understanding that as a board member, you really only have so much power and influence. It’s fairly limited. But as a CEO, it’s a different thing. So anyway, one thing led to another. I applied, and went through kind of a harrowing experience, but ended up getting the job.

BARRY RITHOLTZ (00:15:40):  Huh — really, really fascinating. So, we mentioned earlier: you joined the board in 2021, you’re named CEO in 2023. When you joined the company, they were still reeling from the pandemic and all the factors that drove the company — losing not only money, but also losing market share to their big competitor, Uber. What did you find when you looked under the hood? What surprises were awaiting you as CEO?

DAVID RISHER (00:16:11):  So the first, maybe, meta-observation — and you’re teeing it up — is: gosh, you’re on the board of a company for a couple years, you kind of think you know the company. You don’t really know the company. I mean, if any board members are out there, you think you do, and you probably have a pretty good sense of certain things, but you get in there and everything is 10 times bigger, worse, better — all the things. Then you realize: okay, what did I see? I saw a company that had some real innovative spirit at its core. Remember, Lyft was actually the one that really revolutionized rideshare. So the other guys, they came up with a sort of black-car concept — you know, black car on an app — but it was really Lyft that said, you know what, it can be anyone with a Prius. You know what I mean? Anyone can pick up. So this company had innovated from the early days, but honestly, its innovative spirit had maybe gotten a little the best of it. Tried a few too many things, spread a little too thin, losing share. And its core business, as you say — not priced well, not paying competitively. So a number of different, just basic issues. So what do we do the first, frankly, couple of weeks? Well, first thing is lower prices. We were just priced too high.

BARRY RITHOLTZ (00:17:15):  Did you do big announcements around that? Because I don’t — 2023 is still kind of a blur to me.

DAVID RISHER (00:17:20):  So we didn’t, and here’s why. In order to withstand a price drop — because it’s a very competitive business and you’re doing a lot of volume — if you drop your price, you gotta make sure you can pay for it. We had to do some other things as well. So, for example, we had to reduce our costs significantly. So we laid off — it was about a third of the company. And yeah, 26%, actually, of the company, now I think about it.

BARRY RITHOLTZ (00:17:41):  Wow.

DAVID RISHER (00:17:45):  $330 million of savings. That was a very, very significant shock to the company, by the way. We also had to raise driver pay. So we had a lot to pay for.

BARRY RITHOLTZ (00:17:53):  So wait — you’re simultaneously lowering prices for Lyft riders and yet bumping up pay for drivers. That sounds like that’s gonna cause a big problem for profits.

DAVID RISHER (00:18:03):  So that’s exactly right. So in order to pay for it, you have to figure out how to pay for it. And frankly, our cost structure was just sort of outta control. We were doing too many things. We had too many people — and by the way, those people were all working remotely, which makes it quite difficult to really kind of change the culture to a customer-obsessed culture, which was my other big thing. And by the way, we were also overpaying in stock-based compensation, which was bugging investors. So in the first couple of months, it wasn’t really the time to be bragging. It was the time, frankly, to be saying, okay, we’ve got some things to fix, and let’s really focus on that. So first — call it thirty, sixty, ninety days — it’s fixing some basics, but also reorienting the company back towards its customer-obsessed roots. And I’m still very — I guess I’d say proud of this: the first meeting I had of the day was literally getting my computer and my laptop, and the second meeting, 10 o’clock in the morning, Monday morning, I said, let’s start talking about a product that’s now called Women+ Connect — trying to get women drivers and women riders —

BARRY RITHOLTZ (00:19:02):  Such a great idea, especially given the mayhem across the street from you.

DAVID RISHER (00:19:06):  I appreciate you saying that. And it really matters. And this is something the company —

BARRY RITHOLTZ (00:19:11):  And I’m sorry to interrupt, please — it’s very visible on the app, that choice, which shows some thoughtfulness. And, oh, there’s this problem — how about we send a woman driver for you, and you don’t have to worry about what you’re hearing about elsewhere. Exactly. It just makes so much sense.

DAVID RISHER (00:19:28):  I really appreciate you saying that. It was an easy decision in that sense. All you have to do is talk to 10 women and say, well, what are you thinking? And they say, well, gosh, particularly late at night, maybe in a new city, maybe I’ve had a long day — it’s just not my jam to be talking to a dude. Right? It’s all right, dudes, you know — like that. But sometimes the easiest ideas are also the most complicated. There are all sorts of potential legal issues, all sorts of operational issues. There are even, to a certain extent, cultural issues of, like, is this gonna be okay? But I was like, you know what? I think it’s gonna be okay. I think it’s gonna be okay. So that was an early decision we made. It came out — that was in April of 2023 — we launched that later that year. And it was really exciting for the company to say, you know what, we can do big things again, and we can start to innovate again on behalf of customers.

BARRY RITHOLTZ (00:20:09):  Huh — kind of fascinating. Coming up: we continue our conversation with David Risher, CEO of Lyft, discussing the future of rideshare technology. I’m Barry Ritholtz. You’re listening to Masters in Business on Bloomberg Radio.

BARRY RITHOLTZ (00:20:21):  I’m Barry Ritholtz. You’re listening to Masters in Business on Bloomberg Radio. My special guest this week is David Risher. He is the CEO of Lyft, one of North America’s largest and fastest-growing ride-sharing networks. So over the next year or so, you return Lyft to profitability. In the most recent reported quarter — first quarter 2026 — over 28 million active riders, nearly $5 billion in gross bookings, $1.7 billion in revenues, just about $133 million in EBITDA profits. So the combination of restructuring the company, attracting — paying more — drivers, and discounting prices for riders puts you on the right foot. How do you build on that? What’s the next step to maintain that momentum?

DAVID RISHER (00:21:25):  Well, so in some sense, nothing changes, and in some sense, everything changes, okay? So what doesn’t change: customer obsession is still driving profitable growth. That’s just gonna be a theme I go with forever. You know, maybe I’ve drunk a lot of the Jeff Bezos Kool-Aid, but it seems to be working out pretty well. So one other financial metric that has been interesting to watch: when I joined, we were losing about $300 million — consuming about $300 million in cash — over 12 months. We’re now generating about $1.1 billion in cash over 12 months.

BARRY RITHOLTZ (00:21:53):  Okay. So what that allows you to do is invest in the future. What does that look like?

DAVID RISHER (00:21:58):  Certainly it looks like international expansion. So that’s been one thing we’ve been at for about the last year. Lyft was sort of — I almost say caught a little bit in a US-centric view of the world. And it just doesn’t make sense: once you have a product that scales really well, and is sort of a fixed-cost-based type of thing, you really want it to be around as much of the world as possible, so you can run as much volume through that platform as possible. So we bought a company called FREENOW last year. It’s a European taxi aggregator —

BARRY RITHOLTZ (00:22:28):  FREENOW?

DAVID RISHER (00:22:29):  FREENOW. Yeah. It is Europe’s biggest taxi aggregator, which means that if you want a taxi and you’re in a place like Barcelona or London — pick your favorite city; they operate in nine countries — the FREENOW app is gonna be your best way to get it. That gives us a great platform for expansion, even when it comes to autonomous vehicles — we’ll come back to that, I’m sure, in a couple seconds. So that’s one direction of expansion. You think of that as out — overseas. Another dimension is up — upmarket. You just kind of referred to this. So Lyft, again — it sort of started, its tradition was, as kind of a relatively inexpensive, very available rideshare option, but it wasn’t as strong in kind of the black, you know, kind of luxury segment. We bought a company called TBR last year. TBR is a high-end chauffeur company. We also have a very, very good Lyft Black product. In fact, if you’re listening to this, I promise: if you haven’t tried it, give it a try. I think you’ll like it. It’s actually our highest-rated product. You know, a nice black car comes and picks you up. So that’s another area of expansion for us, because that gives us, frankly, more margin to play with, but it also allows us to talk to a segment that we haven’t talked to very much. And then, of course, autonomous vehicles. So these are all nice uses of cash. Once you’re generating cash, you can start to either acquire companies, or you can invest in things that then grow — build sort of the next chapter of growth.

BARRY RITHOLTZ (00:23:44):  So I appreciate you mentioning the various tiers. There’s this tendency to think of the consumer — especially the American consumer — as one thing, but we both know that’s not true. You get to crunch a whole lot of data. What are you seeing in terms of income, geography, various times of day? Like, what do the metrics tell you about the different flavors of consumers using Lyft?

DAVID RISHER (00:24:11):  Yeah, this is such an interesting issue, and it’s not something I really appreciated. You know, we are gonna do about a billion rides this year, and so, to your point, with a billion rides, you kind of get a sense of how people are spending their time during the day. So I’ll tell you two things that are growing quite quickly. One is party time. And it might be funny to start there, but party time — I should say what that means. What that means is a Thursday night, really Friday night and Saturday night, call it nine and midnight. And it is really interesting — I think this is not just post-COVID, but I think, frankly, a little bit of app fatigue is driving people to say, you know what? Let’s actually get out and spend our lives out in the real world, instead of spending all of our lives on apps. So I think that’s — actually, I’m quite comforted by that. And it’s actually a big part of our sort of overall purpose, which is to serve and connect people. I’m a lot passionate about that. At the same time, commute as well. And I do think this is a certain post-COVID thing, where people were sort of thinking, maybe we’ll just be in our houses the rest of our life, working remotely. It turns out a lot of companies and a lot of people are saying, I wanna get back to work. And I think these things are somewhat connected — and sorry for sounding a little bit like a social psychologist a little bit, but I mean, gosh, I met my wife at Microsoft. A lot of people have really significant life events that happen at work that are not just work, right? And so I think there’s a little bit of that. So anyway, when I look at things like commute hours — and then travel continues to be really strong as well. And this is — look, I’m a million years old now. When I was a kid, the idea of getting on a plane and going overseas — I mean, you might as well say go to the moon. Now, 20- and 30-year-olds are like, yeah, I’ll sort of take a trip overseas, or I’ll go to, you know, whatever — Nashville for the weekend, or something. So anyway, I think these are pretty big, real societal shifts, as people want to kind of be out in the real world.

BARRY RITHOLTZ (00:25:51):  I’m kind of fascinated by the idea of party time, ’cause pre ride apps, there was always the question: all right, I’ve had two, I guess I’m driving tonight, so I gotta stop here. But if you’re out on party night and you know you’re taking a car home, you are not afraid about having a second or third drink. You can kind of relax a little bit. Getting pulled over is not a problem if you’re in somebody else’s Lyft.

DAVID RISHER (00:26:19):  It’s exactly right. So again, if you zoom out — you know, Wall Street looks at companies like ours quarter by quarter, and it sort of drives you crazy. But if you zoom way, way out, let’s look at that from a different dimension. Now, average car right now: 50,000 bucks. Okay? Average monthly payment: 800 bucks. Insurance will cost you another couple hundred bucks. Gas might cost you another hundred bucks or so, at least now. And then service will cost a little bit more than that. Okay? So that’s plan A. And by the way, if you take on all that responsibility, there’s no texting and there’s no drinking. You know what I mean? Now, plan B: pay 20 bucks getting a Lyft. Someone else does the driving. Text to your heart’s content, drink as much as you want — if that’s your jam. And it’s 20 bucks, not 800 bucks times, you know, plus, plus, plus. So just looking out — again, you’re sort of asking about kind of segments, and sort of, maybe, a little bit, the role of technology in society. I still think we’re actually at the beginning stages of a lot of these changes. And sometimes, again, people who have been around for a while don’t even realize how much the world has changed in that way.

BARRY RITHOLTZ (00:27:21):  Yeah. Fascinating data point I saw — it was actually a couple of years ago — the number of kids under 19 that haven’t gotten a driver’s license. When I was growing up, you couldn’t wait to get your driver’s license, ’cause that meant freedom. There wasn’t an internet. There were three channels, plus some people started getting cable. Like, it was a very different world back then. That’s right. And now it’s like, yeah, maybe I’ll get a license, maybe I won’t. How do you think about marketing to that demographic?

DAVID RISHER (00:27:51):  Well, so one of the things I learned from Jeff — again, who’s, as you can imagine, quite an influential boss for me — is: build your businesses on things that don’t tend to change. Not things that are sort of ephemeral. So what are some things that aren’t gonna change? Okay — again, people are gonna want to get out, either to the doctor or to go to a bar. So that’s a good bet. People are also gonna want to save money. And so a lot of our focus right now — and you’re gonna start to see a lot of marketing around this — is: save money, check Lyft. Now, I wanna be super clear here. It’s not — if I look at the competitor — that we always have a better price. Of course we try to, but we don’t always; sometimes, you know, all sorts of things happen. But over time, if you check both apps, you’re gonna save some money. And certainly, compared to buying a car of your own and dealing with all the maintenance, you’re gonna save some money. So it’s not the only thing I wanna say, but I actually think it’s an important thing to say — particularly in a world of sort of some economic instability — this is a good way for you to save some money. And frankly, I’m proud of our cost position, and I’m proud of our ability to offer a great price every single day, you know, a billion times a year.

BARRY RITHOLTZ (00:28:54):  So let’s talk about you versus your competitor. Lyft has always been framed as sort of the underdog to Uber. Is this kind of a Coke and Pepsi story? What are the advantages of being number two? Remember the old — was it Avis? We’re number two, we have to try harder.

DAVID RISHER (00:29:13):  Absolutely. So I like being number two, and it’s maybe a funny thing to say, but I do think it means you try harder. You wake up every single morning and you say, I got one job, which is to, frankly, do a great job for my riders and my drivers, such that maybe over time I can overtake the other guys. I guess the way to think about that is: I think the right number of rideshare companies in most markets is probably two. It’s a capital-intensive business — not because you own the cars, but because you own a lot of server capacity, and it’s quite complicated to figure out pickup and drop-off locations, and customer service — people leave their phones in the car about 8,000 times a week. It’s just all sorts of —

BARRY RITHOLTZ (00:29:56):  Especially Friday party night.

DAVID RISHER (00:29:58):  Right — and there you go. It all kind of comes together. There is something to that. And by the way, we have really cool innovation coming out there — we’ll bring your phone back to you automatically. But that’s a separate story. But anyway, so in a funny way, it’s not a bad thing to be in sort of a two-player position, ’cause you really only have one competitor. And frankly, if you spend too much of your time thinking about that one competitor, you’re probably losing the script. Because guess what? There are a lot of rides that people aren’t even taking on rideshare at all. Okay? So, you know, back to this question — we’re a customer-obsessed company, and this is gonna be the thing. This is why we’re growing, you know, mid double digits — 15 to 20% year on year. It’s why we’ve become profitable. It’s why we’re spinning off cash. And I think that is a good place to be. Particularly when I look at the other guys, who I tend to think of, frankly, as more — I’ll call them sort of financially and maybe technologically driven. Maybe — I don’t know exactly how they describe themselves — but I don’t get the customer-obsessed vibe.

BARRY RITHOLTZ (00:30:52):  Huh — so that’s kind of interesting. Let’s talk about an example where there’s no customer-obsessed vibe. So I use Lyft, I use Uber. It feels like on Uber, the way it measures time is sort of an alternative reality. Hey, we’ll find a driver in three minutes — it takes nine minutes. Hey, the car will be here in 11 minutes — it’s there in 23 minutes. Like, the app is very full of BS. It consistently lies. I’m curious: is it just a logistical issue that everybody has to deal with? Or — and we know a lot about the history and culture of your biggest competitor — is this a culture problem? You know, their history has a lot of bad behavior, a lot of, let’s just call it questionable legality. I wouldn’t go so far as to say fraud, but they did a lot of bad things. Does that show up in how the app behaves? Or is this just, no, Google Maps is tough to work with, this is a logistical challenge?

DAVID RISHER (00:32:00):  No, it is a logistical challenge. But — look, I’m not gonna characterize you; you did a marvelous job characterizing them. Skirting —

BARRY RITHOLTZ (00:32:09):  I got nothing — no liability for slander there.

DAVID RISHER (00:32:12):  There we go. Fantastic. Exactly. So Barry’s got a whole second — hold on, well, you were a lawyer, right?

BARRY RITHOLTZ (00:32:16):  Yes, that’s correct.

DAVID RISHER (00:32:17):  Oh, there we go.

BARRY RITHOLTZ (00:32:18):  Okay, but I’m recovered, so —

DAVID RISHER (00:32:20):  It’s not the same. I understand — recovered lawyer — but you did just hear a lawyer very carefully parse his words. Okay, listen, I won’t comment on that. What I will say is: we are very focused — for example, you’re talking about reliability. Oh my goodness. You talk to my team, and they will — they roll their eyes, maybe, would be one way to say it. But the number of times I talk about reliability internally is high, because I am obsessed by saying: if we’re gonna make a promise, we’re gonna meet the promise. And starting in a couple weeks, we’re actually starting to do some more work to actually surface that promise, even a little bit more visibly. We do it today for airport pickups. If we’re more than 10 minutes late for an airport pickup, we pay you up to a hundred bucks, no questions asked.

BARRY RITHOLTZ (00:32:54):  Really?

DAVID RISHER (00:32:55):  Yep. And we rarely have to do that. Our reliability rate is above 99% for scheduled airport pickups.

BARRY RITHOLTZ (00:32:58):  Wow.

DAVID RISHER (00:33:00):  So we’re very, very focused on that. You know, I will say — look, at business school, there’s a very famous class which has a weird technical name, but it’s basically about incentives and behavior —

BARRY RITHOLTZ (00:33:13):  What’s the name of the class?

DAVID RISHER (00:33:15):  So I was in school a long time ago — I think it’s called CCMO, and I don’t even remember what it stands for anymore. It’s probably called something different today. But it really is about how incentives drive behavior — financial incentives and other incentives, and incentive alignment, and so forth and so on. There is an incentive in the sort of on-demand app world not always to be truthful. Because if you overpromise something, and then you kind of hook a person in — what are they gonna do? If they cancel or whatever, it’s just gonna take them more time. And that is an evil and pernicious problem that is kind of baked into the model. And we just reject it wholeheartedly. Doesn’t mean we never make a mistake. But if your car shows up later than we estimated, it’s because we made a mistake, and we are trying over and over and over and over again to eliminate those — they’re defects — and then start to guarantee it over time.

BARRY RITHOLTZ (00:34:13):  So you are crunching a lot of numbers; you’re seeing a lot of data in real time. I’m kind of fascinated by the concept of what, at Lyft HQ, the dashboard looks like. What sort of data are you watching constantly? What’s the most surprising set of numbers or charts that come across that?

DAVID RISHER (00:34:34):  Yeah, this is a great question. I mean, so the answer, first — just to validate the premise — is: absolutely, an enormous amount of real-time data. You know, two to three million rides every single day, and now worldwide. So we’re very active, and in fact, we have whole cool maps that show simulations of behavior, particularly around storms and all sorts of crazy times. Anyway, back to your question. Look, there are a couple of metrics that I think might surprise you that we pay as much attention to as we do. And I’ll give you a very specific one, ’cause it kind of helps tell the story. When I joined, about 15% of the time, drivers would cancel on you. Now, this is infuriating.

BARRY RITHOLTZ (00:35:08):  Really? That high? I mean, every now and then on your competitor I’ll see a cancellation, but typically it’s rush hour. Someone’s stuck on the other side of the city; they’re not gonna make it. So rather than get that ding, they just cancel and find someone by them.

DAVID RISHER (00:35:24):  So in today’s world, it is less than 4.5% on our app. So we’ve brought it down by a factor of —

BARRY RITHOLTZ (00:35:31):  Three.

DAVID RISHER (00:35:31):  Yeah, exactly — slightly less than that, actually, but around that. So how have we done that? Well, it’s not just that they’re on the other side of town. It’s maybe we didn’t give them enough information right up front — so, for example, how much they’re gonna make, or what neighborhood they’re gonna drop you off in, maybe. And by “not enough information” — maybe we gave it to ’em, but the font was a little bit too small for them to see it. Right? Or maybe it wasn’t on the screen quite long enough. Or maybe we gave you a ride that we didn’t know was very, very unlikely for you to want, because of your past history or whatever. So now we spend a lot of energy — and we’ve just been grinding away this year, after year, after year, because it’s so infuriating to riders. That’s an example of a sort of specific metric that we’re looking at, you know, by the day.

BARRY RITHOLTZ (00:36:23):  Huh — really, really interesting. Two kind of related questions to the growth of Lyft. Your last quarter’s earnings call, you said — or maybe it was a previous one — 27% of North American rides are linked to a corporate partnership. Chase, DoorDash, United, Hilton, et cetera. What is that strategy? Is that about customer acquisition? Margin? Like, what goes into those sort of big partnerships?

DAVID RISHER (00:36:51):  Sure. So, you know, as you say, we have tens of millions of people who use our service every quarter — it’s about 50 million a year. And again, this is back to sort of the Amazon philosophy: you gotta compete for those customers, right? You gotta compete because, you know, they have alternatives. And in fact, there’s another company out there that some people know. Okay? So one of the ways you compete is you say, gosh, it’s not just about the ride — it’s about the relationship. And maybe it’s a relationship you already have with another company. So you mentioned United Airlines. United Airlines has now been a partner of ours for about the last six months. It’s been a wonderful partnership already, because the United Airlines MileagePlus program is incredibly well built out. People are very, very loyal to it. What can you do on Lyft? You can now earn miles so that you can take a vacation —

BARRY RITHOLTZ (00:37:38):  Same with Hilton Honors.

DAVID RISHER (00:37:39):  And same with Hilton Honors — exactly right there. We’ve been a partner for many, many years. The big innovation on the MileagePlus side is you can actually spend your miles on Lyft as well, which almost feels like free rides, right? That’s right — it’s just like, you get, you know, 200 miles or 500 miles, whatever, for taking an airline trip, and you spend a small segment of those on a Lyft ride. So these partnerships — you sort of asked what the method behind it is — it’s about customer acquisition, for sure, but it’s also about customer retention, you know? ‘Cause if you’re in the United ecosystem, or on the DoorDash side, or Hilton, or Alaska Airlines, or Chase — built primarily here in New York City and other cities where they’re active — and you want to either earn or burn miles or points, we’re a great place to do that.

BARRY RITHOLTZ (00:38:22):  Really, really kind of interesting. I read an article from Reuters: smaller US markets and college towns have been meaningful growth drivers. Curious why those markets were underpenetrated. What did you guys figure out there?

DAVID RISHER (00:38:37):  So part of it — there has been just a little bit of, you might say, neglect from the rideshare business for a while. And we realized about 18 months ago that a large part of the TAM — just to frame this again, total —

BARRY RITHOLTZ (00:38:51):  Addressable market.

DAVID RISHER (00:38:52):  Exactly — is more market. About 160 billion rides a year that people take in their private cars across the United States. 160 billion. And remember, we do a billion; the other guys might do three or four billion — maybe two or three billion. So four billion outta 160 billion. Okay? So there’s a lot of addressable market left for us to go to. And we’ve been in places like New York and San Francisco and Chicago for over a decade right now. But some of these smaller towns — the Indianapolises of the world, the St. Louises of the world — as well as college towns, where basically nobody has a car compared to the population, they just look like good opportunities for us. They’re complicated from a marketplace-management perspective, because anytime you go to a newer geography, you’ve got to first make sure you’ve got enough drivers, ’cause otherwise it takes too long to get picked up. And you’ve gotta make sure you’ve got enough riders, because if not, then drivers won’t make enough money. So it’s quite complex to —

BARRY RITHOLTZ (00:39:41):  Invest. There’s a chicken-and-egg problem there.

DAVID RISHER (00:39:43):  It is a chicken-and-egg problem, over and over again. Which, again, is why — back to the earlier part of the conversation — it’s really quite hard at this point to come into the market fresh. You know, you’re not gonna find a lot of folks who want to come into a well-served market. But anyway, so we just started to focus on it, and our data scientists and our marketers really kind of went to town, and it’s been a big source of growth.

BARRY RITHOLTZ (00:40:03):  Huh. Really, really interesting. Coming up: we continue our conversation with David Risher, CEO of Lyft, discussing the future of transportation technology. I’m Barry Ritholtz. You’re listening to Masters in Business on Bloomberg Radio.

BARRY RITHOLTZ (00:40:31):  You are listening to Masters in Business on Bloomberg Radio. My extra special, fascinating guest is David Risher. He is the CEO of Lyft, and we have been discussing the future of transportation technology. We have to talk about AI; we have to talk about autonomous vehicles. But before we do, I have to ask you two really interesting questions. One is: how do you solve the problem of even sober people leaving their phones in the car when they get out? And suddenly it’s a big pain in the ass — somebody has to come either drop off the phone or whatever. How do you, as a customer-obsessed company, how do you solve that problem?

DAVID RISHER (00:41:16):  I so love this question, because it is an experience every single one of us has had, and it is both infuriating and incredibly stressful. Because all of a sudden you realize, oh my God, my entire life is driving in the wrong direction, and I don’t even know how to contact the company at this point.

BARRY RITHOLTZ (00:41:30):  Because the number is on your phone —

DAVID RISHER (00:41:33):  And the phone is in the car, and you’re like, I wanna hold my phone to call the phone — but I can’t do that. It’s very, very stressful. So here’s what we’ve done. We’re doing a huge amount of work on this, just to be really customer obsessed. The first thing is automatic detection. So if the phone starts to travel away with a driver after you’ve been dropped off, that immediately, automatically alerts the driver: there’s probably a phone in your backseat. It requires a little bit of work on the rider’s side — we’re still trying to figure out how to get riders to opt into this, because they have to share a little bit more information. But we’re still working on that. But regardless of whether it happens automatically or manually, the second thing is: we’ve got a whole web portal, so you don’t actually have to use your phone. You can — and you don’t have to log in. But really, the big innovation is this — we wanted to have it sort of out of band — so the whole “return the phone” thing becomes almost a separate process. And frankly, in the past, it’s almost felt like a bit of a negotiation with the driver, and nobody liked it. The drivers didn’t like it, ’cause it felt like it was sort of an annoyance. The riders didn’t like it, because they’re like, oh my God, I sort of feel like I’m being held hostage here. A terrible thing. Now it’s a whole automated process. And basically, what we realized is: we should just treat it like any other ride. So it’s basically — the phone is getting a ride back. So what you get to say as a rider is: yes, please bring my phone back. I know exactly how much it’s gonna cost — it’s gonna cost just the exact same amount as if I’d taken a ride to that exact place where the phone is. And the driver gets it in their queue just like they would get any other ride request. And it gets returned to you. Typically — I was just looking at this data, and it changes every single week — but we’re now getting to the point where a large percentage of riders’ phones are being delivered back within an hour, which is the absolute gold standard.

BARRY RITHOLTZ (00:43:09):  So let’s use technology and cut that: on the app, opt in to avoid leaving your phone in the car, via Bluetooth. Not on each ride — just once, on the app. And then when the ride is over — you’ve arrived and the person gets out — if the phone doesn’t leave the car, right there and then, the driver should lower the window and say, hey, you left your phone in the backseat. And that doesn’t seem like you’re changing or creating new technology. That’s right — you’re just applying existing technology. Why take an hour? Why not take 30 seconds?

DAVID RISHER (00:43:48):  A hundred percent. And this is now where you realize that all technology problems are ultimately human problems. Because in order for that to happen, a person has to have opted in — they’ve gotta click a button. Most people are either skeptical of that, or they’re not paying attention. So now our trick is to try to figure out a way to really encourage people to do that. As you say, you only have to do it once. But that’s gonna be the next big focus.

BARRY RITHOLTZ (00:44:09):  So let’s stay with that theme before we really move too far away from people and towards technology. You drive for Lyft every six weeks or so, which seems kind of bonkers. What have you learned sitting in that seat that you can’t learn from the executive suite or the boardroom?

DAVID RISHER (00:44:28):  So much. So much. And, you know, I know we’re all busy people — here I am, busy senior executive, CEO of a company. My God, you know what? I got time, right? I got time — I can jump in the car. And here’s why: I learned stuff about being a driver, and I learned something about being a rider, every single time. So I’ll give you an example of each. Very quickly, on the driver’s side, I learned how important a feature is that we’ve developed over years and refined, called Stay Within Area. And there are actually two features next to each other — one’s Stay Within Area, one’s Arrive On Time. Lemme actually focus on Arrive On Time. What that means is: I’ve got a kid to pick up at the end of the day, or I’ve got a date with my wife tonight, or I’ve got a doctor’s appointment at three o’clock in the afternoon. And so I need to figure out a way to organize my life such that my last ride is gonna put me, you know, right where I need to be by a certain time. If I look at the gig economy, one of the real gifts of the gig economy is it allows you to integrate your work into your life in new ways. Again, I don’t have to call my boss and tell ’em I’m gonna be late today. I don’t have to do anything like that. But sometimes I do have other things in my life. Maybe it’s another job; maybe it’s an obligation with my parents — or whatever it might be. So anyway, that’s a feature. It worked pretty well when I started. It works very well now — and in part, it’s because I give a lot of feedback to the team on how to make that better and how important it is to get that exactly right. And then on the rider’s side — I mean, every time I take a rider in the car, of course I ask them why they chose us versus the other guys. Sometimes it’s because they say, oh, Chase Sapphire Reserve — I’m a Chase Sapphire Reserve cardholder, and you guys have a relationship with them. That’s great. That gives me a little bit of data of how important that is.

BARRY RITHOLTZ (00:46:03):  That’s a points relationship.

DAVID RISHER (00:46:05):  It’s a points relationship — and you get all sorts of — you get $10 every single month to use as Lyft credit. And look, I can look at the data just like anyone else and realize the number of people who are using that. But there’s just no substitute for hearing somebody, you know, go off about how much they love that card, and how important that partnership is to them. That’s a generic example. And then a specific example involved a woman that I gave a ride to — this is now about almost two years ago, but it’s still really, you know, kind of resonates with me — where she would wake up every single morning, and depending on what the price was of getting from her home to her job — because the prices would bounce around a lot — she would either take a Lyft, or maybe take the other guys, or drive herself, or stay home. And it was a source of stress and concern to her every single day. She would literally wake up an hour, you know, before she had to leave, just to sort of check prices. And it just made me realize how much surge pricing is customer hostile.

BARRY RITHOLTZ (00:46:59):  Nobody likes it. Nobody likes it. It starts to drizzle a little bit, and suddenly it’s a $30 surcharge. And I know people are infuriated by it.

DAVID RISHER (00:47:07):  And they should be. And here’s the problem. This is the difference between — you know, if you’re an economist, you love this, right? It’s, oh, supply-demand balancing in real time — it’s just unbelievable. Like a perfect science experiment. And if you’re a real person, it just bugs the crap outta you. So it really drove home to me how frustrating this was. And it was literally a Friday morning where this woman had donuts, and she was bringing them in to see a coworker for his birthday. And she’s like, I can’t work from home today — I’m so glad that Lyft was reasonably priced. So that’s what’s led us to take about $50 million a year out of surge pricing. We’ve really tried to get rid of it as much as we can — can’t completely eliminate it — and also introduce a product called Price Lock that allows you to lock in a price on a route.

BARRY RITHOLTZ (00:47:47):  So tell us a little bit about Price Lock. What does that do? I’m not familiar with that aspect of the app.

DAVID RISHER (00:47:54):  Yep. So it’s really meant for people who commute the same route every day, and they don’t want the route to go from 20 to 30 to 40 bucks ’cause, you know, say it rained. And by the way, to be very clear, there are good reasons for surge pricing, right? It’s a very good way for us to encourage drivers to drive when there’s more demand than their supply. But because it’s very frustrating for riders, we wanna give people a way to kind of opt out of it. So for a given route — you know, from point A to point B — if you wanna lock in a price, we basically say, here’s the average price over the course of a month. If you wanna lock in, I think it costs $4.99 a month per route. That’s all it takes. And it’s been super popular for people who just want to get that outta their lives.

BARRY RITHOLTZ (00:48:28):  Huh. Really, really kind of interesting. So let’s talk a little bit about autonomous driving. I was in San Francisco last month — Waymos everywhere. Tell us a little bit about what Lyft wants to do with autonomous vehicles. Are these just shiny objects, or are these the future?

DAVID RISHER (00:48:48):  They’re the future. They’re the future. It will take a long time for this future to come; it will be very unevenly distributed. But they are the future. And the basic reason why is: they are a reliable product, and they’re a safe product —

BARRY RITHOLTZ (00:49:01):  Safer than human drivers.

DAVID RISHER (00:49:04):  They are, substantially. And it’s because they not only know the policies, but they follow the policies. You know, they tend to follow the rules, and they don’t get distracted. So, not to say some crazy thing won’t happen one time out of a million, but 99.999% of the time, they’ll do the thing that you expect a car to do — which is keep its rider safe. So, okay — so that is coming. So now, as a business person, you have a choice to make, right? You can either embrace this, or you can sort of not. And the thing is, in a sense it’s a choice, but in another sense it’s not, because you’ve seen Kodak and, whatever, Polaroid —

BARRY RITHOLTZ (00:49:40):  Who, by the way — Kodak invented the digital camera, but didn’t want to cannibalize their own film business. And how did that work out?

DAVID RISHER (00:49:46):  Not exactly — not so well. And then, on the other hand, you look at maybe a company like Netflix, that invented the DVD-by-mail business to sort of set Blockbuster aside, but did such a good job surfing from that to streaming, and now to original content, right? They’re a great company in so many ways, but they were relentless, fearless about cannibalizing their own business to get to the next thing. So that’s the shift that we’re right in the early, early, early days of. It will be another platform shift. But we’re in a very fortunate position, and here’s why. You know, we have millions of riders. We have millions of — billions, billions of data points about pickup and drop-off location and pricing and so forth and so on. And we have a whole subsidiary called Flexdrive that does fleet management, which I can come back to in a couple of seconds. But these are gonna be some of the building blocks of the self-driving — or, I really should say, hybrid — network of the future. ‘Cause that’s the last thing I’ll say, just as sort of intro: self-driving cars are gonna come little by little by little. Human drivers are gonna be around for a long, long, long time. There are not enough self-driving cars in any given market to satisfy peak demand on, you know, Friday afternoon at five o’clock rush hour, or what have you.

BARRY RITHOLTZ (00:51:01):  So this is not a three-, four-, five-year transition. This is a 10-to-20-year transition. Is that about right?

DAVID RISHER (00:51:07):  Think about it as a decade transition. Yeah. And even, again, the word “transition,” I think, is maybe not quite right, because the economics of an expensive car don’t really lend themselves to having a whole bunch of them sitting around at two in the morning, empty. You really, I think, want a hybrid network for a long, long time — for human reasons, too, right? You might want someone to help you with your luggage, or maybe even someone to ask you how your day was. But the economics of it make it such that it’s much more likely this will be a hybrid network for at least a decade or, you know, more.

BARRY RITHOLTZ (00:51:37):  So that kind of raises an interesting question: what exactly is Lyft? We know it’s a ride-hailing company; it’s also a transportation market-clearing mechanism. It’s a consumer brand, and it’s also a logistics platform. Like, where is the future growth coming from?

DAVID RISHER (00:51:56):  I mean, you know, a little — all of the above, right? So, as you say, the thing people know Lyft the most for are, you know, human-driven cars picking you up and dropping you off. And as we were just saying, that will become a mix of human-driven and, you know, frankly, robot-driven cars. What you may not know is Lyft also runs the bike share system here in New York City.

BARRY RITHOLTZ (00:52:15):  Citi Bikes are run by Lyft? I did not know that.

DAVID RISHER (00:52:18):  That’s exactly right. So we run Citi Bike, we run the program in San Francisco, we run the program in Chicago, we run the program in Boston, we’re in Portland, Oregon. And then we also supply the technology and the bikes in London, in Barcelona, in Madrid — you know, many, many countries around the world. This may seem like sort of a small thing, but if you’ve been to a city like New York or London, you’ll know that cities are very, very aware that they want sort of multimodal transportation. So that’s gonna be, you know, a big part of our future as well. And then, look — someday, who knows, maybe boats, maybe vertical-takeoff aircraft. Who knows? But I will tell you that our real focus right now — and we will always be — this is our sort of purpose: serving and connecting. I want people to be out and about, and connect with each other in any possible way we can. That’s really what I want.

BARRY RITHOLTZ (00:53:05):  So you mentioned London. What are the plans for Baidu robotaxis in London? Is this gonna be a pilot program that could potentially scale up dramatically, like the Waymos in San Francisco?

DAVID RISHER (00:53:21):  That’s right. So again, let’s think about the self-driving car world for a couple of minutes. The technology is being developed worldwide. It’s being developed in the United States — Waymo, of course, is the leader, really the worldwide leader. Zoox, which is owned by Amazon, is much, much smaller, but, you know, trying very hard to come up behind Waymo. And then there’ll be, you know, many others, including maybe Nvidia, and companies that aren’t even really in the space now but will wanna sell their technology to different OEMs — to different, you know, car manufacturers. There’s also technology coming out of China. Baidu is sort of the Google — you think of it as kind of the Alphabet — of China. And there are many, many others. There’s a company called WeRide, there’s a company called Pony, there’s a company called Momenta, there’s a company called Geely. I was just in China a couple of weeks ago, looking at the incredible just growth of technology there — both, again, kind of hardware and software type technology. Okay? So that’s all background. It’s gonna be deployed worldwide. And in the United States, Chinese technology is not super welcome, for obvious reasons. But Europe is taking maybe a little bit of a more sort of economical approach, where they’re kind of looking at different technology providers and saying, let’s experiment. So in London, we’re partners with Baidu. Baidu has a very, very highly regarded self-driving platform, and we’re just in the early days of rolling it out there. It’s called an RT6 car. This is sort of behind-the-scenes stuff — it literally is just rolling off boats right now, and it’ll be commercialized next year.

BARRY RITHOLTZ (00:54:48):  So I’m looking at the current crop of autonomous vehicles, which are essentially converted traditional cars. But do you really need that front driver’s seat? Can you change up the internal layout? Like, what are autonomous vehicles gonna look like — not in 2060, but in a couple of years?

DAVID RISHER (00:55:11):  So again, it’s such an interesting time to be in this industry, and it’s exactly as you’re saying — like, do you really need a steering wheel? Do you really need, you know, an accelerator and brakes? Zoox, as I say — they’re an Amazon subsidiary — they would say you absolutely don’t. And they have a purpose-built vehicle that doesn’t have either one of those things. Now, for regulatory reasons, for human-acceptance reasons and so forth, for manufacturing reasons, that’s gonna be slower to roll out, because you can’t rely on, you know, the big OEMs to produce a car like that. That’s — it’s its own vehicle. So I think what you’re gonna see over the next three to five years is an enormous amount of new innovation in the car space. It won’t just be, you know, there won’t be a driver. It’ll be — you’ll have seats that face each other. You know, you’ll have seats that completely recline, ’cause you’ve got more space in there. You’ll have different luggage configurations. You’ll have — you know, some of them will feel more like, you know, party buses. Some of them may be, you know, corporate shuttles that just don’t have drivers. A lot of new stuff is gonna come in the next couple of years, step by step, because, again, you know, hardware is hard. It takes a long time to build it out. But, you know, you look five years out, and I think you’re gonna see a lot of cars that look pretty different from what you see today.

BARRY RITHOLTZ (00:56:16):  I’m unfamiliar with Zoox and Amazon’s relationship with them. But if I recall correctly, Amazon was an early investor — took a big chunk of Rivian. That’s right. And all of the electric Amazon delivery vehicles you see are essentially the Rivian platform repurposed for commercial use. Is Zoox plus Rivian the direction Amazon is going? And do you guys — does Lyft, whose CEO has a relationship with Jeff, have a relationship with Amazon?

DAVID RISHER (00:56:49):  We do have a relationship with Amazon. Of course, we’re huge consumers of AWS, which is Andy’s — the current CEO’s — kind of pride and joy. And for sure we’ll end up using — look, everyone is gonna end up partnering with everyone. That’s the interesting space we’re in right now: if you’re in the business of developing a self-driving car, it’s billions of dollars of R&D — billions of dollars. And so you want as many customers as possible. And then, if you’re in our business — in the business of moving people around and connecting people — you wanna have multiple suppliers of that technology, so you’re not beholden to anyone. Some of that is just being, you know, a smart business person. But some of it also is: technology goes through its own, you know, fits and starts. Look at what happens with the airline business when, all of a sudden, you know, Boeing has a problem with one of its units. You know, they stop manufacturing those for a time, or they’re grounded. So I don’t wanna overdramatize, but, you know, anytime new technology comes out, you’re gonna find some of that happens as well. So all of us are kind of in multiple — you know, let’s say maybe polyamorous relationships might be one way to —

BARRY RITHOLTZ (00:57:53):  Well, don’t you have to be? You can’t lock into platform dependency too early — otherwise you end up owning Betamax, and what good is that? And I know half our audience has no idea what the hell that —

DAVID RISHER (00:58:05):  Is. There we go. An old —

BARRY RITHOLTZ (00:58:06):  School reference, yeah, right. But I mean, when you commit one way — so let’s talk a little more about the autonomous ride hailing. What are the big concerns? Is it safety? Is it regulation? Is it winning the consumer’s trust? What are the economics of managing a fleet like that?

DAVID RISHER (00:58:25):  Again, so many interesting questions here. Let’s start with the customer side of things, right? So the first order of business has to be building customer trust and adoption for this new technology. Because, you know, it’s a car that drives itself, which is magical, but also can be a bit intimidating or, you know, even scary for people who haven’t seen the technology. Lyft obviously has a lot of value to add right there, because it’s a brand that people already trust; they understand you’ll be able to opt in or opt out of getting it. I was just in Atlanta a couple of weeks ago, where we have an experiment — a small deployment — with a company called May Mobility, which is also in the self-driving car space. They’re Toyota Siennas. They pull up to you, and all of a sudden you get in — it’s kind of a whole different type of experience from what you’ve probably experienced in the past. But because it’s got Lyft behind it, right on the door already, people sort of say, okay, great — I kind of understand this company and know something about it. Okay, that’s great. So then you kind of have to work yourself down the stack. There are all sorts of technology problems that you have to solve as you integrate, you know, their platform and us. And then someone’s gotta manage these cars. And this is worth talking about for a couple seconds. In traditional rideshare, the driver is responsible for their own car, right? They put gas in it, or they charge it up if it’s electric; they keep it clean; hopefully they keep it maintained, and so forth. But in the self-driving space, at least for the next three to five years, most of the car owners are gonna be professional fleet owners. You know, they’re gonna buy 20, 50, a hundred, 500, and are gonna kind of manage these as a fleet. And that means that they’ve gotta be, again, charged and maintained and cleaned — but they have to be done kind of at a professional level. That’s the sort of stage we’re in. We’ve had a subsidiary for many years called Flexdrive. We actually own about 10,000 cars on the Lyft platform for drivers who don’t wanna drive their own car. And we are responsible for maintenance and keeping them cleaned and so forth and so on. So we actually bring a lot to that as well. And I think that’s one of the reasons why we like the economic profile of self-driving cars. They don’t have insurance as high, for example, as personally driven cars. But also, we like the economics of our fleet-management subsidiary, and think we can service these at an industry-leading rate, and therefore, hopefully, make more money on the asset than anybody else.

BARRY RITHOLTZ (01:00:32):  Is there still gonna be a future for people who — today, you would think of owner-drivers — who just wanna own autonomous vehicles and lease ’em out, or send them out into the Lyft network? Like, I’m crunching the numbers in my head as we’re speaking, and I’m like, oh, that could be a 10, 12% return on investment. Not bad when bond yields are 4%, three and a half percent.

DAVID RISHER (01:00:56):  A hundred percent. I mean, there will be a time where, you know, if you fast-forward, you know, five years or whatever, maybe more, many people — individual owners — have cars that can drive themselves. And then there’s a question, to your point, of, you know, can  you put that on the network? The answer is: absolutely, you’ll be able to put it on the Lyft network, and it’ll come back again cleaned and charged, because of the fleet-management side of things.

BARRY RITHOLTZ (01:01:14):  Huh — that sounds really, really interesting. You know, it’s funny, ’cause when the ride apps first came out, there was a little bit of a lag before people got comfortable. What do you mean, I’m getting into a stranger’s car? I imagine we’re gonna go through the same thing — what do you mean, I’m getting into a car with no driver? It feels like the transitions are happening faster and faster. Same sort of question: this isn’t a 10-, 20-year thing; this is a couple of years before people — forget people under 30, who adapt so rapidly — the middle part of that age bell curve, the 30-to-60s, they’re gonna adapt to this pretty quickly over the next couple of years. How do you think about the different segments of consumer when it comes to autonomous driving?

DAVID RISHER (01:02:04):  Yeah. You know, I think, as you’re suggesting, younger people do tend to take up new technology, you know, pretty quickly. But in this case, I do believe that many people, after they’ve had a couple of rides and realize that it feels very safe and reliable, I think they’ll flip from skeptic to kind of fans, you know, pretty quickly. Now, I will say policymakers, you know, they have their own, you know, issues — and some of that can be very local. So you may find some cities that just say, we just don’t want ’em on our streets for a period of time. You may find, conversely, other cities that say, bring them, ’cause we wanna feel like a city of the future. So I think there are gonna be some policy issues. There are also some infrastructure issues. Remember that, you know, AVs also tend to be EVs. EVs require charging; charging requires infrastructure. And not every city’s gonna have the amount of, you know, electrical power. I mean, this is kind of a side issue, but if you listen to, you know, Jensen, for example, at Nvidia, talk about what could end up holding the United States back from its next big leap — a lot of it comes down to power infrastructure in this country, right? So anyway, there are many different kind of bits and pieces, all the way from consumer adoption to physical infrastructure to policy and so forth. But I think, again, over the next three to five years, I think you’re gonna see a real shift — mostly because consumers are gonna try them and like them, and then they’re gonna be saying, hey, you know, faster, please.

BARRY RITHOLTZ (01:03:17):  So here’s the crazy thing about AVs that I’m still kind of shocked about: it relies on visual, on lidar, on radar, and all these other technologies, but there isn’t a whole lot of infrastructure built into the roadway grid. Wouldn’t be that difficult to create a series of RF devices that are specifically geared for autonomous vehicles — that, like, every now and then, if you’re letting the car drive yourself and there’s an exit or a merge — like, it’s not great with those sort of things today, because there’s no real infrastructure. It’s relying on a technology not built for autonomous driving. Is there any sort of motion towards, hey, let’s everybody that’s doing autonomous come up with a set of standards and have the government implement this into the highway system?

DAVID RISHER (01:04:16):  I mean, the short answer is no today — and long-term, for sure. And the reason no today, frankly, is, again, you know, anytime you see these platform shifts, you always have competition for sort of who gets to own the platform, right? And individual companies all have a huge incentive to say, you know, I wanna do it my way. ‘Cause if my way becomes the standard, then everyone else kind of follows along me, and I get to sort of set the standard. Over time, though, you tend to see that those things — that doesn’t become a long-term competitive advantage, typically — particularly for this sort of infrastructure. And so I would fully expect, over time, just in the same way that you can start to see charging networks kind of harmonize, that you’ll see some sort of, you know, kind of federal level. But we’re years before that.

BARRY RITHOLTZ (01:04:59):  Right. We did see that sort of standardization take place in a lot of other technologies. And suddenly you’re not competing on a standard; you’re competing on highest quality, lowest price, et cetera.

DAVID RISHER (01:05:08):  That’s exactly right.

BARRY RITHOLTZ (01:05:10):  But you would think that if the cars literally knew exactly where the road was, it would be even that much safer.

DAVID RISHER (01:05:19):  You would think. But I would say, right now, the technology is evolving so quickly at the car level, and really, the safety is very, very, very impressive. And of course, look — I know, you know, tomorrow morning you’re gonna open up, you know, a newspaper or an app, and you’re gonna read about some strange thing that happened, you know, in some strange part of the world, with a self-driving car. And I’m gonna tell you that that is gonna happen — and that’s, you know, one in a million, as opposed to, you know, one in hundreds, which happen every single day with human drivers.

BARRY RITHOLTZ (01:05:49):  Yeah — those are the clickbait headlines, not the statistically significant practice. All right, so last question before I get to my favorite questions I ask all my guests. When it comes to transportation technology, what are we not discussing as a society, as a government, as consumers, that we really should be? What is kind of getting overlooked in this rush to new technology? It could even be something that you guys are focused on, but a lot of people don’t realize — oh no, this is really significant, and the public hasn’t quite grokked this yet.

DAVID RISHER (01:06:24):  You know, I’m gonna come back to the basic role that technology plays in people’s lives, to help them live their absolute best lives. I’ll tell you something that I’m a lot passionate about personally. And that is: as people live longer lives, one of the things that is very predictive of their quality of life is how much time they’re spending with other people, out and about, socializing.

BARRY RITHOLTZ (01:06:44):  Socializing.

DAVID RISHER (01:06:45):  Exactly. Very, very highly predictive of a healthy, long life. And as we as a country are getting older — which we are, demographically — that is gonna be an enormous shift, where you have so many more people in their sixties, seventies, even eighties, who wanna live healthy, vibrant lives. And so one of the things I’m really quite proud of with Lyft is, you know, Lyft Silver — a particular product line that we’ve developed over the last year that’s really focused on, you know, helping older folks get out. The apps are easier to use, the cars are easier to get into, the driver’s a little bit more experienced. I think that sort of intersection between societal trend and the type of work we do in transportation is really quite deep. And, you know, maybe just as important, ultimately, is, you know, all of our conversation around medicine and so forth and so on is: keeping people out and about. And I know — here in Oura Ring world, where I am as well — or maybe you’re not, I don’t know.

BARRY RITHOLTZ (01:07:37):  I am — my wife wanted to get one, so we got a pair. And she got bored being told she’s stressed all the time and stopped wearing it. So now I’m wearing it. So we both — we each have one, and I’m the only one who still wears it. How funny.

DAVID RISHER (01:07:48):  Okay — actually, my wife and I did the same. She said, I get a little tired of seeing, you know, that it’s telling me exactly I’m stressed or I’m not sleeping well. But at least for me, it’s a sort of nice nudge to get good sleep, and, frankly, to kind of keep an active life. And so I see this space — the transportation piece — as somewhat similar. Like, I want technology that kind of helps me live my best life. And I think transportation plays a big role there.

BARRY RITHOLTZ (01:08:07):  All right, so let’s jump to our speed round — our favorite questions. Starting with: tell us about your mentors who helped shape your career.

DAVID RISHER (01:08:16):  Oh gosh, I love this question, ’cause I think it’s so important for us to remember that we all stand on other people’s shoulders. I’ll list a few. Of course, I worked for Jeff Bezos a lot — I’ve mentioned him. But I wanna mention other people. First big boss: a guy named Todd Nielsen. Todd really taught me the power of a great story, and also the importance of really listening to and watching customers closely. So he taught me two big things there. And then a guy named Peter Spiro — he was the board chair at Worldreader for many years. He and I sort of knew each other back in the Microsoft days, but he was the board chair for the nonprofit I ran. So focused on the team, so focused on the team — you’re only as good as your team. Really learned a ton about management and leadership from Peter.

BARRY RITHOLTZ (01:08:57):  Huh — really interesting. Let’s talk about books. What are some of your favorites, and what are you reading currently?

DAVID RISHER (01:09:02):  Oh man. I just finished a book called Good People. So I tend to read some fiction and some nonfiction. I’m currently reading a book called Apple in China — all about Apple’s entrance into China, and ultimately the importance that China has, and, frankly, the power that China now has, over Apple. And then Good People is a fictional book about an Afghan family from Afghanistan that moves to the United States, and is either a model family or terrible people. And it’s very, very hard to know which — the book sort of flips back and forth. Remember when I said that books kind of teach empathy and sort of different perspectives? This one does a good job of that.

BARRY RITHOLTZ (01:09:42):  Huh, really interesting. What about streaming? You listen to any podcasts, or Netflix, Amazon, whatever? What keeps you entertained?

DAVID RISHER (01:09:50):  I do. I am a podcast guy. I have to say, though, I’m kind of traditional when it comes to podcasts. I listen to The Daily from The New York Times pretty regularly. And I think most of it is because I have so many things in my life that are sort of — there’s so much content that comes at you that’s sort of superficial. And at least with The Daily, I feel like I get to go a little deeper on a subject. You know, it tends to be a kind of half-an-hour deep dive on a particular thing. And I do feel — particularly, I also read The New York Times; I know it’s sort of traditional in that way. So if I’ve read an article, and then I kind of hear a podcast on the same topic, I do feel like I’ve actually gotten maybe a little bit smarter about something, you know, beyond the surface.

BARRY RITHOLTZ (01:10:28):  Let me just push back ever so slightly, please, on how The Daily has evolved. Because when it first came out — and I was a regular listener — I don’t want anybody telling me about the story that’s in the paper that I can read. They used to kind of do the background: hey, how did you start investigating this? What led to this? Tell us some interesting stuff that didn’t make it into the article. It was really inside baseball, and that stuff is kind of fascinating. Now, whenever I check it out, it’s the person — I don’t wanna say reading the story, but it feels like they’ve left a lot of that, you know, behind-the-scenes stuff back three years ago. It’s still — it’s become one of the biggest podcasts in the world. It’s giant.

DAVID RISHER (01:11:13):  Yeah. Yeah. That’s interesting.

BARRY RITHOLTZ (01:11:15):  Anything else? Anything else you listen to or watch?

DAVID RISHER (01:11:19):  I mean, you know — mindless TV I love, but I’m not gonna embarrass myself and tell you all that sort of stuff. Yeah, we’ll stick with The Daily on this one.

BARRY RITHOLTZ (01:11:27):  We are in the golden age of mindless TV, for sure. And it’s not — you know, if you are watching The Crown, or Landman, or 3 Body Problem — there’s so many fascinating shows out there. It’s not like garbage time like it was when I was a kid.

DAVID RISHER (01:11:43):  You are right about that. And I will say that my wife and I became obsessed with The Pitt, as many people are. It is funny — and it almost makes you feel like, you know, I’m, like, halfway to being an ER doc myself. By the way, you are not — so don’t think that that’s true. But what is hilarious is my wife’s tolerance for some of the gory stuff is a little lower than mine. So she watches The Pitt with her hand kind of half in front of her face the whole time.

BARRY RITHOLTZ (01:12:04):  My wife — we watched the first couple episodes. She’s like, this is just too much. It’s like — you wanna relax? And it’s very serious. I just kind of tense out.

DAVID RISHER (01:12:11):  Yeah. But it’s a great cast, and it’s a great set of stories, for sure.

BARRY RITHOLTZ (01:12:16):  Final two questions. What sort of advice would you give to a recent college grad interested in a career in either technology or business?

DAVID RISHER (01:12:25):  So my advice here tends to be — it’s always sort of the same. And here’s how it goes. There’s so much temptation when you’re picking your job early on to pick something that sort of seems like it’s gonna be good on your resume, or maybe it’s gonna make you a lot of money — whatever it is. This is sort of the temptation, ’cause it’s so sort of in the air, maybe now more than ever, because of social media. And, oh man — the people that I see succeed are really the ones that say: yes, I have an economic reality; I have to sort of do better than that. But once the economic reality has been met, it is all about: pick something you think you’re really gonna love and are gonna be good at. And I say that like — you have to be a bit introspective of this. You know, maybe you love, you know, selling. Okay, great — so take a sales job. Maybe you love listening to customers — great, take maybe a marketing job. Maybe — but I’m trying to make this sound maybe a little bit more interesting than “follow your passions,” ’cause that’s so trite. But there is something to it: really kind of being introspective about what you think you’re gonna just jump outta bed every morning and love doing tends to be a much more powerful predictor of long-term success than people who try to optimize for that short-term, sort of get-rich-quick type of thing — and then find themselves later realizing, shoot, this isn’t really my thing. It’s somebody else’s thing.

BARRY RITHOLTZ (01:13:39):  Really, really good answer. And our final question: what do you know about the world of consumer-facing technology and apps today that would’ve been useful to know 25, 30 years ago, when you were first getting started?

DAVID RISHER (01:13:53):  Wow. Okay. That’s also a really interesting question. You know, I think I’ve probably gone through a similar arc to other people, where in the nineties — maybe even early two-thousands — I was sort of a universal techno-optimist. I probably was in the camp that said technology is such a powerful force for the good. And you see me try to, you know, harness it with Worldreader, specifically — of course, trying to take technology and get people reading. In that case, it did work. We’ve gotten, you know, over 22 million people reading. So that’s awesome. But, oh man, it is hard not to see some of the just terrible costs we’ve paid as a society. And so I think — maybe more of a mindset than a particular thing — of just: be really aware that technology is so powerful, and, man, with great power comes great responsibility. And I’m just a big believer that our best leaders now — and I’m not necessarily putting myself in the category — are being really thoughtful about, you know, the good of technology, but also really trying to avoid some of the problems.

BARRY RITHOLTZ (01:14:53):  Good, good answer. David, thank you for being so generous with your time. This has been absolutely fascinating. We have been speaking with David Risher. He is the CEO of Lyft, one of North America’s largest ride-sharing networks. If you enjoy this conversation, well, be sure and check out any of the 639 we’ve done over the past 12 years. You can find those at iTunes, Spotify, YouTube, Bloomberg — wherever you find your favorite podcasts. I would be remiss if I did not thank the crack team that helps me put these conversations together each week: Alexis Noriega is my video and podcast producer, Sean Russo is my researcher, Anna Luke is my producer. I’m Barry Ritholtz. You’ve been listening to Masters in Business on Bloomberg Radio.

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The post MiB: Lyft CEO David Risher appeared first on The Big Picture.

In this 194th episode of Kitces & Carl, Michael Kitces and client communication expert Carl Richards discuss the effectiveness of a storytelling approach and its ability to transform an abstract planning concept into a tangible emotional concern.  For example, is it more effective to explain the mechanics and use of a QTIP trust, or to explain the worst-case scenario of an estate plan without one? Supporters would argue that the technique helps clients recognize risks they may genuinely care about but had never considered, while critics may question whether such conversations cross the line into fear-based selling by intentionally provoking anxiety to drive action.

Underlying the discussion is the broader challenge of creating urgency. Human beings are naturally prone to inertia, especially when dealing with complex financial decisions whose consequences may not materialize for years or even decades. Financial planning conversations often focus on logical explanations, technical benefits, and detailed analysis. Yet advisors frequently observe that clients who understand a recommendation – and its importance – still fail to implement it. The tension, then, is whether advisors ought to simply accept client inaction as a reflection of preferences, or whether part of their role is to help clients overcome behavioral obstacles that prevent them from acting on goals. In those circumstances, emotional engagement can be a powerful catalyst for action, but it raises important questions about the methods advisors choose to employ. Is emotive storytelling manipulative, or simply persuasive if it is in the best interest of the client?

Ultimately, the key point is that selling and advising are not entirely separate activities. The challenge is not whether to encourage action, but how to do so in a manner that aligns with the advisor’s professional values and the client’s best interests. While fear and urgency may sometimes produce results, many advisors may find greater comfort in approaches rooted in client values, aspirations, and desired outcomes rather than potential catastrophes. The broader lesson is that helping clients make meaningful progress often requires more than technical expertise alone; it requires the ability to connect planning recommendations to what clients care about most, inspiring action while preserving trust, authenticity, and respect for the client’s autonomy.

Read More...

In this article, James Liu, CEO of Clearnomics, explores how advisors can put news headlines into context for clients in a data-driven way, helping them maintain perspective and recognize that periods of uncertainty don't necessarily lead to weaker equity market returns.

Looking at equity markets, the energy sector has been a standout performer in the first half of the year amidst the spike in oil prices associated with the conflict with Iran, though certain technology stocks have been supportive as well amidst continued enthusiasm surrounding developments in Artificial Intelligence (AI). International stocks have also joined the U.S. market in experiencing positive returns for the first half of the year, with both developed and emerging markets posting gains. At the same time, valuations (as measured by the S&P 500's forward price-to-earnings ratio or the Shiller Cyclically Adjusted Price-to-Earnings [CAPE] ratio) remain elevated in historical terms (though these data points don't necessarily predict where the market is heading next).

Inflation has perked up this year, with the Consumer Price Index (CPI) rising 4.2% year-over-year in May, representing a multi-year high. However, this figure was largely driven by its energy subcomponent, which jumped 23.5% year-over-year, with core CPI (which excludes food and energy) rising only 2.9% over the same period – suggesting that if declines in oil prices seen over the past few weeks continue, the headline inflation figure could moderate.

In addition to affecting the prices consumers pay, inflation also plays heavily in the minds of decision-makers at the Federal Reserve (alongside the labor market, which has strengthened this year). After starting rate cuts in late 2024, expectations for further cuts flipped earlier this year, with investors now anticipating rate hikes in the coming months.  The Federal Open Market Committee appears divided, with roughly half of members expecting rates to remain steady through year-end and the other half expecting them to move higher.

Although future Fed interest rate decisions remain to be seen, current interest rates remain elevated across all maturities of the U.S. Treasury yield curve. While bond returns have been relatively subdued so far this year amidst higher rates, current yields could help restore fixed income to its traditional role as a portfolio stabilizer and income generator. On the other side of the coin, higher bond yields could serve as a headwind for equity prices, as they increase the attractiveness of bonds as an alternative and raise the discount rate applied to future earnings.

Ultimately, the key point is that while headlines can often drive short-term market moves, underlying fundamentals, such as corporate earnings, typically drive long-run returns. Which suggests that financial advisors have a valuable role to play by providing clients with perspective on the broader market picture and showing them how their asset allocation is designed to meet their short- and long-term goals!

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My guest on today's podcast is Shane Morrow. Shane is the CEO of IronBridge Wealth Counsel, a hybrid advisory firm based in Austin, Texas, that oversees $3.3 billion in assets under management for 2,600 client households.

What's unique about Shane, though, is how he has transitioned from being a solo advisor to being part of a siloed partnership and now leading an enterprise ensemble, all without taking on outside capital.

In this episode, we talk in-depth about how Shane decided that he wanted to be part of an advisory enterprise (despite the complex logistics involved) based on the greater camaraderie and mission focus it can provide compared to a more siloed business, how Shane and his partners developed a financial formula to determine ownership stakes (and how equity ownership has opened up to additional employees over time), and how Shane found that non-financial considerations (including the transition to shared decision making) were sometimes just as challenging as the financial implications of combining multiple practices.

We also talk about how Shane's firm operates with seven centralized departments (including for advisory, investments, and operations, among other areas) to ensure a high level of client service and create efficiencies for advisors and other staff members, how Shane works alongside a chief of staff who both oversees several departments and specializes in execution across the firm, and how Shane's firm established a "Department of Colleagues" charged with maintaining culture and continuity across what has become a national enterprise.

And be certain to listen to the end, where Shane shares the importance of the paraplanner role in his firm (not only for the support they provide to lead advisors but also for the opportunity to develop into lead advisors themselves), how Shane has promoted both professional and financial opportunities for next-gen employees by creating a mandatory age at which partners must liquidate their equity holdings in the firm, and how Shane has found that establishing and working towards a defined mission statement has both helped the firm remain focused on its overarching goals and has brought a greater sense of purpose for his own career.

So, whether you're interested in learning about the unique financial formulas Shane and his partners implemented to blend distinct asset books and reallocate equity ownership, the strategic utilization of an operational pod framework, or an accelerated career pathing program for paraplanners managed by specialized directors, then we hope you enjoy this episode of the Financial Advisor Success podcast, with Shane Morrow.

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The transcript from this week’s, MiB: Mamoon Hamid, Kleiner Perkins on AI Investing, 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: Mamoon Hamid, Kleiner Perkins

Host: Barry Ritholtz  ·  Guest: Mamoon Hamid, Partner, Kleiner Perkins  ·  Bloomberg Radio

Announcer (00:00:02): Bloomberg Audio Studios. Podcasts, radio, news.

Barry Ritholtz (00:00:08): This week on the podcast, another banger. Mamoon Hamid is partner at Kleiner Perkins, where he’s been focusing on early-stage AI investments for nine years. He’s got a fascinating background — early investor in Slack, Figma, Glean, Box, et cetera. Previously, he co-founded Social Capital with Chamath and worked for a number of other venture firms, including US Venture Partners. I thought this conversation was fascinating and I think you will also. With no further ado, my conversation with Kleiner Perkins’ Mamoon Hamid. Mamoon Hamid, welcome to Bloomberg.

Mamoon Hamid (00:00:57): Thank you so much for having me, Barry.

Barry Ritholtz (00:01:00): So I’m fascinated by your background. You grow up in Frankfurt, Germany. You come to the US to go to college at Purdue — bachelor’s in electrical and computer engineering — a master’s at Stanford, an MBA from Harvard. What was the original career plan?

Mamoon Hamid (00:01:18): So let’s go back to, I think, 1986. Do you remember the Challenger explosion?

Barry Ritholtz (00:01:18): Sure. Every kid growing up remembers that.

Mamoon Hamid (00:01:28): And one of my teachers was actually supposed to go on the space shuttle, because there was a teacher—

Barry Ritholtz (00:01:36): Christa McAuliffe. That’s right.

Mamoon Hamid (00:01:36): Yeah. And every kid got fascinated, especially if you had a teacher going to space. So I followed the whole journey of the Challenger space shuttle and the teachers and all that. But with that also came this desire to learn more about space, and I instantly wanted to become an astronaut. Naturally — I think I was seven or eight years old. As I thought about high school, liking science and math, and thinking about where to go to college — and as you mentioned, I was growing up in Frankfurt, Germany — one of my uncles had given me this list of colleges, the top 10 engineering schools. I just applied to all 10. And one of them happened to be Purdue, where to this day the most astronauts have graduated from.

Barry Ritholtz (00:02:30): Really? That’s fascinating.

Mamoon Hamid (00:02:31): Yeah. So my path was aeronautical engineering and trying to figure out a way to get into space. I’ve yet to do that, but that is what led me down the path of applying to Purdue in the first place and the association with space and NASA — and then actually going from something so massive and big, space, to something so small, chips and semiconductors and transistors.

Barry Ritholtz (00:02:55): Which are enabling space, so there’s definitely a connection. Is it true that when you went to business school, you were already thinking about being a venture capitalist?

Mamoon Hamid (00:03:06): When I applied to business school — so I’d worked for a good six years after undergrad. I studied electrical and computer engineering, and that naturally made me think about a career in Silicon Valley designing chips, which is what I did for the first six years of my career, working in the semiconductor industry. But what became really interesting for me was the notion of startups and founding companies, and how these so-called venture capitalists were behind some of the most iconic companies I was coming across. So I actually wanted to get into venture capital, and that’s why I applied to business school — and specifically only applied to one business school, Harvard, because I naively thought that if you wanted to get into venture capital, you had to go to Harvard or Stanford. And I’d already gone to Stanford for grad school. So it’d be nice to get a change of scenery—

Barry Ritholtz (00:03:56): Just round it out a little bit.

Mamoon Hamid (00:03:57): And move to Boston.

Barry Ritholtz (00:03:58): Yeah — give up the nice weather. So in between college and grad school, you spent how many years at Xilinx?

Mamoon Hamid (00:04:09): I was there six years. So the story actually goes: I was 19 when I graduated from college, from Purdue, and I thought, okay, the best thing for a young kid is to continue on to grad school. So I applied and ended up getting in at Stanford. But I also got a number of job offers. This is 1997, the dot-com boom — and I’m thinking it’s a bit like this time. Should you opt out of the job market and get extremely valuable experience, or continue on with grad school? So I did the best of both worlds: I went to Stanford, took a few classes every quarter, and worked full time at Xilinx. And this is back in 1997, the middle of the dot-com boom.

Barry Ritholtz (00:04:57): Really interesting. You are known today as someone who thinks about software generally, and enterprise software in particular. That seems like an unusual transition from semiconductors. What led to that shift? What changed your thinking?

Mamoon Hamid (00:05:16): Great question, Barry. So in 2005, when I got into venture capital, my full intent was to learn how to invest in great semiconductor companies, or in founders who build the semiconductor companies of the future. It turns out that after the dot-com bust, there was not a lot of investment in infrastructure — data centers and networking and switching and semiconductors broadly. So I realized pretty early on that if I wanted to build a career in investing, you have to go where the puck is going — skate to where the puck is going. And I skated toward Web 2.0 and software. In my own firm, US Venture Partners, where I started my venture capital career as an associate, I was hired to help the partners evaluate semiconductor opportunities. That’s actually why I went there — there were some legendary semiconductor investors there, and some of my mentors even today were the folks running the firm. But I realized that all my friends in 2005 were moving to Web 2.0 and the internet. This is the beginning of Facebook, which happened to be started at Harvard when I was there. You were seeing all these people in my cohort’s age group moving into software and web, and I felt like I had to move along with that. My day job was evaluating semiconductor businesses, but in the evenings I was in San Francisco, going to the Web 2.0 parties and meeting all the founders starting software businesses. So I slowly started, as a side project — and the side project became the main project — to move from semis to software and the internet. But in the back of my mind, I always remained a semiconductor guy. And semis are back now, as you know.

Barry Ritholtz (00:07:17): And AI seems to be the application of both semis and software, so you’re well prepared. We’ll talk about AI in a bit — I want to stay in the two thousands. When you were at USVP, you had early exposure to companies like Box and Yammer — I don’t really remember Yammer, I remember Box — big enterprise software deals. What did you learn from that experience? What have you brought forward with you from that era?

Mamoon Hamid (00:07:47): So Box happened to be my first investment at USVP, where I joined the board. It was an early-stage company — a few hundred K of revenue, two very young founders, Dylan and Aaron, 20 and 21 years old, dropped out of college. Sort of the prototypical founder, right? The archetype of a young founder. And they were going after storing your files in the cloud and sharing them inside your company.

Barry Ritholtz (00:08:16): Let me stop you for a second, because I think anybody under 40 is perplexed by what you just said. I recall in the late nineties and early two thousands, whether I was at home or at work or on a laptop or at the beach house, whatever I needed was always somewhere else. And the beauty of early blogging software was that I could upload files, charts, images — that was the closest thing to the cloud. It just didn’t exist then. If you wanted something you could access anywhere you had an internet connection, it literally did not exist.

Mamoon Hamid (00:08:56): Yeah. So maybe I’ll go back to exactly the point I made in my head, which was: if there is one application that moves into the cloud first, it’s going to be file sharing. I remember this from when I was on my Windows computer in the eighties and nineties — what’s one of the applications we all used a lot? Do you remember the Windows File Explorer? We were constantly clicking in and trying to find the file—

Barry Ritholtz (00:09:23): Finding something — or searching for it.

Mamoon Hamid (00:09:24): Searching for it, or placing it in a folder very nicely.

Barry Ritholtz (00:09:28): The name you used to put on a file was important, because if you couldn’t remember the name, you couldn’t find it. It wasn’t like, here’s a phrase that’s somewhere in this document, go find it. If you didn’t remember exactly where that was nested or what name you put on it — good luck.

Mamoon Hamid (00:09:43): Good luck, right? And so the world moved from the desktop to the browser — by 2006, 2007 we’re all using Firefox, Mozilla; Chrome’s not even existent—

Barry Ritholtz (00:09:56): It was Internet Explorer until Chrome came along.

Mamoon Hamid (00:09:59): Exactly right. And so my thesis was: one of the business applications that will move into the browser — software as a service — will be file sharing and collaboration. Because, precisely to your point, the file that you always needed was somewhere else. This made so much sense to me. At the time, in 2007, when I invested in Box, there were many of these companies doing file sharing, but it was mostly for consumers.

Barry Ritholtz (00:10:32): Dropbox.

Mamoon Hamid (00:10:33): Dropbox was in that same era, but there was Xdrive and Elephant Drive. As an associate, when you’re suggesting an investment, you’re going to do a lot of diligence — I remember the laundry list of companies I looked at. There were probably 40 companies doing something similar, but most of them were dedicated toward consumer use cases — photos, music, stuff like that.

Barry Ritholtz (00:10:56): The Napster era was right around then.

Mamoon Hamid (00:10:58): Exactly. And so the hypothesis was: this stuff will be relevant to large companies, who will want file sharing and collaboration for their companies. And Box actually pivoted from being a consumer company to being an enterprise company. That’s when I got pretty excited, because it lined up with this view I had that large companies would move from file servers in their data centers, or wherever in their buildings, to files that reside in the cloud.

Barry Ritholtz (00:11:28): And they’re willing to pay for it.

Mamoon Hamid (00:11:30): They’re willing to pay for it.

Barry Ritholtz (00:11:31): Unlike back then, when consumers were so reluctant to pay for anything. So it’s interesting, because you’ve had a lot of early investment success with a variety of companies. Is it easy or difficult to learn from past winners? Is every startup different, or do you develop a little pattern recognition that gives you some clues — hey, these guys are onto something?

Mamoon Hamid (00:11:58): Yeah, I think there’s definitely some compounding of learning from early wins and losses. You brought up Box — my first investment. I got to spend a lot of time with the founders, got to learn the business with the founders, actually, because they were young and I was young — I was in my twenties when I joined the board. From that experience, I learned a lot about what it meant to sell software bottoms-up into large companies, which led me to the investment in Yammer — which many folks may not remember, but it was an enterprise social network circa 2010, kind of like Twitter meets Facebook, but for your company. Microsoft ended up acquiring it in 2012, and it’s part of the Microsoft suite now, part of Teams and all that. But the experience of that bottoms-up adoption — you looked at Yammer, and a lot of large companies wanted an enterprise social network, kind of like a town hall, a messaging platform. You share a file, people comment on it, like people do on Twitter or Facebook. That was taking some of the learnings from the web era and the social era and applying them to the business world. So at Yammer I learned a lot. It was a quick journey, but there was a level of engagement and monetization that was good. And a year or so later, I came across another company: Slack.

Barry Ritholtz (00:13:36): Slack, yeah.

Mamoon Hamid (00:13:37): And it was sort of similar — now it was true messaging. Actually, on my way over here, I was walking through and saw a bunch of colleagues on Slack, which makes me really happy. Slack is used broadly across the globe to this day in 2026. The lessons learned in that 2010-11 era led to the investment in Slack in 2014, for me, when it was a 10-person company. So back to the point about compounding of learning: Box led to Yammer, Yammer led to Slack, and since Slack there have been others. But there certainly is some pattern recognition around products that are working.

Barry Ritholtz (00:14:17): And then in 2011, you co-founded Social Capital with Chamath — a very famous model, which was: how can we address many of the social ills that are hurting the country through the intelligent use of startups, technology, et cetera. Was this a reinvention of venture capital, or just a new set of tools within a partnership? It was kind of novel for its era.

Mamoon Hamid (00:14:50): It was novel for its era, because we decided we would go after education, healthcare and finance — three of the largest parts of society — and address inequities in those areas with our investments, believing that technology has the ability to democratize access to healthcare, education and financial services. And that’s largely played out over the last 15 years. We just thought there would be a ton of opportunity — as venture capitalists, we’re seeking out opportunity, and we thought that by going after large pockets of GDP, you’d identify really exciting opportunities. It turns out my interests remained in enterprise software, and I spent a lot of my time in enterprise software even when we started Social Capital.

Barry Ritholtz (00:15:46): So in 2017, you leave Social Capital for Kleiner Perkins, a firm that has long been iconic. The laundry list of companies Kleiner has backed: Google, Cisco — were they early in Apple also?

Mamoon Hamid (00:16:00): I think they were. Google, Amazon, Sun Microsystems, Genentech, Intuit — unbelievable. Tandem, if you remember. The list of greats is amazing.

Barry Ritholtz (00:16:12): So they’re an iconic company, but they’re not the dominant force they once were. When you joined, what made that opportunity so attractive?

Mamoon Hamid (00:16:22): So look, I had long admired Kleiner Perkins — an extreme reverence, I would call it — going back to my days moving to Silicon Valley. I mentioned I moved to Silicon Valley in 1997 and worked for this company, Xilinx. Think about my first few weeks on the job: I’m in my cubicle, and I’ve got a Sun Microsystems workstation, which was actually a dream, because in college we had to share 20 of them among 2,000 of us. Now I have my own Sun SPARC — I think it was a SPARC 20. And guess what? There’s a Netscape browser, and I’m buying books for grad school on Amazon. And by the way, there are a couple of guys down the hallway at Stanford who are starting this company called Google, and I’m starting to use that search engine. The one commonality among Xilinx, Sun, Netscape, Google and Amazon is that Kleiner Perkins had led the Series A — was the first institutional investor — for all five of those companies. So as a young guy, I developed this extreme reverence for Kleiner Perkins because of the investments they had made in these history-making companies. Which is also what led me to think about venture capital as a career as a young engineer — I wanted to be like those guys; they were investing in all the coolest companies I was using as a 19-year-old. And one of the people behind many of those investments — Sun, Netscape, Google and Amazon — was my partner, John Doerr. So for me, there’s this extreme reverence for John Doerr and his career, and trying to emulate that. He was an electrical engineer from Rice, went to Harvard Business School, worked at Intel Corporation, then came to Kleiner Perkins out of business school. It had a deep meaning to me. And truth be told, in my business school essay — which I still have — I wrote that I wanted to go work at Kleiner Perkins. That was 2002, when I wrote the essay. Then, when I tried to apply for a job in 2005 coming out of business school, I didn’t get very far. But I did end up there in 2017.

Barry Ritholtz (00:18:45): So eventually, if you keep plugging away, you get to where you want to go. That’s great. Coming up, we continue our conversation with Mamoon Hamid, Kleiner Perkins managing member, talking about the reboot of the firm. I’m Barry Ritholtz. You’re listening to Masters in Business on Bloomberg Radio.

Barry Ritholtz (00:19:07): I’m Barry Ritholtz. You are listening to Masters in Business on Bloomberg Radio. My extra special guest this week is Mamoon Hamid. He is managing member and general partner at Kleiner Perkins, where he is pivoting the firm toward early investments in software, artificial intelligence and automation. So, you co-led the refounding of Kleiner Perkins in 2017-2018. The firm was refocused on early-stage, Series A investing. Tell us what was behind the thought process. What made you say: we don’t want to be bigger, we want to be smaller and more focused?

Mamoon Hamid (00:19:49): If I look back at the decades of Kleiner being probably the most successful venture capital firm throughout the seventies, eighties, nineties, and even the early two thousands, the one thing that defined Kleiner Perkins was that it was a small partnership of seven-ish or so partners who sat around a table in Menlo Park, meeting companies and having healthy discourse and debate about which companies to invest in and what the future of technology would bring to the world. It was defined by a small group of partners who were in many cases technical. They were operators. They had a passion for technology and its impact on humanity. That was what I kept coming back to — that was what defined Kleiner’s decades of success. And we went back to the future, in 2017 and ’18, to that model. Today our partnership is six partners, and we have three more investment professionals. We’re a very small, nimble team. We have two funds, and this team invests from both pools of capital.

Barry Ritholtz (00:21:11): So early stage — is that the seed round, or is it a little more developed?

Mamoon Hamid (00:21:17): The early-stage fund is seed and Series A mostly, and maybe some Bs. And the growth fund is Bs and Cs all the way to — we invested in the last Anthropic round at a $900 billion valuation, which is rare, for special companies. But it has the ability to invest across stages, even to the pre-IPO round.

Barry Ritholtz (00:21:41): And is it a coincidence that the growth fund is two and a half times the size of the seed fund? At that point these companies are bigger and require a bigger check — or is that just happenstance?

Mamoon Hamid (00:21:54): I think our funds are sized based on the opportunity set in front of us. Our early-stage funds have been almost exactly 35 companies for the last 15 years. So 35 companies per fund, which we think of as the right number of shots on goal for an early-stage fund to return multiples.

Barry Ritholtz (00:22:17): Like 25 to 30 million per?

Mamoon Hamid (00:22:20): Exactly. So it starts out with maybe, in some cases, a $5 million check, and the subsequent checks are another 15 or 20. Or the first check could be 30, and then with pro rata you’re investing, let’s say, up to $40 million per company. And then your growth fund is doubling down, investing a lot more in those companies.

Barry Ritholtz (00:22:39): Really kind of interesting. So the focus is artificial intelligence startups across the software, healthcare, transportation and autonomy industries. Let’s unpack that, because I’m hearing a little overlap with each of your prior venture experiences. Tell us why those four areas are so attractive.

Mamoon Hamid (00:23:04): This is a truly once-in-a-lifetime revolution that we’re going through with AI, and the number of exciting companies and people that we’re seeing right now is at an all-time high. The whole world, in some ways, is being refactored with AI — and this is just the very beginning. So I would say all parts of the economy, even beyond those four areas. Like I mentioned earlier: healthcare, financial services, all sorts of knowledge work. It’s going to be all sorts of physical automation in terms of robotics. Even space, even defense, drug discovery, materials discovery. I think it is all fair game at this point in terms of where the exciting pockets of innovation are, because there has never been a tailwind like this — one that allows all parts of the world to be refactored based on the biggest technological revolution ever.

Barry Ritholtz (00:24:30): I’m glad you described it that way, because I keep hearing people compare AI to the internet, and that seems too contained, too timid. I wonder if you agree with the thought that the only thing remotely comparable to this is the industrial revolution — which, centuries later, we are still dealing with the impact of.

Mamoon Hamid (00:24:54): I absolutely agree with you, Barry. It is like the industrial revolution. It’s like the railroads. It’s like the printing press. It is that. It’s not the internet.

Barry Ritholtz (00:25:04): That’s really interesting, because when I think internet, the first thing you think of is: oh, this is a bubble and this is going to collapse. But you mentioned you’re an investor in Anthropic — these are, forget not-profitable companies, these are companies with giant revenue streams already, and they’re barely a few years old. How big can this sector get? Is this going to take over every corner of the economy?

Mamoon Hamid (00:25:31): Let’s talk about that. I think that’s the real conversation — the very exciting conversation one can have about this topic. I’ll start at a very high level. The GDP of the world today is about $120 trillion, and about half of that is labor — the labor component. So roughly $60 trillion. And of that $60 trillion, roughly 60 percent or so is white collar — maybe 50 to 60 percent, somewhere in there. So that’s anywhere from $30 to 35 trillion. And if you look at tokens, and what the frontier model companies provide, it is units of labor. We’re already seeing how those units of labor are being utilized in computer science — software development — in law, in medicine, in drug discovery. These are little agents and buddies that we as humans now have to help us do more with our intellect. The way I see it, we’re talking about trillions of dollars opening up for these companies. Exhibit A is a company like Anthropic, which, as it has publicly stated, has gone from zero to a $45 billion revenue run rate — that’s unbelievable — in a matter of less than three years. And that is likely going to double. The company started this year, I believe, at 20, and has already more than doubled in the short year we’ve been in so far. These numbers are astounding, not only because these companies are selling software or technology — they’re selling units of labor. And the labor markets, as we all know, are the biggest component of the world’s GDP. We’re talking about trillions of dollars of opportunity. That’s what excites us so much about this time: it’s not just about selling tools and software that we’ve been accustomed to selling to IT departments. It’s selling actual labor — to companies, to corporations, even to consumers who are using AI in their personal lives.

Barry Ritholtz (00:28:01): So let’s talk a little bit about that. The fear I keep hearing is that everybody’s going to lose their job. It’s a very Malthusian argument — that this technology is going to replace labor the way the steam engine did. I’m getting a sense from the data, and from analysts like Torsten Slok, that this isn’t a replacement for white-collar labor, it’s an enhancement — or at least that’s the argument. Give us your perspective on that.

Mamoon Hamid (00:28:33): I actually fully agree with the point of view that you have. It’s like getting email. When we got the computer, the people who were using the typewriter started using the computer and started doing other types of jobs. Even in the steam era, the industrial revolution, we found ways to repurpose jobs and people and their skills. I don’t think humans are going out of style. I don’t think the world is going to be largely unemployed and on UBI because we’ve displaced all this work and all these people with AI. That’s the extreme where the mind goes, but it’s just not the reality. And that bears itself out in the numbers we see — record low unemployment rates. Actually, we need more labor, more people, than we ever have.

Barry Ritholtz (00:29:30): More skilled labor. We are seeing a decrease in job availability for kids right out of college, for unskilled labor. If anything, is this likely to force more people to get more technical, to up their skill set?

Mamoon Hamid (00:29:49): I actually do believe that. It is not: oh, you don’t need to be a software developer and study CS anymore because these software jobs are going away. It’s that now the job of a software engineer is to manage a whole host of agents, make them do work for them, and be the brains behind the operation. Think of it as having all these little agents — little employees — working on your behalf. That is the higher-level thinking. When we go to school, we learn how to problem-solve. If we’re solving a math problem and it’s hard, we think about many different ways to solve it. The same applies here: how am I going to use AI to help me solve problems? We have four kids, believe it or not, and I’m telling them: go into math, science, and actually art — have spectral diversity in your learning — because the skills that mattered in the past, solving math problems with pen and paper, will really matter in the future.

Barry Ritholtz (00:30:55): So let’s bring this back to how you think about the opportunity set that’s out there at Kleiner Perkins. You do structured reviews of every interesting deal that was passed on. I’m kind of fascinated by that. I know a lot of VCs hold their misses as a badge of honor — some firms post them on their website. What’s driving the thought process around revisiting missed deals or mistakes? What does the process teach you?

Mamoon Hamid (00:31:35): One of the things I did when I got to Kleiner Perkins in 2017 was that we would look every week at that week’s Series As that got done by our peer firms — about 30 or 40 firms — and whether we had seen the company that was invested in or not. A simple heuristic: are we seeing the things that matter — and they seem to matter because our peer firms invested in those companies. We’ve been doing this now for the last nine years. Initially our goal was that we should see 60 percent — and seeing means you met the company. For us, that now hovers around 70 percent or so. You don’t want it to be a hundred percent, because then that’s just the game you’re playing — we just see everything. And you don’t want to be at 20 percent, because you’re not seeing enough. We think 70 percent is a good number. And then we look at it: if we saw 70 percent of the good stuff, was the better stuff in the 30 percent we didn’t see? Or, of the 70 percent we saw, did we pass on the good stuff and do the bad stuff? We go through that exercise quite frequently. We just had an offsite a few weeks ago, and we went through it again — we pour salt on the wounds. Okay, we saw these companies and we passed. Why did we pass at that early-stage round? Just to remind ourselves why we need to adjust the way we do things. I’ll give you an example: Anthropic, which is an incredible company. The Series A was not a traditional one — SBF from FTX led the Series A, famously. We know how that worked out.

Barry Ritholtz (00:33:24): We do know how that worked out.

Mamoon Hamid (00:33:24): It was an amazing investment and very prescient on his behalf. I forget how much it would be worth today, but it would be worth a lot. But the Series B was a sort of non-consensus, non-obvious round. We actually met with the founders — but we met them over Zoom, and we played with the product. You don’t get the same visceral feeling about a company and the founders and their ambitions and aspirations and what they’re trying to do with their company. So — what a miss, right? I think that round got done at a $4 billion valuation or something, which is not a small valuation, but still—

Barry Ritholtz (00:34:08): Compared to today.

Mamoon Hamid (00:34:09): Compared to today. And we looked at a lot of our passes that were good companies, and many times we just didn’t meet them in person. The pandemic era bred some really bad habits — you did a first meeting over Zoom. I looked at my own investments, and for the last 20 investments I’ve done, the first meeting was always in person. So I’ve driven my whole calendar to: I just don’t want to do any meetings on Zoom anymore. I want to meet people in person, and if it’s worth a 30-minute Zoom, it should be worth a 30-minute in-person meeting. And I’m glad we get to do this in person — big difference. It wouldn’t be the same thing if I were on a Zoom screen doing this with you.

Barry Ritholtz (00:34:59): That’s exactly right. What about the reverse of that? If you’re analyzing your misses, do you ever review your hits, your wins, and ask: why did we get this right? What can we take forward from this?

Mamoon Hamid (00:35:14): That’s a great question. What we do look at is: is the portfolio that we built better than the portfolio that we missed? And it’s actually a toss-up.

Barry Ritholtz (00:35:32): Huh — that’s really interesting.

Mamoon Hamid (00:35:34): In the sense that it would be bad if we didn’t see companies and that basket of companies was way better than the companies we saw. We try to be very intellectually honest about whether we’re seeing the right stuff or the wrong stuff — and it turns out it’s a toss-up.

Barry Ritholtz (00:35:56): The reason I ask that question is that in the public markets, you learn more from your misses than your wins, because it’s very hard to tell the difference between skill and luck in the public markets. I’m curious if the same sort of thing applies to venture.

Mamoon Hamid (00:36:15): I think it does. You really beat yourself up on the misses, and on the ones you did do, you’re just like: okay, check, it happened — and maybe you don’t think about them as much as the ones you missed.

Barry Ritholtz (00:36:29): Really, really interesting. Coming up, we continue our conversation with Mamoon Hamid, partner at Kleiner Perkins, discussing the state of venture investing today. I’m Barry Ritholtz. You are listening to Masters in Business on Bloomberg Radio.

Barry Ritholtz (00:36:46): I’m Barry Ritholtz. You are listening to Masters in Business on Bloomberg Radio. Mamoon Hamid is my extra special guest. He is a partner at Kleiner Perkins, where he’s driving the firm’s focus on early-stage investments in artificial intelligence and related technology. So let’s talk a little bit about the state of venture investing today. When you meet a founder for the first time — preferably in person — what are you looking for? What are you trying to spot that isn’t in the pitch deck they sent earlier? How do you separate intensity from delusion? What are you trying to identify in that first meeting?

Mamoon Hamid (00:37:32): It is the most interesting time in my venture career, for obvious reasons — this AI revolution. The tailwinds that AI brings to companies being started today are unlike anything we’ve seen before. So the quality of ideas is at an all-time high, and I would say the quality of the people is also at an all-time high. Those two forces combined mean there are a lot of really high-quality ideas and founders that we’re seeing — and the volume, because of that, is at an all-time high. To your question of what we’re looking for: obviously everything today is AI-enabled, with AI tailwinds — and venture capital isn’t venture capital unless there’s a strong tailwind of something. That makes this such an exciting time, because the winds are so strong — in some ways because the frontier model companies are providing better and better models, which allow companies that build on those models to provide a strong value proposition. Take, for example, a company like Harvey, which is AI for legal. It’s in most of the Am Law 100, sells to large enterprises and Fortune 100-type companies, and is becoming the de facto way that law firms and legal departments are using AI. And yes, they have a lot of secret sauce on top of what the model companies provide, but at the same time, they get better and better as these models get better and better. This is a category that just got created in the last few years, and there are numerous examples like it in every sector of society. Just take a step back — I don’t know what your reaction was to ChatGPT when you first saw it, but for me, it was the same reaction I had when I first got to use an internet browser. That Netscape moment was equivalent to the ChatGPT moment. And we started to think about the second-order effects — what are the things that come from here, from ChatGPT, from LLMs? We thought about the labor pyramid — think about knowledge work. We went straight to: what are the most highly skilled, highly paid jobs in the country? If you look at the top 20 list of jobs by dollars earned, it’s some form of engineer, doctor or lawyer. So what we did at Kleiner Perkins was invest in companies that do AI for legal, AI for software development, AI for medicine. We invested in companies like Harvey; Windsurf, which got acquired by Google; and companies called Ambience and OpenEvidence — to go after the top of that labor pyramid. And back to your point, it’s an enhancement for those people. It was supposed to be like a copilot — which it is—

Barry Ritholtz (00:41:04): Registered trademark, Microsoft Corporation.

Mamoon Hamid (00:41:07): Yeah, exactly — Copilot. And in some cases it’s become an autonomous agent for those people. Software developers run agents to do work for them now. And so we worked our way down the labor pyramid a bit — what’s the next level? If doctors, lawyers and engineers are in the $200K-plus-a-year pay range, what’s one level below that? You’ve got financial analysts, salespeople, nurses. So we’ve invested in that next class of companies: Rogo, which is AI for finance; Hippocratic, which is an agentic nursing platform; Nooks and Revo, which are helping salespeople — copilots for their work. So we’ve worked our way down the labor pyramid. And if you think about the pyramid, guess what’s at the bottom? Physical labor — the lowest paid, lowest skilled in some cases. Eventually robotics will get there, and hopefully do a lot of the backbreaking work that nobody should be doing. That goes along with the timeline of how we’re thinking about these things: you start with the highly skilled, highly paid, and over the next decade you get down to the lowest-skilled, lowest-paid work.

Barry Ritholtz (00:42:31): So you mentioned the tailwind behind AI. What does that do to valuations? How do you underwrite startups in a market where even the half-decent companies look kind of expensive?

Mamoon Hamid (00:42:46): Great question. When you have companies that have gone from zero to a trillion dollars in value in the last three to four years — when you’re a founder, what do you do? You point to that. That’s what I can be; I can get to a trillion dollars, because I’m going after really large problems. And we love that ambition. What do people do then? They say: well, if the probability of a $1 trillion outcome is 1 percent, and you add up the probabilities for all the other outcomes, you’ve got yourself an expected value of $10 billion or more — at least that’s the minimum. You do the 1 percent of $1 trillion, that’s $10 billion, and you add up all the other probabilities, and it’s probably like 30, 40, 50 billion. So if you’re looking at a Series A company where the ambition is tremendous, the valuation may just be — you’re raising a hundred million at a billion-dollar valuation for two guys out of the gate. And those are real examples. I think we’ve got a bit of this pointing at the large outcome — and if it’s paired with smart people and an ambitious idea, it has that kind of potential. But the reality is there are usually only one or two of those real outliers that are Mag Seven scale. Gravity in itself doesn’t allow for the world to have a hundred trillion-dollar companies.

Barry Ritholtz (00:44:28): Plus, if it’s a trillion-dollar total addressable market, it’s going to attract a lot of competition, a lot of other startups — perhaps more than if you’re focusing on a smaller niche. Although even in cloud storage, you mentioned 40 companies in the early days. There have got to be tens of thousands of companies going after each of these segments in AI.

Mamoon Hamid (00:44:53): Yeah, there are. And the hard part of the work we have is identifying what we think will be the leading company, because in technology, generally speaking, the leading company gets most of the market cap — which, if you look at the Mag Seven—

Barry Ritholtz (00:45:10): Winner take all.

Mamoon Hamid (00:45:11): Winner take most, right? They take 90 percent of the market. Nvidia — 95 percent of all GPU spend. Take Google, Alphabet — multiple businesses. Or take a Tesla; take a Meta — owns social. So winner takes most in technology.

Barry Ritholtz (00:45:30): Really interesting. You’ve described the AI moment as one of the most important company-building opportunities in our lifetime. What’s the risk of venture funding too many of these startups? Or is this just a fat head of winners and a long tail of well-we-gave-it-a-shot? Is this simply the nature of this business, where a couple of winners drive all the returns for your funds?

Mamoon Hamid (00:45:59): Venture is a power-law business — there’s no question about it. There’s this article I read the other day where 90 percent of the AI revenue is in the hands of two companies.

Barry Ritholtz (00:46:13): That’s crazy.

Mamoon Hamid (00:46:14): OpenAI and Anthropic. The remaining 10 percent is in a bunch of companies that are excellent companies, but the scale of those two companies is so massive that it dwarfs all the other great work happening in tons of other companies that we’ve backed. And by the way, those will be great outcomes and great companies — there’s no question about it. It’s just that the power law really shows itself when you look at the numbers. Yes, our job is to be in the companies that make history and follow the power law. What we find is that you would think there are dozens of companies — there are actually tens, maybe fewer than 10, and there are two to three that are converging to become the winners in a category. Everyone’s trying to identify those two to three companies and be in them. One of the challenges we face is that we try to invest early in what we think is the winner in the category. Sometimes you don’t know early that this is the winner, and if you invest too early, you conflict yourself out of the eventual winner.

Barry Ritholtz (00:47:28): You only invest in one company per silo, so to speak? Just to avoid those sorts of conflicts.

Mamoon Hamid (00:47:35): Yes. Typically we’re joining the boards of these companies, and if you have confidential board-level information and you then invest in a competitor, all of a sudden there’s a chance of a conflict of interest. So we definitely try to avoid that.

Barry Ritholtz (00:47:51): So I’m kind of fascinated by this: as venture investors, you obviously see the promise of AI across all these different economic sectors. I’m curious how you are using AI internally at Kleiner Perkins. Are you using it to source deals, or do due diligence, or predict specific outcomes? How does AI fit into your operations?

Mamoon Hamid (00:48:17): We have definitely been maxing out on AI internally — not only because we invest in these companies. Glean is a company we incubated inside of Kleiner Perkins, actually — it’s in year seven now, a pre-AI company started by an incredible engineer, Arvind Jain. That’s our knowledge management. Every single piece of knowledge inside Kleiner Perkins resides in Glean, and you can go to it, query it, chat with it. If I want to find your phone number and email — say I’ve never met you before, but I know someone at Kleiner probably knows you — I’ll go to Glean. If I want to ask about an HR policy, I’ll go to Glean and quickly ask, because it just knows everything about Kleiner Perkins. It knows investment memos, it knows cap tables — it knows the really confidential stuff. It’s permissioned in a way where the people who are supposed to know can know. That’s part of the magic: it’s very safe and secure, and you trust it to know the things it’s supposed to know and not know the things it’s not supposed to know. So that’s one example. But we also get so much information — board decks, long board memos, financials. I’m going to a board meeting after this, and I got the board memo. The first thing I do is send it to an email alias that runs it through AI, and it produces a summary of the board meeting and questions I should be thinking about — an instant step I take once I get the board materials, so that I start thinking about it before I actually go read the board memo. I sort of have a preview of it in my mind. We do a portfolio review every four months or so, and we have a couple hundred companies. It used to be a very manual process — we had a dedicated person working on it. Now our technology team has built a system where we take these summaries and they get piped into this portfolio book that we create, with all the financials and all the metrics. We’re heavily leveraging AI there — in this case it’s Glean and Claude, the underlying models, obviously. And we’ve done a bunch of other things. I actually love to rate my meetings, just so I remember the tens and the nines that I should have paid attention to but forgot. I want to have an exhaust of all the things I’m encountering in my real life, and AI is an amazing capture of that exhaust — providing intelligence and signals to our team, piping it into our CRM. There are all these cool things we’ve done. We have an internal tech team — an amazing team of four folks who build a lot of these tools — and we are definitely maxing out on using everything that’s out there.

Barry Ritholtz (00:51:20): Really quite fascinating. So, final question before we get to our favorites that we ask all of our guests: what are investors not thinking about when it comes to AI — or anything else — that perhaps they should be? What sort of topics — policy, data, geography — what’s getting overlooked but shouldn’t be?

Mamoon Hamid (00:51:42): I think right now we’re going through a time where software is considered to be dead — they call it the SaaS apocalypse, right?

Barry Ritholtz (00:51:53): Although they’re just coming off their lows.

Mamoon Hamid (00:51:55): Yeah. And there’s always an overreaction: oh my God, it’s going to be an AI capex world, and only chips will matter — only fiber and data centers and power will matter. The reality is that the way we as humans interact with technology is through software — through the things we have known as software and tools. And by the way, CIOs in large companies buy from companies that sell to them; they don’t just buy a smart agent. So I think the pendulum has swung a little too far, and we underappreciate what software still does and will continue to do forever — for our enterprises, for governments, et cetera.

Barry Ritholtz (00:52:41): Software: not going away. Really interesting. All right, let’s jump to our favorite questions, starting with: who are your mentors who helped shape your career?

Mamoon Hamid (00:52:51): One of my mentors is Irwin Federman, whom I dearly love. He’s 90 years old now. He’s a New Yorker — he sold peanuts, I believe, at Dodger Stadium when the Dodgers were still there in the fifties. He was my mentor at USVP, and he’s a legendary semiconductor investor, believe it or not. He was one of the co-founders of SanDisk Corporation, and before that he was CEO of Monolithic Memories.

Barry Ritholtz (00:53:22): I hope he still has a few shares of those.

Mamoon Hamid (00:53:24): He probably does. And SanDisk is in this memory hype cycle we’re going through — hype or not, there’s a real need for memory. I believe it’s now maybe a half-a-trillion-dollar market cap company. Something crazy — don’t quote me on that, but memory is having its day right now. In any case, he was a mentor because not only did I work for him, but I saw through his lens how to be a great board member, how to make investments, how to back people, how to build relationships with people. He also gave me feedback that no one else in life would, because I think he loved me — I really felt the love — because the kind of feedback he gave me was feedback that I don’t think people would generally have the courage to give you. It’s pretty direct — tough love. And I love that about him. It reminds me that I need to go pay him a visit.

Barry Ritholtz (00:54:25): Well, you’re in New York — you might as well.

Mamoon Hamid (00:54:27): Oh — no, he actually lives in the Bay Area now. He’s a New Yorker who relocated to the Bay Area, I think, 50 years ago.

Barry Ritholtz (00:54:34): So let’s talk about books. What are some of your favorites, and what are you reading currently?

Mamoon Hamid (00:54:38): I’m just starting on this book called Believe — why you should believe, especially in this era of AI. I’m on the board of a company called Thrive Global, whose CEO and founder is Arianna Huffington. Arianna gave me the book. She and I have very aligned views on faith and spirituality — Arianna, I believe, is Greek Orthodox, and I’m Muslim — and we talk about how faith guides our lives, and about this age of AI. That’s actually the conversation she and I have. She said: I have the perfect book for you. It’s about how we should believe even more in this age of AI, because it helps us understand the world — we’re trying to make sense of it all the time. Religion can give us a bit more of a constrained view of what the world actually is, because otherwise it’s just a black box; you won’t be able to comprehend the vastness of what we’re trying to comprehend as human beings. And especially with AI, we’re pushing the boundaries of what’s possible. I think there’s actually more in the scriptures than you’d think — that’s the view she and I share, and this book hits home with it. It’s by the New York Times columnist Ross Douthat. Believe — check it out.

Barry Ritholtz (00:56:16): On my list now. What about streaming? I know you host a podcast. What do you either watch or listen to these days?

Mamoon Hamid (00:56:25): My wife and I love to watch Dateline, 48 Hours — these crime shows.

Barry Ritholtz (00:56:31): All the crime shows.

Mamoon Hamid (00:56:31): All the crime shows. In some ways it just takes things down a notch, but it’s also so instructive about human psychology — what motivates people to do not-so-great things. And there’s generally a theme to it at this point; it’s a very repetitive theme.

Barry Ritholtz (00:56:52): It’s Dunning-Kruger. They have no idea about the trail of DNA evidence they leave everywhere. Anytime I’ve watched that show, it’s like — what are you doing?

Mamoon Hamid (00:57:01): And it should be that it’s harder and harder to commit crimes.

Barry Ritholtz (00:57:07): And yet—

Mamoon Hamid (00:57:08): There are still crimes.

Barry Ritholtz (00:57:10): Still — and just as many as ever. Only people are getting caught more easily.

Mamoon Hamid (00:57:13): Yeah. And the cell phones — they’re pinging those towers.

Barry Ritholtz (00:57:18): What do you mean you weren’t in the house? We can tell you were within a hundred feet of this person at that time.

Mamoon Hamid (00:57:23): Exactly. So it’s probably not a very full answer — you’re probably looking for some cool show that I watched.

Barry Ritholtz (00:57:30): No, not at all — I’m fascinated by that. It’s funny, because there used to be this giant gap between the CSIs and what was actually going on. But if you watch the two of them, it’s really closed. Maybe there’s a little selection bias here, because all those shows are about the people who got caught — so you’re seeing where the technology worked, where the forensic science got that guy. It’s really very funny. All right, our final two questions. What sort of advice would you give to a recent college grad interested in a career in either venture investing or technology?

Mamoon Hamid (00:58:12): It’s probably the same advice I would have given 20 years ago, or given myself coming out of college: go work at a fast-growing company, where you can learn from the growth it’s encountering, but also from the people — and build the network that you’ll have for the rest of your life. It’s probably the best time in your life, coming out of college, to learn from others around you and to experience high growth, because from high growth, lots of lessons are learned. If you can find a way to get into a high-growth technology startup — an AI startup — it is the best way to develop the skills, but also the empathy of what it means to have carried a bag and sold something, and built something, and shipped something. I always tell folks there shouldn’t be a direct path into venture capital. It’s a second thing — it’s not the first thing you do coming out of college or grad school. You have to have built and shipped and sold, and developed that empathy for high growth and the lessons learned, before you get into our career.

Barry Ritholtz (00:59:26): Really, really interesting answer. And our final question: what do you know about the world of venture investing or technology today that might have been useful 25 or 30 years ago, when you were first ramping up?

Mamoon Hamid (00:59:40): It’s all about the people. It sounds so trite, but it is. I say: ordinary-looking people doing extraordinary things. And how do you assess those ordinary people who are doing extraordinary things? By really understanding the people — their intentionality, their desires, their ambition, what drives them, their motivation. Which goes back to why you meet them in person: you’re trying to figure out why they are doing this. Building a startup, a company, is hard work. It’s a sacrifice on life. So there had better be a good reason why you’re doing it.

Barry Ritholtz (01:00:18): Really interesting answer. Thank you, Mamoon, for being so generous with your time. We have been speaking with Mamoon Hamid. He is partner at Kleiner Perkins. If you enjoyed this conversation, well, check out any of the 647 we’ve done over the past 12 years. You can find those at Apple, Spotify, YouTube, Bloomberg — wherever you get your favorite podcasts. I would be remiss if I did not thank the crack staff that helps put these conversations together each week: Alexis Noriega is my video producer, Sean Russo is my researcher, Anna Luke is my podcast producer. I’m Barry Ritholtz. You’ve been listening to Masters in Business on Bloomberg Radio.

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The post Transcript: Mamoon Hamid, Kleiner Perkins appeared first on The Big Picture.

This month's edition kicks off with the news that Salesforce, RightCapital, and YCharts have all launched their own new AI capabilities, from internal notetakers to capture meeting notes, to analyzers that help to craft better planning recommendations and automatically solve for desired client goals, to document extraction tools that expedite the process of analyzing a prospect's existing portfolio and developing a proposal. Which marks a rising trend of "The Incumbents Strike Back" as standalone AI providers have threatened industry disruption, but the fact that advisors are slow to switch software means that now existing leaders in the major AdvisorTech categories are developing their own versions of the same AI capabilities to retain their advisor users and preempt their disruptors!

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

• AI Notetakers like Jump and Zocks are developing their own expanding capabilities, from Jump's new account onboarding automations (that can kick off directly from the client information and action items collected in a new-client meeting) to Zocks' rollout of Client Queries (that allow advisors to ask questions about their aggregate client base to spot new business opportunities)… capabilities that unto themselves represent useful incremental improvements, but in the long term appear to put the AI notetakers on a slow but steady collision course with traditional CRM systems (eventually forcing advisors to choose which they will stick with in the long run).
• New roll-up Arca emerges from "stealth" mode with a $48M capital raise, while Farther raises another $150M to fuel its own growth, as the new generation of tech-enabled RIA platforms make the case that engineering talent can build internal proprietary all-in-one tech platforms good enough to materially improve their advisor productivity and margins (even as the past 20 years of AdvisorTech improvements have failed to produce any reduction in the typically-40% overhead expense ratio of large advisory firms!?).
• WealthReach raises a $1M seed round to support the development of their "Living Sites" platform that leverages AI to create more dynamic SEO- and AEO-friendly websites, with content that can more continuously update to make the sites appear fresh and attractive to search engines, as the ongoing drive for organic growth shifts more advisory firms to finally pivot their websites from 'digital marketing brochures' to become differentiated websites that are actually findable by new prospects (at least for advisory firms that are differentiated enough in their own value proposition to support a differentiated website in the first place!?).

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

• Edward Jones takes a minority stake in Quicken, as the firm seeks to delve deeper into financial planning and enable its advisors with more tools that support good financial planning conversations with clients… but raising the question of why Edward Jones felt the need to invest into Quicken rather than just leverage its existing MoneyGuide contract, or pursue more "modern" personal financial management solutions like Monarch Money (or simply purchase Mint.com before it was shut down)?
• As advisory firms continue to invest into data warehousing solutions to create new AI orchestration layers, a deeper look at what they're actually building reveals solutions that are remarkably non-AI in their nature, from automating address updates across multiple systems to facilitating billing and advisor payouts and improving onboarding processes… raising the question of whether firms really need to be investing so much into centralized data to facilitate their AI initiatives, or whether their AI initiatives are simply becoming the impetus to finally establish more systematic processes and begin to better use the APIs of their existing providers to implement the deterministic non-AI workflows they needed all along?

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.

Read More...

• Why You Grieve the End of Summer Before It’s Even Over: If you’re already stressed about the end of the season, you’re not alone. On anticipatory nostalgia and the human knack for mourning things mid-enjoyment. A lovely small essay for late June. (Vox)

• US at 250 – Why Has the US Been So Successful, and Can It Continue? First, we consider how the US went from being a comparatively small country to the world’s pre-eminent global power. These reasons range from the US’ natural advantages, like favourable geography, to factors like its institutional stability and risk-tolerant capital markets. We then consider the challenges that threaten US outperformance. A big-picture bank note on American exceptionalism and its durability, timed to the semiquincentennial. Sweeping, and a useful counterweight to the doomers. (Deutsche Bank Research Institute) see also How a Nation of Immigrants Traces Its Roots: A data-rich map of where Americans say they come from. The census as a mirror of a changing self-image. Melting pot, tapestry, mosaic, kaleidoscope, salad bowl. Every cliché is true. (New York Times)

• Abraham Lincoln’s War on King Cotton: How economic warfare over cotton shaped the Union strategy. A sharp piece of history for the long-read pile. Secessionists in America’s South were convinced that Britain’s mills could not survive without their cotton. They had not reckoned with how adaptable an economy under strain can be. (Engelsberg Ideas)

• Combat Experience as a Strategic Resource: Lessons of the Red Army Purges: How Stalin’s purges gutted military expertise, and what that teaches about institutional knowledge — History with uncomfortably current echoes:  “Instead, at its core, a central question is their impact on the combat effectiveness, indeed the lethality, of our armed forces. I take up this question through the lens of a case study drawn from one of the most consequential instances of rapid military leadership depletion in modern history, the Red Army purges of 1937-1938 and their effects on its performance during the conflicts that followed. My central proposition is straightforward: Operational experience, especially in combat, is a strategic resource, a form of military capital that takes decades to develop and that can be squandered in months.” (Just Security)

• David Foster Wallace and Democracy. Despite the relative obscurity of even successful writers, especially those most regarded for literary fiction, Wallace continues to generate conversation sixteen years after his death. In the immediate aftermath of his suicide, the literary press, his most enthusiastic and loyal readers, and many journalists beatified him. His college commencement speech, a brilliant call for empathy later published as a booklet, This is Water, served as evidence of blessed intercession. Thus, those mourning from afar nominated the late author of the contemporary masterpiece, Infinite Jest, for sainthood. Hollywood cooperated, releasing an interesting, even moving, but also cartoonish film. (Liberties)

• Hamptons Billionaires Call These Doctors for ‘Boat-tox’: For everything from aesthetic touch-ups to 9-1-1 emergencies, the wealthy are calling on providers who charge membership fees ranging from a few thousand dollars to six figures a year (Wall Street Journal)

• A Terrible Thing Happened to My Family: Buttigieg writes personally about a family ordeal. Whatever you make of the politics, it’s a reminder these figures are people first. Even in today’s climate, there should be one fundamental principle everyone respects: whatever you think about someone in politics, you leave their kids alone. (Pete Buttigieg’s Substack)

• This Cell Feeds, Grows and Reproduces. And It’s Manmade. Scientists build a synthetic cell that does the things living cells do. A genuine landmark — and a fresh set of questions about where the line sits. We have long dreamed of discovering the alchemy by which chemicals can be turned into life. On Wednesday, a team at the University of Minnesota announced that it had taken a major step toward that vision.  (New York Times)

• On the origin of continents: Continental drift is as fundamental to geology as natural selection is to biology. Why did it take us hundreds of years to discover it? Why Earth has continents at all, and what that has to do with life. Deep-time science writing at its most satisfying. (Works in Progress)

• Where the Light Falls: Who was Johannes Vermeer? Clare Bucknell on Vermeer and the mystery of his light. Art criticism that makes you want to stand in front of the paintings again. (Harper’s Magazine)

Video of the day: How this helicopter survived 1004 days on Mars, then disappeared

Be sure to check out our Master’s in Business this weekend with McKeel Hagerty, CEO/Chairman of Hagerty Specialty Insurance. He transformed a family specialty-insurance agency into an enthusiast-driven platform focused on collectible cars, events, valuation data, and auctions. HGTY is now a public company that insures everything from classic cars to boats, trucks, tractors, and military vehicles for over 2.8M collectors.

Summer gets more expensive

Source: Bloomberg

Sign up for our reads-only mailing list here.

~~~

To learn how these reads are assembled each day, please see this.

The post 10 July 4 Reads appeared first on The Big Picture.

This week, I speak with Kleiner Perkins partner Mamoon Hamid. We discuss Mamoon’s thoughts on the AI revolution and his approach to early AI investing.  Mamoon also breaks down how he became an early investor in giants like Slack and Figma, and how the firm assesses the investments they missed.

He explains how Kleiner Perkins pivoted towards earlier-stage seed investments.

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 bonus Masters in Business this coming next week with McKeel Hagerty, CEO/Chairman of Hagerty Specialty Insurance. He transformed a family specialty-insurance agency into an enthusiast-driven platform focused on collectible cars, events, valuation data, and auctions. HGTY is now a public company that insures everything from classic cars to boats, trucks, tractors, and military vehicles for over 2.8M collectors.

The post MiB: Mamoon Hamid, Kleiner Perkins on AI Investing appeared first on The Big Picture.

Also in industry news this week:

• The SEC has advanced a proposal that would make electronic delivery of documents the default for RIAs and asset managers (while allowing clients and investors to opt in to receive paper copies)
• A survey finds that wealthy families are increasingly looking beyond tax efficiency when it comes to estate planning to also create frameworks for the next generation that outline the purpose and meaning of their wealth

From there, we have several articles on retirement planning:

• Updated research on retirees' spending trajectories finds that they could resemble a 'smile' or a 'smirk', with implications for initial withdrawal rates
• The history of 'lost decades' in the stock market and how financial planners can help clients prepare for them
• How historical visualizations can help clients better grasp abstract retirement income strategies (and how their portfolio and income strategy would have fared in different historical periods)

We also have a number of articles on advisor marketing:

• Key metrics for measuring the success of a marketing strategy, including average new client revenue and the percentage of leads that are qualified
• The pros and cons of keeping marketing in-house versus using an outsourced provider (and how a hybrid approach could offer the best of both worlds)
• How having a marketing "point person" within an advisory firm can ensure that marketing tasks don't slip through the cracks

We wrap up with three final articles, all about enjoying the holiday weekend:

• The science behind fireworks, from how different colors are produced to innovations in sound effects
• Why controlling heat and moisture are key to successful grilling and how the 'best' fuel source can depend on a chef's priorities
• How to choose and use sunscreen to avoid a nasty sunburn after a day at the beach or pool

Enjoy the 'light' reading!

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At The Money: Building a Bond Ladder with ETFs (July 2, 2026)

How can fixed-income investors create diversified, inexpensive bond ladders using Exchange Traded Funds?

Full transcript below.

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About this week’s guest:

Steve Laipply is Global Co-Head of iShares Fixed Income ETFs. Previously, he was Head of U.S. iShares Fixed Income Strategy. He helps to oversee more than a trillion dollars in bond ETFs. Each week,

For more info, see:

Masters in Business

LinkedIn

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Find all of the previous At the Money episodes here, and in the MiB feed on Apple Podcasts, YouTube, Spotify, and Bloomberg. And find the entire musical playlist of all the songs I have used on At the Money on Spotify

TRANSCRIPT:

At the Money: Building a Bond Ladder with ETFs
Steve Laipply, Managing Director, BlackRock; Global Co-Head of iShares Fixed Income ETFs 

BARRY RITHOLTZ: Investors who are looking for yield, especially in an uncertain rate environment, used to need millions of dollars to build out a bond ladder in a separately managed account. It wasn’t easy. There were issues of credit quality, duration, and risk. It made it kind of complex to do. But today, you can create a simple ladder using inexpensive ETFs.

I’m Barry Ritholtz, and on today’s edition of At the Money, we are going to explain how and when to build your own bond ladder.

To help us unpack all of this and what it means for your portfolio, let’s bring in Steve Laipply. He’s Managing Director at BlackRock and Global Co-Head of iShares Fixed Income ETFs. Previously, he was Head of U.S. iShares Fixed Income Strategy. He helps to oversee more than a trillion dollars in bond ETFs.

Let’s start with the basics: What’s the problem that a bond ladder is supposed to solve for investors?

Steve Laipply: This gets to a very popular, longstanding practice that advisors and investors have used for years, which is this idea of: I’m not going to be able to really predict the evolution in interest rates, and so what I’m really interested in is cash flows. I’m interested in trying to line up some certainty with income, and I don’t really want to take a lot of interest rate risk.

A comfortable thing is to create a ladder, which means you buy some amount of bond exposure in every year going out to, say, five years. And if you’re worried that interest rates are rising, you could always just not reinvest and let that ladder roll down, get your par value back at maturity, and then you could take that cash and go elsewhere.

And so that’s always been a comfortable thing — this idea that I’m in control; if rates rise, I don’t have to worry about a perpetual loss from having an open-ended exposure. I can just let the bonds roll down to maturity and I’m done. That’s sort of the idea.

Now, in practice, many, many advisors and investors simply roll over and over again and just keep putting bonds into that last rung. However, it’s this idea that they have control, and I think that is a very attractive thing.

If you contrast that, for example, with a mutual fund or an SMA or an ETF, that may be more of a perpetual, open-ended exposure, and then there’s a sense that, well, maybe I’m less in control of managing that. So the attractiveness of ladders: cash flow, and you have some certainty and control over how it evolves and plays out. And that’s why they’re so popular.

BARRY RITHOLTZ: So let’s delve into that a little bit for people who are not familiar with the ladder. Let’s say we’re building a seven-year ladder: We’re going to have different duration holdings for each of those seven years, because we have no idea what rates will be in year three, in year six, and however far out you want to go. And so if you’re doing a 10-year bond ladder, well, you’re only taking a risk with one-tenth of that portfolio each year. And when it comes up, you get to decide: Do you want to just roll it over to more of the same? Do you want to adjust your credit risk, your duration, even where you’re investing? So you’re always locking something in. If rates go up, you get to reinvest higher. If rates go down, well, the rest of your portfolio is now worth a little more, but you’re going to get a lower yield.

Tell us about the products that exist so that you could either do this in, let’s call it, seven separate holdings, or just one holding with the ladder built in.

Steve Laipply: Yeah, and this is what’s fascinating. There are a couple of things to unpack here. So investors can ladder by going out and buying individual bonds, and that’s what they’ve done for many, many years. The downside of that is that depending on the amount you have to work with, you might end up being fairly concentrated if you start out with a smaller amount of proceeds, because, as you know, bond face value is a thousand dollars, and so you may not be able to build out as many holdings per year as you’d like to be diversified. But the advantage of that is: Okay, I know each individual bond and I can watch it mature, et cetera.

Another approach would be something that we pioneered back in 2010, which is what we call an iBond, which is meant to be sort of like an individual bond exposure that matures in a given year, but it can hold hundreds of bonds within that year.

BARRY RITHOLTZ: So fully diversified, in other words.

Steve Laipply: So you’re diversified tremendously relative to just trying to pick individual bonds for a certain year.

Let’s say you buy a five-year corporate iBond: All those bonds will mature in year five, but you may have upwards of 300 bonds, and so that gives you comfort in terms of the credit risk.

Now, the trade-off with that is that it doesn’t quite look like an individual bond, because you have many bonds, and so your cash flows won’t quite be as fixed or certain as they would be by holding an individual bond. But it’s roughly the same idea. It’s more akin to holding a portfolio of bonds maturing the same year.

BARRY RITHOLTZ: What are some of the other advantages of building a ladder with ETFs? Clearly, diversification is one. What about pricing, execution, and complexity? What are the other advantages?

Steve Laipply: And these are the trade-offs.

You have sort of the standard ETF features and benefits: You have exchange transparency, you know the price, you can sell out of it at any time.

Just to put this into context, imagine if you were holding a five-year ladder of individual bonds, and let’s just say you had the proceeds to build a pretty diversified portfolio for each year. Imagine trying to sell all those bonds if you decided you needed to raise cash. That would be a non-trivial exercise, and it might be quite costly.

With something like an iBond — let’s just say you decided to liquidate the entire ladder — you get the benefit of the ETF liquidity, just as you would in a traditional investment-grade ETF like LQD or what have you. There are varying degrees of liquidity, of course; some things may not trade as liquid as others. But the point is that that’s an ETF feature.

The other part of it is just really understanding what you own, and the ability to trade cheaply relative to individual bonds. ETFs trade for bid-ask spreads of pennies on exchange; individual bonds can be multiples of that. So that’s sort of the final thing — it’s about cost. Of course, ETFs have expense ratios, so you have to do that trade-off, but generally, the math is going to work out in your favor.

BARRY RITHOLTZ: The expense ratio, especially for iShares, is really quite reasonable. But let’s talk about maturity selection. You could build out a ladder almost as far as you want. How should people be thinking about why five years or seven years or 10 years? What goes into that selection process?

Steve Laipply: A couple of things. If you look at the tools — for example, we have tools on iShares.com that allow you to build a ladder — it shows you how to build out to get a certain yield, or if you want a certain duration profile, et cetera. So it really gets down to a couple of things: What sort of overall yield and income profile are you looking for? The other part is, what kind of cash flow profile are you looking for? Is there a particular reason that you want to go out to five years or greater? Do you want to be inside of three years because you may want that cash sooner?

Let’s take a simple example. Let’s just say you have a life event coming up in three years. You want the last cash flows to be coming due in those three years for sure. You can have cash flows coming due past that, but it’s far more comfortable to know that you’re getting that cash back in year three, because at that point you’re going to take a big trip, you may have college tuition due, etc. And so it makes it really easy to think of it in that way: When do I need that cash? Let’s just work backwards from there and build it from there.

BARRY RITHOLTZ: Let’s talk a little bit about the tool you have on your website, the iShares ladder builder with iBonds ETFs. It’s really kind of fascinating. You put in a dollar amount, what type of bonds you want — corporates, Treasuries, TIPS, munis, high yield — and you could go out as far as 2056. That’s amazing — that’s a 30-year bond ladder — and it gives you a whole bunch of different data on this. Are people using this sort of tool to construct their own ETF bond ladders?

Steve Laipply: They are. It’s proven to be a very popular tool. And that’s one of the, I think, interesting and neat things about having these products at your disposal. Again, when you’re building these ladders — let’s just say you build a pretty robust multi-year ladder — you’re effectively buying thousands of bonds, depending on the sector, let’s say corporates. And so that would be very, very hard to do just doing it in individual bond space, and it would be more expensive. And so the tool is something that allows you to visualize that and play with it. You can mix different exposures, et cetera. And so I think that’s something that investors have found to be really, really interesting.

BARRY RITHOLTZ: Let’s talk a little bit about credit quality. I’m old enough to remember when we used to refer to high-yield bonds as junk bonds. If you’re putting together a bond ladder, how do you think about juicing the returns a little bit with some high-yield paper?

Steve Laipply: This gets to, investor preference?

High yield by definition is what it sounds like. However, it comes at a cost, which is you may not get all of that money back, because some of it may default. And so that’s the rub, right?

I think investors are going to do sort of a calculated risk assessment on what they’re willing to tolerate risk-wise. If you put all of your money into a high-yield ladder, the yield will most certainly be higher than investment grade. However, the overall performance may not match that initial yield, because over time, some of those companies may default, and you may not realize exactly the initial yield you did — it’ll be something less. And so that’s just with any high-yield bond, right? I think what makes it attractive in the ETF space is that at least you’re diversified. And so that’s an important point, because if you’re trying to do this in individual bond space, you have a lot more risk to those individual companies than if you did it in ETF space.

BARRY RITHOLTZ: Right. You get to hold so many more individual bonds within the ETF than even a million-dollar portfolio is going to be able to do. One of the things that’s always interesting is when bonds begin to approach maturity, sometimes the trading is a little counterintuitive. What should investors expect in the final year of any particular bond ETF in their ladder? How should they expect this to trade? What happens on maturity?

Steve Laipply: Yeah, and this is, I think, something that investors are very, very interested in, because with an individual bond, it’s pretty easy just to watch, right? You know, okay, it’s one year left, it’s three months left, and then on the final day I’m going to see the thousand dollars hit my account. With a bond ETF, what’s going to happen is not all those bonds mature on the same day or in the same month. So let’s take a full calendar year. You may have some of those bonds start maturing in January. What happens to those? Well, they eventually get reinvested into cash accounts. In some cases they may get reinvested in very, very short corporate paper, as an example. But ultimately, as bonds keep maturing throughout that year, they’re all going to be reinvested in cash. And so by the end, you have cash in the bond ETF portfolio. What’ll then happen is the bond ETF delists, it gets liquidated, and that cash then hits your brokerage account. And that’s basically it.

BARRY RITHOLTZ: So, final bond ladder question: What do you think are the biggest mistakes investors tend to make when they build bond ladders? I see all the time people chase yields, they take a little too much credit risk, they don’t really think about duration — although I guess you don’t have to if it’s a fixed-year ETF — and then the other risk is the money hits as cash and then it just sits in the account too long. What do you see as the biggest problems?

Steve Laipply: I think some of it might be the reaching for yield. Because, again, why are you laddering? What are you trying to accomplish? And so I think the best thing to do is always really sit down, figure out what your goals are, and then work backwards. So as an example, that life event that we were using as an example earlier: Let’s just say you have to have that cash — you’re probably not going to want to do a high-yield ladder, right? You may want to do a Treasury ladder or a TIPS ladder, an inflation-protected ladder. You’re probably not going to want to swing for the fences on that one. The other one would be really just trying to understand the reinvestment part of that. What do you do when you get one of the rungs maturing? Do you go out and put it into a longer rung? Are you going to take that cash and reinvest it in a money market account? That’s investor preference, but it matters for your total return. So that’s going to be up to you. But I really do think working backwards from your financial goals is the best way to build a ladder. And then you can do that across the different asset classes. If you can earn more income, by all means, you might want to tilt more towards more credit-intensive assets. Safety is Treasuries and TIPS. And so I think that’s kind of it.

BARRY RITHOLTZ: So Steve, some people just like to go out and buy the entire Agg, the entire index. What are the differences you see between buying the whole index versus doing a ladder?

Steve Laipply: Well, you know, Barry, this is really interesting, actually, and it’s kind of a math question. But if you look at the behavior of index funds compared to just, say, a very simple ladder — where the investor takes the maturing proceeds and goes back out to the longest rung and reinvests, and they just do that over time, over and over and over again — that does not actually look too different than an index fund. It really doesn’t. And there has been academic research on this, and we can make it complicated, but the bottom line is perpetual laddering is kind of like indexing. And I think that’s sort of fascinating. And so if somebody knows they want to do that, they could also look at an index fund as well. But I always thought that was a really interesting thing if you line them up side by side.

BARRY RITHOLTZ: Huh, that’s really kind of surprising. I would imagine the ladder gives you a little more certainty into what your yield is going to be, whereas with the index, you’re just taking a wild guess.

Steve Laipply: I think both give you some level of certainty. The ladder is about control, right? Because you can decide at any time whether to stop reinvesting, and I think that’s why they’re really popular.

BARRY RITHOLTZ: Hmm, really interesting stuff. So to wrap up: In an uncertain rate environment, investors who have either future financial needs or liabilities that they know can manage around that by using a bond ETF ladder and reinvesting continuously over the cycle of that ladder. I’m Barry Ritholtz. You are listening to Bloomberg’s At the Money.

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

The post At The Money: Building a Bond Ladder with ETFs appeared first on The Big Picture.

Funny story: I was supposed to have Bobby Bonilla on Masters in Business, but it did not come to pass.1

That was a shame, because Bobby Bonilla Day is a fascinating cautionary tale about hubris, fraud, misunderstanding risk, and all sorts of other amusing and fun BeFi issues. I went deep down the rabbit hole on this one, and it led to some astonishing findings.

The basic story goes something like this: In 1999, the NY Mets decided to cut Bonilla loose after the season ended. Rather than pay him the $5.9 million contract balance in a lump sum, they offered a deferred deal of $1,193,248.20 for 25 years beginning July 1, 2011. That is an 8% interest rate, resulting in a total deal value of $29,831,205 over 36 years.

Why would the Mets do this?

Through a combination of misunderstanding risk, overconcentration in a single investment strategy, and not recognizing when promised returns are too good to be true. Getting scammed by the biggest Ponzi scheme in modern history didn’t help either.

These errors led the Mets’ ownership to craft the dumbest deferred deal in MLB history.

Sterling Equities, owned by Fred Wilpon (Chairman) and Saul Katz (President), acquired a partial interest in the New York Mets in 1980; they later became full owners in 2002. Both men had a close relationship with Bernie Madoff, and they (along with numerous friends and family members) were associated with 483 Madoff accounts. The promise: 12% per year, guaranteed.(!)

Instead of simply paying $5.9 million dollars in a lump sum, the strategy was to “invest it with Bernie”; they (wrongly) believed this would generate a return on Bonilla’s buyout of $8,496,000 (12 x $708,000) by 2011 (plus the original capital of $5.9m).

Rolling that $14.4m into the 12% Madoff fund creates a run of $1,727,520 per year; if the Mets pay Bonilla $1,193,248.20, that leaves an annual net of $534,271.80; over 25 years, that adds up to $13,356,795, and an engineered total of $21,852,795.2

From 2011 on, the Mets could pay Bonilla and pocket the difference!

I reverse-engineered the Mets/Bonilla/Madoff numbers as best as I could, and I believe the math looks something like this:

Perhaps it is a coincidence that the arbitrage between the 8% promised to Bonilla and the 12% expected return from Madoff was exactly $5,900,000 (25 X $236,000) — the original contract amount owed to Bonilla. Of course, all of this presumed that Madoff was not a felon siphoning billions from his clients, including Wilpon and the Mets.

Oh, to be a fly on the wall listening to that pitch:

“Not only do we earn $8.5 million before paying a single penny to BB, but the net arb over the life of the deal covers his full $5.9M! It’s free money! And thats not counting the $13.4m it will generate by 2035…”

Only, not so much. The cost of NOT paying the $5.9m payout was –$23,931,205.

The lessons here are obvious:

-Simplicity beats complexity
-Money has a time value
-If it looks too good to be true, it probably is.

Also, don’t do business with conmen…

__________

1. There was some confusion with Neuberger, which has Bonilla as a spokesperson of sorts for their annuities (a ridiculous demand by them, actually), about a co-branding sponsorship that violated all sorts of Bloomberg rules, so they unfortunately pulled out of the recording.

2. These are simple annual returns; I didn’t bother compounding any of these fictitious gains…

The post Reverse Engineering the Met’s Bobby Bonilla Deal appeared first on The Big Picture.

In this guest post, Rich Chen, founder of Brightstar Law Group, explores the practical due diligence considerations that advisors must navigate when considering a private fund investment, with a particular focus on what to look for in governing documents and the operational systems of the private fund.

The starting point in due diligence is to recognize that what is stated in legal governing documents can differ quite significantly from a private fund's marketing materials, as the latter is written to attract investors to the fund by focusing on the opportunities, while the former is written to minimize the risks for the fund sponsor (and thus more clearly articulates the rights of investors who put dollars into the fund). Accordingly, a detailed review of governing documents can highlight conflicts of interest (e.g., between the fund sponsor and affiliated parties), reveal  restrictions on an investor's ability to exit the fund investment (which can often be significant), identify red-flags regarding indemnification provisions, and detail how expenses will be allocated between investors and fund management. In addition, due diligence of governing documents provides an opportunity to ask about “side letters” to determine if other investors might have preferential or different rights or return opportunities.

Beyond due diligence of legal documents, it's also important to evaluate a private fund's operational systems, and how effectively they are built to protect investors. For instance, does the private fund segregate key functions, ensure dual authorizations for disbursements, use an outside custodian or separate accounting firm, and conduct annual audits? These measures can significantly mitigate risks of fraud or misappropriation by the manager or its personnel. Similarly, advisors can inquire about the firm's cybersecurity and client data protections, engage in background checks of the fund sponsor's history (to ensure no prior legal issues or enforcement actions!), and determine how the firm values its assets (especially in cases where it calculates carried interest or other management fees based on those valuations).

Ultimately, Chen provides a due diligence checklist to help support the process, though notably it's not enough to just 'mechanically' complete a checklist; instead, the SEC expects to see advisors showing contemporaneous documentation that they were thoughtful in their questions and evaluation of the answers provided, to demonstrate robustness of the process itself – for  which advisors may even wish to engage outside providers to support in due diligence (especially if their internal resources are limited). The growth of companies in the private markets represents a significant opportunity for clients to invest, but those who are accustomed to the natural protections the SEC has built into public markets need to be cognizant that there are unique risks of private equity and debt funds that, at the least, require a substantive proactive due diligence process from financial advisors (with the SEC increasingly applying enforcement actions against advisory firms that “just” relied on the marketing materials and representations of the private fund sponsor alone).

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The transcript from this week’s MiB: Carl Richards on Sketching Wealth Strategy, is below.

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Carl Richards on the Behavior Gap
A conversation with Barry Ritholtz

Guest: Carl Richards, author of Your Money: Reimagining Wealth in 101 Simple Sketches

[00:00]  BARRY RITHOLTZ: This week on the podcast, old friend Carl Richards joins me to talk about his new book, Your Money: Reimagining Wealth in 101 Simple Sketches. If the name sounds familiar, he created the Sketch Guy column in the New York Times — it ran there for a decade. He’s probably done more than anyone to expand usage of the phrase “the behavior gap,” the difference between people’s portfolios and what the results actually are. I thought our conversation was charming, and I think you will too. With no further ado, here’s me and Carl Richards talking about money. Carl, welcome to Bloomberg.

[00:00]  CARL RICHARDS: So fun. I’ve been looking forward to this for years.

[00:01]  BARRY RITHOLTZ: Same — long overdue. We’ve had you on At the Money, but we haven’t had you for the long sit-down. Let’s start out talking about your background. University of Utah School of Business, bachelor of science in finance. That implies finance, investing, money. Was that the original career plan?

[00:01]  CARL RICHARDS: No, not even close, really. I was an undeclared major, which back then meant you had no idea what you wanted to do with your life. I was the newest hire at a landscaping company, so I was literally digging ditches for a living. I come home one day — my wife and I had recently been married, this was ’95 — and she has the help-wanted ads open. She’s got a degree in finance, a job as the CFO of a small real estate company. So I said, “Hey Corey” — her name’s Corey — “what are you doing?” She said, “I’m looking for a job.” I said, “But you have one.” And she said, “I know, I’m looking for you.” I said, “What are you finding?” And she found what we both thought was a security guard job.

[00:02]  BARRY RITHOLTZ: At a little shop called Fidelity.

[00:02]  CARL RICHARDS: A security guard. I was like, I could work as a mall cop at night — this would be great, and I can still go to school full time. I went to apply. Nothing about kung fu, nothing about self-defense. They were asking about things I didn’t know what they were —

[00:02]  BARRY RITHOLTZ: Securities.

[00:02]  CARL RICHARDS: Exactly. I didn’t know the difference. And I got through —

[00:02]  BARRY RITHOLTZ: I was gonna call BS on this, because — wait, how are you a finance major? But that happened afterwards.

[00:02]  CARL RICHARDS: That’s exactly right. So I get through the interview, which tells you a lot about the applicant pool. They had narrowed it down to slim —

[00:02]  BARRY RITHOLTZ: To none.

[00:02]  CARL RICHARDS: Two of us. And they offered it to the other guy, and the other guy said, “I don’t want it, you take it.” So that’s how I ended up at Fidelity’s national call center, just before the Netscape IPO.

[00:02]  BARRY RITHOLTZ: That’s unbelievable. I started on a trading desk and I was told, “Hey, rookie — no trading the Netscape IPO.” So you and I started just about around the same time.

[00:03]  CARL RICHARDS: You know what was crazy about that? After I got clear that I wasn’t a security guard, I was like, what’s this job? I was looking around, and everybody was using calculators and math, and I thought, okay, this must be a math job. And then a couple weeks into training, they called us out onto the trading floor to answer phones — because back then you couldn’t get a quote, you couldn’t place a trade, unless you called. And it was the day of the Netscape IPO. And I remember thinking, this isn’t math. That was my first introduction to this idea. I like to say I got in by accident, but I stayed because of that moment — like, what is this crazy thing that we call money? Nobody was doing math in there. They were excited, mad, angry, upset. I always thought it was a mistake getting into finance. I always thought I would go off and do organizational behavior — the Stephen Covey thing at BYU. Because work is where people go to do things that matter. And then some of these early experiences opened the door to this idea: money is the ultimate portal to somebody’s soul. What do you really care about? I can find out pretty quickly by how you spend your money and how you spend your time. So that’s how I stayed. And afterwards I thought, maybe I should get a degree in this.

[00:04]  BARRY RITHOLTZ: So then you switch, you get your degree in finance from the David Eccles School of Business. When do you go for the CFP, when do you become a certified financial planner?

[00:04]  CARL RICHARDS: I was looking at that the other day. All I remember is I got made fun of for taking it — remember, back in the day? I left Fidelity and went to work for a big brokerage firm — you know, the one with the bull, owned by a bank. I got my CIMA designation, because that’s what the cool kids did, the institutional consulting stuff. I thought, I gotta figure this thing out, this whole money thing. And then I started to get my CFP. This was back when people on that side of the business were like, “What are you wasting your time on that for?”

[00:05]  BARRY RITHOLTZ: This whole fiduciary thing. I mean, really —

[00:05]  CARL RICHARDS: It’s great. Seriously.

[00:05]  BARRY RITHOLTZ: “Waste of time. What are you gonna do, not charge people commission? What are you thinking, Carl?”

[00:05]  CARL RICHARDS: That’s right. So fun.

[00:05]  BARRY RITHOLTZ: So what I find fascinating about your career — and I’m now learning all the parallels between our careers — is you kind of reinvent yourself as a communicator, as an author, as a speaker. Is that something that helped you when you set up your own investment firm? Which came first, the chicken or the egg?

[00:05]  CARL RICHARDS: I can remember who was in the room and where I was when I first sketched something out. I wasn’t a doodler in school. It’s obvious I didn’t take any art classes.

[00:05]  BARRY RITHOLTZ: I don’t know if I’d say it’s obvious, because these are really kind of interesting. Charles Schulz very famously drew Peanuts and said he didn’t have skill.

[00:06]  CARL RICHARDS: That’s a super generous comparison. Thank you.

[00:06]  BARRY RITHOLTZ: Oh, I’m not making that comparison — I’m just saying someone else said something similar.

[00:06]  CARL RICHARDS: Somebody else said something similar. Good. But I just remember sitting across the table from some really smart clients — he was an ER doctor, she was a technology sales rep at EMC or something. I was trying to explain a concept, and I was just getting blank stares. You know the feeling. That had happened before, but this was the first time it dawned on me: wait, they’re really smart — this must be my problem. So out of an act of desperation, in the shared conference room there was a whiteboard nobody used. I stood up one day and was like, “No, like this,” and drew some boxes and arrows, like an estate planner would. And they were like, “Oh, oh.” At that moment I didn’t make a grand conclusion. I just remember thinking, huh, that was really interesting. So that started this idea: anytime I got asked a question more than once — the second time I got asked it — I thought, what if I just wrote down the answer and sent it to everybody who asked? And, I don’t know if you remember, but there were these things called blogs back in the day.

[00:07]  BARRY RITHOLTZ: Not only do I remember —

[00:07]  CARL RICHARDS: You were one of the OGs.

[00:07]  BARRY RITHOLTZ: I still am doing it. I have no interest in BeeHiiv or Substack. I learned early on, I don’t want to give my content to another company. I want to control it.

[00:07]  CARL RICHARDS: So I started putting those things up on the internet — an answer to a question, with some sort of diagram. And, by the way, the hand-drawn sketches were a flaw at the beginning. I went to download Adobe Illustrator, and the download said three hours. And I thought, anything that takes three hours to download, I should not be using.

[00:07]  BARRY RITHOLTZ: Illustrator would ruin this. The whole beauty of your sketches — and I know most of you are listening to this and not watching me thumb through a book — is just how simple and informative they are, with just a few lines, a few circles, a few wiggles. It’s not a giant org chart. It’s, “Oh, he did that in 90 seconds, and look how much information is in it.”

[00:08]  CARL RICHARDS: Well, thank you. But early on it was like — I was only doing that because I couldn’t download Adobe Illustrator. I saw it as a flaw. So every couple of years, early on, I’d get them designed by somebody and post those, and people would be like, “Where are the hand-drawn ones?” So I finally learned — and I’m only telling you these stories because it’s so tempting for us to look back and create these beautiful narratives of the experience. But it turns out there was just a lot of random experimentation and playing, because the thing I thought was a flaw ended up being the feature.

[00:08]  BARRY RITHOLTZ: Huh. That’s really interesting. I’m surprised you think of it as a flaw.

[00:08]  CARL RICHARDS: Not anymore.

[00:08]  BARRY RITHOLTZ: But how long did it take you to get to that point? To me, the beauty of your drawings is, first of all, it’s obviously not AI slop — you predate AI by 20 years. But more importantly, they look and feel human and personal. Someone has really put time into figuring out how to communicate a complicated idea in the least amount of letters, words, and images. So at what point did you think, hey, I could do something with these drawings — maybe publish them in the New York Times every week?

[00:09]  CARL RICHARDS: Never. What happened was, I was putting these up on the website. I tried to stop.

[00:09]  BARRY RITHOLTZ: I love that.

[00:09]  CARL RICHARDS: It was like a compulsion.

[00:09]  BARRY RITHOLTZ: Can’t help it.

[00:09]  CARL RICHARDS: I even had people around me who were like, “Just focus on building your business. What are you doing?” And they were right. But I kept putting it up there. And there’s a guy named Kent, who I did not know, who sent them to a guy named Ron — Ron Lieber — who I did not know at the time.

[00:10]  BARRY RITHOLTZ: I know of Ron Lieber.

[00:10]  CARL RICHARDS: Kent didn’t know Ron. And Ron just sent a note: “Hey, I think you might like these.” I still have that email, because nobody believes me. The email was, “Hey, we love these. Could we try something?” And I knew enough from my security-guard background, as a kid in the hills of Utah, to say — I never thought, I was like, “Yeah, of course, what do you have in mind?” I’ve talked to Ron since: “Why did you open that email?” Because he gets stacks of things he’d love to reply to and read — that’s the kind of human he is — but he just doesn’t have time. So why did he open that one that day? I don’t know. I should still be sending Kent a gift every Christmas. I never thought maybe this could appear in the Times.

[00:10]  BARRY RITHOLTZ: So from the late nineties — when do you launch the firm that you ultimately build up and sell in 2012?

[00:11]  CARL RICHARDS: I’m really, really bad with dates, but we were in —

[00:11]  BARRY RITHOLTZ: Early two-thousands.

[00:11]  CARL RICHARDS: No, 2008 or ’09.

[00:11]  BARRY RITHOLTZ: After the financial crisis. So four years you build this up. Why sell it? You just like, “Hey, I’m gonna focus on the security-guard business”?

[00:11]  CARL RICHARDS: The first thing I should tell you is why I left and started my own firm. The impetus was two things.

[00:11]  BARRY RITHOLTZ: This is at Fidelity?

[00:11]  CARL RICHARDS: Fidelity? No, I was now working at the big brokerage firm, and I left to start my own RIA firm. I remember that cover — I can’t remember if it was Fortune or Forbes — it had Rex and David at DFA, and it said “How the Really Smart Money Invests.” I had that in the top drawer of my desk. Every time I opened the drawer — because I still had this “I’m just a kid from the hills of Utah” imposter-syndrome thing, like I’m supposed to be in jail — and I’m helping people make really important decisions with money. I needed to figure out: am I a security guard? Is this math? So this idea of how the really smart money invests — I called and said, “How do I get access to this?” They said, “Well, you can’t do it where you’re at.” So I left for that reason. And then the second reason ended up being one of the greatest disappointments in my career. I left because I thought it was really important to be able to tell everybody that I was a fiduciary, and that everybody would care. And one of the greatest disappointments was that nobody seemed to care. Of course you and I both know it’s incredibly important, but most people don’t. I just remember people looking at me like, “Fiduciary, what? Of course you put my interest first.” So that’s why I left to start the firm.

[00:12]  BARRY RITHOLTZ: That’s fascinating. So you sell it in 2012. When did the Sketch Guy columns for the New York Times start? Before that?

[00:12]  CARL RICHARDS: Way before I sold the firm. Part of the reason I sold —

[00:12]  BARRY RITHOLTZ: You sold the firm to concentrate on your doodles.

[00:13]  CARL RICHARDS: That’s right. The book came out in 2012, and I sold the firm about the same time. And I remember specifically having this conversation with my wife. I was like, “Oh, we’ll never sell the thing.” I always thought of it as a security blanket, like I’d never sell it.

[00:13]  BARRY RITHOLTZ: It’s an annuity. It generates income every year, and typically you have a 10% year that you’re up, just due to the market.

[00:13]  CARL RICHARDS: It’s such a great business.

[00:13]  BARRY RITHOLTZ: It is a good business. And especially if you’re a fiduciary and doing the right thing by your client, you not only make a decent living, you get to sleep at night.

[00:13]  CARL RICHARDS: That’s exactly right, all the things. So I never thought I’d sell it. But there was this increasing demand — the book was coming out, I was getting asked to speak all over the world. It was clear that I really, really liked that stuff. I had to make a choice. And in the end I was like, “This is security.” My wife said, “Hey, maybe it’s an anchor.”

[00:13]  BARRY RITHOLTZ: You guys speak the same love language — it’s kind of fascinating. That’s a very insightful observation from your wife. She’s the one who tried to get you a hat and a shield and have you parade around the mall like Paul Blart. You guys are very much on the same page.

[00:14]  CARL RICHARDS: I know. She’s been amazing — 31 years, 33 really, amazing. And it’s the best it’s ever been, and I hope it’s better tomorrow. One of those two competing truths at the same time. I could have never dreamed of it, and I want it a little better tomorrow. I hope I never stop thinking that way. Anyway — I left, sold the firm, went full-time into this speaking and writing thing. For a little while I was at the firm that bought my company.

[00:14]  BARRY RITHOLTZ: Another nameless firm.

[00:14]  CARL RICHARDS: That was Buckingham, back then.

[00:14]  BARRY RITHOLTZ: Oh, okay. I kind of remember that.

[00:14]  CARL RICHARDS: Went to work for them in those days and loved it.

[00:14]  BARRY RITHOLTZ: Who else did you work with there? There were some people I really liked.

[00:14]  CARL RICHARDS: Larry Swedroe — tremendous. That whole crew. Adam, the whole crew there. It was really, really good.

[00:14]  BARRY RITHOLTZ: So we’re gonna spend a little time talking about behavior. But you came from several big shops — Fidelity, Merrill, as well as Buckingham. They all have PhDs and Monte Carlo simulations, and they run factor-model tests. And yet people still buy high and sell low. What is it about the human condition that is a permanent drag on performance?

[00:15]  CARL RICHARDS: That feels to me like the question I’ve been exploring for 20 years.

[00:15]  BARRY RITHOLTZ: That’s why I asked it.

[00:15]  CARL RICHARDS: I almost left the business at first, because I couldn’t solve this problem. After I got my CIMA designation and came back —

[00:15]  BARRY RITHOLTZ: Explain for laypeople what that acronym is.

[00:15]  CARL RICHARDS: The Certified Investment Management Analyst. It was for people doing institutional consulting work.

[00:15]  BARRY RITHOLTZ: So not a CFA, but more than a CFP.

[00:15]  CARL RICHARDS: Yeah — sort of like CFA light, that can talk to people. Back then it was taught in conjunction with Wharton, so I went to Wharton for two weeks. That was the whole reason — I’m always looking for external validation.

[00:16]  BARRY RITHOLTZ: Goes hand in hand with the imposter syndrome.

[00:16]  CARL RICHARDS: That’s exactly right, and I’m not afraid to admit it. But I came back working with clients and realized: okay, now I’ve got this great system, the best training in the world — honestly, some of the best training at the firm. And yet I still had this repeated experience where we’d create really detailed spreadsheets of how to hire and fire managers. And then, over and over, the manager that showed up on our buy screen — we’d commit clients’ money to it; I thought that was our job, the search for the best investment — would go through a normal cyclical period of underperformance and show up on our fire screen. I repeated that two or three times over a three- or four-year period and thought, I don’t know what’s going on. Maybe it’s just me. And then I ran across some of that industry research around investor returns versus investment returns, where you see that the average investor underperforms the average investment.

[00:17]  BARRY RITHOLTZ: Not only does the average investor underperform the average investment — the average investor underperforms their own investments.

[00:17]  CARL RICHARDS: I just remember being so excited that it wasn’t just me. Wait — this is an industry-wide, huge problem. What that research said to me was that I could own a mediocre investment, and if I behaved correctly, I would outperform 99% of my neighbors. And that’s all we care about in the first place, right? Outperforming our neighbors. That’s the whole goal.

[00:17]  BARRY RITHOLTZ: “How is that idiot down the block getting rich, and I’m not?”

[00:18]  CARL RICHARDS: Exactly — as if that’s the thing that matters. But that’s what we do.

[00:18]  BARRY RITHOLTZ: That’s how people work.

[00:18]  CARL RICHARDS: Exactly right. So digging into that a bit — I really think Buffett’s statement, that if you were to design a poor investor you would design a human, is as close as we get. We are hardwired. I think it was in one of Jason Zweig’s books where they hooked up scanners and had people open their brokerage statements — talk about a masochistic experiment. And if the statement was down, you process that in the same part of your brain as you do mortal danger — as if you’re being chased by a bear.

[00:18]  BARRY RITHOLTZ: Breaking through the room — fight or flight, right there. My favorite Bill Bernstein quote is, “It’s all about your amygdala. If you don’t get your limbic system under control, you will die poor.” And it’s that exact same system.

[00:18]  CARL RICHARDS: That’s right. And if the statement’s up, it’s the same part of your brain as security and pleasure. I think it was in the book that for women that’s chocolate and for men that’s sex. I didn’t quite understand the difference in the book, but —

[00:19]  BARRY RITHOLTZ: Between sex and chocolate.

[00:19]  CARL RICHARDS: Anyway. So if that’s what’s going on, it’s a little bit like the interaction we have with our phones now. On the other side of that interaction are 300 PhDs trying to get us to pay attention to what’s going on on Instagram. And I think we finally have to recognize: unless we put some serious guardrails between us and the big mistake, we’re gonna make the big mistake — because it feels like… I don’t care what you tell me, Barry; if my hand’s on a stove, I’m taking it off.

[00:19]  BARRY RITHOLTZ: A hundred percent.

[00:19]  CARL RICHARDS: So that, to me, is the work — worrying about what it means to be a real investor, a successful investor, versus what it means to find good investments.

[00:19]  BARRY RITHOLTZ: Let’s talk a little bit about the behavior gap. I don’t know if you created that phrase, but you’ve done more than anybody else I know to popularize it. Tell us what the behavior gap actually is.

[00:20]  CARL RICHARDS: It started out as a very narrow thing — the difference between, the technical term would be, time-weighted rates of return and dollar-weighted. Because I’ve had to explain this so many times, maybe I’ll go through the explanation. Imagine you open a newspaper and there’s an ad for a mutual fund. It says the fund has returned 10% a year for the last 10 years. That’s the investment return. And just for a minute, forget taxes and fees — that’s the return you would’ve gotten if you had invested money at the beginning of the 10-year period and not added or taken anything away and left it there. But nobody invests that way, except your clients. We are always chasing whatever we hear in the news — the financial pornography network waves their hands, and we’ve got a list of 10 funds to buy. So we end up running around, and the average investment return is 10%, but the average investor return is always different from that.

[00:21]  BARRY RITHOLTZ: Who does the annual report that everybody criticizes — that shows this differential?

[00:21]  CARL RICHARDS: That was one of the early reports I ran across — Dalbar. I spent the time years ago to understand it; I don’t really know that number well. I know Morningstar does a number, and it seems to be comparable — 80 to 100 basis points, not 6%.

[00:21]  BARRY RITHOLTZ: And then what about the SPIVA numbers on manager performance?

[00:21]  CARL RICHARDS: For sure.

[00:21]  BARRY RITHOLTZ: So you’re running across these behavioral errors on pretty much both sides — the manager who’s running their funds and frequently underperforming. And the longer that timeline is, the greater the percentage of managers underperforming. And on the other side, the buyers of those funds tend to not only underperform the benchmark, they’re underperforming their own funds. So if only there were an alternative way to invest.

[00:22]  CARL RICHARDS: Let me tell you a quick story. This is back during my institutional consulting days. We had this client; we do a manager search and selection, and we find the best large-cap value manager for this client and hire them. As I recall, it was Davis New York Venture, back in the day.

[00:22]  BARRY RITHOLTZ: Chris Davis. Yep.

[00:22]  CARL RICHARDS: We go two or three years. Davis has one of those cyclical underperforming moments — value, as it’s going to do.

[00:22]  BARRY RITHOLTZ: Value especially, which runs in and out of favor so frequently.

[00:22]  CARL RICHARDS: And it was even in comparison to other value managers, as they’re gonna do. So we fire Davis, not knowing any better, and we hire another — we’ll just call them X, Y, Z. And the client’s like, “Yeah, I understand.” Two and a half years in, we make this change. We go to X, Y, Z. Two and a half, three years later, X, Y, Z does the same thing — cyclical underperformance. We go through our manager screening, they’re up on our fire list, and guess who pops onto our buy list? Chris Davis.

[00:23]  BARRY RITHOLTZ: Chris Davis.

[00:23]  CARL RICHARDS: I call the client thinking I’m so smart: “Hey, we need to fire X, Y, Z and hire this manager — it’s called Davis.” And he — this client’s name was Jeremy — was like, “Wait, wait, wait. Didn’t we just fire them two and a half years ago?” And I said, “Yeah.” And he said, “You know what I’d like? I’d like the return of Davis from the day we first hired them until now, and I’d like the return of X, Y, Z from the day you first hired Davis until now. And I’d like that compared to my account.” I was, of course, like, “That’s not how it works.” He said, “Yeah, that’s what I’d like to see.” And we all know the story — he underperformed both of those. He would’ve been fine in either one.

[00:23]  BARRY RITHOLTZ: Just leave it alone.

[00:23]  CARL RICHARDS: Just leave it. And that was my first moment of, “I gotta get out of this business, I gotta go to law school or something.” And that’s when I discovered, for myself, this idea that maybe the investment process only matters to the degree that I can behave.

[00:24]  BARRY RITHOLTZ: So let’s talk about what you call the financial pornography networks. They talk all day long about the 10-year yield and the Fed and credit spreads and geopolitics and earnings and news. And you spend most of your books talking about fear, regret, envy — what moves markets and, more importantly, what moves investors’ portfolios.

[00:24]  CARL RICHARDS: That’s such a good question. And I want to be careful about the term “financial pornography network.” I think that was originally the Jane Bryant Quinn term.

[00:24]  BARRY RITHOLTZ: That’s right. Which I love.

[00:24]  CARL RICHARDS: Which I love. But I think it applies really broadly.

[00:25]  BARRY RITHOLTZ: I call it the fire hose of financial noise. Is that a fair phrase?

[00:25]  CARL RICHARDS: Yeah, that’s fine. Sometimes “media circus.” It’s a media business, and there’s nothing — I want to be clear — I live in the hills in Utah, I ride my mountain bike every day, the trails are out my backyard. I have a different hobby. Just because that’s my hobby doesn’t mean my hobbies are better than anybody else’s. I walk in this building and I see happy human after happy human walking through the halls — shiny happy people everywhere. Who am I, on three cappuccinos, to say? But what’s important is if we start to recognize what we’re doing it for. What’s the goal? Because if it’s something to talk about, there’s nothing wrong with that. If it’s entertainment, there’s nothing wrong with that. But basing your actual investment decisions on something you heard — even if it was secret, underneath the subway, and labeled… isn’t the Economist the one all the really smart people read anyway? You’re not the only one who’s heard it. So we have to be careful about making big investment decisions based on every wind of news or entertainment, versus linking — and this is back to how do we solve this behavior problem — the portfolio has to be designed to give me the greatest likelihood of reaching my goals. And my goals have to be carefully clarified, and they’re gonna change over time. So it’s this constant process of saying, are these investment decisions aligned with what I want out of my life? Both sides of that equation are really challenging. Getting clear about what you want out of your life is super hard. Making sure you have a portfolio built on data and evidence that’ll get you closest to that — also really hard.

[00:26]  BARRY RITHOLTZ: So let’s break that into two pieces, because I feel like there are two distinct conversations. We’ll get to the goal portion in a moment; I want to stay with the media circus. Isn’t there really a very simple problem — the mismatch in time horizons? When you’re putting money away to save for retirement, or even a 529 for college, or to buy a house or a second house, you’re thinking 5, 10, 50 years. But all of the financial noise, that fire hose, is about the church of what’s happening right now. If we can simply readjust our media consumption into some context with the longevity of our portfolio goals, doesn’t that solve a lot of this? If I’m putting this money away for 20, 30 years, what do I care what happened on a random Thursday?

[00:27]  CARL RICHARDS: And gosh — what if we actually kept track of every single change of opinion, and how sure somebody was? Remember that old statement that even a broken clock is right twice a day?

[00:28]  BARRY RITHOLTZ: Often wrong, never in doubt. That’s exactly it.

[00:28]  CARL RICHARDS: And that’s entertaining — and there’s nothing wrong with entertainment. We go to the movies, we go see plays, we ride our mountain bikes. I just think we have to understand what it is. What you’re saying is, that’s day-to-day entertainment. I like it because I can talk about it. Just don’t base my 5-, 10-, 20-year decisions on it.

[00:28]  BARRY RITHOLTZ: And yet we continue to see people have that problem. So let me re-ask this question in a different way. How do you bridge the gap between what clients ask for — what they think they want — and what you know they actually need?

[00:28]  CARL RICHARDS: Barry, you’re super good at this whole job.

[00:29]  BARRY RITHOLTZ: It’s all AI. It’s all I didn’t write.

[00:29]  CARL RICHARDS: Now you’ve layered in another problem, because the humans we call clients show up having been trained by us as an industry — speaking really broadly — that what matters is this day-to-day stuff. They think the job of an investor is to find the best investment, because we taught them that on television, waving our hands. So it’s no surprise that clients come in expecting that — we did this to ourselves. And that’s why I think clients who work with real financial advisors often go through a period of financial-pornography detox, where they wake up 18, 24 months into the relationship and go, “Hey, you know what? I’m not really paying that much attention anymore. All the stuff I used to think was critical has lost its urgency.” So we’ve got this problem where — back to the wiring in our bodies — it feels like we should be doing something. The news is saying we should be doing something. The guy at the club is saying we should be doing something. And I call Barry, and Barry says, “Hey, let’s hold on for a second. Let’s take a breath. Are these goals still the goals? Is this still what’s important to you?” Turns out, if that’s true, we’re okay here. And almost always we end up at the same place: diversified, low-cost portfolio, hold onto it for a long time.

[00:30]  BARRY RITHOLTZ: There’s this inherent bias toward action, which is the nature of that fight-or-flight response.

[00:30]  CARL RICHARDS: One or the other. Act.

[00:30]  BARRY RITHOLTZ: “Don’t just sit there, do something.” And really the right way to do it is, “Don’t just do something, sit there.” But that causes a great deal of discomfort among people. Let’s take this to the next phase. Jack Bogle and Vanguard gave us low cost. Everything we’ve learned from Richard Thaler and the behavioral finance folks is about the importance of humility. What does the next generation of investors learn once they figure out diversified, low cost, and a little bit of humility? Where do you go next?

[00:31]  CARL RICHARDS: You know what’s so hard about that? This “everyone’s a gambler” thing that’s sort of slipped in —

[00:31]  BARRY RITHOLTZ: Actually, today.

[00:31]  CARL RICHARDS: It’s slipped in. I don’t envy growing up as a 25-, 30-year-old trying to sort this out right now, because it just feels like everything’s a bet.

[00:31]  BARRY RITHOLTZ: And it is.

[00:31]  CARL RICHARDS: And it is. To me — I’m careful with advice, but the observation I’ve noticed most frequently is that when I’m younger, if I can focus on human capital and then realize that the money over here does the job of compounding, my main job should be to earn a bit more. Raising my human capital — my ability to earn and save when I’m young — will far outstrip getting an extra 25 basis points by paying attention to some newsletter on the internet.

[00:32]  BARRY RITHOLTZ: It’s funny you mention gambling being everywhere. We were talking before the podcast about Nine-Fingered Howie. He wrote a post and created an index called the Degeneracy Index, where he puts in all the various prediction markets and gambling apps — and it’s been outperforming the Nasdaq, which has been on fire, like two to one. And it’s a kind of warning.

[00:32]  CARL RICHARDS: What do we do with that?

[00:32]  BARRY RITHOLTZ: It’s a warning. I understand the Supreme Court decision that says gambling can’t just be legal in one state — but maybe the decision isn’t to make it legal everywhere. Maybe the decision is to say an entire industry based on human foibles, cognitive errors, and innumeracy is kind of an evil industry.

[00:32]  CARL RICHARDS: I know. We’re the problem; we need to realize that we’re just not wired for it. It’s not that we’re dumb, it’s not that we’re bad. We can have any discussion we want about the morality of the whole thing, but underneath it all sits this idea that we’re not wired to handle it. And another piece that’s interesting right now: I don’t think we’re really wired to handle the level of uncertainty that we’re dealing with — the sort of change fatigue.

[00:33]  BARRY RITHOLTZ: And it seems like a lot of what Wall Street sells is this illusion of certainty.

[00:33]  CARL RICHARDS: This false sense of precision. Certainty is so easy to sell — it’s impossible to deliver, but it’s super easy to sell because everybody wants to buy it. So I think those are the two: human capital, and learning how to come to grips with the reality that the world is uncertain.

[00:33]  BARRY RITHOLTZ: So the quote of yours that always stays with me is, “Money is less about math and more about emotion.” That was your insight watching the Netscape IPO. Why is that so challenging for this industry, for finance, to accept?

[00:34]  CARL RICHARDS: It seems to me — and I’ve been in a lot of the rooms where this discussion takes place — that we have a deep sense of physics envy.

[00:34]  BARRY RITHOLTZ: For sure.

[00:34]  CARL RICHARDS: We just want the law of gravity for money. And when we understand that the systems that handle money — markets, economies, politics, and then humans — are a mix of complex adaptive systems… they’re not simple, and they’re not even complicated. They’re complex, adaptive, almost chaotic. And when you understand a complex adaptive system, you start to understand that even with the benefit of hindsight — you see this all the time — we look back and say, “Here are the seven steps.” It turns out that only works for that period of time. You replicate those seven steps and it doesn’t work again.

[00:35]  BARRY RITHOLTZ: All models assume the future looks like the past, and very often the future looks nothing like the past.

[00:35]  CARL RICHARDS: Exactly. “All models are wrong; let’s make ours useful” is much more helpful. This idea of saying, okay, if that’s the reality I live in, then how do I navigate a complex adaptive system? And that gets us to the point where it’s more about — the problem is you, the problem is me, the problem is us. So I think that’s why it’s so hard. We have to say, “Oh man, we don’t know exactly what we’re dealing with here.” It’s so cute after a big crisis to see all the people who have very specific plans about how to avoid that exact same thing. We’re still taking our shoes off in airports.

[00:35]  BARRY RITHOLTZ: You don’t have TSA Pre yet?

[00:35]  CARL RICHARDS: Yeah, I do. I haven’t taken my shoes off in a while.

[00:35]  BARRY RITHOLTZ: I’m gonna share one of my favorite random data points — I don’t know if this made it into the last book. Earthquake insurance sales go up tremendously right after an earthquake. And if you think about how the plate tectonics work — these two pieces sliding — the odds of an earthquake happening after that 10, 20, 30 years of pressure is released plummet immediately. The worst time to buy earthquake insurance is right after the earthquake. The best time is, “Hey, this is an earthquake zone and we haven’t had one in 20, 25 years — now’s the time.” I remember getting offered structured notes with downside protection in, like, October ’02, and I’m like, “Why do I need this? The Nasdaq is down 83%. Where were you in late ’99 when this might have been useful?” Down 83%, I’m a buyer — I want all the upside. Why would I give any of it away? I had that conversation in a room full of the salespeople pitching this, and got called into the chairman’s office: “What are you doing? We’re trying to set up a relationship with these people.” I’m like, “This is crap. Nobody should own this product. I know you want a relationship — tell them not to bring us junk that we don’t need.” I like dessert as much as the next guy —

[00:37]  CARL RICHARDS: This is what I came for, right here.

[00:37]  BARRY RITHOLTZ: I remember several times getting called in as the market strategist — called into the vice chair, who was general counsel, or the chair. By the way, the firm was Lehman Brothers. So not only was I right over and over, but the counterparty risk was such that you would’ve gotten nothing anyway.

[00:37]  CARL RICHARDS: And we will go to the lengths we’ll go to make up stories about that after the fact. Do you remember — I’m gonna deeply paraphrase, and I’m sure I’m ruining the story — but after Long-Term Capital Management went under in ’98, there was some quote where one of those PhD Nobel Prize winners said, “Our models weren’t wrong; reality just refused to conform to them.”

[00:38]  BARRY RITHOLTZ: I don’t remember who it was, but — When Genius Failed, that quote is somewhere in that book.

[00:38]  CARL RICHARDS: Exactly right. And I only point that out to say that I will certainly go to great lengths to make up a cute story that protects me from dealing with uncertainty — because our nervous system takes uncertainty as a threat. And it turns out we are in a period of uncertainty, and I don’t think we’re going back, to be honest.

[00:38]  BARRY RITHOLTZ: Let me — this is supposed to be about you, the guest — but you pushed my buttons. Whenever I hear people saying “markets hate uncertainty,” my knee-jerk response is always, “Markets thrive on uncertainty — it’s the whole point.” The only time there’s certainty is when everybody’s on the same side of the boat. In late ’99, everybody was certain trees grew to the sky. And in March ’09, everybody was certain markets were going to zero — except for the handful of people who stepped up and bought. The future is inherently unknown and unknowable. When people say things are uncertain, I always feel like what they’re saying is, “Normally I could lie to myself enough that I could BS you people that I have some idea what’s gonna happen — but goddamn, whatever’s going on is so crazy I can’t maintain that fiction anymore, so I default to uncertainty.” In reality, most of the time everything is inherently uncertain.

[00:39]  CARL RICHARDS: Can I — real quickly, I’m super interested in what you think about this. I feel like you and I came up in the financial planning industry, the financial advice industry, which really grew up during a period that was an aberration. For a certain group of people, there was a predictable path of progress.

[00:39]  BARRY RITHOLTZ: Give me some years.

[00:40]  CARL RICHARDS: I’m seeing postwar. My grandpa got a degree, could afford a first-time home on one salary, stayed there for 30 years, retired with a pension. There was this window —

[00:40]  BARRY RITHOLTZ: That was the aberration. The entire postwar period is the aberration.

[00:40]  CARL RICHARDS: Right — like the Roaring Twenties, the uber-rich and the rest of us. Things weren’t like that before, and they aren’t like that now.

[00:40]  BARRY RITHOLTZ: And we falsely believed, “Oh, this is the new era.”

[00:40]  CARL RICHARDS: The problem is that was when we built all of our tools, our language, our planning tools, our Monte Carlo simulations — all around that aberration. Much more likely is, if you think it feels uncertain now, we’re not going back there.

[00:40]  BARRY RITHOLTZ: “No, no, it’ll all settle down, this’ll all go away.”

[00:40]  CARL RICHARDS: Exactly. Ain’t gonna happen. So to me, that leads to a really interesting discussion around how I learn — whether it’s a posture shift, instead of trying to defend an outdated map. Like confirmation bias — you know, “10 best days.”

[00:41]  BARRY RITHOLTZ: Ten best days — it’s a great concept. And 10 worst days.

[00:41]  CARL RICHARDS: Anytime anybody’s scared of anything in the markets, we just parade it out. You saw this on Twitter back when it was useful — if anybody said anything bad, like “I’m scared” or “this market scares me,” a bunch of financial advisors would jump in and say, “Don’t you know, if you sell and miss the 10 best days, you may as well be in CDs over the 20-year period?” Or you miss the 10 worst days. And I think that was an effort to say “Don’t worry” — to spray people with facts and figures when they’re feeling irrational.

[00:41]  BARRY RITHOLTZ: “I like the gun you hold.”

[00:41]  CARL RICHARDS: Spray people with facts and figures. Because when you’re feeling irrational, the last thing you want is somebody to try and reason with you.

[00:41]  BARRY RITHOLTZ: Wait — you’re telling me that pure logic doesn’t satisfy emotion?

[00:42]  CARL RICHARDS: You’re trying it with a teenager, right? The last thing you want… what you want, metaphorically, is a hug first. We’ll get to the facts later — let’s never get to the lecture. So I think if we shift that posture a bit, where we’re like, “Turns out uncertainty is reality”… add in sequencing risk — are we gonna have a great market for the first five years of your retirement or the last five years? Who knows?

[00:42]  BARRY RITHOLTZ: Not that useful in the last five years.

[00:42]  CARL RICHARDS: Exactly right. It turns out we’re dealing with a very complex adaptive system, and the ability to make really important decisions in the face of irreducible uncertainty is the primary skill. If I was younger, I would be studying complexity theory. I’d be studying being resilient. I’d be studying how to make really important decisions when I don’t know — how to get comfortable not knowing. Like a mountain guide.

[00:42]  BARRY RITHOLTZ: But those are life-and-death decisions.

[00:43]  CARL RICHARDS: Yeah. Some of my favorite people are really thoughtful — people who worked in distressed investing. Because if they’re on the ground with the company, they’re having to make mission-critical decisions, and they do not know how they’re gonna work out. I’ve got a really good friend like that, and he’s like, “Yeah, every day, some of these decisions are thousands of jobs, and I don’t know how it’s gonna work out.”

[00:43]  BARRY RITHOLTZ: And you’re making these decisions in zones of intense uncertainty with incomplete information.

[00:43]  CARL RICHARDS: Right. And no amount of spreadsheeting will get you more information. The only way they get more information is to take an action.

[00:43]  BARRY RITHOLTZ: Fascinating.

[00:43]  CARL RICHARDS: To me, that’s the skill. That’s what this market is calling for in terms of leadership — the ability to create containers for collective interpretation, rather than scream at people.

[00:43]  BARRY RITHOLTZ: So let’s talk about this book. You describe it as a conversation grenade. Explain.

[00:43]  CARL RICHARDS: First of all, I think I first heard that term from Hugh MacLeod — Gaping Void.

[00:44]  BARRY RITHOLTZ: Love his work. I have some of his stuff on my wall. And on the opposite wall, some of your stuff.

[00:44]  CARL RICHARDS: That’s cool. Thank you.

[00:44]  BARRY RITHOLTZ: “Buy high, sell low, repeat until broke.” Number one. It’s on my wall. Full disclosure.

[00:44]  CARL RICHARDS: Well, thank you. I have some of your stuff in my office too. So, conversation grenades — this is the only reason I wrote the book. I’d sworn off writing.

[00:44]  BARRY RITHOLTZ: Why?

[00:44]  CARL RICHARDS: Because I love audio so much. After I wrote the second book, I thought, “I’m just gonna speak.” And then podcasting came around and I was like, “This is amazing.”

[00:44]  BARRY RITHOLTZ: Not mutually exclusive.

[00:44]  CARL RICHARDS: Exactly right.

[00:44]  BARRY RITHOLTZ: Between Bailout Nation and How Not to Invest — a solid 15 years. I needed to recover; that was my refractory period. I needed a decade and a half.

[00:44]  CARL RICHARDS: And it just took the pandemic to make me start thinking about it. I kept noticing that people like physical artifacts.

[00:45]  BARRY RITHOLTZ: I agree. I don’t love a Kindle.

[00:45]  CARL RICHARDS: Same — I like other people to have it physically. Working with Harriman really allowed me to make everything about the book designed for that.

[00:45]  BARRY RITHOLTZ: Think of it — we have the same publisher. I didn’t even notice.

[00:45]  CARL RICHARDS: I’m sure Craig helps you.

[00:45]  BARRY RITHOLTZ: He’s great, for sure.

[00:45]  CARL RICHARDS: So everything about that book is designed to feel like you toss it in a room and conversations break out. That’s the conversation-grenade analogy. You set it on the coffee table — an unpretentious coffee-table book. I’m gonna pick it up, I’m gonna mess with it. We talked about hardback; I wanted that soft cover. We moved the front matter, the legal stuff — you go to page one, there’s none of it in there.

[00:45]  BARRY RITHOLTZ: You moved it to the back.

[00:45]  CARL RICHARDS: They let me move it to the back. And they said nobody’s ever asked.

[00:45]  BARRY RITHOLTZ: Dude, I love that.

[00:45]  CARL RICHARDS: Nobody’s ever asked. I was amazed they let me do it. But that stuff’s in the back. Because what reader has ever said they want to see that crap? There it is, in the back.

[00:46]  BARRY RITHOLTZ: I always assumed it was a legal requirement that it had to be up front.

[00:46]  CARL RICHARDS: They said nobody’s asked. So they let me do all sorts of things that allowed us to say, “No, this is in service of the reader.” We just want you to have this sit there. The number of stories I’ve heard — “I had it on my table, my son asked me a question,” or “I sent it out to clients.” It’s really meant to be a conversation grenade.

[00:46]  BARRY RITHOLTZ: So we started out talking about your deceptively simple sketches. Is this simplicity a conscious act of rebellion? There’s so much complexity and arcane language — every profession uses arcane language to hold laypeople at arm’s distance. Was the simplicity in your sketches purposeful, or am I reading too much into it?

[00:46]  CARL RICHARDS: Deeply purposeful. Deeply. I think it’s maybe just the way my brain works — I only have enough RAM for one problem at a time. So I like to get into it, understand the nuance, the edge cases — and it gets like a giant ball. There was actually a sketch in there about this. It’s a simple question, and then: what about this? What about that? What about that edge case? And once I get in there, I’m like, okay. And you actually shared a quote one time —

[00:48]  BARRY RITHOLTZ: Investing is simple but hard.

[00:48]  CARL RICHARDS: No — “There are a lot of answers that are simple, elegant, and wrong.”

[00:48]  BARRY RITHOLTZ: I remember this. I don’t know where I stole that. That could actually be me.

[00:48]  CARL RICHARDS: I remember you shared somebody else’s quote.

[00:48]  BARRY RITHOLTZ: “Simple, elegant, and wrong.”

[00:48]  CARL RICHARDS: Yeah. And I really worry about that, because when you’re in that ball of yarn and you decide to distill or edit, you have to make some conscious decisions about what to leave out. And I often get that wrong. And when I do, I hear about it, and it makes the work a little bit better. There are words and lines in some of those sketches I’ve been thinking about for over a decade. I removed a word that had been in there 15 years.

[00:48]  BARRY RITHOLTZ: Which sketch?

[00:48]  CARL RICHARDS: It’s the —

[00:48]  BARRY RITHOLTZ: “People you love, experiences — spend the money.”

[00:48]  CARL RICHARDS: Yeah, that’s one of my favorite ones.

[00:48]  BARRY RITHOLTZ: That is one of my favorites. You do like a good Venn diagram.

[00:48]  CARL RICHARDS: By the way, the Venn diagram police have come after me, so I just call them circle sketches.

[00:48]  BARRY RITHOLTZ: What?

[00:48]  CARL RICHARDS: Oh, dude. I used to get two-page emails from the Times readers about —

[00:48]  BARRY RITHOLTZ: I call these people Venn diagram police.

[00:48]  CARL RICHARDS: Picture-shapers, picture-straighteners. I used to send equal rebuttals, and then finally I just developed a template email. It said, “You’re right. I call them circle sketches.” So the Venn diagram piece is pretty loosey.

[00:48]  BARRY RITHOLTZ: Wait — these are legitimate Venn diagrams.

[00:48]  CARL RICHARDS: They can make an argument, of course.

[00:48]  BARRY RITHOLTZ: No — if it’s this over here and this over here, and the overlap that you want to focus on. “Things that matter, things that you can control” is another one of yours.

[00:49]  CARL RICHARDS: What we should focus on.

[00:49]  BARRY RITHOLTZ: And then the overlap. How is that not a Venn diagram?

[00:49]  CARL RICHARDS: I don’t know. Somebody will find — but my point really is that when you distill and leave things out, you get things wrong sometimes. And you asked which one —

[00:49]  BARRY RITHOLTZ: But you’re trying to communicate cleanly and simply.

[00:49]  CARL RICHARDS: It’s true. But some of that feedback’s amazing. The Venn diagram police weren’t particularly helpful, but some of the feedback is — like, “Hey, have you ever thought of this?” — and it makes me reconsider and adjust. There have been changes I’ve made. There’s one sketch that used to say “what’s important to you.” It was an alignment sketch — your use of capital aligned with what you say is important to you. And that word, “say” —

[00:49]  BARRY RITHOLTZ: It’s implying that it’s not important, but you’re claiming it’s important.

[00:49]  CARL RICHARDS: That word “say” bothered me for a decade, before I was like, “No, no — we want to get to what’s important to you, not what you say is important.”

[00:50]  BARRY RITHOLTZ: You were hinting at another problem with people not speaking —

[00:50]  CARL RICHARDS: That’s right. Stated versus revealed preferences. I’m more interested in the revealed preferences. What’s actually important to you?

[00:50]  BARRY RITHOLTZ: That’s really interesting. So let’s stay with the concept of spending money, since I just flipped to whatever that was. Every advisor who manages money for people can tell you story after story. My favorite one I’ll share here. “Hey, Barry’s a car guy, he has a boat. You want to buy a boat and a car? Why don’t you talk to Barry?” So I speak to the client. He says, “I’m thinking about buying a 50-, 60-foot sailboat, and I’m thinking about buying a Ferrari.” I go, “That’s really easy. What’s your boating experience?” “Zero.” You don’t start with a 50-, 60-foot sailboat that requires a crew. It’s two and a half million dollars. You’ll take it out twice, and you’ll sell it for a 30% loss. On the other hand — by the way, this guy could buy a Ferrari a month for the rest of eternity and be fine — go buy the Ferrari. Take the whole family down to the Ferrari high-performance driving school. I’ll let you in on a little secret: all of these advanced driving schools are really defensive driving classes in disguise. You’ll learn the limits of the car, that you’ll get nowhere near, but you’ll also learn the limits of your own driving ability — and, more importantly, how to operate within your own skill set.

[00:51]  CARL RICHARDS: And so will your kids, if you bring them.

[00:51]  BARRY RITHOLTZ: That’s right. So everybody becomes a better, safer driver. So he goes out and buys a Ferrari, they do the class, they love it.

[00:51]  CARL RICHARDS: Yeah.

[00:51]  BARRY RITHOLTZ: He also buys the boat. A year later, he sells it for a 30% loss. Anytime Barry gets on the phone with a client, the advisor always says, “Do not mention the boat.” The only thing worse than being right is being wrong. And I can say this at the back of a podcast, because you can confess to murder at the end of a podcast and no one will know.

[00:52]  CARL RICHARDS: No one will hear.

[00:52]  BARRY RITHOLTZ: So I’m very comfortable saying this here. But with that Barry digression — let’s talk about how you help people focus on what’s important, what matters, and what the purpose of money really is. What should they be doing with their money, especially later in life? They’ve accumulated a nice pile. Can’t take it with you.

[00:52]  CARL RICHARDS: Running experiments, practice. One of the things we see is that the very things that got you to that spot are working against you going forward. You were being frugal, saving aggressively, being very disciplined. And now you’re saying, “Hey, this delayed-gratification thing was really important — but it definitely got me to the spot.” You get to a point where you should no longer delay. There’s not gonna be time to delay.

[00:52]  BARRY RITHOLTZ: It’s so tough for some people to make that switch.

[00:53]  CARL RICHARDS: Super. So you practice. Your boat example is great. I’ve literally had people who can’t spend any money — and, like you’re saying, have enough that they could spend it for the rest of their lives. “Go get a coffee with a friend, pay for theirs. Go on the trip and enjoy the trip.” One of my favorite stories is from Alan Smith in the UK — a great financial planner; he’s told this story publicly. He had a client whose relatives had moved. There was a bunch of people from Wales who moved to Argentina from mining, way back. She’d always wanted to go see the Welsh national rugby team play the Argentinian Pumas, in Argentina.

[00:53]  BARRY RITHOLTZ: I know exactly where you’re gonna go with this.

[00:53]  CARL RICHARDS: And she was like, “I just can’t.” And he’s like, “You could do this every month for the rest of your life.” “Well, I can’t sit that long.” “You could have a lay-flat bed.”

[00:54]  BARRY RITHOLTZ: Or you could go from Wales to New York, New York to Brazil, Brazil to Argentina. You don’t have to do it in one trip.

[00:54]  CARL RICHARDS: So he finally, over time, got her used to the idea. She went, and she said it was the best. “We’re never gonna get those things back. We’re never going.”

[00:54]  BARRY RITHOLTZ: AI is not gonna replace that.

[00:54]  CARL RICHARDS: No. So to me it’s like — I don’t know if I’d rather err on being irresponsible, but I know we should spend the money. Spend the money.

[00:54]  BARRY RITHOLTZ: But irresponsibility never comes into it. You’re looking at someone’s portfolio: you have $10 million, you live on $350,000 a year, and you want to bust out another $50,000 so you can take the whole family — take the kids on a trip to the old country and show them where your grandparents came from. Why not? It’s not even a hundred thousand.

[00:54]  CARL RICHARDS: Yeah. And these are — by the way —

[00:54]  BARRY RITHOLTZ: These are very first-world problems.

[00:54]  CARL RICHARDS: Of course. But they are problems. Brené Brown got really clear that comparative suffering does us no good. So whenever I hear “first-world problems,” I’m always like, “Well, yeah, but this is a challenge” — and it happens to be the challenge that many of your clients and the people I’m talking to are facing. So why not just practice? Can we pick something small — something you’ve always wanted to do? It might be simple, like take the grandkids to the art museum this weekend.

[00:55]  BARRY RITHOLTZ: I’m gonna share another line with you — not comparative suffering, but: “Comparison is the thief of joy.” Often falsely attributed to Teddy Roosevelt; it hadn’t been around till the late 1980s. What a great phrase. There’s always someone with a bigger boat, or a larger house, or a faster car — whatever you’re envious of. You have this car, you’re really happy with it — then who cares what the guy on the block has? That’s pointless.

[00:55]  CARL RICHARDS: Real quickly — one thing that makes it even harder is we’re never exactly sure: do we really want the boat?

[00:56]  BARRY RITHOLTZ: Well, if you’re not sure, then that’s easy. Don’t get the boat.

[00:56]  CARL RICHARDS: But you could go out for a day.

[00:56]  BARRY RITHOLTZ: You could rent a boat.

[00:56]  CARL RICHARDS: You could try little experiments. I just remember growing up — I grew up in the hills in Utah — we all had BMX bikes.

[00:56]  BARRY RITHOLTZ: I love this BMX story of yours.

[00:56]  CARL RICHARDS: I always wanted a slightly better BMX bike.

[00:56]  BARRY RITHOLTZ: Oh no, you wanted a really nice bike. And what did you end up doing?

[00:56]  CARL RICHARDS: Which one are you talking about — the road bike? The Moots? Yes, the titanium bike. There’s a Steamboat story, but that’s a different story. Are you kidding? Those things were — I think those were six or seven thousand.

[00:56]  BARRY RITHOLTZ: That’s nothing today, in terms of people who ride. You could drop 10 grand on a bike.

[00:56]  CARL RICHARDS: In a hurry. But still, that bike — per dollar, per unit of fun — unbelievable. I never made a better investment.

[00:56]  BARRY RITHOLTZ: What’s the BMX story?

[00:56]  CARL RICHARDS: When I was little, like eight, I had a slightly better BMX bike than some of my buddies, and some of my buddies had slightly better. That’s all I knew. I didn’t know at the time that I was supposed to want a private jet. And now I do — Instagram has taught me. So I think we have this problem of cultivating our comparison set. Now we’re even talking about getting clear about the word “goal,” which is hard — because you don’t know if it’s your mom’s goal, society’s goal, or Instagram’s goal. Five million dollars and a sailboat — when did that come from?

[00:57]  BARRY RITHOLTZ: Let me share a fun private jet story with you.

[00:57]  CARL RICHARDS: I love private jet stories.

[00:57]  BARRY RITHOLTZ: So whenever anybody used to ask me, “Are you gonna sell the firm? What’s your FU money?” — my answer has always been the same: whatever it takes to never step foot into a commercial airport ever again. And then I made the mistake of saying this in public somewhere, and all these Marquis Jet guys started sending me pitches. So out of curiosity, one day I said, “Run the numbers for me. What does this really look like?” It turns out East Coast is $6,000–$6,500 an hour; cross-country to California, $8,000; you want to go to Europe, it’s $12,000 per hour of travel. So do the math. I’m a numbers guy deep down inside, and I’m like, “Oh, this is a quarter million, half a million a year.” For that to be rational, you’d have to be earning $10 million gross — to spend a mere 5% of your annual income, after cap gains, on a PJ at half a million a pop. “PJ” — that’s from Succession; I never heard that phrase before that show. And all of a sudden I’m like, “Oh, I have no interest in that. I don’t ever expect to be pulling down $10 million a year.” And while it’s attractive — bypassing all the airports — I kind of learned: all right, I’m not gonna go on high-traffic days. We travel for Thanksgiving weekend, I’m the first flight out Thursday morning; we blow through security in five minutes. Two hours later it’s a zoo. So all right, I’m not gonna spend half a million a year. I could spend a little bit of brainpower trying to navigate around the worst. I won’t arrive at the airport at five o’clock, because I don’t want to get stuck in traffic, and I won’t take a nine o’clock morning flight. So I’m not flying private; I’m trying to fly a little smarter commercial. Even if you’re in the front of the plane.

[00:59]  CARL RICHARDS: But that to me is a really good example of thinking that something might be important, running a little bit of an experiment, actually running the numbers, and deciding. We’re just constantly narrowing in, for our whole lives — and those things change.

[00:59]  BARRY RITHOLTZ: It would still be delightful to just show up at the airport.

[00:59]  CARL RICHARDS: And you made a trade-off decision about when you want to leave —

[00:59]  BARRY RITHOLTZ: And save a day of travel on each side. But is that worth half a million dollars a year?

[01:00]  CARL RICHARDS: To you, it’s not.

[01:00]  BARRY RITHOLTZ: I’m gonna overshare one more thing. So some friends of my wife get a pied-à-terre in the city. They’re empty nesters, they downsize, they have a house and then the city apartment. And I started thinking about a pied-à-terre — we loved it when we lived down at Gramercy Park. I start looking at this and running the numbers, and I’m like, “Wait a second.” Just the monthly co-op fees are three or four grand a month, to say nothing of the insurance, the taxes, and the one-, two-, three-, four-, five-million-dollar purchase price. And I’m doing the math: this is like five grand a month, 60,000 a year, that I can’t spend. We take weekends in the city — I can’t spend $60,000 a year on hotels and restaurants. I can’t spend that much if I tried. We do a few weekends in the city; it’s a couple thousand bucks, certainly not 60 grand. Pied-à-terre makes no sense to me. And I’m explaining this to a very wealthy client, and I see this look on her face, and I go, “Oh — you’re saying if $60,000 is too much in co-op fees, you really can’t afford this pied-à-terre.” And she says, “Well, I wasn’t exactly thinking it, but you’re not wrong.” And what I was about to defend myself with was, “Well, the $60,000 just isn’t worth it to me.” But before I said that — yeah, but if you had 50 or a hundred million dollars, who cares? I just want a place I’m comfortable in, where the bed is, my clothes are in the closet, and I’m not dealing with checking into a hotel. That’s worth 60 grand to me if you have X dollars. She never said that, but I immediately saw the whole caveat.

[01:02]  CARL RICHARDS: I have a question for you on the heels of that. What’s the last thing you decided, “I’m gonna buy that,” and you didn’t run the numbers — you were just like, “I don’t care, I’m buying it, it doesn’t matter how much it costs”? Because in both those examples, you wanted a thing, ran the numbers, and decided not to do it. Is there a time when —

[01:02]  BARRY RITHOLTZ: When was the last time I decided not to —

[01:02]  CARL RICHARDS: No — you decided to do it. You didn’t even care what the number said, you didn’t even look — you just wanted to do that thing so bad you were like, “I’m doing it.”

[01:02]  BARRY RITHOLTZ: There are two answers: the Barry before he turned 60, and the Barry after he turned 60. When Barry turned 60… I think this is a function of immaturity. I never had a midlife crisis, probably because when I should have, I was still an idiot child — I was still 10, 20 years maturity level below where I should have been. And I turned 60 and very much woke up with a sensation: all right, fourth quarter, down by seven; if you want to win this game, you gotta get busy. Literally, that’s what I thought. I don’t know if I ever told this story on the podcast — and the spouse still survives, so I can’t really go into details. But a person about to sell a business for a ton of money, hundreds of millions of dollars, gets a diagnosis: six months to live. And you know this, if you’re managing money for enough families — the actuarial tables are such that people will begin to die. That’s just the normal human finite lifespan. So it’s easy to start to pick up that pattern: life is short, what are you waiting for? The combination of turning 60, soon after the pandemic ended — a lot of people lost a lot of people during that — I kind of said, “Money should never prevent anyone from experiencing joy.” So what I started doing is not saying no, and gifting a lot of stuff. My favorite thing in the world around Christmas is to pick a book and send it to 10, 20, 30 friends — the same book.

[01:04]  CARL RICHARDS: Same — good. 20, 30 bucks.

[01:04]  BARRY RITHOLTZ: This year it was The Uncool by Cameron Crowe.

[01:04]  CARL RICHARDS: Wow.

[01:04]  BARRY RITHOLTZ: I was talking about this with somebody and I said, “Oh, I gave that book to a few people for Christmas.” And then I went through Amazon — oh, I gave 26 of these to various people.

[01:04]  CARL RICHARDS: So good.

[01:04]  BARRY RITHOLTZ: It’s $300 — for anybody making a reasonable income.

[01:04]  CARL RICHARDS: I love that idea. By the way, you don’t have to wait until Christmas.

[01:04]  BARRY RITHOLTZ: I know. I was just thinking about that. Carl’s secret book club.

[01:05]  CARL RICHARDS: Launching that.

[01:05]  BARRY RITHOLTZ: It’s so fun.

[01:05]  CARL RICHARDS: It’s really fun. There’s a little bit of a puzzle figuring out what’s the right book for the right person — not everybody gets the same book, because they’re different people. But this all comes back to —

[01:05]  BARRY RITHOLTZ: Spend the money.

[01:05]  CARL RICHARDS: So — again, it’s the end of the podcast, so I can say stuff. Alexis, don’t cut any of this out. A 1987–88 911 Cabriolet I purchased three or four years ago for like 60 grand. It was an old, ratty car that needed to be restored, and the plan was to convert it to an EV. This car wasn’t right for that, so I ended up doing the EV conversion with an ’87 coupe with 300,000 kilometers on it. But the ’88 turned out to be this rare, matching-numbers M491 911, worth a ton more than I paid for it. So I put a bunch of money into it. My wife was complaining she doesn’t get to drive a stick anymore. So — “Hey honey, here’s your weekend car. I bought it for this reason, we’re just parking cash, and it’s worth double what I paid. Drive it.” And she’s like, “It’s loud, it smells, nice clutch, but no airbags, no ABS.” And I’m like, “So what are you saying?” By the way, this is my cross to bear: my wife is very unhappy that I got her an old 911, and she is forcing me to buy a newer Porsche. These are problems that most married men do not have. That’s how you know you married the right woman.

[01:06]  BARRY RITHOLTZ: Well, if your wife says “nice clutch,” you’re onto something.

[01:06]  CARL RICHARDS: I taught her to drive a stick when we were dating. She drives a stick better than — so her daily driver is an unusual color, another great purchase during the pandemic. When everybody was freaked out, I got her a Panamera hybrid in amethyst metallic — super rare color, substantially less than it should have been. And one of the guys from my car group says to me one day, “You have the only amethyst-metallic Panamera on the island. I saw your wife driving it. I tried to catch her — she’s got a crazy lead foot. I couldn’t catch her, I was beeping, I was waving.” So I go home that night and I say, “Hey, how was your day?” She goes, “Crazy thing — this guy in a green 911 was haranguing me, chasing me, and I just put the hammer down and this guy couldn’t catch me.” And I said, “You know, that was Joe.” She’s like, “That was Joe? He was just swinging by, trying to catch up to say hi.” I’m like, “He said he couldn’t catch you. It’s a GT3 — the fastest street-legal Porsche, just below the turbos.” There’s only one other car that’s the fastest street-legal Porsche with a stick shift.

[01:08]  BARRY RITHOLTZ: So good. So that’s what I’m talking about. So I’m in the process of swapping the ’88 for a 2024. I know exactly what I’m gonna replace it with — I found a bit of a unicorn. The only problem is the color is wrong. But with a relatively new car, you put a PPF wrap around it to protect the paint, and now they make those wraps in colors. I really like this paint-to-sample violet — that’s like a $20,000 upgrade when you order the car new. No — just put the plastic on, it’s six grand, and now you have a car whatever color you want. So she picked that color — she’s gonna be the purple. I found this: it’s a GTS, it’s a Cabrio, it’s a stick, it’s a chalk interior, which is even rarer, and rarer still, ceramic brakes. It’s just the wrong color, and I’m gonna fix that. This is an obscene amount of money, and I don’t care.

[01:09]  CARL RICHARDS: You’ll tell me that 20 years from now —

[01:09]  BARRY RITHOLTZ: Nobody looks back and says, “Oh, why did I buy that?” We look back and regret the things we didn’t do.

[01:09]  CARL RICHARDS: Exactly — not the things we did. My version of that is, two months ago, I didn’t know that my 24-year-old son was gonna ask me to go spend some time on adventure motorcycles this summer. It wasn’t in my financial plan.

[01:09]  BARRY RITHOLTZ: Do you have a license for that?

[01:09]  CARL RICHARDS: I actually do, because 10 years ago I was on a BMW 900 GS.

[01:09]  BARRY RITHOLTZ: That’s a big bike.

[01:09]  CARL RICHARDS: Yeah. And so we just got Yamaha Ténéré 700s — which is a great bike. But my son is the one who asked, and I didn’t know it’s costing me more money than I’d planned on spending. Who cares? I’m not gonna regret a second of it.

[01:09]  BARRY RITHOLTZ: Isn’t that —

[01:10]  CARL RICHARDS: That’s the whole point.

[01:10]  BARRY RITHOLTZ: First of all, you have to stop — and I know you have gratitude drawings in here — the fact that it’s a realistic option for you and me to indulge in these ridiculous spending things… part of me knows how utterly ridiculous this is. So first you have to have some gratitude for that. But second, if not for that, what are you gonna do with the money?

[01:10]  CARL RICHARDS: And the fact that my 20-something son asked me to do it — he’s enthusiastic about it — the answer is yes. So what, I’m gonna look back five years from now, 10 years, 30 years from now, and regret it? No. We spent more money than we really should have on our four years living in New Zealand, and I would do it again.

[01:10]  BARRY RITHOLTZ: What years were you in New Zealand?

[01:10]  CARL RICHARDS: ’16 to ’20. We didn’t mean to do it — it wasn’t political. We went in ’16 for a year and ended up staying for four.

[01:11]  BARRY RITHOLTZ: 2016, I assume. It was fantastic?

[01:11]  CARL RICHARDS: Unbelievable. We spent way more — the whole thing was borderline irresponsible, even in this case. But it was a requirement. My wife was essentially like — after the financial crisis and everything that went on, I was just a broken human.

[01:11]  BARRY RITHOLTZ: Really? I never thought of you that way.

[01:11]  CARL RICHARDS: Well, that’s nice of you. That was part of the problem — I was a superhuman out here, doing the job, master of it, but not inside, not in the house. It was a lack of patience, not deep presence. And she was like, “We’re going. Would you like to come?” And I was like, “Yes.” We ended up staying four years. It was hard money-wise — it was a bad decision financially.

[01:11]  BARRY RITHOLTZ: Were you working there?

[01:11]  CARL RICHARDS: Yeah. In New Zealand, different time zone, doing the same thing. My point really is, it probably wasn’t the best from a spreadsheet financial decision, but I would do it all over again. Same thing with a car spend. To the degree that you can find the things that align with your use of capital and your family — the experiences with the people you love — we know we will not regret spending time and money on experiences with people we love.

[01:12]  BARRY RITHOLTZ: So we’ve been at this for a solid 90 minutes. Let me jump to my favorite questions, which I ask all my guests, otherwise I’m gonna keep you here through dinner. Starting with: who were your early mentors who helped shape your career?

[01:12]  CARL RICHARDS: I thought really carefully about this. The one that probably had the biggest shaping on me was Ron Lieber — Ron had a huge impact. So between Ron and Seth Godin.

[01:12]  BARRY RITHOLTZ: Oh, really? Seth Godin’s stuff is really interesting.

[01:12]  CARL RICHARDS: I always saw Seth as somebody doing something in a narrow space that had broad application. He was a marketing guy, but it had broad application, and he did it consistently over a long period of time. Behavior Gap Radio was started because of Seth’s daily blog. He said to me, “Why aren’t you doing a daily blog?” I said, “I don’t like to write.” He said, “You like to talk.” And so I started — we’re at episode 1,500 now.

[01:12]  BARRY RITHOLTZ: Unbelievable.

[01:12]  CARL RICHARDS: So Seth Godin and Ron Lieber had the biggest impact on me.

[01:12]  BARRY RITHOLTZ: Let’s talk about books. What are you reading right now? What are some of your favorites? And I know when you’re writing a book, it’s really hard to read books.

[01:13]  CARL RICHARDS: Two really impactful books: Fooled by Randomness —

[01:13]  BARRY RITHOLTZ: Nassim. Come on. I wanted to have him on the podcast — he told me to go pound sand.

[01:13]  CARL RICHARDS: He probably said that, exactly.

[01:13]  BARRY RITHOLTZ: I’m giving you the polite version.

[01:13]  CARL RICHARDS: I’m sure. So that book, and then Pema Chödrön’s When Things Fall Apart.

[01:13]  BARRY RITHOLTZ: That’s a really interesting combination.

[01:13]  CARL RICHARDS: They’re both related to this idea of the false sense of certainty that we talked about. So Pema’s work has had a massive impact on me. Reading right now — I just finished, literally last night, Homesick Nomad. I can’t remember her name — Brianna something. It’s a short memoir about a woman who drives her van around the desert of southern Utah. She has a Salt Lake connection, so that was really good. And Buffalo for the Broken Heart, Dan O’Brien’s book.

[01:14]  BARRY RITHOLTZ: Someone else mentioned that.

[01:14]  CARL RICHARDS: I think I told Meb about it in his book roundup, maybe.

[01:14]  BARRY RITHOLTZ: Really interesting. What are you streaming these days? Tell us what you’re listening to or watching.

[01:14]  CARL RICHARDS: Mike Birbiglia.

[01:14]  BARRY RITHOLTZ: So hilarious.

[01:14]  CARL RICHARDS: Working It Out.

[01:14]  BARRY RITHOLTZ: You know, he has a podcast also — Working It Out.

[01:14]  CARL RICHARDS: I thought that was the name of his stand-up on Netflix.

[01:14]  BARRY RITHOLTZ: I listen to it religiously. Mike, if you’re listening — I’ve been trying to get ahold of you for a long time.

[01:14]  CARL RICHARDS: So there’s a handful of comedians with their own podcasts now. Not just Seth Rogen, not just Joe Rogan. Tom Papa has a podcast.

[01:15]  BARRY RITHOLTZ: Marc Maron — the original.

[01:15]  CARL RICHARDS: Marc is the OG in the space.

[01:15]  BARRY RITHOLTZ: Who’s the guy — Pete Holmes? And who’s the guy who co-wrote with Dave Chappelle? Drawing a blank on his name. His pod is occasionally interesting.

[01:15]  CARL RICHARDS: Pete Holmes is actually really great too.

[01:15]  BARRY RITHOLTZ: Why do I know the name Pete Holmes?

[01:15]  CARL RICHARDS: He’s another one of these Netflix comedians.

[01:15]  BARRY RITHOLTZ: Good Hang with Amy Poehler — I was just watching her with Billie Eilish. That was really kind of fun. There’s a ton of them.

[01:15]  CARL RICHARDS: The reason I really like Birbiglia is it’s really about the process — testing bits, seeing how they land, paying attention to “that didn’t work quite the way I wanted.” Mike does a really good job of explaining that. And then I just finished The Dark Wizard — the story of Dean Potter, who was an El Cap climber long before El Cap climbing was this mainstream thing. And about his untimely passing through base jumping — it’s an amazing story.

[01:16]  BARRY RITHOLTZ: There are a lot of these hobbies — I don’t mind going fast on the track — where my brain does the risk-reward analysis and says, “Oh, there’s just way too much random risk in this.” Like base jumping.

[01:16]  CARL RICHARDS: He’s a wingsuiter.

[01:16]  BARRY RITHOLTZ: Yeah.

[01:16]  CARL RICHARDS: He was driven by the fact that the only thing that made him feel alive was the death consequence.

[01:16]  BARRY RITHOLTZ: That’s a whole psychological issue.

[01:16]  CARL RICHARDS: It’s a whole other thing — that’s why it’s called The Dark Wizard. But it was super interesting.

[01:16]  BARRY RITHOLTZ: We’ll skip that. Final two questions. What sort of advice would you give a recent college grad interested in a career as a financial planner, an author, or an artist? And I know you sometimes don’t think of yourself as an artist, but you clearly are.

[01:17]  CARL RICHARDS: Just take the next step. I think getting too caught up in “How is this gonna work? What’s the narrative journey?” —

[01:17]  BARRY RITHOLTZ: A thousand-mile journey starts with the first step.

[01:17]  CARL RICHARDS: Try not to compare. There’s a Lao Tzu quote: “Be who you really are and go the whole way.” I wish I would’ve started that a little earlier. Take one small step. And if I was in finance, I’d get more comfortable — especially on the advice side — with learning to be deeply present with people. Curiosity, questions.

[01:17]  BARRY RITHOLTZ: Deeply present.

[01:17]  CARL RICHARDS: I think financial advisors aren’t gonna be paid for solutions. They’re gonna be paid for presence — opening up the ability to have these conversations — because the solutions are table stakes at this point. It’s like self-driving cars. I was in the Waymo — it was safer than the Uber driver before.

[01:17]  BARRY RITHOLTZ: Did it feel very weird?

[01:17]  CARL RICHARDS: But here’s the thing: I still have to tell it where to go. And even more importantly, on the journey, if I saw something — “Oh wait, what’s that park?” — that requires…

[01:18]  BARRY RITHOLTZ: Could you do that in a Waymo? Could you ask it to stop?

[01:18]  CARL RICHARDS: Yeah, you can tell it to stop. I don’t know how you do it — on the app. So I’m a big fan of self-driving money, I can’t wait. And there’s still gonna be somebody there who needs to say, “Hey, is the boat really important to you? Go try the racetrack thing.” That, to me, is curiosity and presence. You’ve still gotta be a technical rockstar, but curiosity and presence is where the value will be.

[01:18]  BARRY RITHOLTZ: Final question: what is it that you know about the world of investing or psychology today that might have been useful back in the 1990s, when you were first looking at that Netscape IPO?

[01:18]  CARL RICHARDS: That compounding does all the work. Stop spending time trying to find the best investment, and just own stuff. If it compounds — I don’t know who said this — if it compounds, let it compound.

[01:19]  BARRY RITHOLTZ: The line I use is, your job is to prevent yourself from interfering with your portfolio’s ability to compound.

[01:19]  CARL RICHARDS: That’s exactly right. Time is the thing that matters.

[01:19]  BARRY RITHOLTZ: Absolutely. Carl, this has been an absolute delight. Normally I want to make this about the guest, but there’s something about you that just encourages me — that’s my whole goal. It’s your aura. You bring it out in people, which is probably why you were a good advisor — you get people to open up to you.

[01:19]  CARL RICHARDS: That’s a really high compliment. Thank you, Barry. It means a lot.

[01:19]  BARRY RITHOLTZ: Absolutely. Cheers. We have been speaking with Carl Richards, author of Your Money: Reimagining Wealth in 101 Simple Sketches. If you enjoyed this conversation, well, check out any of the 639 we’ve done over the past 12 years. You can find those at YouTube, Bloomberg, Spotify, Apple, or wherever you get 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 very patient video producer. Sean Russo is my researcher.

~~~

The post Transcript: Carl Richards on Sketching Wealth Strategy appeared first on The Big Picture.

Cointelegraph:

“Decentralized finance platform Abracadabra said Wednesday that it launched emergency measures after its crypto-collateralized stablecoin, Magic Internet Money (MIM), fell 50% below its $1 peg.”

I have spent a lot of time vacillating between being Blockchain-Curious and Crypto-Skeptical. As an exercise, let’s consider the pros- and cons- of Stablecoins, and whether there is reason for speculators to be concerned as to the rest of the sector.

Let’s begin by pointing out that if coins were US equities, I would be an aggressive buyer down 50%. Historically, quality companies from stable regions, on sale at half off, have presented a fabulous entry point. But coins — stable or otherwise — are not equities. They trade like a mash-up of currency, commodities, and tech startups. I have no clue whether down 50% is about to bounce hard or continue to free-fall. I don’t even have a framework for contextualizing this.

Rather than speculate, let’s use this example to examine the Stable Coin value proposition (my caveats here 1).

1) This looks like a bank run: I don’t know how else to describe this other than to point out that the massive withdrawals of the underlying securities’ anchor raise questions. On-demand redemption at par should not be a problem; this looks like the kind of run that traditional (fractional lending) banks suffer from — the kind the crypto community has long criticized. The fact that Magic Internet Money was cut in half suggests genuine maturity or liquidity mismatch, but with no deposit insurance and no lender of last resort to come in and save the day.

How can a “fully” reserved coin get depegged? We have seen this movie before:

-Terra/UST vaporized $40B in May 2022 via a reflexive death spiral. Asd I understand it, that peg depended upon an arbitrage with a sister token; and THAT depended on yet another peg.

-USDC broke its peg due to an external event: It fell to $0.88 in March 2023 as $3.3B of its reserves at Silicon Valley Bank were frozen. But for the FDIC backstop, USDC likely would have gone poof also.

Compare that with money markets that broke the buck in 2008-09; they fell to 98 cents, before being rescued. That is a huge safety difference for depositors.

The takeaway? These designs are structurally unsound, and problems tend to show up when either A) there is an issue elsewhere in the financial system, or 2) other coins find themselves in a substantial downtrend. Both of these smell like the stablecoin’s architecture has inherent structural issues.

~~~

I am less of a believer in the claim that stablecoins are needed for legitimate cross-border payments and similar remittances. The traditional banking system is slower, but that is a feature, not a bug, which helps thwart fraud and criminality (KYC, etc.). For most consumers, apps like Remittly and World Remit are fast, cheap, and safe.

State Street and other money center banks have embraced a variety of use cases, such as B2B payments and merchant settlements. Just please stop using the phrase “DeFi” now that giant US money centers have embraced the entire sector.

I understand the value proposition for payments or regional dollar access; but this is hardly the grandiose “future of all money” claims of just a few years ago. If you are in Argentina, Turkey, Nigeria, Lebanon, etc., dollar-stablecoins give you purchasing power, especially when their local currencies are in high- or hyperinflation mode. That utility is real; I believe it must be measured, however, against the speculative negatives and potential criminality. But that’s before we get to the well-known criticisms made by folks like Zeke Faux.2

It will be interesting to see how this plays out…

Previously:
Whatever Happened to NFTs? (December 9, 2025)

Lessons of “Number Go Up” (December 13, 2023)

Cancelling Michael Lewis (October 5, 2023)

Sturgeon’s Corollary (December 4, 2025)

Source:
Abracadabra takes emergency action as MIM stablecoin depeg worsens
by Martin Young
Cointelegraph, June 24, 2026

See also:
Stablecoins Are Private Money. That’s Why They’re a Risk to the Economy. (Wall Street Journal)

GENIUS Act explained: What it means for crypto and digital assets (State Street)

What Are Stablecoins Used for Today? (Federal Reserve Bank of Kansas City)

The Hidden Plumbing of Stablecoins: (MIT Media Lab)

How a Cryptocurrency Helps Criminals Launder Money and Evade Sanctions (New York Times)

__________

1. I do not pretend to be a crypto expert, but I am a student of market history. In many ways, Crypto resembles the slow adoption of an innovative, complex technology; in other ways, it resembles a classic speculative bubble.

Interestingly, these are not mutually exclusive…

2. “They’ve become the settlement layer for illicit finance.” Permissionless, instant, dollar-denominated, and globally liquid is a great payment product and also a great sanctions-evasion and scam-settlement product. The bulk of on-chain criminal value transfer now moves in stablecoins rather than bitcoin, and African and other regulators are specifically focused on operationalizing FATF-aligned AML/CFT requirements like Travel Rule implementation for cross-border stablecoin corridors. The dominant fiat-backed issuers can and do freeze addresses — which defeats the censorship-resistance pitch while still leaving enormous gray-market flow. (Via Chainalysis)

AI DISCLOSURE: I wrote this myself, used Claude for research and Grammarly for spelling grammar corrections

The post Stablecoin Crash?! appeared first on The Big Picture.

In this guest post, Jake Northrup, founder of Experience Your Wealth, shares how his 3-person advisory firm built their own custom AI assistant, not as a means to replace team members but a way to teach, train, and support their advisors and ensure advice is delivered more deeply and consistently to clients… while reducing how often the team comes to Jake as the founder for direct input.

Of course, the starting point for any AI-related initiative in an advisory firm – especially when it involves client-specific situations and therefore client data – is how to do so securely. Which Jake ultimately solved for by transitioning to a new CRM system (Slant) that has securely integrated Claude directly into its own client database. Additionally, with support from the firm's outsourced IT and Cybersecurity provider, CyberSecureRIA, Jake was able to set up a secure private cloud environment – dubbed "Rocky" – where the firm's IP can be uploaded and utilized safely (after trying a smaller-scope setup with a contractor on Upwork that failed!).

Once the client and firm data was secured in a safe environment, Jake shares how he utilized Claude to develop a "Standard Operating Procedure" (SOP) document that could be used to teach their AI-assistant Rocky how the firm handles any particular planning situation based on the AI-generated notes and transcripts of various internal firm and client meetings (already held safely in their Slant CRM or secure private server), along with other firm data.

Once trained, Rocky is now able to act like a thinking partner for the firm, allowing them to more consistently create the deep advice that Experience Your Wealth provides to its clients while reducing how often the team needs to come back to Jake for input. With the caveat that Rocky isn't expected to be (and isn't) perfect, and some issues will still need to be escalated for input from the founder. Which means that from the team perspective, the focus can shift from memorizing what the firm's standard approach is for certain client scenarios (since Rocky can quickly make those connections), to exercising judgment about when to trust Rocky's output, when to push back, and when to bring it to the founder for further (albeit still less frequent and time-saving) input.

An interesting side-effect of Jake's efforts is to find that 'just' consolidating the firm's information into their CRM system has been enough to apply Rocky as their own AI assistant "lens" through which client scenarios can be analyzed. In other words, it wasn't necessary for them to go through the complexity of creating their own "data warehouse" as some larger firms have done; instead, Jake's firm achieved their AI unlock by switching to a new CRM system (Slant) that was able to bring together all of their client relationship and meeting data (e.g., AI notes and transcripts) into one central CRM location.

Ultimately, the key point is that building an AI assistant tool, trained on your firm's individual data, is something that can be accomplished even in a solo advisor or small team environment, as long as some outside help is used for the initial technical setup. And doing so is arguably especially helpful for smaller/solo advisors, where training team members – who otherwise crave the founder's input and time – can create growth bottlenecks that an AI trained on the firm's planning approaches can help to solve. Which in the long run doesn't only help the firm to train and develop team faster, but also helps them more quickly go deeper with each client, supporting the firm's ability to continue to grow without needing to hire additional team as rapidly, thanks to the technology support!

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My guest on today's podcast is Shannon Eusey. Shannon is the chairman and co-founder of Beacon Pointe Advisors, an RIA based in Newport Beach, California, that oversees $62 billion in assets under management for 25,000 client households.

What's unique about Shannon, though, is how she led Beacon Pointe throughout its path to becoming a large advisory enterprise, from starting out as an independent RIA to adding partners through M&A transactions to bringing on capital partners to now transitioning out of the CEO role.

In this episode, we talk in-depth about how Shannon started Beacon Pointe alongside her father with an eye towards eventually building a large advisory enterprise (at a time when large RIAs were much less common), how Shannon and her team decided to start adding partner firms to contribute to Beacon Pointe’s growth (and why her firm places culture fit near the top of the list of criteria when evaluating potential partners), and how Shannon decided that adding a private equity partner would both provide capital to support her firm’s acquisitions and serve as a source of business-building wisdom as her firm evolved over time.

We also talk about how Shannon decided to centralize operations at Beacon Pointe with the goal of allowing local offices to focus on providing advice to clients, how Shannon and Beacon Pointe develops content and partnerships to boost the firm’s organic growth (alongside assets brought in through acquisitions), and why Shannon has met one-on-one with every new employee at the firm (to better understand their journey to Beacon Pointe and to let them know she and the executive team care what employees think).

And be certain to listen to the end, where Shannon shares how she made the difficult decision to step out of the CEO role (though she will remain with the firm as chairman and continue to work on priority projects), how Shannon has led research into women and wealth that has revealed lessons for how the financial advice industry can better serve this group, and how Shannon has found value by keeping a certain amount of ‘white space’ on her calendar to ensure she has time to step back from day-to-day business and consider the big picture of her role and the business as a whole.

So, whether you’re interested in learning about what it takes to build a $62 billion advisory enterprise, considerations around making acquisitions and taking on outside capital, or the role of culture within a large advisory business, then we hope you enjoy this episode of the Financial Advisor Success podcast, with Shannon Eusey.

Read More...

So I’m looking through the midyear issue of “Pollstar” and there’s a chart for “Venues With Capacities Of 5,000 Or Less.”

Now if you’re a dedicated follower of the main “Pollstar
chart (if not fashion), you know it tends to be dominated by the usual suspects, mostly acts with years under their belts, playing big buildings. But it’s the smaller venues where acts break, so that’s why I was interested.

And I’d be lying if I told you I knew every act who appeared.

Now let’s be clear, these are not anomalies. This is a six month chart, you needed to do consistent business in order to triumph.

So starting with the 2,001-5,000 capacity venues…

Number one is Jerry Seinfeld, which is not surprising.

But I’d be lying if I told you I knew number two, Subtronics. Turns out he’s a deejay. That’s a world unto itself, based on word of mouth, a veritable underground scene when it comes to mainstream publicity. But people want to party. So, they’ll come to see the deejay du jour, in numbers.

#3 was Bert Kreischer, not exactly my cup of tea, but he’s a well-known comedian.

#4 Another act I had not heard of, Josiah Queen. Google tells me he’s a Christian contemporary artist, and that’s a world unto itself even more than deejays/EDM, one that would not normally fly on my radar screen.

#5 was Def Leppard. This act goes out seemingly every summer, I didn’t think they were even playing buildings this small. They represent an era, good for them.

#6 Mannheim Steamroller. An annual holiday event (this chart runs from November 13, 2025 to May 13, 2026).

#7 K40S. Now the funny thing is if you Google you end up getting results about a Xiaomi smartphone, they fill the entire first page. K40S, who I was unaware of, turns out to also be an EDM artist, but you have to Google ” K40S music” to discover this, the act doesn’t even have a Wikipedia page, never mind press, but they pulled in in excess of 3,000 people an evening, for a nightly gross of $142,412, and that’s not chump change.

#8 At this point legendary comedian Jim Gaffigan.

#9 Michael McIntyre, another person I’d never heard of. Turns out he’s a British comedian, and he’s 50!

#10 Josh Johnson, another comedian.

So if you’re doing the math, five of the ten highest grossing acts in what we used to call theatres are COMEDIANS!

Whoa, whoa, whoa… How about all those acts in the Spotify Top 50, aren’t they supposed to be driving the culture, isn’t music everything?

NOPE!

Now if you’re on social media…

On my TikTok and Instagram Reels I get a plethora of comedy clips. And in about two-thirds of the cases, I’ve never heard of the person. And almost all of them are funny to a degree. But I’m thinking how competitive it is. Anyone can do it, kinda like music, but building a fan base and earning a living?

Now comedy acts complain, that’s part of their routine, including about the travel and club owners, but I never encounter anyone protesting that they’re being screwed by the system, that they’re entitled to attention and a living, that’s the domain of “musicians.” How can the perspectives be so different? They both live and die on attention, and that delivers remuneration. And to make it in comedy, you must work live. I don’t see people posting clips from their bedrooms, sans audience. You’ve got to get out there. But there are a ton of people who make music who never work live, they can’t get the gigs.

Then again, there are fewer places to play.

But does that have something to do with the music?

I’d say so. People are willing to pay for entertainment, but it seems to be comedians who they want to see. And a comedian can’t bomb on a regular basis or they will no longer be able to work, they’ve got to succeed most of the time.

The bottom line is comedy has usurped music’s spot on the bleeding edge.

Sure, there are chains of clubs, and Netflix specials, but it’s still the wild west compared to music. In music everyone rails on about the labels and Live Nation and Ticketmaster, but in comedy, the acts know they must earn their success.

And I see the equivalent of open mic videos on social media. There are a slew of people who will do standup locally, but won’t go any further, because the response is not solid enough and they’re not willing to do the work. And you have to do the work if you’re a comedian. Even if you theoretically purchased your material, that’s only half of it, you need to know how to deliver it.

And comedians know no bounds, they’re unafraid, they don’t go on stage worried about alienating sponsors, they don’t think of clothing lines, they’re selling their identities, anything that compromises their identity will ultimately hit their bottom line, shortening their career.

If you want the truth, you go see a comedian.

That’s rarely the main feature in music. How could it be, with the music made by committee? Comedians are singular.  You need to have a personality and a point of view to have any success at all.

The bottom line here is the numbers do not lie, the public is responding.

And when you go down the chart to smaller buildings, comedians continue to punch above their weight.

It’s not like comedy is new, but fifty years ago when it came to hip comedians you had George Carlin and…maybe Robert Klein. And a bunch of Borscht Belt hangovers.

This is not the comedy of yore.

It’s comedians who are skewering politicians, and the excesses of the public too. That’s part of the act, ridiculing nincompoops with a profile and things that just don’t make sense. This is not Fox vs. MSNow, there’s not an underlying corporate agenda, comedians are outsiders, commenting on the happenings of the day and life in general. Sure, they want to get paid, but they harbor no dream of  going inside and taking over the jobs of the people they’re making fun of. Scratch that, we did have Al Franken, but you get what I mean.

In other words, comedy has usurped music’s power. And it’s so hot that it’s getting wannabes to participate. It’s exciting and it’s anything but fake.

And there’s no equipment and entourage necessary, if you make it, costs are low and you get paid quite handsomely.

But you’ve got to be good.

No, you’ve got to be GREAT! And competition is fierce, upping everybody’s game.

And the public is riveted.

~~~

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 Comedy Is Hot appeared first on The Big Picture.

This week, I speak with Carl Richards, author of “Your Money: Reimagining Wealth in Simple Sketches“. They discuss Carl’s unlikely start in finance and building his own firm. Carl also breaks down how one sketch helped him translate wealth management and become a New York Times columnist.

We discuss how his career developed, from managing assets to becoming the sketch guy.

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 Master’s in Business next week with McKeel Hagerty, CEO/Chairman of Hagerty Specialty Insurance. He transformed a family specialty-insurance agency into an enthusiast-driven platform focused on collectible cars, events, valuation data, and auctions. HGTY is now a public company that insures everything from classic cars to boats, trucks, tractors, and military vehicles for over 2.8M collectors.

Latest Authored Book

Current Reading

The post MiB: Carl Richards on Sketching Wealth Strategy appeared first on The Big Picture.

Cointelegraph:

“Decentralized finance platform Abracadabra said Wednesday that it launched emergency measures after its crypto-collateralized stablecoin, Magic Internet Money (MIM), fell 50% below its $1 peg.”

I have spent a lot of time vacillating between being Blockchain-Curious and Crypto-Skeptical. As an exercise, let’s consider the pros- and cons- of Stablecoins, and whether there is reason for speculators to be concerned as to the rest of the sector.

Let’s begin by pointing out that if coins were US equities, I would be an aggressive buyer down 50%. Historically, quality companies from stable regions, on sale at half off, have presented a fabulous entry point. But coins — stable or otherwise — are not equities. They trade like a mash-up of currency, commodities, and tech startups. I have no clue whether down 50% is about to bounce hard or continue to free-fall. I don’t even have a framework for contextualizing this.

Rather than speculate, let’s use this example to examine the Stable Coin value proposition (my caveats here 1).

1) This looks like a bank run: I don’t know how else to describe this other than to point out that the massive withdrawals of the underlying securities’ anchor raise questions. On-demand redemption at par should not be a problem; this looks like the kind of run that traditional (fractional lending) banks suffer from — the kind the crypto community has long criticized. The fact that Magic Internet Money was cut in half suggests genuine maturity or liquidity mismatch, but with no deposit insurance and no lender of last resort to come in and save the day.

How can a “fully” reserved coin get depegged? We have seen this movie before:

-Terra/UST vaporized $40B in May 2022 via a reflexive death spiral. Asd I understand it, that peg depended upon an arbitrage with a sister token; and THAT depended on yet another peg.

-USDC broke its peg due to an external event: It fell to $0.88 in March 2023 as $3.3B of its reserves at Silicon Valley Bank were frozen. But for the FDIC backstop, USDC likely would have gone poof also.

Compare that with money markets that broke the buck in 2008-09; they fell to 98 cents, before being rescued. That is a huge safety difference for depositors.

The takeaway? These designs are structurally unsound, and problems tend to show up when either A) there is an issue elsewhere in the financial system, or 2) other coins find themselves in a substantial downtrend. Both of these smell like the stablecoin’s architecture has inherent structural issues.

~~~

I am less of a believer in the claim that stablecoins are needed for legitimate cross-border payments and similar remittances. The traditional banking system is slower, but that is a feature, not a bug, which helps thwart fraud and criminality (KYC, etc.). For most consumers, apps like Remittly and World Remit are fast, cheap, and safe.

State Street and other money center banks have embraced a variety of use cases, such as B2B payments and merchant settlements. Just please stop using the phrase “DeFi” now that giant US money centers have embraced the entire sector.

I understand the value proposition for payments or regional dollar access; but this is hardly the grandiose “future of all money” claims of just a few years ago. If you are in Argentina, Turkey, Nigeria, Lebanon, etc., dollar-stablecoins give you purchasing power, especially when their local currencies are in high- or hyperinflation mode. That utility is real; I believe it must be measured, however, against the speculative negatives and potential criminality. But that’s before we get to the well-known criticisms made by folks like Zeke Faux.2

It will be interesting to see how this plays out…

Previously:
Whatever Happened to NFTs? (December 9, 2025)

Lessons of “Number Go Up” (December 13, 2023)

Cancelling Michael Lewis (October 5, 2023)

Sturgeon’s Corollary (December 4, 2025)

Source:
Abracadabra takes emergency action as MIM stablecoin depeg worsens
by Martin Young
Cointelegraph, June 24, 2026

See also:
Stablecoins Are Private Money. That’s Why They’re a Risk to the Economy. (Wall Street Journal)

GENIUS Act explained: What it means for crypto and digital assets (State Street)

What Are Stablecoins Used for Today? (Federal Reserve Bank of Kansas City)

The Hidden Plumbing of Stablecoins: (MIT Media Lab)

How a Cryptocurrency Helps Criminals Launder Money and Evade Sanctions (New York Times)

__________

1. I do not pretend to be a crypto expert, but I am a student of market history. In many ways, Crypto resembles the slow adoption of an innovative, complex technology; in other ways, it resembles a classic speculative bubble.

Interestingly, these are not mutually exclusive…

2. “They’ve become the settlement layer for illicit finance.” Permissionless, instant, dollar-denominated, and globally liquid is a great payment product and also a great sanctions-evasion and scam-settlement product. The bulk of on-chain criminal value transfer now moves in stablecoins rather than bitcoin, and African and other regulators are specifically focused on operationalizing FATF-aligned AML/CFT requirements like Travel Rule implementation for cross-border stablecoin corridors. The dominant fiat-backed issuers can and do freeze addresses — which defeats the censorship-resistance pitch while still leaving enormous gray-market flow. (Via Chainalysis)

AI DISCLOSURE: I wrote this myself, used Claude for research and Grammarly for spelling grammar corrections

The post Stablecoin Crash? appeared first on The Big Picture.

Also in industry news this week:

• NAPFA announced a new fiduciary standard for its registered advisors this week, going beyond SEC and CFP Board fiduciary requirements, particularly when it comes to advisor compensation
• A recent survey indicates that financial advisors on the whole are largely upbeat when it comes to their growth prospects over the next few years and are leaning into the human element of advice as they prepare for greater competition from AI-powered self-directed advice tools

From there, we have several articles on retirement planning:

• A rule from "SECURE Act 2.0" restricts the type of catch-up contributions that can be made to workplace retirement plans for certain high-income earners, though these contributions could still be valuable despite the absence of an immediate tax deduction
• How individuals can gain early retirement flexibility using the "Rule of 55" to make penalty-free withdrawals from their workplace retirement plans
• A study finds that married couples sometimes don't maximize the employer matches available to them, in part because of concerns about how workplace retirement plans would be treated in a potential divorce

We also have a number of articles on insurance planning:

• When long-term care insurance might (and might not) make sense for clients in the current challenging environment for the product
• How financial advisors have responded when clients face sharp premium hikes on their long-term care policies
• Why individuals might want to seek out insurance policies that are expected to lose them money (on average)

We wrap up with three final articles, all about the future of content in a "Zero-Click" world:

• 17 types of content that could continue to perform well at a time when fewer individuals are actually clicking through to websites from Google searches
• Why nurturing a highly tailored audience could help content creators (including financial advisors) succeed amidst the centralization of information
• While "how-to" books have experienced a sharp decline in sales amidst the growing popularity of AI chatbots, those dedicated to consuming long-form content (and/or who have an accountability partner) might be more likely to succeed in their fitness, financial, or other goals

Enjoy the 'light' reading!

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In this 193rd episode of Kitces & Carl, Michael Kitces and client communication expert Carl Richards discuss the difference between feeling productive, being perceived as productive, and actually being productive – and the place that each of the three states plays in motivation. Whether a client (or advisor) is focused on productivity, creativity, fitness, or financial success, it is easier to feel that they are being creative than it is to actually go forth and create (let alone publish something for public consumption). Self-help books and the like proliferate in part because they provide helpful frameworks and thought leadership… and in part because they can create a sense of process without requiring sustained effort.

Similarly, clients may enjoy the feeling of being financially responsible – they have an advisor and a financial plan! – yet may not implement the goals they appear to agree with. Some of this, undoubtedly, is due to the fact that many of the actions associated with financial planning are tedious at best – even if the advisor tries to make them clear and pleasant, and even if the client likes the financial advisor. Some of this may be because the client gets 'enough' from feeling responsible. And some inaction may come due to an unspoken unwillingness to act due to 'something else'. Advisors may be able to diagnose and address some of these tactics by using scaling questions ("On a scale of 1–10, how ready are you to implement this? If you're a 6, what would it take for you to reach a 7?") and other communication strategies.

Ultimately, the key point is that effective financial advice is as much about client behavior as it is about actions and solutions. Sometimes the most valuable contribution an advisor can make is helping clients feel understood, supported, and capable of making progress, even if that progress initially appears small. By recognizing that the desire to feel successful often precedes the willingness to become successful, advisors can approach advice adherence with greater patience and compassion. In doing so, they create an environment where clients can gradually build confidence, readiness, and momentum… allowing meaningful financial change to emerge over time!

Read More...

At The Money: Do Agricultural Commodities Belong in Your Portfolio?, with Sal Gilbertie, Teucrium  (June 24, 2026)

Looking for a non-correlated trading vehicle that is also a hedge against inflation? Perhaps Agricultural ETFs are a potential for your portfolio.

Full transcript below.

~~~

About this week’s guest:

Sal Gilbertie began trading agricultural and energy commodities in 1982 at Cargill, DLJ, Merrill Lynch, and Bear Stearns. He founded Teucrium in 2009, launching commodity-based AG products like the Teucrium Corn Fund (CORN) and the Teucrium Wheat Fund (WEAT), as well as soybeans and sugar futures markets through ETFs.

For more info, see:

Personal Bio

Professional 

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: Do Agricultural Commodities Belong in Your Portfolio?
Barry Ritholtz with Sal Gilbertie, founder & CEO of Teucrium Trading

BARRY RITHOLTZ: Investors today can gain exposure to any asset class via ETFs — stocks, bonds, real estate, metals, energy, even crypto. One of the most overlooked sectors is agricultural commodities: wheat, soybeans, corn, sugar, coffee, all sorts of diversified commodities. And the ETF structure means a very different kind of K-1. I’m Barry Ritholtz, and on today’s edition of At the Money, we’re going to explore the question of whether agricultural products deserve a place in your investment accounts.

To help us unpack all of this and what it means for your portfolio, let’s bring in Sal Gilbertie. He’s the founder, CEO, and Chief Investment Officer of Teucrium Trading, best known for creating exchange-traded products that give investors direct exposure to ag futures. He’s also an old-school commodities trader since 1982, trading various agricultural and energy commodities. So, Sal, let’s start really basic. What makes agricultural commodities so fundamentally different from other commodities like energy, metals, or equities or bonds as an asset class?

SAL GILBERTIE: Sure. And thanks for having me, Barry. It’s always fun to be with you and talk with you. Let’s face it: everyone eats, and their animals eat. And that’s what ag is primarily used for. Although fuel now has come into the mix, ag is a very stable commodity in terms of the downside, historically. And we all know past performance is indicative of future results and all that. But the downside on ag is very limited, because farmers will just stop planting if they’re losing money.

And the secret with ag is that demand continues to rise. The combined global demand for corn, soybeans, and wheat since 1960 rises every single year. It’s a record, or it’s almost the record — so it’s either the second highest ever or it’s the highest ever, every single year since 1960.

BARRY RITHOLTZ: So is that driven by population growth, or is it driven by — I’m thinking about beef, which seems to not only be benefiting from the whole keto trend, but rising wealth in the rest of the world means people are eating more protein and less of other things. What’s the underlying driver of increased demand for commodities?

SAL GILBERTIE: You just hit it. The underlying driver is a rising population. And more importantly than that, a rising middle class — the people that rise from the bottom to the next level. So if you look at people who are in subsistence living, which used to be defined as, I think, less than $10 a day — $10 equivalents a day — the moment they rise from that, and there are hundreds of studies on this, they increase the protein in their diet, they increase eating meat. That’s what they do.

And that is a huge demand. The number one demand around the world for corn is feeding cattle, feeding animals in general. The second highest demand is for fuel. So corn goes into ethanol, and soybeans go into biofuels. And so what happens is the rising global population, the growing middle class — which has become huge, by the way. I think, as a percentage of the population, we’re at our lowest ever percent of people in the bottom rung.

BARRY RITHOLTZ: That’s amazing. Does this mean we’re going to see a beef ETF — ticker BEEF — from you sometime soon?

SAL GILBERTIE: No. It’s really hard to get people to think about ag — it’s really hard. It’s amazing to me. We always say corn is in everything, right? So the number one use is feeding animals. Number two use is ethanol production. It makes starch — if you use paper, you’re using corn. People don’t realize that. So it’s literally impossible for anyone, anywhere on planet Earth, to not be using corn every single day, either directly or indirectly. It’s not possible. And people don’t understand that it’s a vital commodity.

And so, going back to your original question, it’s a commodity, so it’s volatile, but it has this floor because governments around the world subsidize food production. They subsidize their farmers, because you don’t want your populace to destabilize because they’re hungry — you lose power. So everybody subsidizes their farmers, and farmers get used to operating at breakeven.

And that actually is — I think you’ve mentioned it — the golden grain cycle. We can get into it, but grains kind of flatline and get used to trading there. And because that demand is very static — it’s not a dynamic demand, it’s just always growing — it doesn’t really fall significantly when there’s a disruption. Ninety-nine times out of a hundred that means it doesn’t rain somewhere critical. And one time out of a hundred it means there’s a war, there’s a political upheaval, and the transport of grains, the access to grains, might be limited. They explode higher — they go higher really quickly — because people are afraid.

BARRY RITHOLTZ: That’s really interesting. So you mentioned the golden grain cycle. Walk us through what that means. Where are corn, wheat, soybeans in that cycle today?

SAL GILBERTIE: Sure. The golden grain cycle was developed by Jake Hanley — I think you know him very well. We looked at it and said, look — because we just looked at the spot continuation, the continuation price of the front month of futures over time. And the bottom line on corn is a prime example: between $3.50 and $4 over the last 17 years — actually approaching 19 years, since the Renewable Fuels Act of 2007, 2008. Corn doesn’t go below that. I think it’s traded a few weeks under $3.50 in the last 19 years. I can tell you that in the last five years, corn has only traded under $4 four percent of the trading days.

So clearly the breakeven is between $3.50 and $4, and closer to $4 right now. So if you see corn down near $4, based on past history you’re saying, well, wait a minute — I have limited downside. And in the last 19 years, three times corn has doubled from that price. Twice because of a drought, and once because of the war in Ukraine, which was preceded by a drought in the upper Midwest and problems with China grain production — wheat production — so you had a wheat problem that kind of started the rally. And then Russia invaded Ukraine in 2022, and everything went bonkers. The rally started in 2020 in wheat, and then it went to the whole grain complex.

So if you’ve got an asset and you say to somebody, I’ve got this asset that trades at X, and when there’s a supply disruption every four to seven years, it goes to 2X and then it trades back down to X — and then rinse, repeat. So stage one of the golden grain cycle is trading sideways at X, stage two is going to 2X, and stage three is going back to 1X.

BARRY RITHOLTZ: So it sounds very much like these are trading vehicles that you’re looking to take advantage of these disruptions, such as war or droughts. What are the other variables investors should be aware of? Obviously weather — the war in Iran sent fertilizer costs skyrocketing, I’ve been reading about farmers complaining about that. And then government policy. I’ve been a big fan of both Harry’s Farm and then Clarkson’s Farm on Netflix, both of them complaining about policies in the UK, which are now taxing farm estates and taxing fertilizer and taxing everything from tractors to what have you. How significant are government policies, and what are the other variables investors should be thinking about?

SAL GILBERTIE: Sure. So, in order: the main variable is always weather. And then geopolitical upheaval, like a war — like what happened with wheat when Russia invaded Ukraine. Between Ukraine and Russia, they’re almost 40% of the world’s exportable wheat supply, and everybody was afraid it would get locked in. Well, it didn’t get locked in. So you had this price spike.

And the reason price spikes is because you run out of grain. Remember, you plant grain in the spring, it grows all summer, there’s a big pile at harvest in the fall. And then you take from that pile — the whole world’s taking from that pile — autumn, winter, spring, and summer, because it’s still growing, it’s not harvested yet. And in general, at the end of that cycle you have about six months’ supply of wheat. Historically, you have about three or four months’ supply of corn and soybeans. So if there’s a disruption and that big pile is reduced by 10%, 20%, 30%, now you’re approaching zero in corn and soybeans.

So that’s why the price generally takes a spike in July, if they realize it’s not going to rain in the US corn belt — there’s the weather factor. Prices spike and go up, and they run up. In the next year, what we’ve seen is a lot of money coming into our ETFs. We had, I don’t know, $200, $250 million in our ag ETFs right before the Iran war broke out, and now we have $800 million to a billion, depending on the day. But the price hasn’t really gone up — the price went up maybe 10%.

The reason is people are positioning for next year. The fertilizer story is a 2027 story. Farmers will fertilize mid-season — around now, just to get — they call it side dressing, and that’ll boost the yields — that’s going to be cut back around the world. But a lot of farmers pretreat their fields, especially corn farmers, in the autumn. They get ready so they can get in there in the spring and get everything down. So some of the fertilizer is either priced or laid down in the autumn for next spring. If the fertilizer price remains high in the autumn, or the availability remains limited, you will affect next year’s yields. And I think that’s what investors have done.

And back to your point: if it’s a tradable product, it’s more a strategic allocation, because these doubles that have happened prior to now — and again, it’s just historical, not making any predictions, we’re not allowed, you can’t — but if you have to be prepositioned, I think investors are saying, well, wait a minute, if I stick 1% of my portfolio in corn, or beans, or wheat, or whatever, my downside is pretty limited based on history if I’m buying within 10% of the breakeven price, and my upside is like 90% based on history.

And it’s going to be stable, because — setting aside the one or two days every couple of years that are black days, where everything goes down — grains really remain stable as a portfolio stabilizer. And so people are kind of layering in, trying to say: maybe the stock market’s frothy, maybe I’m getting a little too risky, bonds kind of move in tandem with stocks — what am I looking for that has a lower correlation? Everything’s correlated on certain days, but grains have some of the lowest correlation around, besides natural gas and sugar.

BARRY RITHOLTZ: Really interesting. One of the thoughts I always consider when I’m looking at agricultural products or commodities is as a hedge to inflation — prices go up on food, prices go up on key commodities. There are a lot of different ways to hedge inflation, and owning the commodities that go up is a significant aspect of this. How do investors use commodity ETFs as an inflation hedge?

SAL GILBERTIE: They do. I think when people see inflation coming, or feel it coming — and any commodity, we’re grain-focused, right, but any commodity — if you see it down at its breakeven level. And you don’t have to be an expert in that commodity. Look at a chart, look at a long-term chart, a decade or two. Wherever it flatlines, it’s usually around the same number. That’s your breakeven, that’s your futures-equivalent breakeven cost. Everybody can see those charts. That’s when you might want to layer in, because your downside based on history is limited, and your upside — you can move steadily up with inflation, which we have. Again, that breakeven price of corn used to be $3.50. It’s clearly around $4 now — maybe a little high.

BARRY RITHOLTZ: Really interesting. You know, the first time I ever heard of a USDA crop report was frozen orange juice futures from the movie Trading Places. How significant are these USDA reports to these underlying ag products? Do investors need to track this the way equity or bond investors track non-farm payrolls?

SAL GILBERTIE: I think so. And the reason is — granted, it’s not quite as dramatic, because you may not be as good at predicting the numbers as you are with, say, payrolls. And those numbers get adjusted, as do the ag numbers sometimes. But everybody here knows there’s a whole sub-industry within agriculture that’s watching. They kind of know what the USDA is going to put out. But the USDA is the gold standard. So when that report comes out, all of your hedge funds, all of your pension funds, all the big institutional investors — who, quite honestly, are looking for opportunities — they also want to cover their rear. So if you’ve got the USDA as your gold standard, you just follow that. If the USDA confirms what everybody else already knew, fine, you’re a little late to the game, but you’re probably going to be okay anyway. So yeah, those reports are really big.

The scary thing, Barry — you and I can probably both relate — is when we give speeches now and I say, how many people have seen Trading Places, far more than half the room now has a blank look on their face. Nobody under 35 even knows what the movie is.

BARRY RITHOLTZ: Really? God, that’s awful. Oh my God, it’s just awful. I’m genuinely shocked at that.

SAL GILBERTIE: We require our interns to watch it. You’ve got to watch it.

BARRY RITHOLTZ: It’s Eddie Murphy’s — it could be his very best movie. I think so too. So, you mentioned earlier drought, we talked about war. Given the rise of prediction markets, everybody’s trying to figure out what’s going on. How much of the information about either weather or geopolitics or whatever — even a poor harvest — how much of that is already embedded in crop prices?

SAL GILBERTIE: Most of it is. The one caveat, again, as I referenced earlier: if you get a drought in the US Midwest around July or August — which is what they call kernel fill and pod fill, when the corn gets its kernels and when the soybeans fill their pods — if you’re too dry and hot in that period, it hits hard. And the US being the world’s second-largest exporter of both those commodities — we’re second to Brazil now — that hurts a lot.

But you can see it. So by the end of June, if it’s been dry and hot and the 14-day forecast says it’s going to stay dry and hot, you see that price start creeping up. And you can look back at drought years in the price charts. So it gets built in, but you don’t know how bad it is until harvest. In drought years, you get this slow dribble up, and then when you get confirmation in autumn, late autumn, you get that wintertime spike up.

Seasonally, though, the corn low is a double low. One is the middle to late August — that’s a good time to look at layering corn in, if you’re so inclined to do that to your portfolio, because that’s when people have a really good idea that the crop’s going to be good or bad. And then October 1st is actually — when you do a 20-year or 30-year smooth seasonal, October 1st, the first week of October, is the cyclical low. The actual absolute price low often occurs in August. So August, when you get a good read on the crop — it rained during that critical time, everybody’s happy — and then October, because the whole big pile is on the ground, everybody’s feeling comfortable. Those are good times to look at layering these things into your portfolio.

BARRY RITHOLTZ: Really interesting. China has become the dominant buyer of so many agricultural products, as well as other commodities. How has their growing economy and even geopolitical importance changed the way grain markets trade?

SAL GILBERTIE: It has changed the way commodity markets trade. I’ve watched China for decades, and as they become a net importer of something — so when they became a net importer of crude oil, that changed the crude markets; when they became a net importer of corn, that changed the corn markets; when they became a net importer of wheat, that changed the wheat markets; when they increased their importation of soybeans, they became the soybean market. China buys most of the world’s soybeans that are available for export.

Only three countries export soybeans, basically: Brazil, the United States, and Argentina. Paraguay — a little blip there, but you can’t really see it on a pie chart, it’s so small. And so those three countries, if they have an export problem, China has a problem, because China’s the largest swine herd. They feed swine soybean meal, so they’re gigantic importers of soybeans. So yeah. The interesting part is soybeans — they’ve kind of maxed out — but on corn and wheat, every year, if you look at long-term trends, they increase how much. Exactly like oil: the amount of oil they import just keeps going up.

BARRY RITHOLTZ: Really interesting. Given the rising role of China in commodity imports, what was the impact of all the mayhem the past year with tariffs? Did that have a significant effect on how much US grain farmers were able to export?

SAL GILBERTIE: Kind of. Because in Trump’s first term, when he did the tariffs, that changed everything. China basically shifted toward Brazil as their first source of choice for soybean imports, away from the US. So it kind of shifted that.

BARRY RITHOLTZ: And that persists — the US fell behind Brazil in exports to China?

SAL GILBERTIE: Yes, absolutely. And Brazil’s beans, by and large, have been cheaper lately anyway. So China — tariff or not — they’re going to go where the cheaper beans are. When China buys our beans now, it’s the state buying them, because our beans are more expensive, and they’re sending a political signal of goodwill toward the Trump administration.

China, I will note, saved the world by cutting down on their crude imports. Their crude imports largely were to support their strategic petroleum reserve. In the last couple of years, they’ve been importing much more than they actually used, to boost up their reserves. China is the number one reason that crude demand went down since the Iran war started. China saved the world — China saved energy prices. Everybody said $150, $200 a barrel, right? If it weren’t for China cutting back on their energy imports, we would’ve seen that.

BARRY RITHOLTZ: I think a lot of people in the United States underappreciate how aggressively — and let’s just call it cleverly — China has pushed into alternative energy, everything from geothermal to solar to wind. Not a surprise there. There are certain things that you can’t replace crude oil with, but everything else they can, and they seem to have really made an effort to do so.

SAL GILBERTIE: Correct. And — don’t quote me on this, I don’t know for sure, we’d have to go look it up — but I think their fossil fuel usage is still going up. You can’t do without it. And the fact that, thank goodness, they were filling their strategic petroleum reserve versus actually needing the oil — so when the Iran war came, they’re not going to pay high prices to fill some reserves. They just stopped importing all that crude, and that has helped us tremendously.

BARRY RITHOLTZ: Yeah, China is not doing this because they’re advocates against carbon and climate change — they’re doing it for strategic reasons. But let’s talk about climate change for a moment. I know in New York our growing season is longer. I’m a gardener, and there are certain plants that I can plant now that 15 years ago I was told there’s no way they’d survive in New York. What does the changing temperature, the changing climate, do to crop yields? Is this a persistent upward trend? Is this going to help prices, or is this just going to create more volatility?

SAL GILBERTIE: I think more volatility. Because rain makes grain, and a warmer earth — honest to God, rain makes…

BARRY RITHOLTZ: Rain makes grain. I love that.

SAL GILBERTIE: A warmer earth — the atmosphere, when it’s warm, holds more moisture, and so you actually get more rain. So global warming has been really good for crops around the world. It’s a really good thing for crop production. That might sound counterintuitive to people. Our phones ring off the hook when you get the occasional storm and a million or 2 million acres flood out in the US, and you get the news flying helicopters over, and as far as you can see all these farms are underwater, and we get the call: what’s that going to do to food prices? Well, they popped up a little bit, but you might want to sell the rally, because — we plant 400 to 500 million acres in the United States. You lose 2 million acres, no one cares in terms of the absolute price. The only people who care are those poor farmers who are underwater. That’s it. And hopefully they have crop insurance.

BARRY RITHOLTZ: So everybody who’s flooded out — the less than 1% — suffers, but the rest of the rain brings more crop, you’re saying?

SAL GILBERTIE: Absolutely. Absolutely.

BARRY RITHOLTZ: Really interesting. You know, we’ve talked about everything but technology. I mentioned I’m a fan of Clarkson’s Farm and Harry’s Farm, and some of the technology — just looking at these tractors run themselves. Autonomous vehicles have been on the farms for years, long before any of the robotaxis that are out there. What does improving technology do to agricultural productivity? Are we seeing precision irrigation, better seeds, higher-quality machinery? What is this doing to production, what is this doing to quality, and what does this mean for price?

SAL GILBERTIE: By and large it’s raising everything except the price. So thankfully, everything you just mentioned has worked perfectly. Because, again, back to 1960, that rising global demand for combined corn, soybeans, and wheat — if you look at the supply line, it follows that very closely, other than in a drought year. So except in a drought year, we generally grow as much or more than we need. And that’s only because of genetic engineering of seeds, of amazing technology. Tractors now not only can be autonomous — they used to run three to five miles an hour, and you had to kind of guess at your fertilizer. Now they run nine miles an hour across these fields, adjusting the fertilizer every three feet, based on the analysis in the soil. They’ve got these amazing laser weeders, so you can actually go over your…

BARRY RITHOLTZ: Zap ’em without chemicals.

SAL GILBERTIE: Zap ’em — you can do stuff without chemicals. And there’s more and more organic land being set aside for less chemicals. It’s all so wonderful. It’s a beautiful world when you look at agricultural technology. It’s amazing.

BARRY RITHOLTZ: So, to wrap up: anyone interested in having exposure to agricultural commodity products — whether you think the price trend is going to go higher, or just as a hedge against inflation — check out some of the ETFs you can get that can give you exposure to wheat, soybeans, sugar, or any combination of things. I’m Barry Ritholtz. You are listening to Bloomberg’s At the Money.

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The transcript from this week’s MiB: Seth Klarman, The Baupost Group, is below.

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MASTERS IN BUSINESS
Guest: Seth Klarman, CEO and Portfolio Manager, The Baupost Group
Host: Barry Ritholtz

[07:14] BARRY RITHOLTZ: This week on the podcast, I’m not fooling around when I say an extra special guest. Seth Klarman is CEO and portfolio manager at the Baupost Group, a Boston-based private investing firm founded in 1982 with only $27 million in client monies. Over the past four decades that has grown to $22 billion. Seth is known for his patient, risk-averse, and contrarian approach to finding deeply discounted securities in all sorts of areas — equities, distressed debt, real estate, wherever. He authored the book Margin of Safety, a highly sought-after and rare 1991 publication, as well as editing the seventh edition of Security Analysis. Seth Klarman, welcome to Bloomberg.

[09:05] SETH KLARMAN: It’s so great to be here. Thank you, Barry. Thank you so much. I’ve been looking forward to this forever.

[09:12] BARRY RITHOLTZ: Before we get into your investment philosophy and the development of Baupost, I have to roll back a little bit to your early days — economics from Cornell, an MBA from Harvard. What was the original career plan?

[09:30] SETH KLARMAN: So I was always drawn to investing. Even when I was a very young kid, I was interested in the baseball statistics. I became aware that there were these other columns of numbers in the newspaper and asked my neighbor what those were, and started to understand and follow the stock market a little bit. Of course I had no idea what I was doing, but I was paying attention from quite an early age. I didn’t really ever develop a career plan, but I was drawn to the stock market. I’m drawn to puzzles, Barry. I like doing word puzzles every day, solving math puzzles. I still subscribe to something called a math puzzle book published by Dell. And the stock market — it’s a big puzzle. The financial markets are a big puzzle. How does it all work? How does the performance of the companies get reflected in stock prices? And how can an investor outperform everybody else? All of that is a piece of what drew me in.

[10:31] BARRY RITHOLTZ: So I’m interested in how you first found that, beyond the newspaper stock price pages. You grew up in Baltimore. Your parents divorced when you were relatively young. Mom was an English teacher, later a psychiatric social worker. Dad was a health economist at Johns Hopkins. Was it just simply thumbing through the sports pages, literally to the next set of pages where the stock pages were?

[10:59] SETH KLARMAN: That’s literally it — the numbers on the page attracted my attention. I think my origin story is a lot like other people who ended up in the investing business, like Warren Buffett, like Todd Combs, like many others. Drawn to small businesses, wanted to make money. I was delivering a newspaper route for the Baltimore Sun papers. I had a snow cone stand in my driveway one summer. I mowed lawns, I raked leaves, I shoveled snow. I did little carnivals for the neighborhood kids. I sold candy at religious school on Tuesdays and Thursdays because the kids were starving after school. I would buy it up over the weekend and bring it to school and sell it for an arbitrage profit. So it was just a pattern of being drawn to small business and making money, and over time that led to an interest in the stock market. My first stock was some bar mitzvah money when I was around 10 years old.

[12:03] BARRY RITHOLTZ: Well, it can’t have been bar mitzvah money.

[12:05] SETH KLARMAN: It wasn’t bar mitzvah money then, it was a present, but then bar mitzvah money continued to be. So really, 10 years old, and about a share of Johnson & Johnson.

[12:14] BARRY RITHOLTZ: Still have it?

[12:15] SETH KLARMAN: Do not still have it. It’s split three for one, but ultimately I presumably have traded that in for something else that I like better.

[12:23] BARRY RITHOLTZ: So let’s fast forward a little bit to the Baupost origin story, which isn’t that far ahead. You’re only 25. The urban legend is you co-founded Baupost, but in reality you were brought in to manage money for the four founding families — still at 25. That’s a kind of shocking thing: “Oh, we have all this wealth, let’s bring in this kid to run our portfolio.”

[12:51] SETH KLARMAN: Right. And I would say the same thing. If I were in their seats, I would wonder, how does this kid know how to do that? I don’t think people should generally be starting investment firms at age 25, and of course I really didn’t start the firm. The firm was in the process of being created. The four clients of the firm that came together, the founders, had the idea that they would build a firm that might go and make investments itself, might hand money to others who were already in the business of making investments. They wanted to build kind of an institutional structure, a framework for how to make sure the money got managed well. Given what was then, back in the early ’80s, a highly fraught time — as you know from history, the volatile markets, long history of underperformance of the stock market, real economic uncertainty, stagflation at some point and getting worse, Treasury bond yields getting higher and higher. So it was a really fraught moment. They wanted to make sure that the money they had not only was kept intact but was accounted for — clip the coupons, collect the dividends, and all of that. The founders were all selling businesses around that time. So the serendipity was, I was a student at business school. Bill Poorvu, the P-O of Baupost, was my real estate professor. He and some friends were selling Channel 5 — he was a big investor in that, the largest sale at the time of a TV station, to Metromedia. It was the ABC affiliate in Boston. A third friend had a computer publishing and consulting business. All of that was getting sold. So they had this pile of $27 million. And the basic job offer I got wasn’t “come run a fund.” It was “come join us and let’s figure out some more things to do with the money.”

[14:46] BARRY RITHOLTZ: So eventually you become the lead partner there.

[14:50] SETH KLARMAN: I don’t know if CEO is right, Tom. I wasn’t CEO for the first seven or so years, and then I became CEO and effectively got control of the firm — as sort of a handshake deal where we agreed that if I worked hard and did well for the clients, they would recognize that with a stake in the business. So I had no stake the day it was formed and ended up with over half.

[15:16] BARRY RITHOLTZ: You ended up with over half. That’s amazing, 40-something years later.

[15:20] SETH KLARMAN: Now much less, because I’m a big believer in sharing the pie with my team.

[15:25] BARRY RITHOLTZ: It makes a lot of sense. Let’s talk a little bit about the timing. You mentioned there was a lot of turmoil and stagflation. The previous 16 years — I want to say the inflation-adjusted returns were something like down 75%, ’66 to ’82, something along those lines. ’82 was the beginning of a historic bull market. How did that affect how you thought about risk, how you thought about opportunities? What did the markets look and feel like in ’82, when, I imagine, most people were still pretty bearish?

[16:03] SETH KLARMAN: So I think Malcolm Gladwell would look and say 1982 was an interesting time to start an investment firm — that was certainly a wind at your back in terms of being successful. But, and you know this, how it works in the markets is you had no idea you were at the beginning of a long bull market. What you felt was the market hadn’t done that well for a long period of time and people were very skeptical about it. And this is probably a valuable insight: you could always point to things at any moment that don’t add up, that seem overvalued, that seem risky, and yet we get through most of those things. So at the time it didn’t feel like a gimme, it didn’t feel like a layup hand. But what ended up happening was, we tried to make money apart from the market. We weren’t buying an index — indexes weren’t big then anyway. We were buying idiosyncratic situations, looking for bottom-up mispricing, and that led to a building record. So while it looks just okay compared to the market over that period of time, I think we would have done okay whether the market had been up, down, or sideways.

[17:13] BARRY RITHOLTZ: Really interesting. So given you were coming off of what was an epic bear market and just a whole lot of cross-currents — stagflation, super high rates under Volcker, you’re not that far away in ’82 from the end of Vietnam, Watergate, all that malaise — how did that environment affect you as a professional investor? How did that change how you looked at the world, and what lessons did you take from it?

[17:45] SETH KLARMAN: I would tell you, I think every investor needs to be a student of history. It may not repeat exactly, but it certainly rhymes, and it is very valuable to understand — especially financial history for an investor. What were the worst moments? How did we go through a market crash in 1929 to 1933 and a Great Depression that lasted close to a decade? What must that have been like for the people at the time? How would one handle oneself if you were going into a period like that, when we know that even the greatest acclaimed value investor of all time, Benjamin Graham, went broke twice during that era? So it’s incumbent on all investors to be thinking, and maybe holding multiple inconsistent thoughts in their head at the same time: that I found this interesting opportunity today, this bargain-price stock for whatever reason — it’s out of favor, they cut their dividend, it’s a spin-off, it’s a bankrupt security that’s converting into a new equity. These things tend to get mispriced. But you’ve got a backdrop, from time to time. Today we have a backdrop of an expensive market and a bit of euphoric conditions. Is that dangerous? Dangerous. But we’re also at the cusp of maybe a groundbreaking new technology. So over the 40 years it’s always been some of both — you’ve got a backdrop of something sometimes very depressed, sometimes very optimistic, but you’ve also got individual securities that are fluctuating around, maybe creating bottom-up opportunity. What I deeply believe is that value investors make money staying in the bottom-up. You might have a top-down view, you might say, yeah, it could be a bubble, it could be a problem, but bottom-up is where you’re going to devote your time. It keeps you anchored. If you have a portfolio of bargains, you’re probably going to do okay, if you’ve stress-tested them and if you’ve been intellectually honest about them and they really are bargains.

[19:47] BARRY RITHOLTZ: So you mentioned Ben Graham. I’m curious as to who else were important influences on the development of your investment philosophy. I’ve read about Michael Price and Max Heine. Who affected you the most over the years? Who still affects you?

[20:08] SETH KLARMAN: Reading Ben Graham was certainly a major influence on me, as he has been on essentially everybody in the value investing community. And then Warren Buffett, the real-life practitioner of Graham. It was always heartening to know that somebody like Buffett, who seemed to think similarly to how I thought — thought about downside risk, thought about the need to stay focused on individual companies and not worry so much about the overall market, the willingness to hold cash, and concurrently the willingness to not have an opinion on everything. I have a lot of ideas and I end up with no opinion, no position. But once in a while we find something that seems way off the beaten path that’s really interesting. To watch Warren Buffett do that — I’ve realized now that Warren probably had a certainty of the idea that he would compound capital over a long period of time. And I think that is something that Graham gave Warren, and Warren gave me as well: the idea that if you protect on the downside, if you don’t find yourself getting margin calls, frozen in place because you’re too exposed, or getting massive redemptions because you’re down so much — if you can position yourself that way, it can leave you in a position to play offense when even your best competitors might not be on the playing field. And that’s a huge advantage. So Graham and Dodd is kind of a North Star, a place where you can stay focused on what something’s worth. You can ignore the herd. You can ignore the siren song of growth at any price, of exciting new technologies and exciting IPOs. You can ignore all that because you have a confidence that I own something that’s going to be worth more a year or two from now than it is today. That’s the underpinning that lets you follow a value investment strategy.

[22:11] BARRY RITHOLTZ: So you mentioned downside risk, and you referred to before, you began in 1982. Less than a decade later you publish Margin of Safety, 1991. What led you, at the ripe old age of 34, to write a book on risk management? What was the motivation? How was it initially received — because it’s become so sought after these days. What was the initial reception like?

[22:44] SETH KLARMAN: In retrospect that looks pretty darn presumptuous. I got asked to write it by a classmate from business school who worked at Harper Collins at the time — or Harper & Row, maybe, before Harper Collins. She had seen some of my client letters and said, you seem like you’d be a good writer, and you’re a smart guy, maybe you’ll have something to tell the audience. What I really thought was, I’m just updating The Intelligent Investor for modern examples and a contemporary market, decades since that book was written. I thought maybe I’d make it a little bit more accessible for the average Joe. I don’t know whether it accomplished that, but that’s what I was trying to do. I didn’t think I would make money from writing the book — as you, as an author, know, we get like a buck fifty an hour. But it’s a great feeling, and it’s a ton of work, but ultimately worth it. And you get smarter from the act of writing about what you do. You can do what you do all day long without maybe fully forming the philosophy, but if you want to share it with anybody else, it makes you think more clearly about what you do.

[23:59] BARRY RITHOLTZ: The former Librarian of Congress, Daniel Boorstin, used to say, “I write to figure out what I think.” And there’s a lot of truth to that. What was the initial reception like? Did people respond, or did it kind of land, and a handful of value geeks bought it but no one else?

[24:16] SETH KLARMAN: It’s somewhere in between. What happened first was my editor got fired three different times, so I kept getting new editors. They had promised to back the book with advertising and they didn’t. So the book landed with a bit of a thud. It had maybe a very tiny second printing — I think they printed maybe 7,000 copies. I ended up buying a bunch of them back from HarperCollins by the time they took it off the market, and the rights somehow reverted back to me. What it did do, though, is it was bought significantly by competitors who used it to train their teams. And that was also — is that what I wrote it for? I don’t mind, but the starting goal, if you go back to the book, the first half of it was about the Street and about how they treat the average investor, and maybe the challenge of whether the investor’s getting a good deal. The second half is maybe an investment approach, a value-oriented approach, and how an investor might think about doing that, even if they’re not a professional investor. So it was successful in a weird way. Because it didn’t get republished, it developed a bit of a cult following, and that’s kind of amusing and interesting to me. Of course, we’ve reprinted some on our own, so we’ve made it available to our clients and to summer interns and to anybody that’s connected to the firm.

[25:47] BARRY RITHOLTZ: So in 2023, the seventh edition of Security Analysis, Ben Graham’s framework for investing, was edited by you, and in a lot of ways substantially re-jiggered. How different is this version than Graham’s? Obviously the market’s changed, the economy — it’s so much different than when he was writing. How did you approach this?

[26:13] SETH KLARMAN: So the earlier edition, the sixth edition, I was co-editor with Jim Grant and Bruce Greenwald, and the seventh edition they asked me to edit on my own. As editor, we didn’t follow the process you might follow, because we kind of thought of Security Analysis as the Bible, and we thought we should leave it alone. What we should do is have modern-day expert investors write commentary about the different chapters and sections of the book. So that’s what we did. The sixth edition and the seventh both have some really great selections by investors, some of whom are well known, but some of whom aren’t known at all. My former colleague David Abrams is one of them. David’s contribution in the sixth edition is one of the most brilliant things I’ve ever read. So I felt like we were moving Graham and Dodd into a different era. The thing that’s beautiful about Graham and Dodd is it was written a hundred years ago, give or take, and it was written during the Depression. Things that made sense in a depression haven’t made sense every day since then, because we haven’t been in a depression most of the time since then, if at all. So it was an update — taking what’s valuable, why people revere the book as a Bible, but also making it more accessible and more relevant to the modern day. We expanded it to cover some topics that weren’t covered. It certainly has more international investing, which wasn’t really focused on by Graham. It talks about some private investments, some of the changes in financial markets, the latest manias and fads and all of that, but also the changes in market structure, changes in asset classes that have come into existence. All of that is a valuable updating of the literature, and helps keep something relevant that deserves to be relevant — while updated, because in its original Graham and Dodd 1934 form it wouldn’t be very useful to people.

[28:20] BARRY RITHOLTZ: Really, really interesting. Coming up, we continue our conversation with Seth Klarman, CEO and portfolio manager at the Baupost Group, discussing the firm’s evolution and philosophy. I’m Barry Ritholtz, you’re listening to Masters in Business on Bloomberg Radio.

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[29:10] BARRY RITHOLTZ: My extra special guest this week is Seth Klarman. He’s CEO and portfolio manager at the Baupost Group, a legendary value and distressed investment shop out of Boston, running over $22 billion in assets. So let’s talk a little bit about the way you think of opportunities and risks. During the ’08-’09 financial crisis, you raised about $4 billion, and the research I read had you deploying $100 million a day into distressed assets. That seems like a big chunk of money. First of all, are those numbers remotely accurate? Is that ballpark?

[29:57] SETH KLARMAN: It’s ballpark. What I would tell you first of all is, we had been closed for new clients much of our history, but we kept a list in case. So when the market started to fall apart after Bear Stearns, and then after Lehman, there were all kinds of things going on and people were in great stress as we entered the uncertainty of an economic decline that could have pretty epic proportions. As it turned out, it certainly was the worst decline since the Great Depression, and it stands out as the mother of all bear markets for anybody in the last hundred years. So the challenge was, maybe it’s time to take some capital, and the odds are increasing every day that we’re going to be able to deploy it fruitfully. So what you said is about right.

[30:49] BARRY RITHOLTZ: So Bear Stearns, if I’m remembering correctly, was spring of 2008, Lehman was September of ’08. That’s not a lot of time from there until March ’09, when everything really bottoms. I have three questions about this. The first is, how quickly were you able to raise capital, get the docs signed, and be prepared to deploy that as opportunities arose? Doesn’t seem like there’s a lot of time.

[31:20] SETH KLARMAN: The team worked heroically, and we were able to raise very significant capital within a quarter.

[31:29] BARRY RITHOLTZ: Wow, that’s really quickly. Now you mentioned the team. I have heard some really interesting rumors and legends. How did you put this team together? What were their marching orders? How did everybody operate in that period of absolute turmoil and mayhem?

[31:47] SETH KLARMAN: So we were already an established firm. We’d been up and running for a couple of decades by then. So I had a team in place, and they were deeply knowledgeable — experienced distressed-asset expertise in the group. Not everybody on the team has that, but a very high percentage of the team has that. People within Baupost are like versatile athletes. We’re nimble, we’re agile, and we cross-train — kind of like baseball teams are doing now in the minor leagues. They don’t want you to just be a third baseman, they also want you to play outfield and maybe second if need be. The same with us: we have people that sit in four different groups, as you mentioned, but all of them can work on distressed situations. And people in the private investments especially love when we’re super busy in the public markets, and we call them in to work on a distressed credit.

[32:42] BARRY RITHOLTZ: So a big chunk of capital, very aggressively deployed, in a moment in time when so many people seemed to be just paralyzed and frozen with fear. Was it just the value analytical framework, or was it a little broader and deeper than that?

[33:01] SETH KLARMAN: Yeah, I think, Barry, that the way you’re conveying it probably comes across as, we come in with giant satchels of money and hand over fist. It wasn’t like that at all. It was the same cerebral, methodical, painstaking environment that we have every day. We see things trading at lower prices, and we notice that, and we look at the fundamentals. Everything we do at Baupost is bottom-up. Nothing’s top-down. We’re not saying, probably a good time to be a contrarian — none of that. We’re saying, oh, I can buy this bond at 70 that I think is covered at par. People are worried maybe it could have a blip or a problem for a while, but people aren’t really doubting that there’s something there. As the economy got worse, people may have started to doubt more and more, and prices come in more and more. So we were literally able to buy mortgage securities, residential mortgage securities; we were able to buy corporate debt, especially the auto finance companies, the financial arms of General Motors and Chrysler and Ford. And when Lehman goes broke, that had pieces within its capital structure that got very interesting. So we were seeing all kinds of things, and we were kind of kids in a candy store. Sadly — right, it’s a tough time, people are hurting — but also, as an investor, you’re a fiduciary and you’ve got to put money to work to benefit your clients. So in every case we were stress-testing: hey, if the world got even worse, if this turned out to be 1933, will this investment be okay? That’s the only place where we’re making decisions — if the downside is protected, and if we can see lots of paths to winning, then we’re very interested. So we found a lot to do in distressed. We also owned equities, we also found private investments, and there were just all kinds of things worth doing in that era. The challenge in investing, for everybody, is you want to make sure that those environments are going to happen once in a while, and you need to make sure you don’t blow up during them, and if possible you make sure you’ll have capacity to buy when the best opportunities become available and your competitors are sidelined. That’s the moment investors need to at least have in their heads: how are you going to handle that environment? Because if you’re too exposed, if you’re getting margin calls, if you’re getting massively redeemed because you took the wrong clients and they’re short-term, then you’re going to be out of commission on that day. So to be around on that day and be able to do what we do — we just did the same thing we do every day, you did it in a little bigger size.

[35:45] BARRY RITHOLTZ: So I’m kind of fascinated by the dynamic tension between fundamental bottoms-up research on a credit-by-credit or equity-by-equity basis versus the top-down. You’ve said that you really don’t think about markets or investing from a top-down perspective, but it seems that everybody who panicked, everybody who helped create those distressed assets, was either responding or over-responding to the top-down environment. How do you look at that sort of environment?

[36:21] SETH KLARMAN: There are several layers to that. First of all, people were responding to all kinds of things. They were responding to redemption requests by their mutual fund shareholders. They were responding to credit downgrades, so it wasn’t just nervousness that things are going to be bad — this bond is no longer investment grade, and maybe my mandate is I can only own investment-grade bonds; or this bond has defaulted and I can no longer hold it. So you have forced selling all over the place. And forced selling — you never want to be a forced seller, and you especially want to be able to buy from forced sellers in any asset class if that comes along. I’m not a mountain climber or a big hiker, but if you’re going to climb a mountain, you want to look bottom-up: is this the right trail, is it safe, do I have my equipment, am I prepared? And then you also want to have the top-down view — what’s the weather? What if it suddenly gets snowy up there, if the wind’s 60 miles an hour, how am I going to handle that? So you kind of want to have in your head the weather forecast. I’m always thinking about, is this environment safe? In today’s market, it feels stretched, but it also feels like we’re on the brink of an unprecedented technology, an era that might be one of very substantial prosperity, but also one of risk to society and great change. So bottom-up still feels like the right way to invest, but you still need your eye on the weather in the financial markets. That means, where’s GDP going, what’s the national debt, where’s inflation going to take us? I always have an eye on that stuff, but we’re not investing our portfolio based on that — the same way we don’t invest based on a macro view that this country would be a good place to invest in. Rather, we notice a security bottom-up and say, wow, that seems egregiously mispriced. I wonder if there are more mispricings. Maybe we should look at that market a little bit closer.

[38:36] BARRY RITHOLTZ: So let’s talk a little bit about cash. I think a lot of investors look at cash as a drag on their performance — the net return is usually zero or close to zero relative to inflation. How do you think of cash? It’s always been such a historically important part of your toolkit. What sort of optionality does it create, versus the career pressure of staying fully invested at all times?

[39:06] SETH KLARMAN: You’re nailing it with your question. You’ve covered all the parts of holding cash. Cash can be valuable optionality. Just imagine you have a reasonably concentrated portfolio, and a large position or two comes off the books. Should you put it to work in a nanosecond? Or can you wait until something really interesting comes along? That’s the origin of us holding cash — positions would come off and we’d hold some cash until something great came along. But not just a couple of percent. With concentrated positions, we have 5% and 10% positions in the portfolio. When two or three of them come off, cash goes from next to nothing to 15% or 20%. So that’s the origin, that’s how we got started with the idea that we would hold some cash from time to time. That said, I would accept that I almost certainly made a mistake in holding cash to that extent. There were times when we were 30% cash and even higher, and I viewed it as valuable optionality. The problem is the optionality didn’t pay off very well for big swaths of time — especially in a period of suppression of interest rates and the Fed printing a lot of money in the U.S., running large deficits, where we really haven’t had a serious downturn in almost two decades. So that amount of cash became painful. The argument for holding cash, when the client says “I’m not paying you to hold cash,” my answer would be, I’m not getting paid to hold cash, I’m getting paid to use my judgment on when to deploy the money and in what to deploy it. So I feel like that’s right, but I felt like I was not optimizing for our clients in an environment that stopped being as volatile as the one I’d grown up in. So we changed our strategy somewhat. We made our liquid books more liquid, especially our public equity book, where we used to own companies with, you know, $500 million or $1 billion market cap. Now we own much bigger market-cap holdings on average. That liquidity in the public equity book has made us feel better that we can pivot on a dime with a large percentage of our book. So we don’t need as much cash to be able to take advantage of a sudden opportunity that shows up.

[41:21] BARRY RITHOLTZ: A lot of larger equity funds, when they’re sitting in cash, use the SPDR ETFs, rolling into SPY, so they’re not falling behind a benchmark, and then it’s deep and liquid if they want to deploy that. In a momentum market, is that a bad strategy, or are you just adding risk to avoid the cash risk?

[41:46] SETH KLARMAN: We think about our benchmark as an absolute return, not a relative return. So we’re not very interested in keeping up with the market. The market’s going to do what it does — and especially a market this concentrated in a handful of names, which it’s really been for a number of years, with the big names that carry the market often, not always, but often expensive, overpriced. We just think that’s not the right way to think about it. We want to earn absolute return. We want to beat inflation by hundreds of basis points. And if we’re doing that, we’re not going to worry about whether that’s ahead of the market or behind. I think over the fullness of time, a good absolute-return strategy is going to beat the market too.

[42:28] BARRY RITHOLTZ: So let’s talk about some of the opportunity sets that you look at. You mentioned equities, we talked about distressed debt. You also make real estate investments, other private investments. How do you think about capital allocation across these buckets? Are you using percentage terms, or are you just purely opportunistic?

[42:50] SETH KLARMAN: So we came about these through our experiences. We didn’t just wake up one day and say, let’s be in four different areas. Rather, we noticed that over the transom, interesting private investments were coming into the portfolio. We were getting phone calls: hey, would you inject capital into this business? Would you buy this portfolio of venture investments from a failed company that needed to sell them? Would you buy 22% of a company owned largely, 78%, by a large Middle Eastern company, with 22% up for sale? Well, at three times EBITDA, maybe you would. So literally, by seeing examples one at a time, bottom-up, we started to figure out that there were more things to focus on than just the public equity markets. One of our specialties is distressed credit, and we became really good at it. We’ve got smart people, we’re very patient. Sometimes there’s nothing to do, there’s nothing distressed; other times there’s an avalanche of opportunity. In all of our areas, we built teams of versatile people, so that our team is basically a generalist team, and the same person can work on a private investment, a credit investment, an equity investment. Real estate is a bit more specialized than that, but even within real estate, many people have a land person and a hotel person — we don’t do that. Everybody works on everything. So we have the team in place and we’re able to respond bottom-up. The bottom-up approach to opportunity lets us allocate capital better than if we were doing it top-down. A lot of people will look at historic returns and say the expected return for owning private equity will be mid-teens or upper-teens, the expected return for venture capital will be better than that. We don’t do that. We really don’t know what asset class is going to do, because we think that’s very time-specific and very valuation-dependent. Rather, we see what’s available right this second. By looking bottom-up, opportunity after opportunity, I think we can paint a really clear picture. So right this second, real estate’s been in tough shape since COVID, especially commercial office. People started working from home and that hasn’t fully returned, and in certain markets especially there’s too much space. A lot of people that have been in real estate have not done that well — a lot of people got in at a wrong vintage, and a lot of properties have become structurally obsolete. So that sounds like a mess — why would you touch it? But it also means that competition is hardly looking. So we think there are opportunities right now, for example in assisted living. The population is aging. You can make a very strong case for fundamentals. Rents haven’t moved up in years, and there’s probably pent-up growth in rents to come. COVID was obviously a giant problem, because any facility tended to empty out as people pulled their relatives out to save their lives during COVID, understandably. A lot of newly built facilities from that era, from 2021, 2022, never got filled, and a lot of them have run into bankruptcy or financial distress. So it’s been an opportunity to build a position in an area with strong fundamentals. The past is the past, but moving forward, it looks like they’re going to have real ramp for rents and for occupancy. We’re seeing opportunity here and there to add to a portfolio of assisted living. Similarly, we like certain parts of the real estate office market, especially some outside the major cities, in a few select markets though. And we’re seeing more in other submarkets within real estate. Real estate, as you know, is a giant market — it’s probably got a market cap around as big as the public equity market — but it has a very different capital structure in terms of who the players are and how much capital they can tap, and the opportunity set. So real estate’s interesting. We like looking at it, and we have a team that’s agile and could deploy capital quickly when something comes along. In private investments, it’s opportunistic, and there have been some things to do lately as capital’s pulled back from private investments. For example, in energy and midstream, that’s led to some things that have trickled down to us that we’ve been very excited about — very high return and well-hedged, so downside-protected. So we’re just opportunistic investors. I would say, though, using my top-down lens that you mentioned, we are certainly nervous. We’re in a bit of an economic boom, possibly an inflationary boom. Who knows what’s going to happen with the Strait of Hormuz, and the result of that. And the demand for AI and AI-related investments is so all-encompassing. It’s almost as if the market has said, we want the AI winners, we’re going to dump anything that looks like an AI loser, and maybe we’ll throw out some babies with the bathwater and we don’t care. So we think there’s opportunity even in some larger-cap, high-quality equities that are being thrown out as people want to make the high returns from speculating on AI right now.

[48:27] BARRY RITHOLTZ: We’re going to talk a little bit about the current environment in greater detail shortly. I just have to ask one more question about contrarian approaches and opportunity for value investors. The risk is always a value trap — sometimes the market’s negative judgment is actually right. How do you prevent something that’s cheap from suckering you into something that’s on the way to becoming much, much cheaper?

[48:58] SETH KLARMAN: You’re asking about something that we’ve had a bit of a painful lesson in over time, which is, cheap is not really a strategy. We tend to look at our investments not as, are they at a discount from what we think they could be worth, but rather, what is our expected go-forward return from here. And we tend to also ask that our investments have catalysts. When we lay out a thesis in an investment conversation, it’s very clear not just how undervalued it is, but why is this going to work? What’s going to drive it? If we can’t make an argument for why it’s turned around in the next year or two, it might be nice that it’s trading at a five-year low, but that doesn’t mean it’s not going to be at a seven-year low and a ten-year low. Our time horizon is not that long. We can’t just hold things that don’t perform for five or ten years. Very few people can do it today, and that’s not holding our feet to the fire. All organizations need to demand accountability from the teams. So we always are asking ourselves a different question about what is going to drive the success of this investment, rather than just letting cheap be enough. It’s not enough.

[50:18] BARRY RITHOLTZ: Very interesting. Coming up, we continue our conversation with Seth Klarman, CEO and portfolio manager at the Baupost Group, discussing the state of investing in today’s environment. I’m Barry Ritholtz, you’re listening to Masters in Business on Bloomberg Radio.

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[51:12] BARRY RITHOLTZ: My extra special guest today is Seth Klarman. He is the CEO and portfolio manager of value investing legend the Baupost Group. The firm manages about $22 billion in client assets. So we’ve touched briefly on things affecting today’s environment — the price of oil and inflation. We have a Middle East war. We’re still dealing with a new set of tariffs. It seems like every week there’s a different macro headache. How do you think about the current environment? Is it something that has to be dealt with but sort of compartmentalized? Or do you just look at it as yet another input into fundamental values?

[52:10] SETH KLARMAN: So I think AI is a sea change. I’m not a tech guy, and I’m not a personal user at the cutting edge of technology, but I’ve spent a huge amount of time — the advent of AI has forced me, and probably everyone, to just add more time to their day to stay current. I’ve never seen a technology with this kind of importance and potential game-changing magnitude. So I read everything I get my hands on. I listen to a lot of podcasts as well, I read a lot of books and magazine articles. I’m consumed, because even though I don’t think Baupost, as a value firm, is going to find too many ways to get long AI exposure, we don’t want to be behind the curve. We don’t want to not know what we don’t know. So the team is doing a fabulous job thinking about AI, thinking about ways to incorporate it into our processes, but also especially thinking about the implications of AI on our portfolio companies. We have found ways to have a little bit of long exposure in things, for example like data centers, where we own a few private investments at what we think is a very considerable discount to where data centers tend to trade. We’re not sure what the right discount is, or what the right long-term cap rate is, but we think owning it at a significant discount is a good thing. So we have some exposure, but mostly we’re trying to own a portfolio where we have avoided AI losers, and maybe occasionally found something that the market thinks is an AI loser that we think isn’t, and to otherwise have things with ancillary exposure to AI where we can turn into AI winners, but not pay much for the privilege. So it’s a piece of what we do. In the meantime, obviously you referred to tariffs and the volatility of the president and this administration. There are things coming out of left field all the time. Some of it is policy, some of it is distraction — I think maybe deliberate distraction. And it’s very hard to deal with that. I, like most investors, have said, I need to make a mental note of it, I need to think about who I want to vote for next time there’s an election, but I also need to not get distracted by this, and most of it doesn’t end up mattering on an investment-by-investment basis. So it is a time of tremendous change, high degrees of volatility. And you see the stock volatility is unbelievable. When they love a stock, they can’t get enough of it and it goes through the roof, and when they turn on a stock, it gets clobbered. So the individual stock dispersion is very high, while the overall market volatility is actually quite low.

[55:06] BARRY RITHOLTZ: Really interesting. Let’s talk about another distraction and what it might mean. We’re recording this a couple of days before the SpaceX IPO. It’ll broadcast a couple of days after the SpaceX IPO. This is not only a giant trillion-dollar valuation, but it’s got a lot of hair on the deal, with this tiny float and the Nasdaq waving the rules to put it into the indexes. How do you look at an event like this in terms of the overall gestalt of the market? I know the old line is they don’t ring a bell at the top, but at a certain point, how do you perceive something like this? Does it trouble you?

[55:56] SETH KLARMAN: So my compliance team is very clear that I can’t talk about an individual security, and we own no SpaceX, privately or in any other form. What I would say to you is, I share your sense that this is the kind of bell that might ring at the top. It is an unprofitable company in aggregate. It is an enormous valuation. We both read in the paper this morning that Goldman estimates what growth would have to be in some parts of their business — like 100x — to justify the current price for a long period of time. And those projections have a way of not happening. It’s not impossible, but it’s hard. I think investors might be missing just how much money is being sucked out of the system between large IPOs — this won’t be the last one, OpenAI and Anthropic are coming, and there’s a ton of other IPOs that are stuck in institutional investors’ portfolios that they’d love to get off at any point. The float might be tiny today, but you have a large number of shareholders, private investments. We read again this morning that 10% or 15% of some endowments’ entire endowment is in the one name SpaceX. So they’re going to want to sell. Employees are going to want to monetize and go from being wealthy on paper to wealthy in a bank deposit. So that’s a lot of stock for sale. And we have to sell that stock while apparently Google and Facebook need more money, and OpenAI and Anthropic need more money, and utilities need more money for power, and chip companies need to build new factories in America. There’s so much demand for money. I think we’re in a vulnerable place, where ultimately supply and demand for money determines the cost of capital. That’s true in the bond market, and it’s in effect in the stock market. So we might be looking at some supply-demand excess where prices soften just because there’s so much supply of securities and the need to monetize is so great by these private companies.

[58:18] BARRY RITHOLTZ: So let’s talk about another imbalance between supply and demand through history, because Baupost has been around for over four decades. You’ve traded and invested through and survived all sorts of different market regimes — inflation, disinflation, the dot-com bubble, the financial crisis, QE and ZIRP, COVID, and more recently the return to, let’s just call it, normalized interest rates. Has anything changed since 1982? Is it just the same screaming from one crisis to another? Or do things eventually sort of moderate, do we learn from these experiences? What’s the same, what’s different?

[59:11] SETH KLARMAN: I think all investors should be students of history, as we talked about. Over the course of history, there are cycles. You’re going to have a cycle where you’re at war, and then another cycle where people are tired of war and you have peace for a while. At some point you have peace long enough that people forget how bad war is, and you end up in another war. You have those similar cycles whether it’s government spending, inflation and deflation, that sort of thing. Even the nature of debt — debt feels great when nobody’s asking you to pay it back, or interest rates are low. At some point that becomes pernicious and a giant problem. So we’re likely to always see those cycles, at least as long as humans are in charge of markets. How do you navigate it? You navigate it by realizing that you may not see the cycle with clarity while you’re in it, but you know there are cycles, you know that what seems to be true today for all time probably won’t be true for all time, and you hold on to that. So again, it goes to the idea of holding inconsistent ideas in your head at the same time: this is both true, and likely at some point to become less true or untrue, and you don’t know exactly how. So how do you hold the portfolio? You diversify. When things are up a lot and become more expensive and the go-forward return is low, you take profits, you trade out. When things are out of favor so badly that the returns look high, maybe there’s a time to step in and buy during a period when others are dumping. So I think it’s that. Stay focused on the bottom-up. Remember broadly the weather — so when you go camping, you do prepare appropriately for stormy days, not just in the mountains but in the financial markets. And look on the downside as best we can by doing deep fundamental analysis, by knowing our names unbelievably well, by not being afraid to sell them when the price is up, and the same as we buy more when the price is down, by finding securities that are maybe more senior in nature, whether in public or private markets, and by macro-hedging the portfolio to an extent, because we know that those rainy days are going to happen. So we’re buying macro protection when vols are low and people think nothing bad is going to happen, so we can sell that at a gain — both because the price moved, and because vol moved up during a stormier moment in the markets.

[61:38] BARRY RITHOLTZ: So we now have a new Fed chair, and that’s a great leaping-off point. There’s a lot of skepticism broadly, but you’ve been pretty skeptical about Fed policy since the financial crisis. How do you think rates have affected investors? What’s been the impact on behavior? And are we at a point now where rates are more or less normalized? How do you look at the present environment?

[62:07] SETH KLARMAN: You know, I believe in people taking responsibility for their actions. I believe that we are a healthier system when there’s a reckoning for excess, for egregious speculation, and for over-leverage. So I kind of hated that the Fed took rates — I totally understood why the Fed took rates down to zero after the great financial crisis, and that it was really the only way to hold things together, give time to heal. But by leaving rates there for an extra decade, after there was no crisis, I think we stoked a problem. We incentivized speculation and maybe disincentivized responsibility. We saw that firsthand in 2022, when the market had gone higher and higher and you had those SPACs and all kinds of garbage-y companies trading at very high prices, the meme stocks. And then it blew up in 2022 — a lot of stocks down, you know, 50, 70, 80, 90, 95%. That’s what happens when you get that kind of unregulated speculation. I think today we are back speculating, in an area that feels more legitimate. It’s hard to say exactly what’s going to happen with the continued development of AI, with the possibility of AGI coming, and what that will mean. We don’t know whether it’s going to lead to massive unemployment, or whether it’s going to lead to incredible prosperity, or whether it’s going to create even more dispersion in the economy between the people who are doing well and the people who are not — the K-shaped economy. That’s a real source of concern. So there’s always going to be that kind of uncertainty. I think what we should agree on is that there’s going to be a path that nobody today, in 2026, could say with any precision what things are going to look like in two or four or ten years. And the dilemma with that is, people are paying very high prices as if the future is extremely predictable and clear, when obviously, given what’s going on, it is anything but that.

[64:22] BARRY RITHOLTZ: So before I get to my favorite questions, I just have two or three other questions I have to ask you that are a little more personal, starting with: you very famously kept a low profile in a business that has historically rewarded publicity. Was that a conscious decision? Was that a strategic approach? And why be a little more publicly stoic?

[64:54] SETH KLARMAN: So I’m probably a little bit more the introvert. I’m not looking to be on TV or in the papers. I also think a lot of the work we do is better off when everybody isn’t looking to copy our investments. If you want to accumulate a stock, you’re better off if everybody doesn’t know that you’re trying to do that — you’re going to get a better price, like in any business transaction. That said, we’re not a recluse. Everybody knows where we are, everybody knows members of our team, we’re very well known on the Street. You just don’t see me on TV talking about it all the time. I don’t know why that’s a bad thing. It feels to me like a good thing.

[65:38] BARRY RITHOLTZ: And beyond investing, you and your wife have been very active philanthropists. The Klarman Sell Observatory — there’s been just a run of different things. How do you think about philanthropy? How do you think about capital allocation? And how do you make sure that the money that’s going to these causes is being well spent?

[66:00] SETH KLARMAN: On our third date, my wife and I were taking a walk on Cape Cod on the beach, and she said — we were just getting to know each other, obviously, third date — she said, what do you hope for in your life? I said, I hope that if I’m able to provide for my family and there are still resources beyond that, I want to give back. And that just comes from my fundamental view — I guess it’s how I was raised — that some of us are going to be fortunate and be in that position, at a time when not everybody is, and it’s both a privilege and a responsibility to give back. You can’t take it with you, and you probably don’t want to. It’s not a good look to spend it all ostentatiously in your lifetime — that’s not my nature. So I’ve always been working to make money to give away, and it’s what keeps me focused today. I love investing as a puzzle, but I love knowing that if we do it well, we serve our clients, and I’m going to have money that I’m going to be able to add to what we give to charity. Charity is a calling. It feels very, very important to me personally. This is a broken world. There are all kinds of problems, from climate change to a poor education system to challenges to democracy, the threat in America to the way you and I have known it our whole lives, the country that I want — you probably want — future generations to grow up in. America has been amazing for me. I have been such a beneficiary of growing up in this country and having unprecedented opportunities that, if I was in another country, I wouldn’t have had. So I’m grateful for that, and I want to make sure everybody has the same chance. But we also have to be realistic: the American dream is broken for a lot of people. People are less likely today to be able to say that their kids and grandkids will be able to eclipse them, and I think we need to restore that, and we have a lot of hard work to do. So our philanthropy goes into many different areas — some, as you said, in science; some in terms of thinking about democracy and making sure the system holds; some in healthcare; some to the universities that were good to me and my wife. We spread it pretty well, because we believe that a lot of causes will come together to be able to lift up people throughout the country. One of the things we do is a musical instrument fund, because our son is extremely musical, and it reminded us that every kid that is passionate about music should have a chance to have an instrument. We also do capital gifts to institutions throughout Massachusetts, in some of the harder-hit towns during COVID, or just economically depressed areas — there’s just not a lot of money there. So, kind of as a value investor, I’m seeing an opportunity to refurbish the civic center, or this library in a small town in Massachusetts. It just feels great to know that the people in Pittsfield will have as good a library as the people in Boston.

[69:16] BARRY RITHOLTZ: Really interesting. So there’s a question I want to end with before we do our final wrap-up, but there’s a question I want to ask, and we’ll just move it back a couple of beats, because that’s a tough answer to follow — and it’s just Boston sports. I feel obligated to ask during the finals. So you’re a big Boston guy, and you mentioned you were a big fan of the sports pages and all the statistics. What do you think of what’s going on in sports these days? The Celtics didn’t go as far as some people thought. We’re now down two to one in the finals. How are you looking at basketball? What do you like in sports these days?

[70:06] SETH KLARMAN: So my two biggest sports passions are baseball — I’m a small owner in the Red Sox — and horse racing. I’ve been fortunate to have some really high-quality thoroughbreds over the years. We won a few races Belmont Stakes weekend, not the Belmont, but a few other stakes races this past weekend. So those are my favorite sports. The Celtics season was disappointing. They played so well the first three quarters of the season, and sadly when their superstar Jayson Tatum came back, I think it got them out of their game, where they had been introducing younger players into the mix, passing the ball a lot, and really winning in an exciting way. So maybe the chemistry just didn’t go as well as they had hoped, and then when Tatum got hurt right at the end of the playoffs, we bowed out. I think sports is great. It’s a place where blue Americans and independent Americans and red Americans can all root for the same team, and can be excited about a sport, and can do it in a way that’s gracious and accepts winning but also accepts losing. Sports is a great equalizer and a great unifier. So I love sports. It serves a lot of positive purposes in a society. It’s a little crazy, because we’re rooting for strangers we’ve never met who represent our city, but it is a powerful way that I think can unite a city.

[71:32] BARRY RITHOLTZ: So baseball this year just seems to be so odd. The Mets are having a hard time, the Red Sox — I have no idea what’s going to happen with them this year. What do you think about what’s happening in baseball in 2026?

[71:48] SETH KLARMAN: Yeah, I think it is partly small numbers, that we’ve only played 60 or 65 or 70 games, so still a lot of season to go. But statistics, you know, things can mean-revert, eventually catch up.

[72:06] BARRY RITHOLTZ: Is that the same way that — all of us have to decide whether we believe in hot streaks or not, right? It looks like a thing, but in fact, is there really a shooting streak, or is it simply…?

[72:19] SETH KLARMAN: And to every good shooter — you get a little overconfident and start taking worse shots. It’s when you take high-percentage shots and you take them consistently. So I think baseball will always surprise you. It’s a perplexing game, where what you draw up on paper doesn’t happen. And it also doesn’t happen in the locker room, where the players can’t understand, “I could hit last year and now I can’t hit.” Part of it is that the opponents adjust. If you’re a rookie like Roman Anthony, and you come up and you hit .300 for two months — he’s hurt now, but the pitching figures out your weak spots and they make you look bad, and then you adjust and you make the pitchers look bad. So there’s that perpetual back-and-forth between defense adjusting and then offense adjusting, and where it ends up determines who goes in the Hall of Fame.

[73:18] BARRY RITHOLTZ: Really interesting. All right, let’s jump to our favorite questions we ask all our guests, starting with: who are your mentors who helped shape your career?

[73:27] SETH KLARMAN: So I worked for Max Heine and Michael Price at Mutual Shares right out of college, and that was an incredible couple of years. I stayed in close relationship with them over the years — they’ve been great friends and mentors to me. Warren Buffett, who I didn’t know until later in my career, but reading about Warren, reading his annual reports and his old shareholder letters, was very inspiring, and also reminded me of the idea of quality companies, which was not something that Graham and Dodd talked about that much, but was something that Warren taught us all about. So they were the people I would list as mentors. And then I also developed mentors who were kind of peers. I had a tiny firm. I didn’t get trained officially at any big Wall Street firm, but I was able to form friendships with people who ran other funds. Some of those people you probably know — somebody like Richard Perry, or somebody like Frank Brosens, or somebody like Paul Singer — have all been mentors in various ways over the years, in a way that hopefully I’ve provided something to them as well. Finding kindred spirits out there makes all of us both enriched by the experience, but also wiser.

[74:45] BARRY RITHOLTZ: Good answer. Let’s talk about books. You mentioned you’re a big reader. What are you reading now? What are some of your favorites?

[74:53] SETH KLARMAN: So right now I’m finishing Lloyd Blankfein’s memoir. I’m also reading Michael Pollan’s latest book about consciousness, which is really interesting. It combines some things I’m intrigued by, including the idea of what plants are up to — plants turn out to be a lot more conscious and a lot more aware of their environment than you might think when you just walk by them and think of it as lawn. There’s a lot more going on with plants. I love history. My favorite is probably Battle Cry of Freedom, about the Civil War. I read a fair amount of everything. I love the Red Queen, evolutionary biology. I’m a pretty good reader of fiction as well — biography, memoir, across the board.

[75:42] BARRY RITHOLTZ: You mentioned podcasts. What are you listening to? Or what are you watching and streaming these days?

[75:47] SETH KLARMAN: My favorite streaming — I think this may be a golden age of TV streaming. We loved The Pitt, the Pittsburgh general hospital emergency room. It’s just a remarkable series. Noah Wyle, but also a great surrounding cast, just off the charts. We also love Shrinking.

[76:10] BARRY RITHOLTZ: Yep, that was a lot of fun. Final two questions. What sort of advice would you give to a recent college grad interested in a career in investing?

[76:21] SETH KLARMAN: First of all, go somewhere that you would want your capital invested. If you wouldn’t put your money there, don’t go there. And don’t be afraid to go somewhere out of favor. Two years ago, you would have asked me, and I would have said, well, biotech is hitting lows every day, as though there’s never going to be any new drug discovered or anything good happening in that sector. I would have said, take a close look. Now it’s on fire — a lot of takeovers, a lot of people are doing really well. I think it pays to be a little contrarian, and go somewhere where they’re going to be mentors to you, where they’re willing to be patient with you, where they’re not going to just expect you to make money the first six months you’re there. That’s where you’re going to be able to build a career and learn a lot.

[77:08] BARRY RITHOLTZ: Final question. What do you know about the world of markets, risk, and investing today that would have been useful to know 40-plus years ago, when you were first getting started?

[77:21] SETH KLARMAN: I’ve thought about that. It’s a really good and hard question. What I think is, I wish I knew the importance of the economic engine that Silicon Valley is, that American creativity and ingenuity is. It’s why I worry so much about the bad things happening in our country that are threatening our democracy. The ability to try and fail, the ability to innovate, the desire to innovate, the startups that unleash the passion of brilliant, hardworking people who want to cause their dream to happen — that is the driver of this economic engine that keeps not only winning, but keeps outpacing everywhere else in the world. Israel has maybe a mini version of that, but it hardly exists in the rest of the world. It certainly doesn’t exist in Europe much. And it’s really sad, because the opportunity that is present for young Americans, to help to dream and to start something, is just an amazing engine for their lives, for their communities, for future philanthropy, for tax receipts. It’s across the board. And I wish I’d understood it better. I would have owned some venture capital in my foundation. I would have been recommending that institutional portfolios diversify into at least a piece. Now, venture capital is the last thing a value person is going to say is a bargain, you should go long. But I do think that, as a value investor, maybe too much paint-by-numbers, I wasn’t focused enough on the engine that is venture capital.

[78:58] BARRY RITHOLTZ: Fascinating. Seth, thank you for being so generous with your time. We have been speaking with Seth Klarman, CEO and portfolio manager of the Baupost Group. If you enjoyed this conversation, well, be sure and check out any of the 651 we’ve done over the previous 12 years. You can find those at Apple iTunes, Spotify, Bloomberg, YouTube, wherever you get your favorite podcasts. I would be remiss if I didn’t thank the crack team that helps me put these conversations together each and every week. Alexis Noriega is my video producer. Sean Russo is my researcher. Anna Luke is my podcast producer. I’m Barry Ritholtz. You’ve been listening to Masters in Business on Bloomberg Radio.

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In this guest post, Isaac Mamaysky, Partner of Potomac Law Group and Cofounder and COO of QuantStreet Capital, explains the requirements for paid referrals under the SEC Marketing Rule, why paid promoters may need to register as RIAs (or IARs), and whether the registration burden lies in the hands of the promoter or the RIA that's compensating them.

To start, an RIA engaging with a promoter will want to ensure compliance with the Marketing Rule (and provide the required Form ADV disclosures) for the testimonials and endorsements themselves. For example, the Marketing Rule requires that advisers disclose, among other items, whether cash or non-cash compensation was provided for the testimonial or endorsement and any material conflicts of interest arising from the adviser's relationship with the promoter.

Next, the RIA can determine whether the promoter is a supervised person of the firm, defined by the Investment Advisers Act as "any partner, officer, director (or other person occupying a similar status or performing similar functions), or employee of an investment adviser, or other person who provides investment advice on behalf of the investment adviser and is subject to the supervision and control of the investment adviser". If a promoter is determined to be a supervised person, the RIA must determine whether the promoter is required to register as an investment adviser representative (IAR) under applicable state law.

If, instead, a promoter is acting independently of the adviser (i.e., not as a supervised person), while there is no explicit requirement for advisory firms to confirm their unaffiliated promoters' registration status, prudent firms may choose to conduct due diligence into the promoter's compliance with their standalone registration obligations (if any).

Ultimately, the key point is that while the Marketing Rule made it easier to use both paid and unpaid promoters for business development, there are still compliance obligations regarding their use that could trip up advisors who don't have a full understanding of their requirements. Nevertheless, by determining whether they have made sufficient disclosures regarding the use of a solicitor, as well as whether a solicitor is a supervised person (and following the relevant Federal and state registration requirements depending on the solicitor's status), firms can ensure that they comply with not only the requirements of the Marketing Rule itself, but also those under the Advisers Act, SEC, and state regulations that make up the full compliance landscape for testimonials and endorsements.

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