This week, I speak with Mike Pyle, Deputy Head of BlackRock’s Portfolio Management Group (PMG) and a member of BlackRock’s Global Executive Committee.

We discuss the durable economic shocks that could result from the war with Iran, including energy security. We also discuss his time in the Biden administration as Deputy National Security Advisor for International Economics.

A list of his current reading 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.

Be sure to check out our Masters in Business next week with Philippe Bouchaud, co‑founder, chair & head of research/chief scientist at Capital Fund Management (CFM) The $20 billion dollar fiorm specializes in managed futures). He beghan his career in theoretical physics, was awarded the IBM young scientist prize (1990) + C.N.R.S. Silver Medal (1996), and has published over 300 scientific papers and several books in physics & finance.

Current Reading

The post MiB: Mike Pyle, BlackRock’s Portfolio Management Group appeared first on The Big Picture.

Also in industry news this week:

• New research suggests that while the percentage of newly widowed women who leave their financial advisors is significantly lower than previously assumed, attrition amongst this group is still three times as much as other clients
• A new income tax on high earners in Washington state has some residents considering a move and demonstrates the impermanence of state tax policy for the broader group of clients considering where to live today or in retirement

From there, we have several articles on retirement planning:

• How incorporating available rates on Treasury Inflation-Protected Securities (TIPS) into advisors' analyses of Social Security claiming strategies can lead to more accurate "breakeven ages"
• At a time when staffing at the Social Security Administration is strained, advisors can encourage their clients to take several steps to ensure they receive their benefits on time
• How the availability of six-month 'reversible' delays in claiming Social Security could make certain clients more comfortable with pushing out the age they claim benefits

We also have a number of articles on investment planning:

• How the design of certain value and growth index funds leave investors holding stocks with poor prospects for future returns
• While investors are used to comparing expense ratios for (active) ETFs, bid-ask spreads can also vary widely and affect the total cost of an investment
• Why growing one's pool of capital and using it to support favored causes directly could be more effective than seeking out investment funds that (attempt to) exclude disfavored companies or industries

We wrap up with three final articles, all about smartphone use:

• Two strategies that can help individuals who have previously struggled to reduce time spent on their smartphones
• Why smartphones might be better characterized as "displacement machines" for more meaningful activities rather than as a "poison" that should be avoided altogether
• Lessons learned by a group of college students who underwent a week-long smartphone 'fast' and how they can apply to working professionals as well

Enjoy the 'light' reading!

Read More...

“Apple: The First 50 Years”

1. To tell you the truth, I finished this book almost a week ago, and I forgot most of what I wanted to say about it. Primarily the business insights.

Not that I don’t remember the facts. Not that I haven’t internalized the messages.

In any event, this book is not for casual fans, casual readers. If you came to the Mac after Steve Jobs returned or later, you probably won’t get far in this tome. But if you were there at the beginning…

I was not. At the very beginning. Because it was all about the Apple II.

And that lore is repeated here, the creation of the Apple I, the Apple II team’s frustration that it was considered a second class citizen whilst generating all the profits, keeping the company alive well into the Macintosh era.

But I came in in 1986. With the Mac Plus…

The original Mac was close to unusable, it only had 128kb of RAM…

Now let me see… This machine I’m running has 48 GIGS of RAM. 128kb was infinitesimal. Months later came the Fat Mac, with 512kb, but the Mac Plus had a gig of RAM. However you still had to swap floppies. The screen was still small and black and white. But if you bought in, it was a religion. Like being a fan of your favorite band, but deeper. Maybe because you were there early, you were intrigued, and you knew these machines would change the world.

Computers were not rare in 1986, but most of them were PCs…which really didn’t have an effective Windows interface until 1995. In other words, they were not very usable. They were business tools.

But what really blew up computing was AOL. Didn’t matter what platform you were on, they all worked with AOL…and people ran out and bought computers just to play.

But that was almost thirty years ago. Do today’s generations, many birthed in this century, know this?

No, just like we couldn’t fathom the introduction of television in our parents’ era.

Anyway, I had no allegiance to Apple. All I knew was I wanted to start a newsletter and needed a computer to do so. And it didn’t take much research to find out I needed a Mac, with PageMaker, and a LaserWriter.

This was a different era, not quite the hobbyist era, but the machines were not foolproof, unlike your iPad and iPhone. Not only did they crash, they might not reboot. The Mac wasn’t truly user-friendly for everybody until the introduction of Mac OS X, based on Unix with the Mach kernel.

Not that you need to know that, not that today you need to know how your car runs. But for almost all of my life, you had to have a rudimentary knowledge of how your automobile functioned, because it would break! Computers were even worse, although they rarely physically broke, they just stopped working.

And you had to figure out why.

That’s right, there was no Genius Bar, really very little tech help at all. You had to sit in front of the computer and figure out what was wrong, and it could take you hours…I found it nearly impossible to fall asleep until I’d solved the problem, gotten my computer back on the right track.

Needless to say, those are not these days.

2 So forty years ago…

Not only was there no internet, techies were considered nerds, geeks, they were not respected by the hoi polloi, who were infatuated by MTV. But once you got bitten…

I used to say it was like having a math problem on my desk. Only there was no test, I wasn’t graded, but when I figured it out the level of satisfaction…

And what the Macintosh could do, and what the PC could not!

So if you were around in those days, you’ll be intrigued, you will be riveted, because Pogue brings it all back. The system updates, which you had to go to the store at first to get. The step by step innovation. The dark years and then the renaissance.

Now this is not the first time this territory has been covered, but it has never been covered so well, because David Pogue is one of our own, he’s not only writing about the Mac, he LIVED the Mac!

The best books ever about the Mac and Mac products were authored by Pogue, and I used to buy the “Missing Manual”s and read them cover to cover. You’d be stunned how powerful these machines are, most only use a tiny faction of their ability.

And the software too.

I read all the manuals, also from cover to cover.

Do you know if you double-click the top of your window, it will shrink it down to the dock? I could list tons of tips, but most are not used and not cared about. It’s almost an insider’s game. But…

Those early days, do you remember Conflict Catcher?

All the breakthroughs and bumps in the road are catalogued by Pogue. In an upfront, breezy style. He makes Walter Isaacson’s Steve Jobs look like the doorstep it is. Content is secondary to readability, and Pogue is very readable. And as much as he knows to leave in, he’s not afraid of leaving a bit out. It’s a book. Made to be read from start to finish. If you do so, you’ll know Apple’s history.

But how many people need to know this?

3

Apple was the little engine that could. The true breakthrough was the iPod.

But before that, during Jobs’s hejira with NeXT…

The problem with Sculley was he was a marketer, of a completely different product. Pepsi could sit on the shelves for a while. Computers lost value every day they were held in inventory.

Also, Sculley was a publicity hog, who wrote a book and liked being perceived as a visionary, even though he was not. We see this story again and again, do not believe the hype. Which is easy to garner. Can you say “Theranos”? No, the true people to admire are those who are doing the work, whose names are out there, but oftentimes say no to press, it slows them down, never mind that the press always gets it wrong, ALWAYS! Because unlike Pogue, most writers are not familiar with the territory.

Was Jobs a terror?

Yes.

And he was milder when he came back.

But he had a vision, and he didn’t believe in consumer research. He was about the bleeding edge. A lot of this has been documented, which is why the second half of the book is less interesting.

As for Tim Cook and the players in power today…

Yes, the petty wars are delineated, but the real point is they are not superstars, they are not visionaries, those only come along once in a while.

Like a classic musician, Jobs is focused on getting it right, in a world where everybody is taught to compromise to get along, where no one wants to stand out, upset the apple cart. Jobs focuses on product, believing the rest will take care of itself.

And prior to his return and their replacement, those who sat on the board saw Apple as a traditional business. They wanted to sell it, before it cratered, before Jobs came back and reinvigorated it.

Now I remember one of the lessons I wanted to impart… Don’t underestimate expertise. We see this all the time in the music business, since you don’t need a degree to be in it, no one has any respect for those who work in it. Average citizens believe they can find talent, they can do ticketing. But again and again outsiders fail, because the expertise cannot be quantified, it is built over time, it’s something you feel, it’s something innate. Even as simple as picking the hits. I’d say at least ninety percent of what people e-mail me, saying it’s great and deserves further attention, does not. I’m not saying they can’t like it, but they don’t have the seasoning and the vision to know what will spread to the public.

But it’s not only in music, in politics people have contempt for expertise. There’s this belief everybody can do everything. Then why did it take Steve Jobs to come up with the iPod and iPhone?

Breaking rules all the while. Getting rid of legacy ports on computers, getting rid of the physical keyboard on the iPhone. People are attached to the past, and if you’re busy serving them you’re going to be left behind. Jobs knew the iPhone was going to destroy the iPod, but rather than keep the music player alive, Jobs insisted on pushing the envelope, he was not willing to rest on his laurels, giving competitors a window to leapfrog Apple.

Hell, me-too is everywhere. When was the last time you heard a successful record that was truly surprising, completely different? Labels don’t sign those acts anymore, it’s too heavy a lift. They want it easy. Just like the movie studios, whose lunch was eaten by Netflix. Let me see… You raise the prices, you make fewer movies in obvious genres and then you complain that the theatre experience is dying? Believe me, people will show up for something unique and different. Then again, something might have to percolate in the marketplace for a while to catch on, but these flicks play in theatres for a minute and are then available on TV, which is a better experience.

User experience. That was Jobs’s main focus. But in most avenues of life, this is denied. Purveyors are trying to whittle down and control human behavior, keep it in the past, which is a fool’s errand.

4

The press is all over Apple’s 50th.

But it’s kind of like a lifetime achievement award… Once you get that, you’re usually done.

I get a new iPhone every year. But recently, the changes have been miniscule, almost irrelevant.

Apple is making a ton of money on services, and maybe the days of hardware breakthroughs are done, then again, the days of tech wowing us died over a decade ago, now tech is the enemy.

But the story of going from Motorola to Intel to in-house chips… Once again, the company is always thinking about the future, whereas in entertainment, everybody seems to be constantly blind-sided. Kind of like George Bush and 9-11. Who could envision they’d fly planes into buildings?

Then again, entertainment executives are all about lifestyle, accumulating and displaying. The company is something to milk.

Oh, I just remembered another thing that struck me… This happened again and again, but foremost with the original Macintosh team.

Yes, Jobs asked for the theoretically unachievable, which they always delivered, but once the Mac was released…most of the members of the team were so burned out, they couldn’t work for months, if ever at this level again. Most left Apple. None set the world on fire once again. They’d been to the mountaintop, they’d experienced the ride and the rewards, they just weren’t up for doing it again, like a hit act that cannot create hits anymore.

There are a lot of lessons in Pogue’s book. Not that he bats you over the head with them. But almost no one is going to read this book. They might buy it, but the average punter just doesn’t care about the minutiae of tech, the history of creation. Kind of like cars. You may love Mercedes-Benz, Ferrari, but how many people want to go back seventy or a hundred years and hear about the arguments and decisions regarding what kind of engines and suspensions to use, the failures…

However, the thing about Apple is unlike any single car brand, unlike any musician, period, the company’s products and services touch a broad swath of the public. Sure, Android might be bigger internationally, but all the innovation is on the iPhone first, which has over fifty percent market share in the U.S.

And now with the MacBook Neo, Macs are no longer expensive. The last hurdle has been eliminated, you can enter the cult on the cheap.

And once you do…

You get locked in.

And the love for Apple sustains. This is not a musical act or TV show that ultimately peters out. We expect Apple to continue to deliver, to lead us into the future.

Did it miss AI?

I’m not even gonna get into it. Could be their philosophy of licensing turns out to be the best.

But one thing is for sure, Apple is not a one trick pony. So many use their products and they think they know what goes on inside the gold mine. In truth they don’t. And, in truth, they don’t really care that much, they have no need to know.

But if you do…

P.S. Don’t buy the e-book unless you’re going to read it on an iPad… There are numerous color photos.

~~~

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 David Pogue’s Apple Book appeared first on The Big Picture.

At The Money: Seeking Uncorrelated Returns (April 8, 2026)

Managed Futures generate returns that are not correlated with stocks or bonds. Investors who are looking for greater diversification can do so through ETFS that own futures on commodities, currencies, and interest rates.

Full transcript below.

~~~

About this week’s guest:

Andrew Beer is a hedge fund veteran and founder of Dynamic Beta Investments, a firm focused on hedge-fund replication strategies delivered through low-cost, liquid vehicles like ETFs and mutual funds. His ETF, DBi Managed Futures Strategy (DBMF) attempts to replicate pricier managed futures portfolios

For more info, see:

Firm website

Masters in Business

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

At the Money with Barry Ritholtz
Guest: Andrew Beer, Founder of Dynamic Beta Investments April 8, 2026

TRANSCRIPT:

Barry Ritholtz: Lots of asset classes, promise uncorrelated returns, but very few deliver. One that does is managed futures. Sure they’re expensive and the trading is somewhat spiky. But when all correlations go to one, meaning everything is trading in lockstep, like we saw during the financial crisis or the first couple of months of COVID, managed futures seem to be the rare diversifier that works.

Barry Ritholtz: To help us unpack how to get additional diversification in your portfolio, let’s bring in Andrew Beer. He’s a hedge fund veteran and founder of Dynamic Beta Investments, a firm focused on hedge fund replication strategies delivered through low cost liquid vehicles like ETFs and mutual funds. His ETF DBI managed Future Strategy tries to replicate the premier managed futures portfolio. So Andrew, start us out with just the elevator pitch.

Barry Ritholtz: What problem does DBI manage future strategy — and that’s ETF, ticker DBMF — what does that solve for the traditional 60/40 investor?

Andrew Beer: Sure. So first of all, thank you very much for having me on. So diversification has changed a lot this decade. In the 2000s and 2010s, you really didn’t need anything other than stocks and bonds, but things have changed. You know, since inflation started to come back, stocks have tended to move up and down with bonds and did not protect in 2022.

Andrew Beer: And so what you see across the wealth management space is basically saying 60/40 worked for a long time, but now we need something else. And what is that something else? It’s generally something that has a low correlation to, ideally to both stocks and bonds and can also deliver positive performance when you need it the most. And so we looked — we were looking around for something like that about 10 years ago and we zeroed in on this space.

Andrew Beer: It’s a niche area of the overall hedge fund business, but it’s been around for 50 years. It’s battle tested through all sorts of market environments and you find something that actually meets those criteria — did well during the dot-com crisis, did well during the GFC, and then after we’d invested it, you know, it was up 20% during 2022. And from our perspective, it’s like, that’s great if you’re an institutional allocator, but how do we get the great benefits of this strategy and package it in a way that, you know, my sister or my cousin or something can put into their portfolios as well.

Barry Ritholtz: Really, really interesting. So since 2022, the asset class we’ve all been probably hearing the most about has been private credit, private debt, private equity. Hey, it’s a great diversifier — to be blunt.

Barry Ritholtz: I get the sense that debt and credit are gonna move if we have a recession, if markets sell off 20, 30%. Is there any reason to think that sort of diversifier is not gonna do the same thing?

Andrew Beer: So what’s interesting about it — there’s been a lot of debate about how these guys happen to make money during these big moments in the markets where it feels like nothing is working. And it’s funny because people talk about — sometimes people use a term called trend following or momentum associated with a strategy. To me, it’s totally wrong. When the strategy generates those kinds of returns, it’s because they’re early, contrarian, and right in a big way.

Andrew Beer: And so if you think about it, if somebody came to you and said, here’s a strategy — here was a person who had been buying gold below 3000, who was betting on rising interest rates as far back as September 2020, who saw in advance the rise in the dollar relative to the Japanese yen — these kind of big trades out there because the world is changing in some way. That’s what the strategy has historically been able to pick up on. And so I believe that structurally we are likely to see more of those things over the next several years. And this is one of those strategies that has proven its ability to reposition, to take advantage of those big changes in the world.

Barry Ritholtz: Really, really interesting. So you mentioned trend or momentum — define managed futures without Wall Street jargon. What does DBMF actually mean by exposure to trend?

Andrew Beer: Okay, so I’ll start with the definition of the strategy overall, which is basically what I mentioned — they’re trying to detect big changes in the world. The way I think about that as a hedge fund person is that somebody knows something — that the world is changing — and they’re acting on it with buying or selling different asset classes. Like if the world is changing in a big way, people tend to act on it with their portfolios. And so managed futures as a strategy will often look at lots and lots and lots of the price moves across lots and lots of different markets to pick up these kernels of information that something big is changing.

Andrew Beer: So if you take last year where our core strategy was up 14%, it was in part by being early in the fact that — the run at hot rate — it was continuing to have a long position in gold when gold went through its melt up. And so outside of — I think a lot of people in this space like to talk about how the sausage is made. Our view is actually what’s much more interesting for the end investor and for allocators is how does this actually help you and why should somebody looking at this in their portfolio be glad that it’s there?

Barry Ritholtz: Makes a lot of sense. I guess one of the things that make this space so interesting is, yeah, it’s a good diversifier, but most traditional investors don’t really pay attention to it. You’ve called managed futures the best diversifier no one buys.

Barry Ritholtz: Explain why that is.

Andrew Beer: Well, I’m convincing people — I’m changing hearts and minds one at a time. So a lot of the people in this space love to talk about the technical aspects. The underlying strategies are very, very technical. They’re quantitative models looking at derivative contracts on sometimes hundreds of underlying instruments.

Andrew Beer: And so it’s a little bit like they love to talk shop with each other about what they’re doing. Part of our success as a business is I don’t come at it from that direction. I come at it from the perspective of why will this make my portfolio better? By which I mean help to grow assets and help me sleep at night.

Andrew Beer: And so if you look at it, I’m making progress. When I got into the ETF space — this is in 2019 — there was only about 300 million. There’s maybe close to 5 billion today. Wow.

Andrew Beer: And in part, we’ve been really driving that — that this is something that — and I think if you look five years out from now, you sit down with an advisor and they’ll say, hey, what’s that three or 5% position there? And they’ll say it’s managed futures. It’s one of these strategies. And you’ll say, well, what’s it there for?

Andrew Beer: And they’ll say, well, look, every now and then, the world changes a lot and we want a nimble, flexible strategy that can take advantage of it in the way that the other 97% of your portfolio is not likely to.

Barry Ritholtz: So let me revisit that information in a slightly different question. Whenever I’m speaking to clients or potential clients, the question is always: we have this problem, how do we solve for this? So really the question I want to ask you is, what problem in the traditional managed future space convinced you that a replication-based ETF like DBMF really needed to exist? What’s the problem you’re solving for the average ETF investor?

Andrew Beer: So I would start with the — actually I would first ask the broader question. What problem are we solving for people in their portfolios, right? The modern wealth management business, just like the institutional investment business, just like 60/40 portfolios, is based upon two fundamental ideas. One is diversification is a net positive, and two is have long-term views for your asset allocation models and don’t change them often.

Andrew Beer: It’s the latter part. And that has a generation of investors has not gotten head faked by liberation day and all these moves in the market because they’ve been trained: don’t panic and don’t overreact. And that works 80% of the time.

Barry Ritholtz: 80% isn’t bad, by the way.

Andrew Beer: 80% isn’t bad. Right. And which is why that should be 95% of your portfolio. 20% of the time the world changes. And by design they will be slow to adapt.

Andrew Beer: So where are we right now? Right? The US dollar is getting debased in some fashion, right? There is this potential loss of confidence in US assets at a time where everyone is massively overexposed to US assets that could play out over five or seven years.

Andrew Beer: But most allocators will not change until the horses have left the barn, so to speak. And that’s what it’s trying to solve from a portfolio perspective. What we were trying to solve is, it’s a great strategy, it’s just too damn expensive the way people run it. And it’s not just what are their management fees and incentive fees, it’s also, they run these Rube Goldberg-like portfolios that trade every day, hundreds of times a day.

Andrew Beer: And when we looked at it, we said, look, we love the signal that they’re picking up on. But if we can do that in a simple portfolio that is much more liquid, we can save hundreds of basis points of implementation cost and take more of the value and pass it back to clients.

Barry Ritholtz: So let’s talk about that a little bit and use some real life examples. How does either DBMF or funds like it — in the period before DBMF was trading — how does it behave in periods like the dot-com implosion or the GFC or COVID?

Andrew Beer: Well, I would say, so COVID was — when the strategy does the best is when I say the world is changing, and COVID was a very strange thing. The world changed in three weeks basically, and so it’s not really designed for that kind of a flash move, but still it preserved capital as a strategy during March when things were getting hammered. Where it thrives is periods like 2022 — inflation’s coming back. And I’ll tell you a great story. I wrote a paper on inflation coming back in early 2021, and I was talking about it to people all year long. And I said, if inflation comes back — and Powell came out and said it’s probably not coming back, it’s transitory or something. But I get to December and I’m sitting down with a guy who says, I totally agree with you, I think inflation is coming back.

Andrew Beer: And I said, how are you rebalancing your portfolio? And he said, I’m selling my stocks and buying bonds — because he was benchmarked to 60/40 and stocks had gone up more than bonds. So I think it’s important as allocators to recognize that there are gonna be times like this when the standard playbook that we have from an asset allocation perspective is not designed to pick up on that. And here’s a strategy.

Andrew Beer: So the overall strategy in 2022, when stocks and bonds were both down 15 to 20%, the strategy went up 20% overall. And by being a bit more efficient, we went up a bit more than that.

Barry Ritholtz: Really kind of interesting. So let’s talk about the managed futures ETF. What markets does it trade?

Barry Ritholtz: What positions does it hold? Like I typically think when I hear trend following, I think Michael Covel’s trend following book, and I think primarily of commodities — if you’re watching gold or silver these days — but it’s a little more broad than that. Tell us the assets DBMF actually trades.

Andrew Beer: Yeah, so what is extraordinarily irritating to people in the industry is that we do much better than them with only 10 instruments. And the 10 instruments that we trade are the biggest, most obvious instruments. So S&P 500 — this is all futures contracts, by the way.

Barry Ritholtz: Right. So the index, not individual stocks.

Andrew Beer: Exactly. So S&P 500, non-US developed markets, emerging markets for equities — that’s it. In fixed income, the second asset class is fixed income: two year, 10 year, 30 year Treasuries. In commodities, we only trade gold and oil.

Barry Ritholtz: Gold and oil. The assumption is other precious metals will track gold. Right. And oil is its own thing.

Barry Ritholtz: No agricultural products.

Andrew Beer: We don’t, because the markets — we don’t think — in other words, just the last category is in currencies. It’s the euro and the yen.

Barry Ritholtz: Yen, but not the dollar. Well —

Andrew Beer: Against the dollar.

Barry Ritholtz: I gotcha. All right.

Andrew Beer: So —

Barry Ritholtz: Always relative with currency.

Andrew Beer: Yeah. And so look, what our research showed early on is that — it’s like what’s the political expression? It’s the economy, stupid. It’s the big trade, stupid. In 2022, to be up 20%, you want to be long crude oil in February, you want to be short the yen when it goes from 110 to 160, and you want to be short Treasuries when interest rates go up.

Andrew Beer: And a lot of the narrative in the space, as you say, is exactly that. You know, like look at copper moves, look at the spike in copper, the palladium or other things. It sounds good if you’re an institutional investor who cares about this stuff, but it doesn’t — it’s not big enough to make an impact on the P&L. And so our research is very powerful and it basically showed that if these guys make 10, in theory as a hedge fund investor, you’re likely to get five. I can give you 10 with a simpler and much more efficient portfolio and give you eight or nine and put it into an ETF where you can see every single position every single day.

Andrew Beer: So the basic idea is I wanted to show that we could beat hedge funds at their own game, but do it in an ETF, which no one had ever done before.

Barry Ritholtz: So you don’t have the drag of two and twenty, the cost structure is a little less — or a whole lot less. Maybe it’s about what the typical ETF is. So this has turned out to be a very successful product. DBMF is now the largest managed futures ETF.

Barry Ritholtz: Couple of questions. At what point do you begin to run into capacity constraints for the strategy? Do you have any issues with liquidity or slippage or even market impact? Like how big can this get?

Andrew Beer: It was designed to get as big as we needed to get, really. Because of the instruments that we’re trading, these are the deepest and most liquid instruments that are traded globally. And we trade everything in the US, and so our market impact is essentially zero.

Andrew Beer: I came from — I had started a commodity business — and one of the things that I think people have overlooked is complexity often has a real cost. It sounds great to say I’m trading some esoteric market someplace. When things go bad, like in the week after liberation day, the people who are trading those markets are waiting to see your order come in.

Andrew Beer: That’s right. You are making their year on the days. And so look, I come from a school that simple, efficient is gonna win most of the time. And what we’ve shown is we can beat some of the most sophisticated hedge funds in the world with this by three or 400 basis points a year through efficiency.

Andrew Beer: But then I can also deliver it in something that my sister can own.

Barry Ritholtz: So to wrap up, people who are concerned about correlations just becoming one in any sort of crisis and want diversification should consider managed futures exposure. And the most efficient, least costly way to do that is through an ETF like DBMF, by Andrew Beer and DBI. I’m Barry Ritholtz, you’re listening to Bloomberg’s At the Money.

~~~

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

The post At The Money: Seeking Uncorrelated Returns appeared first on The Big Picture.

In this guest post, Georgios Argyris, Research Director at bellavia.app, explains how even a small shift in retirement timing can change the market environment the retiree enters and, with it, the sustainability of the plan. The effect becomes clear when comparing otherwise identical retirees who begin withdrawals in different environments. Across the historical lifecycle cohorts examined, allowing for a two-year flexibility window produced a median gap of roughly two-thirds in final portfolio value between the best and worst timing choice within the window. Retiring at the originally planned date was optimal only about 15% of the time; in most cases where a different choice helped, delaying retirement produced a better outcome.

This result can be understood by separating retirement timing risk into two components: cohort risk, which reflects the overall return environment a retiree experiences, and pure sequence risk, which reflects the order of returns within that environment. Historical analysis suggests that roughly three-quarters of retirement outcome variability is driven by cohort risk, while only about one-quarter is attributable to return ordering within a cohort. This distinction matters because most traditional planning tools – including dynamic withdrawal strategies, guardrails, and allocation adjustments – operate only within a given cohort, therefore addressing only the smaller portion of risk. By contrast, adjusting the retirement date is one of the few levers that can shift a client into a different cohort altogether.

This framework also leads to a counterintuitive insight: clients who appear most prepared for retirement – often those with the largest portfolios after strong accumulation periods – may still face elevated timing risk. Strong bull markets can inflate retirement balances while leaving clients exposed to weaker forward returns. As a result, a large portfolio value at retirement might not, on its own, indicate that the timing is favorable. Advisors can partially assess this risk using valuation metrics such as the Shiller CAPE ratio, which has shown a relationship with subsequent decade-long returns and can help identify whether current conditions resemble historically unfavorable retirement environments.

Ultimately, the key point is that retirement timing may deserve a larger role in retirement planning than it is often given. Advisors may improve outcomes by first considering whether the retirement date itself should be adjusted, particularly when market conditions appear unfavorable. When timing flexibility is limited, reducing the initial withdrawal rate can provide a margin of safety, while dynamic spending strategies can help manage the remaining ordering risk. By recognizing retirement timing as a planning variable rather than simply a fixed assumption, advisors can better position clients to navigate uncertainty and support the sustainability of retirement income over time.

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The transcript from this week’s MiB: Songyee Yoon, Principal Venture Partners, is below.

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

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Bloomberg Audio Studios, podcasts, radio News. This is Masters in Business with Barry Ritholtz on Bloomberg Radio.

[00:00:15]  Barry Ritholtz:  On the latest Masters in Business podcast, my conversation with Songyee Yoon. She is founder and managing partner at Principal Ventures, an AI-focused venture capital investment firm. She has a fascinating background — MIT Corporation Advisory Board, 50 Women to Watch in Business from the Wall Street Journal, named to the advisory board for the Center for Asia Pacific Policy, as well as the National Academy of Engineering of Korea. She has a fascinating background in gaming, telecom, and AI.

[00:00:56]  Barry Ritholtz:  I found this conversation to be fascinating and I think you will also. With no further ado, my discussion with Songyee Yoon. That is quite a CV I went through. Let’s roll back though to where it all began. You get a Bachelor’s in Science from Korea’s Advanced Institute of Science and Technology, and then a PhD in computational neuroscience from MIT. That’s such a fascinating area.

[00:01:27]  Barry Ritholtz:  What was the original career plan?

[00:01:31]  Songyee Yoon:  That’s a very good question. I mean, I think growing up in South Korea, I didn’t know what the career options were that I had. I just really enjoyed learning science and engineering subjects. So when I was young, I realized for some people, like singing is very natural. Some people dancing is natural. I cannot sing, I cannot dance, but speaking to computers and programming was very natural to me. So I started programming when I was nine, and that led me to major in electrical engineering as an undergrad at KAIST.

[00:02:18]  Songyee Yoon:  To be a better engineer, you need to understand how the human brain works. So for example, I was studying signal processing algorithms, and those algorithms look best to your eyes when it’s not necessarily mathematically the best, but takes into consideration what frequencies are most sensitive to human eyes. So understanding human brain and human perception will enable you to become a better engineer. That was kind of the exploration — what subject or major could I pursue to have a better understanding of both engineering and the human brain and perception.

[00:03:00]  Songyee Yoon:  That led me to study computational neuroscience at MIT.

[00:03:03]  Barry Ritholtz:  So computational neuroscience isn’t so much about using computers to understand people, as opposed to understanding neuroscience to create better software, better interfaces, better human interaction with technology. Is that fair?

[00:03:19]  Songyee Yoon:  That’s right. Exactly. Yeah, that’s right.

[00:03:21]  Barry Ritholtz:  Huh. So pretty fascinating — early in your career you’re at McKinsey for a few years, and then you eventually move into SK Telecom. Tell us your focus at both places.

[00:03:32]  Songyee Yoon:  Yeah, so I mean, I think after my PhD I wanted to go into the business world instead of staying in academia, and going to McKinsey was the best way to transition from being a PhD student to going into the real world. So it was a really fascinating experience — very fast-paced, able to work with big conglomerates and the leaders of businesses in the areas of strategy and corporate finance, et cetera. And SK was one of the firm’s clients, and I don’t want to date myself. It was a time that everyone was rushing into 3G rollout. If you remember —

[00:04:23]  Barry Ritholtz:  Oh, sure.

[00:04:24]  Songyee Yoon:  It was an interesting transition, just like we see today, because in 2G, telecommunication is all about voice communication, and 3G — what was promised — was data transmission, including videos and images and high-fidelity audio.

[00:04:41]  Barry Ritholtz:  If I’m remembering correctly, it was voice and text, and then it was image and some video. And then eventually, what was it — 4G or 5G — was full internet, right?

[00:04:52]  Songyee Yoon:  Right. Yeah, that’s right. So as telcos are one of the big CapEx investors in making that transition, we were thinking about how we could do content delivery in the most personalized way — because personalized content delivery was one of the challenges that requires artificial intelligence and a data-driven delivery system. So I thought that was an interesting challenge to take on. So I moved to SK Telecom to lead that effort.

[00:05:26]  Barry Ritholtz:  And then you end up at NCSoft where you’re president and chief strategy officer. I’m curious what those experiences taught you, not just about corporate governance and culture, but about these big institutions that tend to have legacy technology. There tends to be some group that really wants to move forward rapidly and adopt all the latest greatest tech, and then another group that says, hey, this is expensive — what’s the ROI? How did you find yourself navigating a big telecom like SK or a smaller, more nimble gaming company like NCSoft?

[00:06:09]  Songyee Yoon:  Yeah, I mean, that’s a really great question. I think it’s about learning to be persistent and resilient and patient in both places. I was criticized for suggesting something that was not the norm at the time. So for example, when I was at NCSoft, one of the things that was very obvious to me was that it was full of data. The gaming business was offered entirely in a digitized form — you have transaction data, you have behavior data of the gamers and everything. So it was possible to do a lot of things in a data-driven way, which — it’s a lot of companies doing it today, but back then it was not very common to have understanding in both gaming business and AI and data-driven business process modeling.

[00:06:41]  Songyee Yoon:  So when I suggested things like churn prediction — because you can see the customer player behavior within the game, see how much they’re engaged, and predict if that player is about to churn out or continue — and that some interventions could help them stay engaged. That was one application area I identified, which could be very straightforward, but I was told there was strong pushback from the developers and even the business people. They said, ‘Oh, you’re saying it because you don’t understand the gaming business.’ You’re not a heavy gamer enough, or whatever. But —

[00:07:48]  Barry Ritholtz:  But you understand: hey, it costs us this much to acquire a client or a gamer. And if we see this behavior, a high percentage of those folks are tapping out. What can we do to keep them in and paying monthly fees?

[00:08:01]  Songyee Yoon:  Right. Yeah, exactly. Yeah. So even with very clear data and the case presented, it was not an easy task to get everyone’s buy-in. But I think it gradually — the reason I mentioned that tangible example: it was a small, very tangible area where we could apply technology. And once you show success, gradually, one by one, we were able to adopt and integrate that into our business process, ending up with a large AI lab that does all of those things in a more centralized way.

[00:08:36]  Barry Ritholtz:  So what I’m hearing from you is a very systems-oriented framework, both for gaming and telecom, right? I know the big mobile companies in the US are constantly fighting their own churn rate. So having a top-down systems approach sounds like you could be really proactive in terms of maintaining clients. You would think there’s buy-in from everybody, but it sounds like there’s a little salesmanship involved to get everybody behind that approach, right?

[00:09:09]  Songyee Yoon:  Yeah. Right. Yeah.

[00:09:11]  Barry Ritholtz:  So let’s talk a little bit about what’s going on in the world of AI. I’ve heard you discuss various things that are just short-term hype. How do you figure out, when you’re evaluating an AI system — either for an investment or just to use the technology in a company — how do you figure out what’s valuable and what’s just hype?

[00:09:39]  Songyee Yoon:  I mean, I think we talk a lot about the hype cycle and bubble being built up in this AI era, but I think it’s not unheard of in every platform shift. There was overcapacity built, not just in AI infrastructure, but it happened with the internet, with fiber optics — you remember the railroad?

[00:10:02]  Barry Ritholtz:  Yeah. Railroad, electrics, telegram — wherever you go.

[00:10:04]  Songyee Yoon:  So there is always excess capacity that gets built. But on the other hand, if you talk about application of the technology, if you find the application and real business problems that you can apply this technology to solve — to be more efficient or bring out insights that humans were not able to — I think there is a great area to apply the technology, and there are so many of them out there. So that’s why we are so excited about the development of this technology and the prospect of it going forward.

[00:10:47]  Barry Ritholtz:  So I’ve heard you discuss various priorities — durability, defensibility, real-world impact. Explain what those three things mean.

[00:11:10]  Songyee Yoon:  In making that adoption of the technology, there are two ways to think about it. One is adopting the technology without really changing the current work process — for example, there’s a lot of talk about copilot, or augmenting what we do, making it faster. That’s one way of applying it, and there will be some ROI realized from such approaches. The other is a complete redesign of the workflow. And I think that’s — we’re at a very early stage of witnessing that, but I think that will be the more interesting area to look out for, and could produce more tremendous transformation and value.

[00:12:15]  Barry Ritholtz:  So tell us what you did at NCSoft, because a lot of the work you put in there was about transforming them to use AI. Was it, hey, we’re just going to make all our developers and gamers a little more efficient? Or did this require a clean-sheet rethink of everything the company was doing?

[00:12:37]  Songyee Yoon:  Yeah, I mean, it was like 15 years ago, and back then the technology was not ready to fully redesign the game development workflow. It was more about augmenting the existing process — things like churn prediction, NLP specialized for gamer language, an animation tool that helped animators animate four-legged monsters as efficiently as bipedal creatures. So it was more focused on augmenting existing processes back then. But the technology has advanced today to the point where there are more opportunities to completely redesign and come up with new AI-native companies — AI-native entertainment firms rethinking what new types of entertainment and engagement look like.

[00:13:56]  Barry Ritholtz:  So I keep reading that Claude is writing its own code and updating its own code. If you were at a gaming shop today — do you replace coders? Do you have copilot work with coders? There was a Wall Street Journal article last week about coders in Silicon Valley just sitting around watching Claude rewrite their code. What is going on in the world of software development now that Claude is capable of updating itself?

[00:14:34]  Songyee Yoon:  Yeah, I think it’s really fascinating. A lot of the coding is done using tools like Claude, and it certainly makes things more efficient and productive, which means we need a lot less people in the loop in certain areas — such as reviewing code and detecting errors. But there are other areas that need more heavy involvement, like redesigning the schema and structure and how things are going to work and how it’s going to provide an engaging experience for gamers.

[00:15:26]  Barry Ritholtz:  So my bias is that humans are very creative and very innovative. I’m thinking in terms of the storylines we see on streaming shows and interesting novel gaming narratives. Is that what people are going to focus on, and just the blocking and tackling of putting code in place — we’re going to let AI do? Is that a today thing or is that going to change over the next couple of decades?

[00:16:05]  Songyee Yoon:  I think that’s a really good question. If you look at today, a lot of jobs — like YouTubers, podcasters — these are types of jobs that didn’t exist 10 years ago. I don’t know what other jobs are going to be created in a world where things that needed a hundred people’s attention can be done with a fraction of those people. There could be other types of jobs, other types of roles. But that’s an evolution we’ll have to see how it rolls out — I can’t predict exactly what types of jobs will exist 10 years from now.

[00:16:42]  Barry Ritholtz:  Huh. Really, really interesting. Coming up, we continue our conversation with Songyee Yoon, managing partner at Principal Ventures, discussing AI and the modern economy. I’m Barry Ritholtz, you’re listening to Masters in Business on Bloomberg Radio.

[00:17:10]  Barry Ritholtz:  I am Barry Ritholtz, you’re listening to Masters in Business on Bloomberg Radio. My extra special guest today is Songyee Yoon, founder and managing partner at Principal Venture Partners, an AI-focused venture capital firm. Previously she was president and chief strategy officer at gaming company NCSoft.

[00:17:30]  Barry Ritholtz:  So before we start talking about AI in more depth, I just have to mention your book, Push Play: Gaming for a Better World. I love the concept that — let’s not forget about play. It’s really significant in terms of innovation and being an engine of change. Tell us a little bit about what motivated Push Play.

[00:17:56]  Songyee Yoon:  Right. I mean, as you just mentioned, I think we have a tendency of not appreciating the role of play in our everyday life. My motto is: we don’t live to work, we live to play — we live to explore. When you have extra time, are you going to do one more line of work or are you going to play? I think play is our natural tendency — homo ludens as opposed to homo sapiens. Play is very important, not only for computer games, but in general play has played a very significant role in human evolution. Whenever there is a new artifact introduced in our culture, we start by playing with it.

[00:19:04]  Songyee Yoon:  And when we have a good understanding of the material and its utility, then we turn that into utility. I think gaming has been playing that role very diligently over the last couple of decades. Gaming has always been the platform brave enough to incorporate new technology and have players try it out. We had a VP of AI since the early 2000s. AI technology was not mature enough for driverless cars 20 years ago, but it was okay in gaming because gaming is a low-risk environment and gamers are inherently early adopters. Not just AI, but Kubernetes, cloud, even freemium business models — all tried out in gaming first before being adopted in other businesses.

[00:20:33]  Barry Ritholtz:  Let me throw you a little bit of a curveball about gaming. When I was growing up, play was totally unstructured — you’d go down to the schoolyard. Computer games like Pong and Space Invaders were very rudimentary. Now it seems kids’ lives are much more scheduled, their play is more structured. How does that affect the sort of experience you want to provide from a gaming company?

[00:21:02]  Songyee Yoon:  That’s a very good question, and there are many aspects to it. One is about what gaming is for today. The reason there’s so much opportunity to play games as a novelty is because computers happen to be the most sophisticated and advanced devices we have today. I think we’re still trying to figure out their limitations and what they can do, and we’re in awe of the experience they can provide. So there are a lot of online digital games out there, and the size of the catalog means kids end up choosing a game or two from that. And a game is not just one thing — there are sandbox games, building games, quiz games, story-based games. Depending on your preference, you can choose different games.

[00:22:18]  Barry Ritholtz:  So let’s stay with kids, with children, and in particular students. There’s been a lot of concern about the impact of AI on education, on learning, on training people to get jobs in the real world. There’s a quote of yours I was intrigued with: ‘Rather than competing with AI, students should be prepared to leverage uniquely human capabilities.’ Explain what that means in terms of the real world.

[00:22:46]  Songyee Yoon:  If you think about education — our education has been optimized over the last couple of hundred years for delivering knowledge. And I think we are witnessing that knowledge delivery and memorization is rapidly being commoditized. What our next generation needs is more creativity and problem-solving skills. We have to think about how we can redesign the classroom to really enhance those skills instead of helping them acquire one more piece of knowledge.

[00:23:31]  Barry Ritholtz:  So there’s a very different set of targets — acquiring skills versus just learning or memorizing things. I’m a big fan of teaching children how to problem solve. How should schools be using AI to teach children new skills — developing expertise, developing problem-solving? What’s the proper role of AI for educational institutions?

[00:24:05]  Songyee Yoon:  I think what I would like to say is that we have to educate and prepare our students to thrive in a world where AI is more prevalent. But the solution to that is not just AI — it could be redesigning the curriculum, redesigning the school system, thinking about how we evaluate their achievement and how we retrain our teachers. AI could be a tool for doing that, but it’s not the solution for everything. I think there is a huge difference there.

[00:24:48]  Barry Ritholtz:  Alright, so let’s bring this out to the world of the economy and business. Successful companies have wide moats and we’re starting to see AI compress those moats over time. Think about industries like lawyers, tax preparers, accountants. There’s a lot of stuff AI can do in a fraction of the time and with greater accuracy. Everybody knows about reading X-rays and MRIs. So if we know our moats are going to get compressed, how should companies be using AI either to protect and expand those moats, or use AI to expand their competitive advantages while they last?

[00:25:51]  Songyee Yoon:  I mean, I think there are some industries and professions that will become much more productive and need a lot fewer professionals to solve certain well-defined problems. But that doesn’t mean that as humanity we’re left with no problems to solve. We have so many other problems that AI cannot address — for example, politics, how we’re going to redistribute resources. What is our societal priority in enhancing the agency of everyone and helping them achieve their full potential? Those are things we don’t have good solutions for. While AI can take care of things in a well-defined workforce, we’ll have time to work on other problems to progress humanity forward.

[00:27:12]  Barry Ritholtz:  So I think we’re all in agreement it’s going to be a very disruptive technology. Am I hearing you say essentially: hey, it’s up to everybody to learn how to use these tools and adapt, but the change is coming — you have to be prepared?

[00:27:28]  Songyee Yoon:  Yes. Right. Exactly. Yeah.

[00:27:30]  Barry Ritholtz:  So you’ve operated at the intersection of artificial intelligence, gaming, telecommunication, and social platforms. That’s a great convergence of a lot of different technologies. How is that evolving, and how are both consumers and institutions really adapting to an AI-driven economy?

[00:27:56]  Songyee Yoon:  I mean, a lot of people recognize that this is one of the greatest platform shifts in our lifetime, and there’s a lot of excitement. But we are at the very early inning of how it’s going to fully pan out. We don’t even know what’s coming in the next three to five years. And I’m really excited to see all these use cases and applications of technology fully leveraging the creativity of the AI-native generation. The people who think with AI as part of their toolkit will come up with different ideas and apply their creativity.

[00:28:54]  Barry Ritholtz:  So you’ve founded Chameleon as a corporate venture arm, and now you run a fully independent early-stage venture fund. What are the differences between being part of a corporate venture fund versus being independent? What are the strengths and blind spots in each?

[00:29:18]  Songyee Yoon:  I think the objective is different depending on who is providing the capital and what the objective of the firm is. At PVP, I think we focus more on the type of investors who’d like to be at the forefront of innovation and capture the value being created — regardless of the area. It doesn’t have to be confined to entertainment and consumer space. I think we were able to look more broadly.

[00:29:59]  Barry Ritholtz:  So corporate is pure strategic and independent is strictly ROI. So let’s talk about some of the companies you’ve backed — Together AI, Cartia, Sesame. These all seem to be pretty core infrastructure plays. Tell us a little about those. What was it about each of those that made them so appealing?

[00:30:21]  Songyee Yoon:  I mean, it’s a really tricky time to make an investment because there is a lot of excitement about this technology and a kind of rushing mentality. So I try to invest in companies that are going to be durable in the coming decades. I really like companies that are building infrastructure technology that has multipurpose utility as this platform evolves. Together AI and Cartia both have great founders with a vision of building infrastructure and foundational technology. And Sesame was an interesting case because it’s building voice applications — and from my gaming experience I know the importance of focusing on certain features that provide certain experiences to users. The founders understood what was important, and their capabilities were singularly focused on making that technology push.

[00:31:36]  Songyee Yoon:  So I really liked what they were doing, and that’s one of the reasons I ended up investing in Sesame. But there are other types of companies as well that we’re excited about. Those are the companies that are in a position to build a data flywheel — because one of the undeniable characteristics of companies that will be durable in this environment are the ones who have appropriate access to data, understanding of customers and consumers and the business, and build unique technology on top of that. So we’re also investing in companies building this data flywheel that will over time build very defensible moats.

[00:32:27]  Barry Ritholtz:  Hmm, really, really interesting. Coming up, we continue our conversation with Songyee Yoon, co-founder and managing partner at Principal Ventures, discussing the state of venture investing into artificial intelligence today. I’m Barry Ritholtz, you’re listening to Masters in Business on Bloomberg Radio.

[00:33:03]  Barry Ritholtz:  I am Barry Ritholtz. You are listening to Masters in Business on Bloomberg Radio. My extra special guest today is Songyee Yoon, founder and managing partner at Principal Venture Partners, an AI-focused VC.

[00:33:21]  Barry Ritholtz:  What is the key problem Principal Venture Partners is trying to solve in the world of AI today?

[00:33:29]  Songyee Yoon:  So we started to back AI-native companies. When we first talked about AI-native companies, that was not a very common phrase — people asked me, ‘What do you mean by AI-native companies?’ I had to explain what it meant. And these days it’s a more widely used term. We’d like to back companies who are fully embracing the technology of today and tomorrow, led by founders who understand the technology and its limitations and are able to come up with an organizational design that reflects the importance of this. In terms of the size of departments, it will be very different from companies built upon last-generation technology stacks.

[00:34:21]  Songyee Yoon:  And I think the type of leaders and talents who are going to lead all these departments are going to be different in terms of the use of technology and their vision for solving problems that are relevant in the AI-native era. Those are the companies that really excite us, and those are the companies we’re focused on investing in.

[00:34:40]  Barry Ritholtz:  So every time there’s a new technology, everybody just kind of sprinkles a little bit on it to catch a little bit of the buzz. We had it with the dot-coms, we had it with the metaverse, we had it with crypto, and now everybody’s claiming they’re an AI company. How do you distinguish between what is truly AI-native and what is just ‘let’s put a little dash of AI salt on this’?

[00:35:06]  Songyee Yoon:  That’s a very good question. I think I have an unfair advantage from working in a gaming company. The gaming industry is like having a lens into the future, right? Because a lot of the technology and innovation happens in gaming first, and it gives us a sense of whether this type of technology is adoptable and whether consumers will accept it. So in terms of application and platform, that’s a really interesting guiding North Star for me. And companies that are fully AI-native are built around that tech stack, whereas if you’re trying to sprinkle AI, you ask: can you do the same thing without AI? Why do you need it? Why is it indispensable?

[00:36:05]  Songyee Yoon:  I think there are businesses using things like agent technology, but for a lot of applications you don’t need an agent — you just need good data analytics. So there are many ways we try to understand how businesses are operating and see their full potential and their strategy.

[00:36:30]  Barry Ritholtz:  So on the one hand, I know AI has been around a long time. When Deep Blue beat Kasparov, that was a big deal. And then the AI app that won Jeopardy — these are 10 and 20 years ago. So it’s not a brand-new technology. However, it feels like we took another level jump with ChatGPT, and — go down the list — Claude, Perplexity, whatever. How do you think about this moment in time? Is this similar to early broadband, early smartphones, early cloud use? For someone who’s a tech investor, they want to know: is it early, is it late? How do you think about where we are today?

[00:37:30]  Songyee Yoon:  That’s great. Actually, it’s older than that. Do you remember — in the sixties there was an application called Eliza? Eliza was a very early incarnation of a chatbot, and there was even a newspaper headline declaring the end of psychotherapists because it was doing so well rephrasing what people were asking. Since then there were a lot of AI winters and summers, ups and downs. And I think what’s surprising to many people about this time is that the AI shift is closer to the introduction of the railroad than the introduction of the PC or the internet. Because the biggest breakthrough that allowed us to get here was actually scale — not a new algorithm, not new software, but scale: let’s pour a lot of resources to make it really big. And that’s where we saw the tremendous jump in AI capability.

[00:39:34]  Songyee Yoon:  I think there will be interesting new businesses that emerge out of it. So yes, I think we are very early in terms of fully appreciating what’s possible on top of this.

[00:39:46]  Barry Ritholtz:  So I love the idea of interesting new businesses. I’m always fascinated with what the public markets know — they’re more or less eventually efficient, and very often when a new technology comes along, they very much underestimate where it can go. So what’s a use case that the public markets might be underestimating? Where might this go? You look at dozens and dozens of new companies — what direction is just mind-blowing that nobody is really anticipating?

[00:40:24]  Songyee Yoon:  I think there are a lot of things happening. One interesting thing is that while this technology has beaten many people’s expectations, there is a lot more innovation coming along in terms of architecture design and fundamental design of the framework. We are not done with what is the most efficient railroad design. I think there could be other types of railroads that come online that will allow faster and more comfortable ride experiences. And once there is a railroad, interesting businesses emerge — like mail order. It’s really hard to make that connection, but that type of new business was made possible because the railroad was in place.

[00:41:40]  Barry Ritholtz:  Well, broadband and fiber optic led to so many things — everything from YouTube to the build-out of Amazon Web Services and online games, online retail, all that stuff.

[00:41:53]  Songyee Yoon:  Exactly. Games, right? That’s why I am really excited about AI-native generations and creativity — what they’re going to build on top of this. I think there will be new types of businesses that we don’t comprehend today that will be enabled by this infrastructure.

[00:42:06]  Barry Ritholtz:  So when you’re sitting with a founder of a company that’s looking for financing, what sort of questions do you ask? What are you trying to figure out about their model, their direction, their team?

[00:42:24]  Songyee Yoon:  I mean, it depends on what they’re building. The set of questions I ask when they’re building infrastructure technology versus business applications are different. But especially when they’re building business applications or vertical applications, I always try to ask: what is the real value that’s going to be brought to end users? We’re not investing in companies building amazing tech demonstrations — we’re trying to find companies who are solving real-world business problems and doing it in a way that’s sustainable and more efficient than any other type of technology.

[00:43:11]  Barry Ritholtz:  So you’re looking at infrastructure-type companies. What other types of AI applications are you looking at?

[00:43:18]  Songyee Yoon:  We are looking at companies that are building vertical applications by developing data liabilities and data moats.

[00:43:27]  Barry Ritholtz:  So there’s been a little bit of a lightning rod from a regulatory standpoint — all the LLMs have copyright complaints and issues. When you look at a term sheet today, how do you think about the regulatory risks, the litigation risks? How do you think about the regulatory framework and geopolitics? It seems like there are a lot of novel moving parts.

[00:44:11]  Songyee Yoon:  Yeah, I think that’s a really great question. More than ever, understanding how regulatory bodies think and how policy is going to evolve over time is important in making these decisions — especially in the venture space. We’re making investments that should last over a decade. It comes from the belief and understanding that innovation and research are very precious for all of us as humanity. And the tradition of peer review and open forum has really propelled us to where we are today. It’s going to continue, and I think collaboration and openness will better serve our end customers. We don’t have a crystal ball to say what the policy framework or geopolitical tension will look like in the next one or two years, but we have the belief that humanity’s collective work will converge in a direction that serves humanity positively.

[00:46:15]  Barry Ritholtz:  Alright, so before we get to our speed round, let me ask you one last question: what do you think investors in the AI space are either not thinking about or not talking about, that is important and perhaps they really should be paying attention to?

[00:46:33]  Songyee Yoon:  I think the saying that ‘we are at the very early inning’ means a lot. I hear someone even saying we are still in the car getting to the stadium — we’re not even in the first inning yet. That means all the models and structures can change significantly and can evolve over time, and nothing can be seen as engraved in stone. So I think a lot of the investment decisions have to remain nimble and flexible because we should be able to adjust when those changes and new breakthroughs come around.

[00:47:26]  Barry Ritholtz:  Alright, so I only have you for a few minutes, so we’ll click through these really quickly — our speed round. Starting with: who are your early mentors who helped to shape your career?

[00:47:38]  Songyee Yoon:  I would say I was fortunate enough to have a lot of mentors, but one person that stands out is Dominic Barton, who was the global managing partner at McKinsey. When I first started out as an associate at McKinsey, his office was right next to mine, so he was literally my neighbor and I learned a lot from him as a leader and as a mentor. Still today I reach out to him if I have to make tough decisions, and he has always been very generous with his time. So I’m really appreciative.

[00:48:22]  Barry Ritholtz:  Let’s talk about books. What are some of your favorites? What are you reading right now?

[00:48:26]  Songyee Yoon:  Oh, so I read a lot of books, but I’m the type that reads many books simultaneously — one chapter here and then I jump to another book. But the books I recommend to everyone these days are two: one is The Empire of AI and the other is Power and Progress. And I think those books help us understand the dynamics of what’s happening and what we need to think about as a society.

[00:48:56]  Barry Ritholtz:  So let’s talk about streaming. What are you either listening to or watching these days?

[00:49:02]  Songyee Yoon:  So I listen to music through Spotify a lot. My son is a big fan of Taylor Swift, so I have to listen to Taylor Swift whenever I’m in the car. I also watch K-dramas on Netflix.

[00:49:23]  Barry Ritholtz:  Really, really interesting. Our final two questions. What sort of advice would you give to a recent college graduate interested in a career in either artificial intelligence, investing, or gaming?

[00:49:38]  Songyee Yoon:  I mean, I think for kids just graduating today — one thing that’s not going to change is that it’s going to be very bumpy and disruptive, and the world they’re going to be working in is not going to look like the world today — that’s the constant. And what I would like to remind them is: don’t try to follow the trend. You really have to stick to what you’re passionate about. You remember in the seventies the most popular major was material science, then chemical engineering, then electrical engineering, then computer science — just to see the popularity of those majors kind of plummeting. We’ve witnessed so many of those cases. So I don’t think it serves you well to follow that fashion or trend.

[00:50:46]  Barry Ritholtz:  So be a generalist and be flexible.

[00:50:50]  Songyee Yoon:  Could be. Yeah. Right. Yeah.

[00:50:52]  Barry Ritholtz:  Alright. And our final question: what do you know about the world of venture investing and artificial intelligence today that might have been useful to know 20 years ago?

[00:51:03]  Songyee Yoon:  I mean, I think patience. The power of compounding is not just in finance, but also in human capital, our understanding of technology, and also in relationships. It seems very slow today, but if you are persistent for 20 years, what you can achieve is really tremendous.

[00:51:29]  Barry Ritholtz:  Well, thank you Songyee for being so generous with your time. We have been speaking with Songyee Yoon, founder and managing partner at Principal Venture Partners. If you enjoyed this conversation, check out any of the 600-plus interviews we’ve done over the past 12 years. You can find those at iTunes, Spotify, YouTube, Bloomberg, wherever you find your favorite podcasts.

[00:51:58]  Barry Ritholtz:  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, Anna Luke is my podcast producer, Sean Russo is my head of research. I’m Barry Ritholtz.

[00:52:14]  You’ve been listening to Masters in Business on Bloomberg Radio.

~~~

The post Transcript: Songyee Yoon, Principal Venture Partners appeared first on The Big Picture.

I am heading out to the West Coast with 9 of my colleagues to meet with clients of the firm in San Francisco on April 14-16! I’ll also be hosting a Masters in Business live at the Bloomberg HQ at Pier 3.

Reach out if you’re interested in learning how RWM solves problems involving:

-Capital gains tax management

-Working out of (or around) concentrated stock positions

-Planning the sale of a business

-Bespoke fixed income strategies

-Tax advantaged borrowing

–Employee Stock Option Plan Management

-Maximizing the benefit of philanthropic giving

-Efficient transfer of wealth to the next generation

As we prepare for our upcoming meetings with our Bay Area clients, I can’t help but reflect on how our firm’s value proposition has evolved to meet an ever-expanding set of complex client needs.

I detailed many of these last week in a post titled “The Evolution of Alpha.”

A generation ago, these solutions were viable only for the highest-net-worth households; they required a huge amount of time and effort, making them too expensive for all but the wealthiest families.

This is no longer the case.

Thanks to the innovative application of technology in wealth management, these same strategies are now available to far more households than ever before, and at an affordable price. Managing capital gains taxes, tax-advantaged lending, and orchestrating tax planning and investment management was made cost-effective through the intelligent use of software, data, and personalization.

In my experience, it has been leading to client outcomes that simply weren’t possible at scale just a few years ago. To learn more, send an email to info AT RitholtzWealth.com, subject line “RWM in San Francisco.”

~~~

Looking forward to seeing you in the Bay Area!

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

RWM Coming to San Francisco April 14-16 (February 26, 2026)

The post Next Week! RWM Takes San Francisco! appeared first on The Big Picture.

My guest on today's podcast is Jake Falcon. Jake is the founder of Falcon Wealth Advisors, IAR of the RIA Hightower Advisors and based in Kansas City, Missouri, that oversees approximately $1 billion in assets under management for 900 client households.

What's unique about Jake, though, is how he recognized that his strengths are in 'rainmaking' and attracting new clients, leading him to largely take himself out of the planning and client meeting process, giving himself additional capacity as his firm surpasses one billion in assets under management.

In this episode, we talk in-depth about how Jake technically remains the advisor for 500 of his clients but has delegated technical plan preparation and regular clients meetings to a centralized planning team (though he makes himself available to speak directly to clients if they wish), how Jake's firm segments clients by revenue to align the time it takes to serve them with the revenue they generate for the firm, and how Jake leverages the short-form video production tool BombBomb to create asynchronous touchpoints with clients while managing his time.

We also talk about how Jake is building the business development skills of a new firm hire by having them work through the 5,000 leads the firm has amassed over the years to set up introductory meetings with Jake and his partner, how Jake has attracted most of his clients through client referrals, both through his own efforts and by setting referral goals for members of the planning team, and how Jake is using Instagram to meet good-fit prospects "where they are" (and how he's found that being his authentic self on the platform has led to his greatest successes).

And be certain to listen to the end, where Jake shares how a major turning point in his career occurred when he stopped using business development 'scripts' and prioritized first building a relationship with leads, why Jake invests his clients' assets directly into individual stocks and bonds (eschewing mutual funds and ETFs in the process) to reduce fees and promote accountability for his firm, and a rundown of the many books that have helped Jake build a successful career in the financial advice business.

So, whether you're interested in learning about making the transition from client-facing advisor to firm 'rainmaker' while still maintaining touchpoints with clients, building a centralized planning team to serve a rapidly growing client base, or using Instagram to meet prospective clients 'where they are', then we hope you enjoy this episode of the Financial Advisor Success podcast, with Jake Falcon.

Read More...

This month's edition kicks off with the news that Wealthbox is introducing new AI agents to make it easier for advisors to query and take actions based on the client data within their CRM – which could help make it more competitive with encroaching tools like AI notetakers or AI-native CRMs that threaten to shrink its role in the advisor tech stack or reduce it entirely. But the amount of time it took Wealthbox to actually launch its new AI tools means that it may have a long way to go to catch up with the newer AI-native startups that appear to be iterating more rapidly.

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

• Jump has announced a significant expansion beyond its roots as 'just' an AI notetaker, introducing a suite of "AI Operating System" tools – but it's not clear yet how much value advisors will really see in those additional features (and might actually just prefer a better alternative to their current CRM solutions, which ironically is the one thing that Jump still insists that it isn't building)
• RightCapital has launched a new AI tool for extracting information from client documents to automatically populate and update data in the clients' financial plan – which is perhaps a bad omen for technology providers that do document extraction on a standalone basis (and many other standalone AI tools that risk being undercut if their main functionality ends up being released as a "feature" that's bundled into a bigger incumbent technology)
• The Google-backed startup RIA Range, after several years of building a technology-forward AI-driven firm with human advisors, has reiterated its plan to gradually eliminate its human advisor workforce – but it remains to be seen whether Range can continue charging human-level planning fees for AI-only planning, given the vastly different economics of serving clients who value working with a human advisor (and are willing to pay premium fees for doing so) versus running direct-to-consumer technology platform that primarily appeals to price-conscious DIYers

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

• A new technology provider called WealthStream has launched with the aim of training newer advisors to think and act like more experienced planners by ingesting data on the advisor's clients and highlighting particular strategies the advisor can recommend – which could be useful for bringing newer advisors up to speed on an advisory firm's planning process and philosophy (especially at bigger RIAs where it's difficult to train and supervising hundreds or thousands of advisors), though in reality it's most often the skills of client communication, and not technical planning, that advisors need the most training on early in their careers
• As more and more advisors have become specialists in equity compensation owing to the complexity of the planning issues involved and the high potential for business growth (since company stock liquidated by an employee can subsequently be reinvested and managed by the advisor), several new equity compensation-focused planning technology solutions have arisen in the last few years – showing that advisors are often willing to pay more for specialized software that can help them do deeper planning for specialized clients

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...

We are all looking to make it. And we employ signifiers, status markers, to indicate that we’ve crossed the threshold, that we are no longer trapped amongst the great unwashed, that finally we are SOMEBODY!

And one of the main ways you felt settled, that you were not only on your way, but part of the firmament, was seeing your name in the news.

It’s a thrill when it first happens. You mean you want MY opinion, you want to write about ME? But as time goes by, you find out it’s meaningless, because everybody is expressing their opinion or promoting their wares all day long online, and your triumph gets lost in the shuffle.

I’m not saying there’s anything wrong with publicity, and sometimes it even gooses projects and careers, all I am saying is it won’t sustain a career. And longevity is everything today.

Used to be, very few people could make it. Could get a record deal, never mind get on the radio and become a star who can sell tickets. Whatever your innate talent, the work of a whole team enabled you to climb the ladder, which is why you see award winners constantly thanking their handlers.

But awards don’t mean much either. I hope you’re thrilled you won, but in a matter of months, seemingly no one remembers your victory. Furthermore, there are a lot of Grammy winners who make their money elsewhere, not in music, or have given up completely. That’s what an award is worth. So if that’s your goal…

I was reading the “Wall Street Journal” yesterday and saw that a friend was quoted. He’s not a public figure; I don’t think his inclusion resonated with a broad swath of the public. For a second there, I thought how they didn’t call me, but that’s just a step on the ladder, a momentary feel-good experience. Most people, after they’ve had that brush with publicity, feel good for a moment and have seen the return was relatively minimal, go back to doing the work.

And it’s all about the work.

Ah, that’s a cliché. Let me try to restate it in other words.

If you want to last a long time in today’s world, you’ve got to keep on creating, because there’s so much news and so much of it reaches so few people that most have already forgotten about you, if they knew about you in the first place.

There’s nothing wrong with a feature in the “Times” or the “Wall Street Journal”… But be wary, these outlets are never completely positive. That David Geffen documentary? The one on Jimmy Iovine and Dre? They were love letters, because THEY PAID FOR THEM! They know it’s all about control, kudos.

But if you give up control, beware.

However, let’s return to basics. Most people are looking to get noticed. They want to get out of the hole that they’re in. They want to throw the long ball; they want to believe there is some grand poohbah out there who can reach out and anoint them, and their career will be made. Today, this is patently untrue.

Let’s start with the number of news outlets.

I know, I know, I’ve lauded Apple News+, but if you read the general feed, your eyes will glaze over; it’s all clickbait headlines…and when you click through, there’s very little there.

You even get the same thing in Google News!

All these outlets fighting for attention have caused people to look elsewhere for information, first and foremost, their friends and family, real or those they’ve met online. It’s like we’re living in the 1800s, prior to modern communication methods. The mainstream has worn out its welcome, been excoriated by those who don’t agree with it, on both the left and the right, and has never meant less.

But we’re not talking about general news here, we’re talking about you.

You’re looking for a leg up; you’re looking for it to be made easier. IT’S NEVER GOING TO BE MADE EASIER! The major label can’t break you, if it will even sign you. Terrestrial radio can’t break you; it takes its clues from Spotify and other streaming media. And Spotify is a great democracy influenced by word of mouth, both online and offline. Social media can drive a hit more than terrestrial radio. But there’s no direct pipeline, no one you can pay to get millions of views.

So…

Paying for streams, for views on YouTube…unless your plan is to leverage these to make a deal with a larger entity, save your money. Your fans don’t care, and it’s only about your fans.

Now I’m not saying fans are irrelevant; it’s just that now there’s a direct conduit from you to them, and you must feed the beast, constantly. Your only hope of growing is via your fans, and if you’re not top of mind, they’re not going to do the work for you. And some fans spread the word, and some do not, and you don’t know who is who, so you have to keep spraying bullets and…

Sounds hard, doesn’t it?

It’s VERY hard.

Anybody can get noticed for a minute or two. Every week in the “Times” Sunday Style section, they hype a book or previously unknown person, and it’s almost like the kiss of death; they’re never heard from again.

TV entertainment news? If you think active consumers are even watching broadcast/cable TV, you’re dreaming. That’s not the bleeding edge, and those who make a difference, who change the world, are always harvesting information on the fringe.

So, you’ve got to keep on working, or you’re going to be forgotten. Most of the public does not know you’re a one-hit wonder, and there’s a tsunami of product, and you’re not going to get many streams in the future.

Now wait just a minute, you say… I won, I triumphed, I SUCCEEDED!

Maybe by old school metrics.

There’s no overlord with fairy dust spraying it on the lucky few.

No, you’re not only the creator, but you’re also the fairy too.

And be wary of getting away from your mission. That brand extension might be a mistake if it takes your focus from the core work, if it undercuts your credibility.

In other words, unless you’ve got a plan to get in quick and get out nearly as fast, the world has completely changed. It’s not about momentary vertical success; it’s about continuing to be in the landscape. For year after year after year.

If you’re doing this for an annum or two, before you go to graduate school, don’t even bother; go enroll at the academy. Because it takes longer than ever to gain a following, and you never quite know when you’ve made it, if you’ve made it at all.

Read the news. The trades. Look at who is featured, who is promoted, but don’t feel left out. That’s a moment in time. Used to be it was a rarefied world, only a few could get ink, now EVERYBODY can get ink.

That’s true. If you’re old enough, you’ll remember what a thrill it was to be on TV. You told your friends to look for you at the baseball game. Now you don’t even mention it, because it’s no big deal. The barrier to entry is so low that it’s not hard to get on TV, and so many of the people who cross that threshold are nincompoops. Why is it that the “Housewives” are always getting into legal trouble and getting divorced? If they were that rich, this wouldn’t happen. No, they believe if they are on these shows, they are stars, whereas truly they are laughingstocks, fodder for the machine. You know the number one rule of reality television…DON’T BE ON IT!

So it’s just you. In the wilderness. Trying to grow a fan base. Even a hit isn’t going to mean you’ve got a career. No, you must do foundational work, one-on-one. You must nurture your image, not do anything out of character. People need to be able to trust you. And what the press says or doesn’t say about you is essentially irrelevant. Certainly here today and gone tomorrow.

Of course, there are people who make it a full-time job to appear in the press, but that does not mean they’re rich, that they’ve even got a career, or even fans, just that some people see their names on a regular basis.

But so many still want to believe. That if they hire publicity and promotion people, if they get their name out in the news, they will be winning.

Today, winning is something you feel inside. No one else can claim victory for you. No one else can anoint you with pixie dust. There are social media influencers making more money than most of the people in the Spotify Top 50, even though very few know their names. Young people acknowledge this change; old people pooh-pooh it because they don’t like having their cheese moved, they don’t like the evisceration of rules. There must be rules, right?

There are no rules; you make it up as you go. And chances are those jumping the track, doing the out of the ordinary, never mind extraordinary, are going to win.

So if you’re railing against the system…

You’re the system. Only you. It all comes down to you.

Keep producing. Doesn’t matter what the general public thinks, just what your fans do. And if you’re good enough, you’ll grow a fan base and sustain it. But that’s too heavy a lift for newbies; they want someone exterior, in the firmament, to say they’ve made it, that they’re a star.

But that paradigm went out with the internet. And the internet’s been around for thirty years.

So it’s time to acknowledge where we are. A Tower of Babel world where you’re the act, the bus driver, the social media maven…one in which you wear all the hats, and if you want to have a conference, you look in the mirror.

But never forget, people are still looking for great, and there’s very little great out there. So if you are truly great, people will find and promote you…just don’t expect it to happen overnight.

~~~

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: Anybody Can Get Publicity appeared first on The Big Picture.

This week, I speak with Songyee Yoon, founder and managing partner of Principal Venture Partners. Her AI-focused investment firm established in 2024, and since 2025, she has beem a member of the board of directors of HP.

We discuss her venture firm’s focus on AI-native companies, and understanding technological innovation. We also cover the tech investment landscape and how she determines which companies are native to AI and which are just “chasing the boom.”

A list of her favorite books is here; A transcript of our conversation is available here Tuesday.

You can stream and download our full conversation, including azny podcast extras, on Apple Podcasts, Spotify, Bloomberg, YouTube (video), and YouTube (audio). 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 Philippe Bouchaud, co‑founder, chair & head of research/chief scientist at Capital Fund Management (CFM) The $20 billion dollar fiorm specializes in managed futures). He beghan his career in theoretical physics, was awarded the IBM young scientist prize (1990) + C.N.R.S. Silver Medal (1996), and has published over 300 scientific papers and several books in physics & finance.

Current Reading/Favorite Books

The post MiB: Songyee Yoon, Principal Venture Partners appeared first on The Big Picture.

The world of investing has changed over the first 30 years of my career. Perhaps the biggest surprise has been the gradual shift from traditional market-based pursuit of alpha to what can be best described as “Organizational Alpha.”

Today, I want to share key examples how this evolution has manifested itself at our firm, Ritholtz Wealth Management.

From Portfolio Management to Full-Service Wealth Planning

In the early days, the core offering was portfolio management — globally diversified, low-cost, disciplined. That hasn’t changed. What has changed is everything we built around it.

Investors need more than just a good portfolio and someone to occasionally talk them off the ledge when volatility surges; they need someone to coordinate their entire financial landscape — investments, taxes, estate plans, insurance, equity compensation, retirement plans, and charitable giving.

This comprehensive approach has resulted from a deep understanding of client goals. Maximizing investment returns is only one part of that journey.

Orchestrating Tax Planning and Wealth Management

Many advisors treat tax planning as an afterthought. We witness so many errors, oversights, and missed opportunities from CPAs who fail to orchestrate investments and tax planning. After reviewing thousands of client tax filings, we realized we needed to make this a central function, and Ritholtz Tax was born.

Tax planning and preparation are now critical parts of our service model and among the most meaningful ways we can improve client outcomes.

It’s not just about preparing taxes (though that is very important). It’s understanding the entirety of a client’s tax situation that informs how we deploy tax loss harvesting, estate planning, and gifting strategies. Every Ritholtz Tax client gets a pro-forma tax analysis completed during the tax year, so our tax-focused investment strategies have the time they need to deliver results to manage tax bills. Waiting until the tax year is over is simply too late.

Behavioral Management

This is the single most important point of failure for most investors.

I was lucky to stumble down the behavioral finance rabbit hole in the 1990s on a trading desk. As a firm, we became known as one of the earliest adopters this by combining BeFi with a data-based approach to managing client wealth.

Avoiding mistakes is so much more important than stock-picking or market-timing for your long-term success. Whether it’s “Liberation day” market jitters or volatility caused by spiking oil prices, our clients depend on us to help process current events and understand the impact they may have on a long-term financial plan.

Corporate Retirement Plans

Our dedicated 401(k) team works with business owners and executives on plan development, design, and deployment. A well-structured retirement plan is one of the most powerful tools a company has — for recruiting, retention, and the long-term financial health of its employees.

Reach out to the team to learn about the impact of  the “mega backdoor Roth” on your long-term savings.

Concentrated Positions

When clients come to us with large, concentrated stock positions, they need more than just advice to “Diversify!” They need a thoughtful, long-term, tax-aware plan to reduce risk without causing an unnecessary tax event. Our team of advisors and tax pros work together to develop a custom strategy that balances diversification with the real-world tax consequences of unwinding those positions.

Diversifying concentrated positions without subjecting clients to substantial tax hits has become significantly easier with the introduction of long/short equity strategies.

Custom Indexing Through Canvas (Equity)

We were among the first adopters of O’Shaughnessy Asset Management’s direct indexing platform, Canvas (now part of Franklin Templeton). Today, we have over a billion dollars on the platform. Why? Because the results speak for themselves — clients on Canvas have experienced an average after-tax boost of ~80 basis points since inception, driven primarily by systematic tax-loss harvesting. We have a meaningful level of client assets in direct indexing strategies, and we expect that number to grow significantly in the years ahead.

Bespoke Fixed Income Strategies

The investment management industry has historically allocated to fixed income categories without much regard to the clients’ individual needs.

The relative attractiveness of municipal bonds, treasuries, and corporate bonds varies dramatically based on your specific circumstances. One investor’s optimal max after tax yield will be different than another’s.

We work with Canopy Capital to maintain a consistent exposure to a client’s individually optimized bond allocation, with the additional benefit of tax loss harvesting. Their fixed income portfolio management software is a custom solution driven by your income, your federal tax bracket, and your state and city tax levels.

Long/Short Portfolios 

For clients looking to offset substantial capital gains taxes, we manage leveraged long-short equity portfolios through AQR and OSAM. These are systematic, tax‑aware strategies designed to harvest ongoing, usable tax losses while deferring taxable gains. These maintain moderate net market exposure, allowing the investor to compound more pre‑tax gains and pay less tax along the way — especially after a taxable liquidity event (selling a business, building, a highly appreciated home, or concentrated stock holding).

Employee Stock Option Plan Management

We work with many clients whose wealth has come from company stock: not only founders’ shares and employee stock options, but RSAs, RSUs, NSOs, and ISOs. The key to successfully navigating this alphabet soup of equity is to approach it from both a diversification and tax planning perspective.1

Trust & Estate Planning

Estate planning is one of those things we all know we need, but too many of us put off. Our in-house estate planning attorney and team work to make sure your documents reflect your intent, your family is protected, and nothing gets overlooked.

Whether it’s straightforward succession planning or complex multi-generational wealth transfer, we view it as a vital part of the ongoing advisory relationship — not just a one-time discussion.

Private Investments

More and more people come to us with private investments – that’s why we added a full-time dedicated analyst to cover alts, including private debt, credit, hedge funds, and venture capital.

As our client base has grown in both size and sophistication, so did the demand for access to private markets. But as I noted earlier this month in Ill-Liquidity Premium, the median alternative fund is not worth the fees, illiquidity, and complexity.

We approach privates the same way we approach everything else — with a well-founded focus on what actually adds value after fees.

Non-Profit and Institutional Management

We partner with nonprofit organizations to navigate the unique complexities of institutional management. Our team serves as both a governing and managing fiduciary, handling investment policy development, design, and deployment. We also assist with major giving strategies, leveraging our in-house tax and estate planning professionals to help organizations facilitate planned giving and complex charitable contributions.

Financial Literacy — It’s in Our DNA

Education has been part of this firm’s identity since before the firm existed. Between The Big Picture, A Wealth of Common Sense, The Compound, Animal Spirits, Masters in Business, At the Money, and the dozens of other media channels our team contributes to, we reach millions of people every week. We believe that informed clients make better decisions, and better decisions lead to better outcomes. Financial literacy isn’t a marketing strategy for us — it’s a core value.

The Evolution of Ritholtz Wealth Management

When we started Ritholtz Wealth Management in 2013, the vision was straightforward: build a firm grounded in evidence-based investing, behavioral finance, and radical transparency. Two partners, $60 million in assets, and a shared conviction that Wall Street’s traditional model was broken.

Thirteen years later, we manage over $7.6 billion in client assets for 1000s of families. But growth in AUM only tells part of the story. The real evolution has been in what we do for the people who trust us with their finances.

What Comes Next          

The evolution of RWM has always been driven by one question: What else do our clients need? Every capability we’ve added — tax, estate, privates, direct indexing, retirement plans, non-profit services — started with that question. We expect the next decade to bring just as much change as the last, and we plan to keep building.

~~~

Speak With Us

Do you need a financial QB to manage all aspects of your financial life? To learn about how RWM works with clients,  reach out to us at Info at RitholtzWealth.com, with the subject line “QB.”

If you live anywhere near the Bay Area, come speak to us at our upcoming event in San Francisco during the week 0of April 14-17th. Email us: Info AT RitholtzWealth.com, with the subject line “San Francisco.”

Previously:
Announcing: Ritholtz Wealth Management (September 16, 2013)

Introducing RWM’s Educator / 403(b) Division (December 4, 2015)

Inverting Wall Street’s Research Business Model (March 14, 2016)

What is Organizational Alpha? (February 7, 2017)

What is Your Value Proposition? (May 30, 2017)

Our Exorbitant Privilege (June 19, 2018)

What Should You Be Paying for Investment Advice? (April 9, 2019)

10 Things I Have Learned Launching RWM (September 16, 2019)

Accessing Losses via Direct Indexing (April 14, 2021)

Tax Alpha (April 14, 2022)

Lessons from Our Origin Story (September 17, 2021)

RWM Makes Barron’s Top 100 RIA Firms! (September 15, 2025)

__________

1.  We also eat our own cooking when it comes to Employee stock ownership: From day one, we built our firm as a partnership. Every year, new partners are offered the opportunity to purchase equity. Today, 29 employee-owners sit on the cap table — co-founders, financial advisors, and key personnel. Nobody was handed free stock options; everyone invested. This structure is the backbone of our succession plan and our commitment to remaining 100% independent.

The advisory firms that last are the ones where employees who do the work have real skin in the game.

The post The Evolution of Alpha appeared first on The Big Picture.

Also in industry news this week:

• The Department of Labor (DoL) this week unveiled a proposal meant to ease litigation risk for retirement plan fiduciaries that want to include alternative assets in their fund offerings for participants
• While the share of new financial advisors who are women has plateaued in recent years, industry and firm initiatives could better attract and retain women (while providing additional benefits to the advisor population as a whole)

From there, we have several articles on estate planning:

• How financial advisors can add value for their clients by holding a beneficiary designation review meeting and by being aware of opportunities for changes as their clients' (and the clients' current beneficiaries') lives change
• How advisors can support clients in selecting an appropriate healthcare proxy (and by providing the chosen individual with the background information that can help them make the best-informed decisions when contingencies arise)
• The value of proper estate planning for heirless clients and how advisors can address common client misconceptions

We also have a number of articles on advisor marketing:

• How financial advisors can tailor their websites to reflect the questions prospective clients are asking AI tools such as ChatGPT
• A blueprint for marketing in a world where Answer Engine Optimization (AEO) could become increasingly valuable
• Why financial advisors might consider a marketing strategy refresh as Artificial Intelligence (AI)-powered search becomes more prevalent

We wrap up with three final articles, all about learning more and reading more:

• Why reading remains a valuable practice in a digital age featuring an ever-increasing amount of audio and video content
• Lessons one author learned on happiness, productivity, and fitness from reading 102 books over the past year
• Why setting a daily page goal could be the key to reading more books in the coming year

Enjoy the 'light' reading!

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• Public Anger Is Rising: Congress briefly showed signs of productivity before reverting to form. The public’s frustration with dysfunction is reaching a boiling point. Even TMZ is channeling the national discontent. (The Atlantic)

• Have Trump’s tariffs worked? This is where things stand a year after ‘Liberation Day’ US foreign direct investment is lower; US factories employ 89,000 fewer people; US goods trade deficit is UP 2%; The government collected a lot of money but has to give it back; Inflation remains elevated. (NPR) see also Happy Liberation Day 1-Year Anniversary! On the one-year anniversary of Liberation Day and its cascading effects on markets, trade, and investor behavior.  Depending on where you look, the impact of the tariffs varies from modest to somewhat embarrassing to completely disastrous. Let’s examine the data to understand this better. What a difference a year makes. (The Big Picture)

• How Working in America Became So Joyless: The loss of small perks and rise of AI have conspired to strip work of all fun; ‘It feels like a funeral in the office right now.’ (Wall Street Journal)

• Who’s Ready to Invade Cuba?!: Russian oil tankers are docking in Cuban ports while the Iran war heats up. Jonathan V. Last asks whether anyone in Washington is paying attention to what’s happening 90 miles offshore. (The Bulwark)

• Hitler’s Edifice Complex: He was obsessed with adding an expensive new wing to the Reich Chancellery, part of his grandiose architectural ambitions for the nation’s capital. Timothy Ryback on Hitler’s obsession with grandiose architecture as an expression of power. The parallels to modern strongmen building monuments to themselves are hard to miss. (The Atlantic)

• A Detailed Timeline of Jeffrey Epstein’s Final Hours: With Epstein’s prison guards called before the House Oversight Committee, Vanity Fair reconstructs the final hours in meticulous detail. One of Epstein’s prison guards has been called to speak before the House Oversight Committee this week. Ahead of her expected testimony, here’s a detailed look at what we know about the convicted sex offender’s conspiracy-theory-shrouded death.  (Vanity Fair)

• What Is the Magic Number When It Comes to Close Friends? The science of friendship has a number, and it changes as you age. Quality over quantity isn’t just a cliché—it’s backed by research. The number varies from person to person and changes as we move through different phases of life. (Wall Street Journal)

• The right’s embrace of Adam Carolla cost him friends and gigs — but not his edge: Carolla traded the comedy mainstream for conservative media and lost friends along the way. The podcaster says he isn’t interested in climbing the late-night ladder or striking big deals as much as being able to say — often vulgarly — whatever he wants. A portrait of what happens when a comedian picks a political lane. (Washington Post)

• NASA’s Historic Lunar Mission Launch, in Photos: Stunning images from the Artemis II launch—the first crewed lunar mission in over 50 years. The photos capture the scale, the fire, and the emotion. (Time) see also Inside NASA’s Artemis II Mission to the Moon and Back: NASA’s Artemis II mission is sending astronauts on a lunar mission with big stakes in the program’s future plans. On April 1, NASA is set to send astronauts on a journey around the moon, part of a historic mission called Artemis II. The trip will mark humanity’s return to the lunar vicinity for the first time since the last Apollo mission sent astronauts to the moon in 1972. (Bloomberg)

• Colman Domingo Almost Quit Acting. Now His 50s Are the Best Years of His Career. The actor has become one of the most talked-about stars in Hollywood with an Emmy win and Oscar nods. But he’s always hedged his bets. (Wall Street Journal)

Be sure to check out our Masters in Business next week with Songyee Yoon, founder and managing partner of Principal Venture Partners, an AI-focused investment firm established in 2024, and since 2025 a member of the board of directors of HP Inc.

Waymo’s now serving more than 500,000 paid robotaxi rides every week

Source: Sherwood

Sign up for our reads-only mailing list here.

The post 10 Good Friday Reads appeared first on The Big Picture.

It’s been exactly one year since the Liberation Day Tariffs were announced, implemented, challenged, and ultimately overturned at every level. They served as the foundation of the administration’s main economic policy. What has been the overall impact – economically, geopolitically, and on the markets?

Don’t rely on the mass media for answers – they are afraid of the President and avoid the facts. My job today is to tell you the good, the bad, and the ugly.

Depending on where you look, the impact of the tariffs varies from modest to somewhat embarrassing to completely disastrous. Let’s examine the data to understand this better:

-Policy whipsaw: Perhaps the most damaging economic effect was uncertainty itself. The actual tariffs have changed more than 50 times since Liberation Day: 90-day suspensions up, down, reversals, threats. It made us look silly to our trading partners, but the biggest impact might be on Sentiment. The most striking data point is CFO confidence: it collapsed from 37% to 5% in a single month, in April 2025. This led to a huge impact on CapEx spending and hiring.

-Trade deficit: Trump declared the trade deficit a “job-killing national emergency.” It was nothing of the sort; rich countries buy more from poor countries than poor countries buy from rich countries (it’s obvious if you think about this for a moment). According to the Bureau of Economic Analysis, the U.S. goods deficit increased to an all-time high in 2025.

-Manufacturing Jobs: The promised industrial renaissance failed to arrive. The U.S. manufacturing sector shed 100,000 jobs over the past ~year; the ratio of manufacturing workers to total nonfarm employment fell to its lowest point since 1939. U.S. manufacturers hired 388,000 fewer workers in 2025 than in 2024

-Inflation: Fed Chair Jerome Powell attributed elevated readings to “inflation in the goods sector, which has been boosted by the effects of tariffs.” Prices did not fall — by August 2025, 9 in 10 goods firms had raised prices, yet 75% of goods firms still reported margin declines. Consumers paid more for goods even as corporate margins shrank.

-Revenue: The Supreme Court ruling makes the tariff revenue figures almost tragicomic: $151B collected, then a $166B refund ordered — meaning the government is effectively net negative on the IEEPA tariff strategy.

“Sell America” trade: In the 12 months since Liberation Day, global investors have been rethinking American exceptionalism. In 2025, U.S. equities underperformed global bourses; Treasuries took a hit; The dollar fell 9%. These trades became known as the “Sell America” trade.

-Geopolitical Impact: This is where I fear structural and maybe even permanent effects. Countries forged new trade pacts while trying to avoid U.S. trade agreements. The global trading system has been turned upside down in ways that may be irreversible.

The main beneficiary of this is China. They found new buyers to re-route its exports and ended 2025 with a record $1.2 trillion trade surplus. The tariffs were explicitly designed to pressure Beijing, and yet China ended 2025 with its largest trade surplus EVER, mostly achieved by simply rerouting exports.

The bottom line:  None of the Trump administration’s stated goals — shrinking the trade deficit, reviving manufacturing, lowering prices, paying down the debt — were met. Many of the targets, such as lowering prices and reducing the deficit, worsened.

The one-off deals and commitments to invest billions in the U.S.? Good luck trying to enforce those, based upon a policy that the highest court in the land declared as blatantly unconstitutional…

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

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

IEEPA Tariffs Update (January 27, 2026)

It’s Tariff Week! * (January 12, 2026)

Tariffs Likely To Be Overturned (November 5, 2025)

Might Tariffs Get “Overturned”? (July 31, 2025)

The Muted Impact of Tariffs on Inflation So Far (July 17, 2025)

Are Tariffs a New US VAT Tax? (March 31, 2025)

MiB: Special Edition: Neal Katyal on Challenging Trump’s Global Tariffs (September 3, 2025)

Neal Katyal on Challenging Trump’s Global Tariffs (September 8, 2025)

Which States Could Suffer the Most From Trade War Tariffs? (September 16, 2019)

The post Happy Liberation Day 1-Year Anniversary! appeared first on The Big Picture.

In this 187th episode of Kitces & Carl, Michael Kitces and client communication expert Carl Richards discuss how to manage the systematic (and unsystematic) risk in advisory firms. Financial advisors regularly help clients make high-stakes decisions involving large sums of money under uncertain conditions. As firms expand beyond the founder and responsibilities are distributed across multiple advisors and staff members, the owner’s direct oversight naturally declines while legal risk exposure still remains.

A practical goal, therefore, is to reduce the likelihood and severity of problems rather than attempt to eliminate them entirely. In that vein, firms must be careful not to respond to risks with excessive procedural controls, which can ultimately harm the client experience and team productivity. In theory, risk could be reduced close to zero through exhaustive checklists, constant disclosures, and mandatory sign-offs for every client action. In practice, however, such an environment would likely be intolerable for both advisors and clients. Overly burdensome compliance processes can erode trust, create administrative friction, and reduce a firm’s efficiency. At a certain point, the cost – both financial and cultural – of trying to eliminate every possible risk can exceed the expected cost of simply resolving the occasional dispute when it arises!

The challenge then becomes finding the balance between prudent safeguards and operational paralysis. Insurance – particularly adequate errors and omissions (E&O) coverage – exists precisely to manage the possibility of financially catastrophic outcomes. And advisory firms may still require explicit client sign-offs for high-stakes decisions – such as actions that trigger significant tax consequences.

Equally important is attention to human factors within the firm; advisor hiring standards, emotional intelligence, and relationship skills can play a major role in preventing disputes. In many professions, practitioners with the worst communication and bedside manner – not necessarily those who make the most mistakes – face the highest rates of lawsuits. Additionally, firm leaders may want to consider which behaviors their compensation incentivizes – do they structurally permit (or even encourage) advisors to offload problematic clients?

In the end, risk management in advisory firms mirrors the broader financial planning process itself: some risks can be mitigated through processes and safeguards, others can be transferred through insurance, and some must simply be accepted as the unavoidable complexity of doing meaningful work with clients. Recognizing and thoughtfully managing those trade-offs will allow advisory firms to grow sustainably while continuing to deliver high-quality advice and maintain strong client relationships!

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In this article, James Liu, CEO of Clearnomics, explores how advisors can address client market concerns in a reassuring, data-driven way, helping clients maintain perspective and recognize that the underlying economic and market backdrop remains more resilient than headlines may suggest.

Corporate earnings are growing at an above-average pace, bond yields are meaningfully positive after years of near-zero rates, and diversification is proving effective as leadership broadens beyond large-cap US equities. Even the current decline remains well within historical norms, with pullbacks of similar or greater magnitude occurring regularly without derailing long-term returns. At the same time, geopolitical shocks – while consequential in the near term, especially through energy markets – have historically been temporary drivers of volatility rather than lasting determinants of portfolio outcomes. Oil price spikes, for instance, can contribute to inflation and complicate central bank policy, but are often moderated over time as supply adjusts and demand responds.

At the same time, there are legitimate risks. Inflation remains above target across multiple measures, and rising energy costs may limit the Federal Reserve’s ability to ease policy. This creates a more complex environment for both equities and fixed income, particularly as bond markets adjust to a higher-for-longer rate backdrop. Meanwhile, the labor market is showing signs of cooling beneath the surface, with a growing divergence between higher- and lower-income households. Credit conditions are also tightening even as yields remain attractive. Structural shifts – including the ongoing AI investment cycle and evolving global trade policy – further complicate the outlook by introducing both opportunity and disruption across sectors, while elevated valuations in parts of the market leave less room for error.

In this environment, portfolio construction and risk management take precedence over prediction. Diversification across sectors, asset classes, and geographies remains valuable as leadership rotates and different segments respond differently to inflation, interest rates, and global events. Similarly, equity investors are increasingly reliant on earnings growth rather than expanding valuations, reinforcing the importance of focusing on fundamentals and maintaining broad exposure rather than concentrating in a narrow set of themes such as mega-cap technology or early-stage AI beneficiaries.

Ultimately, the central lesson is that while the sources of uncertainty evolve, the principles of successful investing remain consistent. Periods of volatility and discomfort are not anomalies to be avoided, but inherent features of markets that reward discipline and long-term thinking. Advisors play a critical role in helping clients understand that well-constructed portfolios are designed not to avoid every downturn, but to endure them and participate in subsequent recoveries. By reinforcing perspective, emphasizing diversification, and maintaining alignment with long-term goals, advisors can help clients navigate uncertainty with greater confidence while demonstrating the long-term value of financial planning.

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My guest on today's podcast is Erin Botsford. Erin is the founder of The Advisor Authority, a coaching platform that trains advisors on attracting more (and wealthier) clients while also scaling their businesses by building a successful team around them.

What's unique about Erin, though, is how, over the course of her career as an advisory firm owner herself, she developed what she calls the "approach talk" method to closing affluent clients in the first meeting by focusing on risk management exposures that create urgency to act.

In this episode, we talk in-depth about how Erin's "approach talk" method centers largely on making prospects aware of (up to) 26 risk management exposures (including potential estate planning and insurance items) they face that can create a strong incentive to act (though it often only takes reviewing two or three of them to get prospects to want to become clients), why Erin thinks it's important to meet with both members of a prospect couple (and to recognize that different factors that might spur each of them to want to take action), and how Erin, before entering the room for a prospect meeting, showed them a "founders video" that introduced her and her story to the prospects efficiently (removing the temptation for her to talk extensively about herself during the meeting itself).

We also talk about how Erin used a fee structure that includes both a flat planning fee (to orchestrate implementation of the risk management plan) and an AUM fee on the client's assets (to compensate for the advisor's work managing their portfolio and the risk exposures they take in doing so), how Erin finds that advisors often need to quote a higher planning fee than they might expect when meeting with a high-net-worth prospect (as doing so will help the prospect associate the advisor with the attorneys and other highly paid professionals they already work with), and how Erin found that while some prospects might have initially resisted moving all of their investible assets to her firm from their current advisor, they typically eventually would once they understood that she was raising planning issues that their current advisor never addressed (and would therefore likely provide a deeper level of service in the process).

And be certain to listen to the end, where Erin shares why it's important for founders to be able to eventually remove themselves from every client case in their firm (both to better scale and to ultimately increase the value of their business), why Erin encourages founders to think about what they want their last day in the business to look like and then work backwards to inform how to structure their firm today, and how working as an advisor coach has ultimately allowed Erin to give back to the profession and expand her own philanthropic goals.

So, whether you're interested in learning about a process to close more clients in the first meeting, using a fee structure that combines a flat planning fee with an asset-based fee, or how founders can effectively remove themselves from every client case as their firm grows, then we hope you enjoy this episode of the Financial Advisor Success podcast, with Erin Botsford.

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The transcript from this week’s MiB Judd Kessler, Lucky by Design, is below.

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

~~~

This is Masters in Business with Barry Ritholtz on Bloomberg Radio.

[00:00] Barry Ritholtz:  This week on the podcast, another extra special guest, Judd Kessler, Wharton professor, author of Lucky by Design, tells us about market design, how we allocate scarce resources for everything from Taylor Swift tickets to kidneys. I thought the book was really interesting, kind of wonky economic analysis, but fascinating and the conversation absolutely fascinating.

Also, with no further ado, my interview of Professor Judd Kessler. So I found the book to be really fascinating. Look at market design, which is an area that we don’t usually think about. We’ll talk about the book in a few moments. I wanna start with your background. Bachelor’s, master’s and PhD from Harvard, but that wasn’t enough.

[00:49] Judd Kessler: You get a master’s in philosophy from Cambridge. What, what was the career plan? So the career plan was to go to college and then find a career, not in academia. That was not something that I even thought of as an option. I was an econ major. I thought I’d be a consultant. I accepted a Bain New York offer to take after graduation, but senior year of college, I wrote a thesis under a supervisor named Alvin Roth, and I loved it.

It was my first experience doing research, and I thought, this is really fun. I’m on the cutting edge of this topic that I chose that interests me, and so that made me think, all right, maybe I should give it a shot. So that was the trip to Cambridge, England was me doing an M fill in economics to see. is this something that I might want to pursue as a career?

I didn’t love the pedagogy in England, so I, the courses I wasn’t enjoying. But every day I’d come home and think, oh, there’s some research questions that, that lecture prompted. And I realized, oh, the research is keeping me engaged in this program. Even though I don’t love the coursework, I probably should be doing this full-time.

[02:14] Barry Ritholtz: What was the research topic in your senior year that led you to heading to England? So it was a experiment. So I’m an experimental economist. Most of my, not all of it, but most of my research is experimental, meaning undergrads are coming into the lab, playing a game I’ve designed, or, we’re doing some experimentation in the field where people are going about their lives.

[02:40] Judd Kessler: They don’t realize that half of them are getting one version of an experience and half are getting the other, and we’re seeing what the effect is. So my undergrad thesis was trying to understand how pairs of people could. Contribute to public goods, to things that benefited both of them. And I learned about everything that I could learn about public good provision.

And I varied both the structure of the game and how the benefits of the public good were split across people. And this, was something that had never been done before. And my advisor, Al, was very encouraging, enthusiastic, funded the research study. And I had this experience of looking at the data and thinking, this is the, the first, I’m the first person I’m on the frontier.

I’m, I’m not, I’m never gonna be a, an astronaut, but I’m on the frontier here exploring the answer to this question that interests me. ,I’m looking at the data and discovering the answer. So this sounds like it’s a cross section of game theory and behavioral economics. Fair, fair description. Exactly right.

And. It w it was, it’s a paper. I, I’ve since become an academic and I’ve been writing research papers for a long time. This one was never published. And the reason was that in my twenties and even into my thirties, I didn’t really know how to motivate it. I didn’t know what it was about.

[04:15] Barry Ritholtz: at a deep level. I knew what I had done, and I knew that it was new and different. ,but I finally cracked the code in my late thirties, because what I had studied, unbeknownst to me was how couples allocate effort to construct, public goods in their household. Does that mean who cooks?

[04:37] Judd Kessler: Who cleans, who gets the kids, who basically pays the bills? Is it just that simple? Exactly. Well, it’s, it’s, the game was we each put in some effort. Sometimes the production is split evenly between the two, and sometimes it’s split unevenly. So one person gets more of the output and some per, and the other person gets less.

And what I found was that. In some structures where we each have to match each other’s contribution to generate an output, then the inequality didn’t matter. Pairs of people, these are random strangers, they’re able to contribute at high levels. It’s when we’re contributing to the public good and one of us can cut back and kind of free ride off of the other one, when we split it equally, we’re able to sustain with the pair high levels of contribution.

[05:33] Barry Ritholtz: But when we’re split unequally and one of us can free ride off each other, the contribution collapses. I was gonna say that sounds like a rep recipe for a divorce. Well, I I, the reason I was able to later understand what I had studied in, in my twenties was those are the situations where my wife and I have conflicts when we both need to contribute for the public good to be provided.

[06:03] Judd Kessler: Like we both have to be diligent with. Bedtimes with our kids because if one of us slips, then the kids schedule slip, run ’em up, slip up, then it doesn’t matter if I care more about that or my wife, we kind of both realize we have to be at the same level or, or we both lose. Where, where does it sort of, where does that gap between effort Yeah.

Show, how does that manifest? So if one of us cares more about, say, the kids eating vegetables, right. So for hypothetical, keeping the house neat, but Yeah. Yeah. The, for us it’s the, the health healthful eating one of us might care more than the other. And in that case if my wife cares more and I free ride off of her, she fed them a healthy lunch, say yesterday, then I can feed them a less healthy dinner when it’s my turn.

[07:06] Barry Ritholtz: That’s where the recipe for disastrous, those, those are omissions. What about commiss missions? How, what about doing things positively where one of you might slip? How does that manifest? most of the things I’m thinking of are like, are we giving them too much screen time? Oh, I guess we could, it could be, reading them books at night.

[07:30] Judd Kessler: so we both care a lot about this, so, we’ll, we’ll do it. But if if one of us cared more, that would be a recipe for disaster because that person would read to the kids and the other person would say what? Like, oh, you got read to last night, I won’t do it. Right. And that’s when the, the trouble, yeah.

That’s when trouble started. So I, that was my, my first academic research was exploring those kinds of dynamics in two person games. How do you go from that to studying market design? So this was, Alvin Roth, the, the, mentor that I mentioned. He was my undergrad thesis advisor. And when I was getting my PhD, I committed a kind of sin of ac academic sin, which is, you’re not supposed to go back to the institution.

[08:29] Barry Ritholtz: You did your undergrad degree right. To get your PhD. But I wanted to work with Al, so I kind of, I cheated a little bit. I, I went back to Harvard, but it was technically a Harvard Business School, PhD joint with the econ department. So I pretended, oh, I’m getting a different angle on this. Right. I ended up being helpful because being at the business school helped me transition to my current job as a Wharton professor.

[09:00] Judd Kessler: But I went back to work with Al and he was doing both, he was doing experimental work and he was doing market design work, and I had gotten exposure to both of them, in his course courses as an undergrad and, and, early PhD student. And the research that kind of transitioned me was on Oregon.

Donation and organ allocation. The book has some fascinating data points on that. We’ll talk about that in a bit. I wanna stay with your background. You end up winning the Vernon Smith Scholar Prize in 2021. What work was that for? So that was for a line of work, starting with this organ allocation work.

[09:43] Barry Ritholtz: Because that was, both a public good study, like I described in the, the earlier work, and policy relevant. And so the Vernon Smith Prize is for somebody who’s contributed with experimental research in a bunch of areas. And I had I’d done that, I’d done that in organ allocation, I’d done that in course course allocation.

[10:07] Judd Kessler: I had done work on summer youth employment, but kind of always with this experimental lens to try to understand. what the effects were. And what’s kind of fascinating is you’re clicking off a lot of chapters in the book, which are, how do we allocate scarce resources when there are a variety of different ways to do it?

Sometimes it’s lottery, sometimes it’s effort. sometimes it’s people paying more to get it, which really is, I, I never thought of those things as market design. And yet most people look at those things as just, Hey, you got lucky. You, you got the summer job or the course you wanted. Yep. Or the kidney you needed because you signed up.

A big theme of the book is, Hey, this isn’t luck. This is recognizing all of these. Market design structures and figuring out the rules and playing them as well as you can. Exactly right, and I, in the book, I call these hidden markets because they’re not the markets that we always think of when we think of markets.

[11:18] Barry Ritholtz: We think of the farmer’s market where you’re paying a price for produce. We think of the stock market where you’re paying a price for equity and publicly traded companies, but there are all of these markets where you’re trying to allocate a scarce resource. You might have a price that gets paid, but it’s not doing all of the work.

[11:42] Judd Kessler: There’s something else that is deciding who gets access to the scarce resource. And then there are markets where there is no price. We’ve decided that we want to do the allocation without having folks pay. We wanna distribute it in some other way. And these are areas that market design thinks about, but that a standard econ class, like the ones I teach to my undergrads, or MBA students or executives.

Would not necessarily cover. So other than the students in your Wharton class, how can individuals become more aware of all of these hidden market mechanisms and use them to their best advantage? Yeah, so the first step is recognizing that these things are markets. You want access to something, it’s scarce.

There is a limited amount that can be allocated, and you’re competing with lots of other people who want them. Examples might make it more concrete because we’re thinking about things that people participate in every day, these markets. So you wanna get a reservation at a hot restaurant, you want to get a ticket to a live event.

You want to get a product that is hard to come by either a clothing special clothing drop, or this summer it was labu boos, the, ugly, cute stuffy dolls. But you could think of Beanie babies or, or cabbage patch dolls. If you’re as old as me and. In these cases, there is a price that you pay, but there’s also some other ordeal that you may have to go through to get access to those scarce resources.

[13:25] Barry Ritholtz: Same thing with benefits or or services provided by the government. You want to get your kid into public elementary school, you wanna get a library book, you want to get a lifesaving organ transplant. These are environments where you have to understand, okay, what is the rule that is doing the allocation?

[13:45] Judd Kessler: And then how can you use your knowledge of that rule to figure out the right strategy? Y your daughter trying to get into her favorite afterschool program really resonated. ’cause it, it was such a little niche thing. ,it’s just one of those everyday life frictions. You don’t really think of those as markets that have been designed, but you do a really nice job explaining.

Any allocation of scarce resources is a market decision. Exactly. And that one is one of the bains of my existence. I have to, it’s a first come first serve race, which is what I call the experience that folks have on a regular basis of there is a scarce resource. It is being made available at a point in time and whoever clicks first gets it, whoever calls in first in, in different market structures, is the one who can claim that scarce resource after school programs.

[14:45] Barry Ritholtz: At my daughter’s elementary school, this is what the kids are doing between two 30 when school lets out and five 30 when working, parents can pick them up. There are some very popular classes, for the kids to, to do during those hours, but there are a lot of kids who want to participate in them. And so every semester they will say, okay, on June 12th at 10:00 AM we’re gonna release all of the fall semester courses and whoever.

[15:18] Judd Kessler: Clicks to claim the spots in those classes first will get them and everybody else will be disappointed. And it is a first come, first serve race. And I, I like the race, analogy because I don’t do a ton of cardio and this is where my heart races faster than this is fight or flight because I know I’m competing with all these other parents who want to get their kids into these classes.

[15:48] Barry Ritholtz: And if my daughter gets what she wants, mornings are wonderful. And if she doesn’t, it’s I don’t want to go to school today. There’s some, you, you seem to have an advantage. ’cause there are some fascinating strategies here. Hey, maybe you don’t start with the Monday classes. Maybe you do Tuesday, Wednesday, Thursday.

[16:10] Judd Kessler: Because they’re gonna fill up while everybody’s racing again Monday. And if you’re disappointed in Monday, but you’ve locked in the three ones for the rest of the week there, there’s an advantage thinking about how the rest of the participants are playing the game. This is exactly right. So the, the all game theory, all it’s all game theory.

And I wrote a book about game theory. I didn’t use the term game theory ’cause I didn’t wanna scare people off, but it’s, it’s, it’s thinking about what it is that you want and then what it is that other folks might be going for and developing the, the right strategy for that. Now first come, first serve races.

There’s a bunch of strategy that is kind of maybe obvious when you think about it, of, okay, you have to know that it’s a race. You have to know that this is a situation where you need to be available to click as fast as you can at that time. Right? When, when I get the email and it says June 12th at 10:00 AM is when registration opens.

Even if I’ve never participated. In the registration for these afterschool classes. The 10:00 AM tips me off that something is going on. At my son’s school where the classes are not as demanded. There is no 10:00 AM there might be a time when the registration begins, but nobody really cares about it because you can go whenever you want that day or later in the week and there’s plenty of options available.

[17:54] Barry Ritholtz: But at this market, the 10:00 AM tells you, alright, by 10 0 1 or 10 0 2, the good stuff might be taken. Did your wife ever get to the French laundry in Napa? This was a first come first serve race that I, talk about in the book. ,it’s four milestone birthdays only ’cause it’s so expensive. So little pricey.

[18:18] Judd Kessler: Yeah. In the book, I, I talk about how we did not get it, for her 40th birthday, so she will try again when she’s 50. I, I was reading that and using your strategy immediately, thought, oh, you’re flying out just for a weekend. Four o’clock is essentially seven o’clock in New York. Why not do four or four 30 and bang, they’re, they’re good to go.

This is exactly, so the, the strategy to play there is to think about what I call settling for silver versus going for gold. So the settling for silver strategy is that seven o’clock or seven 30 is the most desirable time to eat, at least for regular people, not in retirement communities.

That’s the, the ideal time. If you’re gonna go on a Saturday, that is what most people are gonna be aiming for. When I went for her 40th birthday to try to register, I knew it was a race. I knew when the starting gun was going off, I was there, my heart was beating fast, and I went first for the seven 30 reservation page, reloads.

I don’t get it. And I see that four 30 is still available. So I click for four 30 thinking it’s better than nothing. And the page reloads and that is also gone. So struck out there. That’s why we’re waiting a decade. To your point, if I had, I was doing it as a surprise for my wife. If I had planned and talked to her about it in advance, we might have recognized four or four 30 is just, is nearly as good.

If you’re an east coaster, it’s nearly as good as seven 30. Right? And that’s the kind of situation where you want to settle for silver, where you want to go for something where there’s less competition. Again, the game theory coming in, fewer people are gonna be going for 4, 4 30. That is something that you actually have a much better shot at if you go for it first.

[20:33] Barry Ritholtz: You have to act as if that is what you wanted all along, right? Because when the page reloads the first time, four 30 is still available. Meaning if instead of going for seven 30, I’d gone for four 30 initially as if it was my first choice. She would’ve been able to cross French laundry off the bucket list.

[20:56] Judd Kessler: There you go. Aside from the East coast, west coast, difference. Post pandemic. My wife likes to point out that you use apps like OpenTable or Resi, and she says six 30 is the new seven 30. ’cause everybody wants to get home and stream whatever they’re streaming. It’s so different than it was in the 2010s.

And I’m like, am I just getting old? Are we gonna start going to the early bird specials? She’s like, no, no one wants to have dinner at 10, 9, 10 o’clock at night. I, I believe that. And at the French Laundry, the meals take forever. So getting out of there early four 30 gets you out at nine, 10 o’clock.

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[22:35] Barry Ritholtz: lotteries wait lists, queues, scoring rules, algorithms. Norms. Explain this concept that luck by design may really be based on some hidden economic rules. Yeah, so the way the markets operate, there’s a set of rules that decides who gets what. So we talked about. First come, first serve races. But as you point out, there’s first come, first serve waiting lists.

[23:00] Judd Kessler: There’s lines, there are lottery systems where you’re putting your name in the hat and we’re pulling people out. And then there are centralized clearing houses where you might rank your preferences over ,things you want. And then there’s some priorities or rules in, in the background. And I have this sense that people look at these systems and they don’t have a framework for thinking about them.

And so when they participate in these markets, they don’t really realize they’re doing so, and then the outcomes seem like they’re based on chance, or they try to understand them and they struggle and they feel overwhelmed and stressed out, and then play a strategy that might not be right for them.

And then they look around and they think, oh man, that person got what they wanted. I didn’t, they must have been lucky. Because if you don’t understand the system, then it all seems. Like it’s happening by chance. But by understanding the rules that are applying in each market, you then can recognize, okay, this is a situation where it’s a first come, first serve waiting list.

So I have to put my name down early. Then I have to think about the strategy I’m gonna play when it’s my turn. Do I take what’s offered to me? Do I keep waiting? And you have a, develop a framework for, for that. Even in lottery allocations, which we often think of as being the ones that are based entirely on chance.

If you understand the rules, you can develop strategies that help you do better. So you want to go see a theater production and there’s gonna be a ticket lottery. You can go, you can enter your name for two tickets, but maybe you can bring your friend that you’re gonna go see the show with, or your partner and you both enter.

[25:04] Barry Ritholtz: Now you have twice as many chances. Maybe you get a bunch of friends who work nearby to enter maybe it’s online, they enter for you. If they lose, they lose. But if they win, they come down to the theater, pick up the tickets and give them to you, all of a sudden now you’ve dramatically increased your chances of winning.

[25:29] Judd Kessler: These are technically allowed often by the rules. Sometimes you can enter a lottery in years you intend to lose because the system rewards you in subsequent years for prior losses. It’s trying to be fair over time. And so the rules are if you have lost nine years in a row, then in your 10th year you’ll get 10 entries or a hundred entries or a thousand entries relative to someone who’s entering for the first time.

[26:01] Barry Ritholtz: Or maybe you win the lottery in a year, you don’t want to win, and you defer what you get for a year. And now you basically get to enter this year in the hopes of deferring for next year. And if you lose this year, you get to enter next year for the chance of getting whatever it is next year. So you’ve gone to school at Harvard and Cambridge, you teach at University of Pennsylvania.

[26:31] Judd Kessler: When we look at college admissions mm-hmm. Yeah, that seems to be like a mess of everything. Some credentials, some skill, some checking the boxes. Yeah, a little bit of lottery, a little bit of early admission. First come, first serve. What do you think of that entire college admission process? What’s driving that design?

Yeah, so that is what I call a choose me market. It’s a two-sided market where it’s, as you point out, it’s not as simple as any one rule. It’s not like whoever applies first to the school gets it, or they’re, they’re gonna totally pick people by lottery. They have a strategic decision. As an institution, I, maybe I should say we as a employee of one of these, ,institutions, but the features of a Choose Me market of a two-sided market are that there are market participants on both sides.

So for college admissions, there’s applicants who are trying to get into the colleges. And then there are colleges who, that are deciding, who am I gonna admit? We’re trying to make a class of smart motivated, well-rounded or very pointy people who are gonna make the class, a rich, fun environment.

And the dynamics are about are we both succeeding in getting what we want? So I think the, the thing that people think of is, okay, is the candidate strong enough? Do they have good enough grades, good enough SAT scores, good enough extracurriculars, but something that we think less about as an applicant, say, because it requires thinking about the other side of the market is how do the universities or colleges feel about the applicants?

[28:22] Barry Ritholtz: Well, one of the things that, that they value is high yield. We want the people who we admit to enroll in our school, we want them to matriculate. When I was applying to college that yield that fraction of folks you admit, who come was in the US News and World Report rankings of best colleges and universities.

It’s not anymore, but it’s still a matter of pride and reputation. ’cause it’s hard to say you’re one of the best schools in the country if half or two thirds of the people you admit choose to go somewhere else. And so when you mentioned early admissions, early decision or early action, that is where this kind of yield question comes into play.

[29:10] Judd Kessler: So the way that it works with early decision is when you apply, say to Penn, where my employer early decision, if you do that, you are committing to come. If we admit you. So that’s great for our yield because now you’re guaranteed to come. And lots of schools do this. They have an early admission deadline.

[29:34] Barry Ritholtz: There’s also early action where you’re not committing, but you can only apply to one school early action. And so it has similar properties where you’re kind of giving up, applying elsewhere early. And the kind of deal is that admission standards appear to be a little lighter. And so researchers have estimated, it’s kind of worth about a hundred SAT points really to, if you apply early, it’s kind of, we’re gonna, we’re, we like the idea that you want to come, we like that you’re gonna help us with our yield.

And so we’re gonna kind of be more open to having you enter. Now I should say I don’t work at the admissions committee, so this is right. This is as an outsider doing looking at the research about it. But all of a sudden then it becomes a strategic decision as you, as an applicant. So you have one shot in the early decision game, where do you wanna apply?

Yeah, we talked a little bit about going for gold or settling for silver. Do you go for the thing you really want the seven 30 reservation at the hot restaurant, or do you go for something there where there’s less competition like a four 30 and the early decision game? That strategy, that settling for silver strategy might be a smart play because if the place you really want to enroll that gold medal option for you is too far out of reach, that even if you apply early, you’re, you’re, you’re not gonna hit that admission cutoff, then you’re essentially wasting that application in that, in that school and you should be applying instead to a place where if you applied early, you would actually get in, but if you didn’t apply early, you wouldn’t.

[31:32] Judd Kessler: Some place where you’re kind of more on the market, that’s a very narrow little slice you have to figure out exactly. What your odds are. Yeah. What you can do with research, with talking to other people seeing how does your SAT score compare to the ones that are published on the website?

the people who went to your high school in prior years, who succeeded in getting in. What were their grades like, what were their extracurriculars like? So when these, when it matters for you, the, the research that you do to figure out how to succeed in these markets will inform what strategy you should play.

Huh. Really interesting. Let’s talk about the three E’s. You discuss what’s equitable, efficient, and easy when people are designing various types of market mechanisms. Give us a little overview of that core framing device. Yeah, so the, the three ees are about how well a market operates. So you mentioned them, efficiency, ease, and equity.

Equity is about fairness. It’s about are we treating the market participants? Equally if, if that’s our goal, right? If we want everybody to have an equal chance at getting the scarce resource, is our allocation mechanism are our market rules allowing us to do that? Efficiency is about making sure that we’re not wasting any scarce resources and whether the scarce resources that we’re giving out are being put to their best possible use.

So if there’s someone who really wants something, are we recognizing that and saying, oh, actually the, as a society, we’re better off if we give that scarce resource to that, that person. And then ease is the one that think standard Econ doesn’t think that much about. And the reason is that. Prices are easy to work with.

You might not love that. You have to pay a lot of money to buy something, but the actual process of buying something in a market where price is doing all the work is trivial. You go to the website, you click a button and the thing is shipped to you, or you walk into a store or you pay a price, or you go online and, and execute some trade or call your broker and do it.

It’s very straightforward to work with prices. So let’s, let’s talk a little bit about one of the most fascinating market mechanisms that’s out there, which is live performance tickets. You use the example of Taylor Swift who could have charged a whole lot more for her tour, which still made billions of dollars.

but lots of other artists charge less than the market bears. why do these artists not go for revenue maximizing? What’s the downside of that? Yeah, so I, when I think about sellers deciding. Should I set a price below the market clearing price? The price that I would teach in my econ class is, is gonna be the best for the here.

Here’s the price, here’s the demand. Where that intersects is your profit maximizer. But they don’t do that. Yeah. So before we get to Taylor Swift, let’s think about the restaurant that is letting there be a line around the block or the fad product that is, making it hard to get access to their to, to what they’re selling.

In those cases, I think one of the reasons is to bolster future demand. I see a line around the block for a restaurant I walk by, I might have never heard of the restaurant before, but I look and I think, oh man, that restaurant must be really good. Look at that line that. Might mean that I get turned into a future customer, or at least somebody who’s interested in going when the line might be a little shorter.

[35:45] Barry Ritholtz: Lots of buzz, lots of pr. Yeah. Just by the virtue that it looks like more people want a limited scarce resource. Correct. And that we see that throughout, with lots of fad products or with scarcity driving interest in demand. Now, I don’t think Taylor Swift has to do that. I think we all know who she is.

[36:09] Judd Kessler: I her fans are famously loyal and she doesn’t have to worry so much about getting more people to be interested in her as an artist. So she might have other considerations. She might think more about the equity and the efficiency of the allocation of her scarce resource. And one reason she might not charge very high prices, which might be hundreds of dollars for the cheapest ticket and thousands for the, the kind of closer to the stage seats is that she’s a billionaire.

Her Swifties, I’m sure she has billionaire fans ’cause she’s such a great artist. But most of her fans, a few thousand dollars is gonna be a big chunk of their, of their income for that month or, or more. And so it might not be a great look if she’s charging, what would be market clearing prices?

So for the Errors tour, she charges \$49 for the cheapest seats. The average ticket price was just above 200. And so at those prices there’s gonna be massive excess demand. but she might think that that’s more fair, that that might be not just ’cause it will make her look bad, but also, right.

She might want her fans to be able to come and only have to pay 49 or 99 or \$199. It, it might also be that those folks really, really want to go. So you think about efficiency, right? There’s no guarantee that the person who can pay the most actually values go into the concert the most. If her. Biggest fans have less income than the, the fans who can pay more, they’re gonna get pushed out whenever the market is relying exclusively on prices and you end up with a series of rentiers and, and middlemen that arguably contribute nothing positive to society.

And just exact a cost in the book. I don’t remember, was it the UK or or Europe, EU that they banned places like StubHub and those sort of ticket middlemen? Yeah, so this is one of the super interesting things about these hidden markets is that whenever you are giving folks access to a scarce resource at a below market price, and there is the opportunity to resell it, you will get middlemen, you will get speculators or brokers who come in exclusively to.

Try to extract surplus from the fact that the market is, letting the price kind of low initially. Now, there are economists who say, oh, that’s how it’s supposed to work. We’re supposed to get to market clearing prices. But that’s not what I argue because the seller has decided that she, in this case, wants to keep the price low.

She wants people, regular people to be able to buy for 49.99, \$199. So the middleman becomes a problem that the market has to address. One way to do that is ban resale, but then you get situations where this was the, London Olympics where there were seats that were empty to see some of the events when there were people standing outside the stadium who would desperately want to get in.

But because there’s no way for the tickets to be redistributed. you end up with empty seats, which is clearly inefficient. Well, you could redistribute them at a 10% markup or something like that. So there’s, and only once, you can’t just go 10, 10, 10, 10, 10. So this is the, the question is how do we innovate in this market?

So, in the book, I have some ideas about how to do it. I think one key problem with how a lot of live event tickets are being allocated is that they’re relying on first come first serve. ,first come, first serve races is the way that we do it on the internet now, and that allows the ticket brokers to program bots that will race faster than any human can.

And that is going to mean that the folks who are building the bots with the intention of getting a bunch of tickets and reselling them, are going to be at an advantage and be able to extract surplus. The FTC sued Ticketmaster a few months ago about this issue, basically letting. There be bots on the platform that extract too much, including their own bots that then resell at higher prices?

[40:59] Barry Ritholtz: Well, this is part of the problem, which is the, the secondary market platforms, the ones that are facilitating the trades between the, the brokers or, or regular people who buy tickets, but then can’t go and have to resell them. Those platforms are benefiting from the sales. They get hefty fees. I bought tickets recently and my calculation was that Ticketmaster, where I was reselling them, I was buying them and then I, I had friends who canceled.

[41:31] Judd Kessler: I had to resell them, was getting 30% of the transaction price. You would think the artists would be the one that should garner those gains. I’ve, I’ve heard, I, I love the expression, crypto is a solution in search of a problem. One would imagine that if the tickets, and I’m not a. Bitcoin, bro, but if you could sell tickets on the blockchain and there’s a smart contract built into that, that the artist gets half of the resale price, it changes the dynamics there a lot.

[42:07] Barry Ritholtz: So you could do that, but of course, if the artists wanted more, they could just raise the prices, right? They, they don’t need, they don’t need the resale market to extract. Surplus. Right, right. The, what I describe in the book, it doesn’t, you don’t need to go all the way to the blockchain for it. You do need names on tickets, meaning, oh, really?

[42:33] Judd Kessler: Yeah, because, right. So it’s ticket and Id not just a stand or, but yeah. And it seems complicated. ’cause then it’s like, oh, I’m going to the, it’s like going to the airport. I don’t wanna go to a concert to be like going to an airport. Although last concert I went to, I had to go through security anyway.

Right. So yeah. You from metal detector in Madison Square Garden for a Knick game. So, exactly. But, but no, your phone can identify who you are. If I tap my tickets through my phone, right. It can validate who I am. Facial recognition is getting very good. And so there’s clear the, service you use at the airport, if, if that’s something you’ve subscribed to.

They have similar style products that get used at venues. ,major League Baseball has had a version of this that they, rolled out at some point. And so validating that you are named on the ticket is easy to do, or getting easier. If you don’t have that, then you could put some cap on resale. But then it doesn’t, nothing stops anybody.

[43:48] Barry Ritholtz: If they have a physical ticket from doing what used to happen, which is standing outside the venue and selling them or, or selling them on some third party platform, that’s not tracking how much more the, the ticket is being paid for. Right. If it’s in cash, there’s no way to validate that.

[44:10] Judd Kessler: It’s only 10%. And then the other thing you have to do, and this is trickier, it is a different type of change, is get away from first come first serve. Because even if you have names on tickets, but you’re doing a first come first serve race, the folks who program the fastest bots are still gonna be able to extract surplus.

So could someone like Taylor Swift with an army of swifties, Hey, sign up here and it’s two tickets per name, and you have to be in their system for that long. And so at least. What is Madison Square Garden? 25,000 people, at least the first 10,000 tickets are gonna go to local people who are our fan base.

So the, for the Aris tour that I, that we started talking about, they did something similar where they did a, verified fan process. We had a validate who you were, and then folks came to the, website if they were lucky enough to, after being verified to win a lottery ticket. So, still a lottery, still a lottery, but then, then, but a fairer lottery.

Fairer lottery among people that they thought were, were real folks rather than, brokers. And then you had to wait. In a virtual queue and, and wait for some people hours, right? So what ended up happening was, they claim there were a lot of bot attacks. Try people that didn’t have the verified fan code that they needed to buy.

The tickets were coming and the systems ground to a halt and they crashed and people were waiting for hours. And so all of a sudden you had a first come, first serve line built into the system that was supposed to be a lottery, right? Where now you’re going through an ordeal. We talked about is the market easy?

It’s not easy if you have to wait online in front of your computer for hours. It’s almost as painful as having to wait outside the box office, which we used to do for hours. And so I think the solution is to actually lean more on the lottery and basically say, look, at some point we’re just gonna have you put your name in, say what your preferences are, what shows you want to see her perform at, which sections you’d be willing to buy tickets for.

And you’re gonna enter yourself in and we will tell you whether you won. But you don’t have to be there and pick the specific seats, right? You can say, I want, I prefer to be in the center and I’m willing to pay more, whatever. But, but that would make the participation in the market way easier. You could run whole tours or sections of tours at once.

You could reward folks who are more flexible. If I’m willing to see Taylor Swift perform at any venue on the East Coast, and I’ll go to any show and sit in any section, I am revealing myself to be a very big swifty that there is a, or a broker that wants to flip the ticket. Well, but if the names are on it, then I’m stuck.

[47:41] Barry Ritholtz: If I have to return, if I can’t go, I have to return it to the, to to Swift and she can give it to somebody on the wait list. But on the randomized wait list, right, like you could design this system to basically cut out. The brokers altogether. So the craziest thing about the brokers in the US, I heard stories from several people who said, rather than pay the markup in the US it was cheaper to secure tickets in Paris or London.

Fly over there, stay in a hotel for a few days, go to the show and go home. That was less expensive than paying full boat to any of the SeatGeek StubHub middlemen that they charge what the market will bear. They charge what the market will bear. They don’t add anything to the production. And yeah, it couldn’t be and you get a vacation out of it.

[48:43] Judd Kessler: You go to Paris to see the show coming up. We continue our conversation with Judd Kessler, professor at the Wharton School discussing Lucky by Design, the Hidden Economics. You need to get more of what you want. I’m Barry Ritholtz. You’re listening to Masters of Business on Bloomberg Radio.

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[49:25] Judd Kessler: So let’s talk a little bit about some things that are, are lucky by design. one of the things that, slightly before my time but certainly resonated was what took place during Vietnam with the draft lottery. some of the data was pretty shocking. At the time. African Americans made up 11% of the population.

They were 22% of the people. The, that were drafted and, and, and 22% of the casualties, two x the representative population, why did that go down that way? Yeah, so the situation that arises when you have these hidden markets is whoever’s in charge of the market gets to pick the rules and they might not be equitable or efficient or easy.

And the Vietnam draft before the lottery, which was introduced, to kind of correct some of these issues, had a bunch of loopholes in them in the system. So you could get a deferment for a various reasons. You could have some, some of your friends or family members, lobby folks on the local draft boards that were gonna decide which men of that age were gonna be sent to be known.

[50:41] Barry Ritholtz: So if you were politically connected, you had a better shot, politically connected, wealthier, whiter, those were the things that let. Folks, so, so you could have a medical disability, you could be in college or grad school and you could go to the National Guard. So you would be kind of stay stateside and not everybody gets, gets admitted to the National Guard.

[51:05] Judd Kessler: Correct. So having a, a kind of way to circumvent what would have been the task of going overseas. The loopholes were kind of played by a few, and, and a bunch of folks did not. Either have the means or have the connections or kind of know that this was a way out, did, did the lottery, and, and I, I learned a lot more than I knew about it in the book.

[51:34] Barry Ritholtz: So they just randomly picked birth dates, your month and day of birth, and that was the order in which people were drafted. How did that impact how things, yeah, so they proceeded, they, did it have the desired effect? Yes. Well it had the desired effect. There were still loopholes that you could use to get out of service, but it had the desired effect of 366 possible birth dates, including February 29th, because you didn’t wanna, leave those folks out.

[52:06] Judd Kessler: they got pulled in order randomly, one at a time. And then the way the lottery worked was they were just called down the number. So folks who were old enough to remember this at my father’s generation, this was a big deal. And you wanted to have a later, your, have your birth date picked later, so you were less likely to be called.

Now, again, still loopholes, but folks looking back, histor at at history say this helped facilitate the anti-war movement that eventually got the US out of Southeast Asia, because when you have well-educated, wealthier kind of folks who have a little bit more socioeconomic status, a little more power in society, when their sons started getting called up and this was a fair system and so it was harder to get out, then you saw a bunch more kind of influential folks saying, no, no, no, this is not a, a war we want to be in for the long term.

H,really, really interesting. Let, let’s talk about the area that you spent so much of your career on, which is organ donation and what those rules look like. To start, I have to ask about the numbers. There are a hundred thousand Americans. On an organ waiting list, organ transplant waiting list. I was shocked to read of a, that a hundred thousand 90% are waiting for a kidney.

That, that’s amazing. Yeah. so the, the reason for that is that there is dialysis for kidney failure, which can keep you alive for, for five or more years. the, you want to get a kidney as soon as possible. Dialysis is time intensive. It’s painful, it’s expensive. Although the cost is born by Medicare primarily after, a certain number of months that your, insurance, your private insurance covers it, and then it, it hand gets handed off to Medicare.

So there’s a lot of costs that go into it. But of course, if you don’t have a kidney that you can get as a, a recipient if there isn’t a donor kidney available, this is your only option. But this is why the waiting list for kidneys is so long, because folks can kind of wait for an extended period of time.

Think about another organ, like a liver. There is no dialysis. So at some point, if your liver function gets bad enough, you either need a transplant or done. That’s it. So this is why the, the kidney list goes on for so long, but it’s also a major financial burden in addition to all the emotional and, and, physical burden that the folks, the patients and their families face.

[55:07] Barry Ritholtz: the estimate suggests that it’s basically 1% of the federal budget is spent on end stage renal disease on, on folks who have kidney failure because Medicare is covering it. Medicare, a big chunk of the federal budget, and, this in particular, this line item is very expensive. And, and the crazy thing about this, the another data point that shocked me is sometimes an imperfect match shows up and you have the option of.

[55:37] Judd Kessler: rolling it over and saying, I’ll wait for the next one. 20% of the donated kidneys are just thrown away. This is the nature of these first come, first serve waiting lists. So there’s, when an organ becomes available, there’s a list that’s generated. It’s based on how close you are to the transplant center on the medical match between the organ donor and the recipient.

So there’s a bunch of considerations that come in, including how long you’ve been waiting. So if you’ve been waiting many years on dialysis, you’re gonna be closer to the top of the list. So an organ becomes available and you as the patient, with the help of your doctor, have to decide, is this gonna be an organ I take or not?

Some of the information about whether it’s a good match for you, we only can learn after the organ has been removed from the donor who’s passed away. And so. Now we have testing that’s getting done on the organ and there’s only so much 20 hours. Yes. You, you. So we have this testing getting done and folks are getting are learning or this, it could be this organ that you take or we can keep waiting and if you’re at the top of the list, maybe you get offered a bunch of organs.

And so it is hard to get through the whole list of 90 makes sense. 90,000 folks waiting for the organ. And so if the organ’s not great and we can’t identify somebody who might take it, gets wasted, gets escorted. I was kind of fascinated by the example you describe of what they do in Israel that if you check, I’m willing to be an organ donor three years prior, you are higher on the recipient list.

The theory being, hey, if everybody understands this, there’s that many more organs available for transplant. How has that, tested out in real life? And are any states here, putting that into work? Yeah. This, this was the research that got me into market design in particular. I was working with Al We started thinking about Oregons.

It’s, it has this nice feature of being a public good. If I agree to register as an organ donor, hopefully I won’t be in this situation, but my organs are available for transplant if I die in a way that that makes them available. When folks agree to register, they are making this scarce resource, the organ, they’re making it be less scarce.

[58:28] Barry Ritholtz: There are more organs available in expectation if folks are registered. So a bunch of countries, including Israel, but also Chile, China and Singapore, have built into their allocation rules an incentive to get people to provide this resource, to make it less scarce. And as you said, they. In Israel it’s three years.

[58:49] Judd Kessler: But can think about doing it different ways where if you are 18 years old and you’re going to the DMV and it’s the first time you’ve ever been asked, do you want to be an organ donor? You are rewarded if you say yes insofar as 50 years later, if you end up needing a kidney, you are gonna get priority over someone that’s kind of in the same situation as you.

[59:18] Barry Ritholtz: But when they were 18, said, no, no, no, I don’t wanna help out other people. And so we saw when we did our research that this incentive of being given the option to, to be a donor so that you can have priority later on, induced a lot more people to say they wanted to donate in a game that was modeled on that decision.

We looked at Israel and we saw when Israel implemented it, our estimate suggests about a hundred thousand more people. And Israel’s a small country, so. Right. That’s a lot. Yeah, it’s a lot. Signed up in the runup kind of before the, they, they had, they announced it and, and they were letting people sign up and, it was the date when if you signed up before you’d immediately have priority.

Oh, really? Otherwise you’d have to wait the three years to avoid the three years by the way, is, is to avoid a loophole where, right, I get sick, I need a kidney, and I go sign a donor card and then I have priority. That would totally undermine defeat the whole purpose. Right. Which we have research showing that that it would in fact undermine it.

[60:41] Judd Kessler: So, yeah. So then they, they implemented it and, and it seems to work. have any places in the US adopted this yet? No. So it would have to be, this is not a state by state thing that Oregon allocation systems are national, and so you would need the country as a whole, the, to have a, a change in the allocation rules.

So I have been advocating for that since we did that research over a decade ago. ,but we have not yet had movement on that, although I remain perennially optimistic because. It’s been many years and the problem isn’t getting better. So basically anything we can do to make this scarce resource less scarce is valuable.

I’m, I’m recalling Richard Thayer’s book Nudge, I think he co-wrote that with Kas. Sunstein. Yep. And there was questions about opt out, opt in, in other words, if everybody by default is an organ donor, but you have to opt out the, the reasons people didn’t want to do that, religious reasons and other, but, is that a potential solution?

So that was, there, that was like a, a great hope of behavioral economics was that these kinds of nudges in this space choice architecture. Yeah. So this is a ca There are many places where it works well. This is a case where it doesn’t, and the reason it doesn’t is that if you are. Say it’s an opt out system, so I should pause and say, we don’t, we can’t do that in the US without a major law change because Oregons fall under the gift act.

[62:29] Barry Ritholtz: So you have to actually make an affirmative statement that you want. Got it. you could make it salvage law, so if you’re not using it, we can take it. Right. But that’s, people might not wanna do that, but, but in the, in the countries that use these opt-out systems. The next of kin are still consulted.

[62:54] Judd Kessler: Right. So what the, the next of kin are told is that the person did not opt out and it def defaults basically to the next of kin to decide. And so what the research shows is that there just isn’t a delta between the countries that use opt in and the countries that use opt out because it always goes to, that affirmative decision.

Yeah. And when, when I’ve opted in I, I might be special ’cause I talk about it a lot. Right. But, but if you’ve opted in, then the next of kin see that, and, and they know that it was your wish, right? You did. You said at some point, yes, I want to register. They know that, that you want to do that.

And so if you pass away, they know that they should donate your organ. So they’re not gonna stand in the way. it, it is a binding agreement to be an organ donor, but of course if the next of kin don’t want it, right, they, they’re the only ones who are left around to sue the doctors. Right? Right.

[64:10] Barry Ritholtz: So, so, so, but it ends up being the case if you register. the vast majority of folks, who register have their organs, recovered. I, I found a lot of the book had really surprising themes and data. Doing your research, what’s the thing that surprised you most about market design? What, what sort of things did you go, huh?

[64:34] Judd Kessler: That, that doesn’t make any sense. ,so in the, at the end of the book, I talk about how you are a market designer. We’ve talked about you as a market participant. We’ve talked about others as market designers, but, hidden market is one where there’s a scarce resource that needs to get allocated without prices being what determines who gets what.

And if you think about it that way, you are a market designer for things like your time and attention, which lots of people want. They wanna have you respond to their emails, they want to get on your calendar, and you have to decide who you serve and who you don’t. That’s the, the preface. The thing that I learned was a set of market rules that I thought made no sense, which was how we used to a.

Water from the Colorado River Uhhuh. So for, for many years, the, the rule was first in time, first in right, which meant that the first folks to tap the river, to take water out to divert for their own purposes, kind of always got their allotment. So that was California in 1901, where they diverted water from the river to, turn a desert into farmland.

And then decades later when there was a drought and there was less water coming down the Colorado, the California got to keep the exact same allotment. And folks who tapped the river later, like the city of Phoenix, Arizona, which in 1901 was 10 or 15,000 people, but it’s now a million and a half, they had to cut back, even though for them it was drinking water.

[66:23] Barry Ritholtz: And for California it was to grow alfalfa to feed to. Livestock. So I looked at that and I thought, oh man, what a terrible, it’s not efficient. It’s not equitable. The race that determined who got what was run centuries ago. Yeah. A century ago. And, so I’m thinking, I’m feeling like, oh man, isn’t it great that we don’t use these kinds of systems anymore?

[66:51] Judd Kessler: And then I looked at my calendar and I saw my recurring meetings on there, and I thought, that’s first in time, first in, right, right. I’m doing what they were doing with the Colorado River, a meeting that I put on my calendar two years ago that takes Thursday at 11:00 AM every week, Thursday at 11:00 AM is being allocated to this, this project, even if it’s not the most efficient or equitable use of my time.

And I realize like, oh man there’s some stuff that’s sacrosanct like my teaching, but a lot of these recurring meetings, right. It, it’s not adhering to the efficiency and equity. Standards that I would want for for my allocations. Huh? Having read the book, I keep coming across things. As I was reading it, I was thinking about different things, and then either yesterday or this morning, I saw a Wall Street Journal piece.

The new mayor elect in New York wants to freeze prices, not just on apartments, but at Yankee Stadium on hotdog and beer. And there’s a couple of interesting issues that, hey, are people gonna get too drunk? But some other stadiums have done this and it’s worked out really well. When we look at price controls, how do you think about rent control for apartments or.

[68:19] Barry Ritholtz: Capping the price of hot dogs. Costco very famously Yeah. Has the dollar 50 hotdog for 36 years. how do you think about those different price mechanisms really as a form of branding or marketing? Yeah I, I love the Costco hotdog, so I can see the branding and marketing benefits there. I have thought a bunch about this because it is, it has the potential to create hidden markets or exacerbate hidden markets that are already there.

[68:51] Judd Kessler: So I recently wrote a piece about, affordable housing lotteries. So this is in New York City, and, and a bunch of major, cities around the world do this where they’ll, a new development will be built and you’ll have 30% of the units that are built are gonna be designated affordable.

Meaning folks are only expected to spend 30% of their income on housing, but there are. So many people who are finding rents hard to bear in New York City, in these other big cities that the lotteries get flooded. So in a last full year, there were about 6 million applicants for about 10,000 units.

So each lottery entry has a one in 600 chance of winning. And so as a result, folks are kind of constantly applying to these lotteries because that’s the only way that you’re gonna have a chance of getting something is if you’re applying to every possible lottery. But then there’s all these inefficiencies that can crop up.

Maybe I win a lottery, I get really lucky, but it’s, it’s not in my desirable, desired neighborhood. It was still a good lottery to enter ’cause better to get affordable housing than not. Maybe you win, in the neighborhood that I want and there’s no way, but there’s no way for us to switch. Right, right.

It’s kind of like golden handcuffs if you, for getting an affordable place. And the same thing with freezing rent, where the folks who are in. A rent controlled, a rent stabilized apartment that are going to be able to kind of keep paying that low rate. that’s great for them, but that doesn’t solve the bigger problem, right?

It’s, it’s affordability for the, the lucky few, but not for other folks who are moving to the city for the first time and, and want to make a life here. And so I, I can see why folks are eager to do that, but it’s hard to think about how to solve that problem without broader changes. Right? It doesn’t move the needle on the broader underlying problem.

It just, for that handful, it kind of raises the issue of, of nimbyism and just not building well since the great financial crisis, we’ve wildly underbuilt. Single family homes, affordable housing, go down the list. The focus has been on luxury properties. ’cause hey, there’s the most amount of economic benefit for the builders to put their time and energy into.

But this is definitely a supply and demand problem. Yeah. If you, if you want to bring cost down, you have to increase supply. And as an economist, we are trained to kind of think one step further. So I’d have to read the specific policy about the Yankee stadium, concessions.

[71:59] Barry Ritholtz: Right. But my, my first instinct would be, oh, if you cap the price of concessions, the logical next step is that the ticket price goes up a little bit. Right? Because like now all of a sudden it’s cheaper to go to to have the full night out at the city field or at Yankee Stadium. and so is there also gonna be a price control on the ticket or, or not?

[72:30] Judd Kessler: And then are we actually getting the gains that we want or. are we, are we getting nice sound bites? The, the thing about constructing your own market design is kind of interesting. I have a friend, Dave, who comes to New York a couple of times a quarter, works in finance, comes down from the Berkshires, and since he’s one person and doesn’t care which Broadway show he goes to, his market design hack is, he waits to, depending on the day, five minutes to seven or five minutes to eight.

The prices plummet. Yeah. ’cause they’re about to expire. Worthless. Oh, Hamilton, for half price. Let’s go. Wicked Half price. And he’s seen half the stuff on Broadway at shockingly reasonable prices. So as I was reading this, I, I thought about that and then I just hadn’t experience up in Newport. My first time visiting.

You wrote about this in the book about the restaurant reservations. And the waiting list. So we stayed at this hotel and there’s a super hot restaurant there, which I didn’t even know about. We made other reservations, for the weekend, and we stop in and there’s a line of people at five o’clock.

Waiting to sit at the bar. I said, we’re on the waiting list. He’s like, well, we have like a hundred seats, and the waiting list is about 400 long. I’m like, oh, forget it. And I said something to the Matre D and he said, why don’t you come down later and see what the line looks like? It usually moves pretty, and it was beautiful out.

You could see it at the bar. It was outdoors. So it was like we had a seven o’clock reservation. The, the, the gold. The gold, well done. and we walked and we were gonna walk to the restaurant. So we come down like six 30, no line at the bar. So I said, Hey, you’re not seeing people at the bar. He goes, no, there’s no line.

Get over there. And it was just simply being nice to the mare d and asking a question was, was that behavioral hack? Th this is learning about the market and the market rules and getting inside information about when, when is there less demand? What, what is the optimal strategy in this environment?

[75:05] Barry Ritholtz: It requires. Often doing a little bit of research, but it’s not unattainable. We all have the ability to think about the market rules, think about who will know the mare d if, if you’re polite to him or her, they might want you to come and give you the, the inside tips. ,but you have to, you kind of have to either do your own research or, or have folks advise you that you trust.

[75:35] Judd Kessler: and yeah, you can, you can often succeed in markets where other people fail. So I only have you for another 10 minutes, so let me jump to my favorite questions. Great. I ask all my guests. Starting with, tell us about your mentors who helped shape your career. Yeah, so the main one already mentioned him, so you can see how big an influence is.

Alvin Roth. So he took me in as a undergrad mentee. I, I had this story in the book and then it got cut for space. So I put it in the acknowledgements because it was such a formative experience for me where I was taking his PhD class. ,as a senior in undergrad. And so I was kind of a little bit out of place already and I wanted to write a senior thesis, the thing that kicked me off to this career and put me at this table talking to you Now, I had procrastinated asking him to be my advisor ’cause I was a little intimidated.

I felt a little outta place. ,and I came up to him on the day the form was due and I said, I wanna write a senior thesis. I would really like for you to advise it. the form is due today, but and this is the commitment. He was like, all right, why don’t I sign the form and we’ll see how it goes.

And he signed the form and the rest is history. but it was both the idea that I could be involved in learning new things that people didn’t know before, and do it with somebody who was willing to mentor me. That was a real, real big impact. Yeah, I can imagine. What are some of your favorite books?

What are you reading right now? So there, this is a, a pop econ book, my book, lucky by Design. It’s in the spirit of. ,another pop econ book about market design, which Al wrote, which is called Who Gets What and Why. And so for a while I didn’t wanna write another pop, market design book.

’cause I didn’t wanna step on his toes as, as a, that’s a great title. Who gets what, what and, and why. Yeah. And there’s a little in the text of my book and kind of, I dropped that every so often, that kind of question, that wording of that question. So that was an idea for me. This idea that you can communicate these market design concepts to regular folks.

I recommend my book, but also that book for folks who are interested in this. My colleague, whose office is next to mine, had a book that came out a few weeks before mine. It’s called Having It All Uhhuh. So my colleague is Corin Lo and I’m really enjoying that book. I’ve, I’ve heard about everything that was in it along, along the way.

[78:56] Barry Ritholtz: But, she writes about the time that. Women and their partners spend in doing household production and how society has progressed over decades where women have entered the workforce, but the norms at home about how time is household chores are split. ,it has not changed. So women end up really, yeah, the data in that book is quite shocking.

I had been hearing about it, as, as she was doing the research, but women, even in households where they earn more than their male partners will still be doing more household labor, all of that stuff in at home. So that in, in my book, I talk a little bit about how my wife and I manage our household, responsibilities using the concepts of market design to kind of avoid some of these systematic.

Problems that, that on average couples display. Huh? Really? I love to cook, but I tend to make a giant mess and my wife is convinced that it’s a purposeful strategy. So she cooks and it’s, I’m like, honey, we’re married 30 years. me. Is this how I roll? you gotta, yeah. Sometimes this is the, just my technique, but, but one of the things that, I talk about in the book and, and mu must you pour from so high, it’s olive oil splatters everywhere.

[80:27] Judd Kessler: It doesn’t, it doesn’t need that height. No. You gotta get that. You’re not aerating it. It’s, it’s part of the fun. ,but no, we, one of the strategies is having one person be in charge of the whole task from conception to execution. So that means if you are a cooking. You are also cleaning, right?

Would be part of that, right? ’cause then the incentives are aligned when, exactly. When you don’t do that, the person who cooks can leave a giant mess. The other person cleans that. That seems fair. But the decisions, the resentment comes in and why are you making such a big mess? And so it turns out it might be more efficient and equitable if.

One person does that whole task and somebody else does a whole other task. Right? You, you cook and I’ll do the laundry and clean the floors and that, that’s the the, the split. That might be fair. I’m usually out the door early or if I’m home, I’m at the desk writing. So she takes care of the dogs and during the weekend I try and give her a break and, and feed and walk the dogs early.

we’ve never discussed it. It just kind of worked out that way that sometimes that’s how it happens. But, be for those who are not finding it that easy, talking it out and kind of splitting the tasks is, is a, a effective strategy. Tell us what’s keeping you entertained these days? What are you watching or listening to?

Either podcasts or, or Amazon Prime, Netflix, whatever. So, I am a major fan of The Simpsons. Get outta here. Really? Yeah. I have always loved it. What are we up to? Season 40 something. It’s crazy’s almost. Yeah. And, but what has been great I found. Throughout my life rewatching old episodes that I kind of get jokes that I didn’t get before, which makes sense, right When I started watching.

Well you’re, it’s one of those things that works for just both kids and adults at the same time. Exactly. And so what has been phenomenal for me is exposing my kids to it for the first time. And I’ll say, I’ll make some reference to something and my kids will be like, what are you talking about?

[83:04] Barry Ritholtz: And then I’ll pull up the YouTube clip, I’ll show it to them, and then they’ll be like, oh, can can we watch that episode? So that has been phenomenal. Our final two questions. What sort of advice would you give to a recent college grad interested in a career in either market design or economics or academia?

[83:27] Judd Kessler: Yeah, so academia, there is a path forward for folks who have just graduated college and are thinking about this and that is to get some experience doing research to see if you like it, because the market for. Tenure track academic positions is getting tightened. We’re feeling the political wins as well as other things that’ve kind of, demographically there’s slightly smaller admission classes and I just read 17% drop in international students.

That’s a big number for a lot of the universities that have big PhD programs. The budgets for things like the PhD program will depend on their revenue streams. And foreign students coming for undergrad or for master’s degrees is a big revenue source for a lot of institutions. So all of that is to say that academia remains a great option for folks who are interested in it, but it’s getting harder and harder.

but if folks are interested getting, and they have not yet done it, they may have done it in undergrad, getting exposure to the research experience. There are predoctoral programs for folks who work with. Academic researchers on their projects and kind of get a sense of what it’s actually like. there are master’s programs that folks can participate in to see what the coursework is like.

[84:51] Barry Ritholtz: so that is definitely one way to go. There are kids who start earlier who start in college, but I, I was not one of them. Right. I told the story about senior year kind of realizing, oh, I want to do academia. So I hadn’t done any research assistant work until after I graduated, but that is, that was the next step for me was saying, okay, I want to see what this is like.

so it is a, is a path to do, but, but you should only do it if you really want to have a job that only someone with a PhD can have, because there are a lot of great jobs out there for folks interested in these topics. ,but not in academia. So, final question. What do about the world of market designs and economics or even academia that would’ve been useful 20 plus years ago when you were first getting started?

Yeah, I think. ,something I’ve recently developed in, in part researching for the book is just how diverse the hidden markets are that we participate in every day. As a young economist being trained in how markets worked, I thought basically exclusively about prices and the price mechanisms. That, that was how I was taught, that those were the markets I looked at.

And it’s only recently that I’ve realized markets are much broader than that, and thinking through the rules of those markets, how we could design them better, so that they’re more equitable and efficient and easy for participants. I, I think there’s a lot of gains for us to have as a society, so I’m excited to be working on it for the next 20 years, but if I, if I could go back 20 years and say, Hey, maybe focus on these markets a little bit more because there’s a lot of low hanging fruit where we could be making things better for everybody.

I, I, I wish I knew that and I, I want others to kind of look at these markets and say, yeah, this could be better. Fascinating, professor, really enjoyed the conversation. ,we have been speaking with Judd Kessler, professor of Behavioral Economics and market design at Wharton at the University of Pennsylvania, and author of the new book, lucky By Design, the Hidden Economics.

You need to Get More of What you Want. I would be remiss if I failed to 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 research assistant. Anna Luke is my producer. I’m Barry ols. You’ve been listening to Masters in Business on Bloomberg Radio.

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The post Transcript: Judd Kessler, Lucky by Design appeared first on The Big Picture.

A central challenge with social media is that success often hinges on two distinct but rarely simultaneous goals: reach and conversion. One post may generate likes, comments, and new followers (reach), while another might prompt newsletter sign-ups or webinar registrations (conversion). Expecting a single post to achieve both is unrealistic, and the constant push to meet these divergent goals can lead to an exhausting and unsustainable content creation cycle. Making matters more difficult, social media platforms are increasingly saturated, making it harder for advisors to stand out without significant time investment or specialized skills in content strategy.

In this article, Sydney Squires, Senior Financial Planning Nerd, discusses how advisors can overcome this issue by using evergreen content, which retains its relevance regardless of current events or seasonality, and offers a scalable solution to the high soft costs of social media. A guiding principle in evergreen content strategies is harnessing what's called the "long tail" effect: a small percentage of content often generates the majority of results. In practice, this means that only about 10% of an advisor's posts will drive most of the engagement and conversions, while the rest produce little return. This dynamic poses a significant burden for advisors who feel they must constantly create fresh content in hopes of striking gold. However, recognizing and leaning into the long tail can be a turning point. By identifying which posts already perform well, advisors can repurpose top-performing content – especially evergreen content that remains relevant over time – and avoid the burnout of perpetual reinvention. Reposting content is not only efficient but also effective – audiences are unlikely to recall seeing a post months earlier, and repeated exposure often strengthens a message's resonance.

The success of evergreen social media content ultimately depends on strategic planning and performance tracking. Each post should be assigned a clear objective – either engagement or conversion ­– and performance should be measured accordingly. Tools like UTM codes and Google Analytics can help advisors track which posts are driving website traffic, while social media platforms and schedulers often provide data on in-platform engagement. Over time, advisors can refine their evergreen libraries through regular audits, removing outdated or underperforming content and adding newer, high-performing posts. Leveraging AI or working with copywriters can further streamline ideation and content creation without compromising the advisor's unique voice.

In sum, while social media marketing is often labor-intensive and inefficient when approached haphazardly, advisors can dramatically improve their return on time and effort by leaning into evergreen content. This strategy not only mitigates the pressure of constant content creation but also maximizes the value of high-performing posts. By developing and maintaining a well-curated library of reusable, relevant content, advisors can build a more consistent and scalable marketing pipeline that highlights their personality and expertise – helping them connect with prospective clients more meaningfully over time!

Read More...

This week, I speak with Judd Kessler, author of “Lucky by Design: The Hidden Economics You Need to Get More of What You Want,” and a professor at The Wharton School of the University of Pennsylvania.

We discuss his research into the hidden markets that allocate value to desirable things such as restaurant reservations. We also delve into Judd’s research into how couples allocate their resources within a relationship and possible alternate ways to distribute concert tickets.

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

You can stream and download our full conversation, including any podcast extras, on Apple Podcasts, Spotify, YouTube (audio), YouTube (video), 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 Songyee Yoon, founder and managing partner of Principal Venture Partners, an AI-focused investment firm established in 2024, and since 2025 a member of the board of directors of HP Inc.

Authored Book

Current Reading/Favorite Books

The post MiB: Judd Kessler, Lucky by Design appeared first on The Big Picture.

Also in industry news this week:

• Experienced advisors are moving to new firms at a faster rate, with a 16% increase in senior advisor attrition from 2024 to 2025
• Advisory firms are now under the clock to implement new policies under the SEC's comprehensive Regulation S-P, with the deadline for smaller firms fast-approaching in June

From there, we have several articles on tax:

• Several effective tax planning strategies for high-net-worth clients, from tax-aware long-short investing to private placement life insurance and annuities to strategies for pre-liquidity business owners
• How the One Big Beautiful Bill Act (OBBBA) expanded the Section 1202 Qualified Small Business Stock (QSBS) rules allowing shareholders of QSBS-eligible companies to exclude up to $15 million in capital gains
• How investors with portfolios that can't be rebalanced without incurring significant capital gains can transfer those funds into a more tax-efficient ETF wrapper via a Section 351 exchange

We also have a number of articles on practice management:

• How advisory firm founders can adapt as their firms demand different roles from them, while minimizing the risk of burnout or role misalignment
• Why leadership capacity is about more than 'just' a lack of time – and why, while a lack of leadership capacity often manifests as a hiring and team retention shortfall, it may need to be solved with different resources
• Why growth opportunities for a firm's support staff may be the key to long-term growth and team retention

We wrap up with three final articles, all about college sports in the midst of March Madness season:

• Why the odds of picking a 100% perfect NCAA bracket (for all 63 games in the NCAA basketball tournament) are so extremely low that we'll likely never see it done in our lifetimes
• How structural changes to the business college sports, including allowing payments for athletes' Name, Image, and Likeness (NIL) and greater ability to transfer between schools, have reduced the number of unlikely "Cinderella" teams making extended runs in the NCAA basketball tournament
• When a college athlete receives payment for their Name, Image, and Likeness (NIL), it has the potential to be a life-changing opportunity – but only if they handle it thoughtfully (which most 18-22 year olds could use a lot of trustworthy guidance to learn how to do!)

Enjoy the 'light' reading!

Read More...

Ritholtz Wealth Management is heading west. The week of April 16, 2026, our team will be in San Francisco to meet with clients and advisors. If you’re in the Bay Area and want to connect, we’d love to hear from you.

We’re also thrilled to announce a special live taping of Masters in Business, hosted at Bloomberg San Francisco (Pier 3, The Embarcadero). I sit down with Glen Kacher, Chief Investment Officer and Founder of Light Street Capital, for an in-depth conversation about markets, technology investing, and what’s next for growth-oriented strategies. Glen has built one of the most respected technology-focused investment firms in the world, and this is a conversation you won’t want to miss.

This is an invite-only event. Space is limited. If you’d like to attend, please reach out to us directly for details.

Seats are extremely limited — you must ask your RWM or Bloomberg contact for tickets. 

Event Details

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For those of you interested in learning about how RWM works with clients or information about the event, reach out to us at Info AT RitholtzWealth.com

The post Ritholtz Wealth Management Is Coming to San Francisco!    appeared first on The Big Picture.

At The Money: At The Money: Investing in Freedom (March 25, 2026)

The freest countries generate the best returns for investors. That is the thesis underlying the Freedom 100 EM Index ETF, and its proven itself over the past 1, 3, and 5 years. Perth Toll is the founder of the Life and Liberty indexes and the creator of the Freedom 100 EM Index (symbol FRDM). She was named one of 10 to watch in 2020 by Wealth Management Magazine and one of the 100 people transforming Business by Business Insider in 2021.

Full transcript below.

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About this week’s guest:

Perth Toll is the founder of the Life and Liberty indexes and the creator of the Freedom 100 EM Index (symbol FRDM). She was named one of 10 to watch in 2020 by Wealth Management Magazine and one of the 100 people transforming Business by Business Insider in 2021.

For more info, see:

Professional/Personal website

Masters in Business

LinkedIn

Twitter

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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:

Barry Ritholtz: On today’s edition of At The Money, we’re going to discuss how to avoid those countries that are geopolitically dangerous to your wealth: China, Russia, Saudi Arabia, Egypt, and Turkey.

To help us unpack all of this and what it means for your portfolio, let’s bring in Perth Tolle. She’s the founder of Life and Liberty Indexes and creator of the Freedom 100 Emerging Markets ETF, stock symbol FRDM. She was named one of 10 people to watch by Wealth Management Magazine, and one of 100 people transforming business by Business Insider. Her ETF, the Freedom 100 EM Index, manages over 2 billion dollars and has beaten the S&P 500 over one, two, and three years. In 2025, FRDM was up 67%. That’s double the MSCI Emerging Markets Index, which was up about 33–34%, which itself was double the S&P 500, which was up 17.9%.

Perth, before we get into the details, remind us about the Freedom Index—what gets excluded and why?

Perth Tolle: The Freedom Index is basically a freedom-weighted emerging markets strategy that uses third-party quantitative freedom metrics to weight countries instead of using market cap. With market-capitalization-weighted indices, you get a high weighting to autocracies, and some of the world’s biggest autocracies have a very concentrated weight. With freedom-weighting instead, you get a higher concentration in the freest countries in the world, because we believe that’s where we’re going to find the best growth stories going forward.

Barry Ritholtz: Makes sense. I know the index looks at three broad categories to screen out different countries: civil, political, and economic concerns. Explain how you ended up on those three items.

Perth Tolle: We felt it was extremely important to encompass all different kinds of freedoms, not just personal freedoms and not just economic freedoms, because all freedoms work together. One of the authors of the data set that we use has said that freedoms work together like parts of an automobile. You can’t have the steering wheel without the transmission—the car still won’t run. So you have to have both personal freedoms, like civil and political freedoms, encompassing things like terrorism, torture, trafficking, women’s rights, freedom of speech, media expression, assembly, religion, civil procedure, criminal procedure, judiciary independence and things like that.

You also need the economic freedoms that we’re all more familiar with as investors—things like taxation, rule of law, private property rights, business regulations, soundness of monetary policy, and freedom to trade internationally.

All of these things added together give us a composite country score from our data think tanks, the Cato Institute and the Fraser Institute, and we use that composite score on the country level to derive our country weights.

Barry Ritholtz: I want to dig deeper into those three broad subjects, but before we do, there’s been a lot of pushback on ESG-type investing and morality-based investing. When I hear names like the Cato Institute and the Fraser Institute, these are very conservative entities, not the sort of groups you think of as, “Oh, this is just another woke way of moving money around.” Investing in freedom really is a fairly well-defined way to screen out risk, bad players, and increased risk, isn’t it?

Perth Tolle: The Cato Institute and the Fraser Institute—I’m not sure what you mean by “very conservative.”

The Fraser Institute is known for its economic freedom data, while the Cato Institute is more focused on the personal freedom side of it—more political and civil freedoms. Both are entities that take no government grants, so they don’t take any grants from even the U.S. or Canadian governments, where they’re based.

That was important to me because we all know the World Bank debacle a few years ago, where they took money from China and, under Chinese coercion, changed some of their scoring. They had to scrap a very useful index, which we used, the Doing Business Index. The community is still trying to replace that.

This independence was important to me—they are independent from government coercion. Another thing I noticed working with them over the years—and by the way, we’re completely independent from each other, so I have no influence on their country scoring, and they have no influence on our country allocations—is that having permission to use their data set has given me some insight into how they work.

One thing that really impressed me was that going into 2016 and going into 2024, a lot of the more conservative voices were kind of going along with the political environment, whereas these groups never did. They called out the dangers that they saw in the American political situation before 2016.

In my opinion, this is a group that is extremely unbiased toward any government, partly because they are completely privately funded. I’ve seen their third-party independence firsthand through this work and this data set, which is completely third-party for them. We are using their third-party measurements, so there are two layers of third-party objectivity. I’ve been really impressed with how unbiased and neutral they have been, and I would even say centrist, when it comes to looking at the government and political situation both in the U.S. and outside the U.S., and in their commentary there.

Barry Ritholtz: We’ll talk a little bit about the U.S. later. I want to dive into these three broad subject matters that drive the index, some of which seem a little obvious, some of which not so much. Let’s start with the civil freedoms, where you’re looking at violent conflict, organized crime, disappearance, detainment, torture, and terrorism. All those things sound like they’re not related to economics, but they also seem to create a terrible environment in which to do business.

Perth Tolle: If you can’t walk down the street without being concerned about being shot, then you can’t really be doing business. That’s the idea there. If you want a more colloquial way of looking at it, it’s the right to life, the right to liberty, and the right to property. If you don’t have life, you don’t have anything else. That is the basis of all the other freedoms, and I put that right to life in the civil freedoms category.

Barry Ritholtz: Now let’s talk about political freedoms. Some of these make a whole lot more sense: rule of law, due process, independent judiciary, multiple political parties and not single-party rule, freedom of the press, freedom of expression. How do all of these things translate into better investment returns?

Perth Tolle: I’m going to focus on freedom of the press and expression for a moment. Without freedom of the press or freedom of expression, there’s no independent verification of any data, whether it comes from governments or companies. There’s no way to know whether any of that data is accurate or complete. You see that in some autocratic countries—they’re no longer publishing some of their economic data because they don’t want third-party scrutiny from other countries, and in their own countries they’ve already quashed it.

Without third-party verification of data—which is what investors use to measure the impact of their investments—there’s no way to measure the true impact of your investments or whether your analysis is even correct.

Barry Ritholtz: Let’s stay within political freedoms and talk about the rule of law and an independent judiciary, given the sanctity of contracts and how important it is to maintain that. How significant is an independent judiciary to this index?

Perth Tolle: There are 87 variables that go into the country-level composite score, and an independent judiciary is one of those. It’s just as important as all the others. As I said, all the freedoms work together like parts of an automobile. I would say it is of utmost importance, especially in business, because if you don’t know if your contracts are going to be upheld, how do you even enter into contractual agreements? How do you even start that business relationship?

On the more extreme end of that, in emerging markets where there is no independent judiciary and no real rule of law, anyone can be arrested, disappeared, or detained for political reasons that have nothing to do with their actual business. We saw this when Jack Ma disappeared—again using China as a prime example—because he said something at a conference that the government didn’t like. His IPOs were scrapped and many other tech entrepreneurs have disappeared since then.

In countries without rule of law, judicial independence, and due process, you see things like China’s 99% conviction rate.

Barry Ritholtz: That’s a pretty substantial conviction rate, isn’t it?

Perth Tolle: They must have some great prosecutors over there. Those are very basic, fundamental things that you need in order to conduct both life and business, and I think most of Wall Street overlooks them.

Barry Ritholtz: Let’s talk about the third leg of the stool: economic freedoms. These include property rights, sound monetary policy, independent central banks, free trade, business, credit and labor regulations, and then the degree of government interference in private markets. All of these are obviously significant to operating a business and investing in publicly traded companies. Tell us about economic freedoms in the emerging-market world.

Perth Tolle: I think economic freedoms, of all the freedoms, get kind of a bad rap because capitalism has its critics. But if you don’t have the freedom to conduct business and you don’t have the freedom to use your own resources as you see fit to contribute to the world, then you don’t really have freedom. If the government tells you what your occupation is to be or whether you can sell fruit on the street—as we saw in the Arab Spring—whether you can provide a living for your family, and you’re dependent on the government to give you that fundamental right, then you’re not really free. Without economic freedom, you have no freedom.

As for the other things you mentioned in the economic freedom data set—private property rights, free trade, soundness of monetary policy—all of those are things that I think Wall Street has traditionally taken for granted because we usually work in countries that already have them. That’s how we can be myopic to the freedom premium in emerging markets, because in emerging markets these things cannot be taken for granted; not all of them have these freedoms.

Barry Ritholtz: How do you think about the Freedom Index—is it a values-based fund, a risk-management tool, or simply a pure return-seeking strategy?

Perth Tolle: I would say 95-plus percent of our clients are using it as a pure “freedom premium” strategy. They believe that freer countries will outperform in the long run. We do have some investors who came in during the early days when ESG was a big thing, and they have ESG portfolios. But I think that’s going away a bit. Most of our clients use this because they believe it will outperform.

Of course, now after the outperformance that we’ve had in the out-of-sample, live performance of the fund, most people are using it in that way—as their core emerging-markets strategy.

Barry Ritholtz: Here’s the pushback I’ve heard: markets are very efficient. When it comes to things like political risk, state ownership, capital controls, and rule of law, people will say, “Hey, the markets have already priced that political risk in.” How do you respond to that?

Perth Tolle: At the height of China inclusion during COVID, in 2020 and 2021, the MSCI Emerging Markets Index had 41% allocated to China. In 2021 and 2022, the China tech inclusion happened and a lot of investors lost a lot of money. At the same time, Russia invaded Ukraine, and Russia’s market went to zero. Nobody saw any of those things coming—the war, COVID—all of these events that exacerbated autocracy risk in many countries around the world.

I would say that the metrics we’re using for both personal and economic freedom are traditionally overlooked by investors, and people are only now becoming more aware of them. That’s due both to the outperformance of the freer countries and the drastic declines in the unfree countries. Even now, investors are asking, “Where can we find pockets of value in China?” There’s still a lot of blind investing into these countries as if all these basic foundational freedoms are in place, completely ignoring that they’re not. So I would say these risks are far from being priced in, and we see that in the performance gap as well.

Barry Ritholtz: Really amazing. To wrap up: if you’re a U.S. or Canadian-based investor and you’re interested in getting exposure to emerging markets via an ETF—and you don’t want to funnel money to autocrats and dictators—and you want to invest in the freest countries, whether that’s a values-based decision, a risk-management decision, or simply because it has demonstrated over the past few years to be a return-seeking strategy, then take a look at the Freedom 100 EM Index ETF, symbol FRDM. I’m Barry Ritholtz. You are listening to Bloomberg’s At The Money.

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

Source: Reddit

While we await ___, consider this fascinating animation on what is written by people, and what is machine generated…

The post Share of web articles written by AI or Humans appeared first on The Big Picture.

In this guest post, Anna Pfaehler, CFP, AEP, a Partner and Wealth Advisor at Constellation Wealth Advisors, explores one powerful tool to reduce the size of a business owner's estate: gifting shares in the business, whether directly to individuals or to a trust that removes those shares from the owner's estate. Notably, this strategy can be especially effective when shares are gifted before a dramatic increase in the value of the business or before the business is sold at a premium, as the gift and estate tax exemption applies to the value of the shares at the time of the gift. Which means that future appreciation in the value of the shares occurs outside of their estate.

Another way to increase the value of gifting shares in a business is to apply valuation discounts, which can reduce the dollar value of gifts and use up less of the business owner's remaining gift and estate tax exemption. Such discounts can be applied for lack of control (as an arm's-length investor would likely pay less for shares of a company for which they have no say in decision-making) and lack of marketability (as an investor might pay less for shares in a company that is relatively illiquid). Importantly, though, given close IRS scrutiny of valuation discounts, having a professional valuation of the business can help avoid challenges to the transaction and ensure that the gifted shares are valued appropriately.

Despite the potential benefits of executing a gifting strategy, some business-owner clients might be reluctant to go through with it, perhaps because they don't want to give up control of or upside in the business, even though the strategy can potentially be structured to keep control of voting shares in the hands of the owner. Some business owners might also assume they don't need to engage in such a strategy because their business is currently worth well below the estate tax exemption amount. In those cases, an advisor could note that future appreciation in the business could push the owner past the exemption level and that gifting when the business value is lower may use less of the exemption.

Ultimately, the key point is that because businesses have the potential for significant appreciation over time, they can create unexpected estate tax exposure for their owners. This gives financial advisors an opportunity to potentially help business-owner clients save millions of dollars in estate taxes by working with clients and related professionals, such as estate attorneys and valuation professionals, to create a gifting plan that aligns with the client's financial needs and legacy goals!

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The transcript from this week’s, MiB: Bill Miller IV, CIO, PM, Miller Value Fund, 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 with Barry Ritholtz
Episode: Conviction Investing — Bill Miller IV  |  March 20, 2026

[00:00:00] Barry Ritholtz: This week on the podcast, I have yet another extra special guest, Miller Value Fund’s Bill Miller IV. He is the son of Bill Miller III. Fascinating investor, portfolio manager, and World Series of Poker player. They have a very unique approach to value. It’s not your traditional, just buy ’em cheap. I thought this conversation was fascinating and I think you will also. With no further ado, my conversation with Miller Value Fund’s Bill Miller.

[00:00:34] Bill Miller IV: Thanks for having me. It’s great to be here.

[00:00:37] Barry Ritholtz: So I want to talk about your investment philosophy, what you’re doing at Miller Value today, but let’s roll back a little bit beforehand. You get a degree in economics from Tufts and then an MBA from Dartmouth Tuck School of Business. Was investing the original career plan?

[00:00:55] Bill Miller IV: No, it wasn’t the original career plan. You know, when I was growing up, went to a small private boys school in Baltimore, Maryland. Never really knew what I wanted to be when I grew up, but when I pointed that out to my parents, they said, well, just consider school as your job. And the harder you study, the more options you’ll have down the line, and it’ll help you figure it out.

[00:01:20] Barry Ritholtz: So that sounds like pretty good advice.

[00:01:23] Bill Miller IV: I followed it. I did well academically in school. So when I went to Tufts, I think the primary concern was somewhere where I could actually play baseball. So growing up was a huge Orioles fan. That was something that my dad and I often did together. He was my coach in Little League, something I’m doing now today for my son. Sports teach you a lot about being on a team, about how to operate, how to internalize what you can control and not focus on the rest.

[00:01:53] Barry Ritholtz: Did you play baseball in college?

[00:01:55] Bill Miller IV: Yeah, but I wasn’t very good. So I learned that pretty quickly. I played for two years. The difference between the guys who are good and really good is so tiny, just a little wood on the bat once or twice more a week, and you’re in a different tier.

[00:02:12] Barry Ritholtz: Exactly right. It’s fascinating.

[00:02:14] Bill Miller IV: Yeah. And you know, I probably deluded myself for a while about how good I could be, but I also probably didn’t focus on the right things. And knowing what I know now about how to get better and improve at things, I could have been much more systematic about it than I was.

[00:02:32] Barry Ritholtz: So you start your career at McKinsey. Why consulting? What led to that?

[00:02:37] Bill Miller IV: Yeah. Well, so I interned for my dad’s group in college. Loved it. Learned a lot. But then, you know, on campus recruiting came along and McKinsey was one of the names and I just applied to it, did a little work on it, and made it through that interview process, which was pretty rigorous. And I got an offer from McKinsey and I said, hey Dad, I love being with your group, investing’s a lot of fun. You know, what would you do if you were me? And he said, well, you can always tell McKinsey, you can always come back and work for me, but if you tell McKinsey no, you’ll never have a chance to work there again.

[00:03:17] Barry Ritholtz: Right.

[00:03:17] Bill Miller IV: So it was this concept of optionality again. And also there was, he knew, and I didn’t know at the time, but they placed an immense amount of focus on professional development. And so that was a really valuable place to spend the first three years of my career. So I was working on a huge variety of consulting projects. Mainly actually the job I had there, now I don’t know if it exists because of AI. So what I was doing was remotely supporting teams on research efforts and deep dives on stuff, which now you just ask ChatGPT about it. And it probably does a better job summarizing everything I could possibly do in two minutes, assuming it’s accurate, which is always a little bit of an if.

[00:04:03] Barry Ritholtz: That is a big if for sure. Focusing on primary sources is still a critical skill that I think a lot of people underemphasize. What did you take from your years consulting that showed up as helpful as an investor?

[00:04:17] Bill Miller IV: You know, one of the things, this might surprise you, less so about the data-driven nature, ’cause my dad’s a data-driven thinker and thinking quantitatively has always been in my wheelhouse. But the thing that I learned at McKinsey more than anywhere else would be to focus on client service. And how to interact with people, how to do the subtle things that show somebody else is the client. In finance, you know, when you’re managing money, it’s very hard to differentiate yourself. And Ken French, who was a professor of mine at Tuck, famous Fama-French factor model. One of the things he imparted on us was how long does it take to know if a money manager is actually any good?

[00:05:02] Barry Ritholtz: And the answer is?

[00:05:03] Bill Miller IV: From a statistically significant basis, longer than any money manager’s career.

[00:05:08] Barry Ritholtz: I was gonna say 10 years, 20 years.

[00:05:11] Bill Miller IV: It’s 20-plus for it to be statistically significant. So you have to be doing other things. Content’s a big focus, right? That’s a way to differentiate yourself. The way you communicate with clients, getting back to them quickly. All of these things are really important, and I learned those at McKinsey and I’m not sure I would’ve learned those to the same extent if I had just directly joined my dad’s firm.

[00:05:38] Barry Ritholtz: No, it’s really interesting. So McKinsey was a solid place to get grounded. What led to the pivot to investing, late ’07, ’08?

[00:05:46] Bill Miller IV: Yeah. So at McKinsey, we were effectively handing over analyses to clients and then leaving and moving on to the next analysis. And it occurred to me that if you actually wanted to build any equity in your analysis, in what you were doing, you had to actually take a real stake in something. And so that made me think, okay, this would be a great time to pivot from what I was doing at McKinsey to my dad’s side of things where that’s exactly what you’re doing all day, every day. And then I also, during college, I took a liking to poker and played a lot of no-limit hold ’em. And back then PokerStars was kind of an illegal gray area. And so I played a lot online and I saw a lot of similarities between what my dad did, poker, analytical edge in terms of thinking quantitatively at McKinsey. And it all kind of came around to moving in that direction.

[00:06:42] Barry Ritholtz: So speaking of your father, how did growing up in the Bill Miller household influence how you look at risk and reward, at investing? How big of an influence was he on your initial philosophy?

[00:06:55] Bill Miller IV: I think he’s most of it. It is hard for me to specifically say A, B, and C because it was as much learning from watching him and how he operated. So number one, he was always, always had a stack of research and was always going through content, always looking for new perspectives. He’s a relentless truth seeker. And I think that’s ultimately what we’re doing as investors is trying to separate where the truth is from where the perception is around what’s gonna happen. And the bigger the gap, the more you wanna place a bet.

[00:07:30] Barry Ritholtz: That variant perception is really important.

[00:07:33] Bill Miller IV: Exactly. Especially when that gap gets bigger and bigger. And especially if there’s a margin of safety there to protect you on the downside. So relentless truth-seeking. And the other thing is, you know, there were no shortcuts for him. There’s no substitute for actually putting in the time, going through that content all the time and being in front of your machine all day. And if time is the ultimate resource and constraint for everyone, thinking in blocks of time and thinking how to maximize your productivity per unit of time, I think is something that I took away from him.

[00:08:11] Barry Ritholtz: Really interesting. So going back to the family business, that’s a pretty loaded concept for a lot of people. What was it like first going back to work with your father and then becoming the controlling owner of Miller Value Partners?

[00:08:26] Bill Miller IV: It was fantastic ’cause we were a small group at Legg Mason for a good period of time, probably from 2013 or 2014 until we split off and went independent in, I think it was 2019 or so. So got to work with my dad very closely, a lot. But at the same time, one of the things I love about it is the market doesn’t really care what he did or didn’t do. And ultimately now that I’m in charge of the portfolios, it’ll hinge upon my decision making more so than what he did. And so it’s on me to now take everything I’ve learned and run with it and do what we can do.

[00:09:03] Barry Ritholtz: Was your father a poker player? How did you find your way into that?

[00:09:08] Bill Miller IV: No, he wasn’t a poker player. It was when Chris Moneymaker won the World Series. I don’t know if you remember. I think it was maybe ’02 or ’03, the big funny glasses. And he was an accountant actually. And so, you know, he stressed a lot of the quantitative decision making. And the other thing I actually looked at coming out of Tuck was baseball operations stuff, because Moneyball was coming around then and the whole analytical side was just emerging. And you know, I know you like to talk about mistakes, but I think of specifically that recruiting process, my attitude towards it and just some mistakes I made there.

[00:09:49] Barry Ritholtz: Well, we seem to learn more from our failures than we do from our successes. ‘Cause we don’t know if our successes were the result of good fortune or skill. If it takes 20 years to figure out which it is, you’re gonna obviously learn more from the errors. Hey, we know this was a bad choice.

[00:10:08] Bill Miller IV: That’s right. Or was it a good choice with a bad outcome? Well, I think in this case, the outcome was good because it was ultimately where I was probably looking to wind up. But at that time I was thinking, I wanna do baseball, baseball, baseball. I mentioned earlier I wasn’t good enough to play. I wanted to sort of use my analytical talents to go into the analytical side. And as I went through the recruiting process, it became very clear that I was jumping through hoops, waiting for callbacks. And it was a very intense process. And I realized that I was probably gonna be charting pitches in Topeka.

[00:10:48] Barry Ritholtz: At the end of it. Which to me didn’t seem all that exciting. But in retrospect, if you wanna be in baseball operations, you should do anything you possibly can to get your foot in the door to these competitive businesses. Let me point out, a little over a decade ago, a kid became an intern in the NFL and he just won the Super Bowl as head coach.

[00:11:11] Bill Miller IV: So if you really love it that much and you’re that committed. I’m with you. I can’t count pitches in Topeka. I just couldn’t imagine that. I mean, yeah, especially because you have how many other people were interns and they didn’t head coach the Super Bowl winner. But it’s funny ’cause now I see that on the other side, right? So I get LinkedIns and messages all the time. Hey, I’m a really good software analyst. I want to come and work for you and be a software analyst. And I’m like, we don’t need a software analyst right now. We need somebody that can go get me a sandwich at lunchtime. But I understand the perspective too. It’s just that I think if you want to become a member of a team, you have to understand what the team needs and where you can genuinely help. And it may not always necessarily align with what you want to do. And I think that’s important to keep in mind.

[00:12:09] Barry Ritholtz: Really very interesting. So as long as we’re talking about all these career choices, if you were starting out today, would you follow a similar path to what you did previously or would you go a different route?

[00:12:23] Bill Miller IV: I really like what I’m doing now and I wanna do it indefinitely. So it’s hard for me to go back and say I would do something differently because I’m where I want to be. And for the long term, I do think one of the lesser considered paths that a lot of undergrads don’t think about would be actually going into something entrepreneurial. And I don’t mean like starting a startup that you’re trying to scale from zero to a gajillion dollars over the next year. But that’s what people tend to think of ’cause that’s where all the returns look like they are. In reality, I think potentially scaling a small services business, you know, whether that’s power washing, home cleaning, just things where you can get your arm around the fundamental service and scale that and make it bigger is potentially a more, a safer risk-adjusted way to a big outcome than people consider.

[00:13:21] Barry Ritholtz: Yeah, just because you’re learning a business from the ground up, customer relations and all those other things.

[00:13:28] Bill Miller IV: Well, you know, even in our business, it takes time to build a track record. It takes time to build the assets. And so anything you do where you’re gonna have a good outcome in the long run just takes repetitive effort and the right focus. And so sometimes the learning around something that you can get your arms around can be easier than the learning around software development or scaling a big fund or things like that.

[00:13:56] Barry Ritholtz: Really interesting. Coming up, we continue our conversation with Bill Miller IV, Miller Value Fund’s Chief Investment Officer, talking about his investment philosophy. I’m Barry Ritholtz. You’re listening to Masters in Business on Bloomberg Radio.

[00:14:12] Barry Ritholtz: I am Barry Ritholtz. You are listening to Masters in Business on Bloomberg Radio. My extra special guest today is Bill Miller IV. He is the Chief Investment Officer and portfolio manager of Miller Value Fund, where he works with his famous father, Bill Miller III. So let’s talk about your investment philosophy separate from your dad’s. Starting with, how do you define value in a world where a lot of the traditional metrics like price-to-earnings or price-to-book seem to have been downgraded somewhat? Perhaps they don’t fully capture modern intellectual property-based business models. How do you think about those?

[00:14:53] Bill Miller IV: Yeah, I think you have to have a flexible definition of value. And if it’s just based on accounting figures, you’re probably not gonna do very well over the long run. Because if you look at some of the best performing stocks of all time, they never look cheap. Just because they have such a right tail and they compound. They’re investing all their earnings and they’re constantly seeking to grow that edge. And so solely focusing on accounting factors is not a great way to capture long-term value or outperformers. Although it can be. We have a strategy whereby my business partner Dan Lysik has this collection of 10 or 12 names that look insanely cheap on these metrics. So there’s a lot of different ways to skin the cat.

[00:15:41] Barry Ritholtz: So what are the different thought processes around defining value? Cheap but not broken is obviously what your partner is focusing on. How do you contextualize things like Amazon or Nvidia or Google, which have looked expensive for 10 years and have just shot the lights out?

[00:15:59] Bill Miller IV: Well, in the case of Amazon, they started with a very small idea around just selling books online. And it ended up being this retail juggernaut just because if you look at now the distribution logistics networks that they’ve used to fulfill their orders, it’s a network that can’t be touched. It’s the everything store. And it depends on the actual scenario. So one of the things that I’ve been vocal about now for probably 10 years is our view that Bitcoin is still a massively undervalued technology. And so that would be one where you’d probably say, well, why? It has no cash flows, it’s speculative, it’s based upon other people’s beliefs. And I’d say that’s exactly right. It is based upon other people’s beliefs, but other people haven’t yet come around to the view that it is a functionally superior technology to gold. It’s a form of capital governance. I think it requires a lot of different lenses. When we say we have a flexible definition of value, you have to approach things from a variety of different perspectives. In this case, one of the reasons I think Bitcoin is so interesting and compelling, 17 years in, you know, it’s gone from this weird technology on the internet that only criminals used, to now it’s collateral for loans in our modern day financial system.

[00:17:24] Barry Ritholtz: And so what explains that?

[00:17:26] Bill Miller IV: Well, markets explain it to an extent, and people are increasingly coming around to view it as an interesting place to put money and an interesting capital governance system. It’s totally separate from the fiat systems that everyone has known for their entire lifetimes and multiple centuries before us. It wasn’t possible prior to 2009 or 2010 when the white paper came out. And so now you’ve got this new emerging system of capital governance that I think is one of the most dynamic areas of finance in general. It’s an area I’m very optimistic about over the long term. It’ll bounce around. It’ll be volatile, but I think it’s headed to much bigger places.

[00:18:09] Barry Ritholtz: So we are recording this the day after it briefly broke 60,000. Are you a buyer of Bitcoin at these prices?

[00:18:16] Bill Miller IV: Yes. So that’s a big part of my personal financial situation. In one of our funds, digital assets collectively are about 10% of that fund.

[00:18:25] Barry Ritholtz: So let’s stay with the concept of philosophically, this is an interesting technology. I’ve described this as stop thinking of it as a unique asset class. I think of it as somewhere between Facebook and Google, between Meta and Alphabet, as a technology company. Which gives it a little more perspective. But at the same time, it came out around the same time as an iPhone, and I would never give up my iPhone. I don’t know how I would do my train tickets, my plane tickets, my communication, my portfolio, everything I do, I do on this. If Bitcoin were to disappear tomorrow, it wouldn’t affect my life in the least. Why is it that 17 years in, we’re still waiting for this to gain broad usefulness?

[00:19:11] Bill Miller IV: Well, so if you look at the introduction of running water in households, it took a hundred years for it to go from possibility to ubiquitous. And that was a clearly better technology than using an outhouse or boiling water. So this is an entirely new idea. And again, from my perspective, it’s a capital denominator. It’s not a numerator, it’s a capital denominator. So Bitcoin is a denominator for capital. And the reason I think it’s so superior to what we’ve known before is that money, the way it works right now, it’s ultimately backed by the threat of state-ordered violence. Standing army and a set of laws. You know, you don’t pay your taxes, we’ll throw you in a box and lock the key away.

[00:19:57] Barry Ritholtz: Throw the key away.

[00:19:59] Bill Miller IV: But if you think about actually around the world, the countries you want to visit, most of them are going to have stability of process and rule of law. And the places where that’s not the case, there’s a much less distinction between who controls the ledger and who controls the guns. So the farther apart those two things are, the better. So in this case, we now have a distinct ledger entirely apart from any state, and its units can’t be controlled by anyone. And they’re controlled by actual energy. So you need to have energy to crank out a new Bitcoin because that’s what the whole mining process is about. You verify a transaction, takes a lot of energy to do that, and in exchange for expending that energy, you get more Bitcoin. That’s the miner reward. So this is a capital denominator whereby energy input is actually required to create new units. What happens now is somebody, a bunch of Congress people sign something, Fed goes and prints money to keep roughly rates roughly in line, prices roughly stable, employment roughly full. And so there’s still some issues with that from a process perspective. They’re trying to control the money supply to engineer outcomes as opposed to having a fair set of value that we all agree upon.

[00:21:21] Barry Ritholtz: Well, you know, I don’t care about deficits. The past 50 years I’ve been hearing about the problem with printing money and everything that we were warned against didn’t happen. The dollar hasn’t devalued. We haven’t had hyperinflation. We haven’t crowded out private capital. And you could still lend money to Uncle Sam at historically low rates. So all the warnings about printing money and deficits have been the boy who cried wolf for half a century. And then there’s the idea that we limit it to 21 million coins. And that scarcity creates value. I understand it’s virtual. I understand the advantages of having things be purely digital from conception forward. I have a hard time getting past the criminality and the pig butchering and the blackmail. That’s a little problematic. And it’s sort of like democracy. It’s the worst system except all the others. Well, a central bank and a government that makes sure we’re doing something within reason is better than just opening it up to the Wild West, which is what this seems to have been for a long time. The US was pretty aggressive in embracing it, especially this administration. And it seems to have speculatively run up in anticipation of that. And once it was all in the price, we got cut in half. It’s hard when you’re talking about stability. The US dollar was down 9% in 2025, not cut in half. This is a giant whack in less than six months. So I have a hard time just wrapping my head around the source of stability being something with no fundamental value but swinging wildly up and down. So I’m not as negative about it as a lot of people are. I was really negative about the NFTs. You want to take something with literally no value and totally reproducible? I understood the idea of a unique identifier on the blockchain for a $10,000 Birkin bag. That made some sense, but not $68 million. There seems to be a lot of speculative excess that gets in the way of the technological story underneath.

[00:23:30] Bill Miller IV: Yeah, and I think you bring up a good point with regard to the United States and the deficits not making a big impact. And that’s because we are the best house in a bad neighborhood from a fiat perspective. I mean, the reason that America is the most desired place to be from an immigration perspective, I think we have four times multiples the number of immigrants as the next four closest countries combined. Again, that comes down to stability of process, rule of law, and property rights. And so if there’s now a form of currency that wasn’t possible 15, 20 years ago that has more stability of process and more certainty around property rights over the long term, I think it’s an education issue as much as anything else. People may not come around to that view, but from my perspective, the quantitative inevitability of the technology is pretty compelling when you look at just Bitcoin versus gold. Gold’s done amazing in the past year. I get it. It’s a deep part of the debasement trade. Bitcoin hasn’t, but when you think about gold as the predominant check and balance on fiat’s lack of accountability, and then you look at the functional attributes of Bitcoin, it’s so far superior to gold, yet it trades at a fraction.

[00:24:51] Barry Ritholtz: Limiting the economy to how much yellow metal we scrape out of the ground each year never made any sense. But then it’s a little bit of a leap to, alright, now we’re gonna replace metal dragged out of the ground, which happened to be formed in the collision of neutron stars a couple billion years ago, with a digital platform. I understand why people are skeptical. I just look at it as a big company. And if you want to bet on one of the big mega caps, well maybe there’s 10, 12, 15 of them. This is another one.

[00:25:25] Bill Miller IV: Yeah. But from my value-oriented perspective, that comparison to gold, functional equivalence, if not functional superiority, for Bitcoin — if you map the market cap of gold right now to Bitcoin, Bitcoin would trade at $1.7 million a coin. If everyone felt that way, they don’t, obviously, but I think over a long period of time they’ll get there.

[00:25:48] Barry Ritholtz: Huh. Really interesting. $1.7 million. By the way, I wanna move the Bitcoin discussion to the end of this segment and I wanna slot in some conversation about Legg Mason and his investment philosophy. So you joined Legg Mason in ’08, pretty much right in the middle of the financial crisis. How did that experience shape your perspective on investing and in particular on value?

[00:26:13] Bill Miller IV: Wow, start with the hard-hitting question here. So that was, as you point out, I joined right at the top. I think when I joined Capital Management, there were roughly 150 people working there. And then by the time Capital Management merged with ClearBridge, there was a substantially fewer number of people working there just because assets flew out the door, performance struggled, and that can be a pretty ugly compounding effect on an asset manager.

[00:26:43] Barry Ritholtz: For sure. By the way, that story was pretty much ubiquitous throughout finance.

[00:26:48] Bill Miller IV: Yeah. And so I think that taught me, you know, to run one of these businesses, you obviously want to have some extra gas in the tank at all times. You don’t wanna run it too thin from an operating capital perspective if you wanna build it for the long term. And so it’s a good idea to keep those fixed costs lower than you might even anticipate.

[00:27:11] Barry Ritholtz: So let’s talk about building on that. You come out of the financial crisis, you get your CFA soon after, 2011, something like that?

[00:27:20] Bill Miller IV: That sounds right.

[00:27:21] Barry Ritholtz: And then become a Chartered Market Technician in 2018. Unusual combination. Tell us why you went that route.

[00:27:28] Bill Miller IV: Yeah, so the analogy I make is if the CFA teaches you to play your cards on the poker table, CMT teaches you to play the other players at the poker table. And one of the interesting things about the CMT is number one, it takes a lot less time than the CFA, but number two, I use that, some of the teachings from that, more often now than I use the CFA.

[00:27:51] Barry Ritholtz: It’s funny, the way you described it. I always thought the difference was financial analysts tell you what to buy, technicians tell you when to buy.

[00:28:01] Bill Miller IV: Well, I think that’s accurate as well. And so one of the things that it’s very easy to do as a value investor is see multiples coming down and a stock going down. You go, wow, this is way too cheap. And the reality is that it could just keep going down because it’s going down and people are selling it. And you have to be able to read that on the chart and when the volumes change and when the investor behavior changes. So it teaches you to look at investor behavior. It teaches you how to figure out what other investors are thinking based upon price, trends, action, and volume. And it’s been a really valuable skill set and complement to the CFA.

[00:28:44] Barry Ritholtz: So walk us through your process from idea generation to execution and position sizing. What sort of steps do you have to work your way through?

[00:28:53] Bill Miller IV: Well, I think a lot of it starts with the appreciation that most assets are efficiently priced. So we have a portfolio of things that we believe are undervalued. And all day, every day, we’re constantly running through screens. We’re reading research, we’re looking at price movements, we’re looking at insider action a lot of the time, when insiders are buying or selling, to potentially point something out to us. But then once we identify something that looks interesting, it has to then be better than what else we have in the portfolio. So we have a group of things that we own and like, but at the same time, we’re constantly comparing new ideas to see if it can be a fit in the portfolio. And how we make changes is going to be directly relevant to that thesis. In some cases, we’ll have a name that the investment thesis completely changed with the latest earnings report or something went out the window. And then we’ll have an ability to either add something new or bump something up. But it’s always about constantly looking for new ideas that could be undervalued and then trying to figure out the right way to weight ’em. Because as unconstrained investors, all of our torque is in position sizing and the weights. We’ve made a lot of mistakes and oftentimes the answer to those mistakes is sitting right in our portfolio. It almost always is. We should own more of that and less of that. And so I spend a lot of time just going through the portfolio and figuring out where the relative weights should be. But I would say at a high level, probabilistic fundamental value.

[00:30:38] Barry Ritholtz: Probabilistic fundamental value. I like that phrase. When you’re looking at fundamental values, how do you distinguish between something that’s only temporarily out of favor, temporarily hated, to, oh, this business model is structurally broken. How do you avoid the classic value traps?

[00:30:57] Bill Miller IV: Well, we don’t always, unfortunately. Just because something is undervalued doesn’t mean that other people are gonna agree that it’s undervalued. So I think that’s an important thing to keep in mind too. And it’s important to use the markets to help you figure out how to change your position sizes. ‘Cause sometimes you start legging into something and it just keeps going down. You should probably heed the market’s feedback a lot of the time relative to your own positions and their sizes. So one of the key reports that my dad looked at every day, I still look at every day, is our daily performance report. And basically it just has the entire portfolio ranked by weight and then how it’s done over the past day, how each name has done over the past day, week, month, quarter, six months, a year.

[00:31:50] Barry Ritholtz: What about the reverse? When something’s working out, do you pyramid and add to the position as it runs?

[00:31:56] Bill Miller IV: It depends. So we just, you know, I know you don’t like to talk about short-term stuff and market-related things, but we just eliminated our Google position a few days ago. So we, I mean, that had a great 2025. And we actually got the investment thesis right. Hopefully we got the exit right. But the thesis there was, okay, here’s Google. This should be a huge AI winner. Everyone was concerned about their search business at the time and AI replacing search. And our position was, hold on, this trades at a massive discount to the Mag Seven. It trades at a discount to the market on an earnings and cash flow basis. Yet it has all the distribution mechanisms for AI. They’re in seven out of 10 phones globally, and all the technology capability to implement AI. I mean, they’re a giant tech brain trust. And they had a ton of funding to build it with. And YouTube, Waymo, all these other insane businesses, and it was trading at a discount to the market. It just didn’t make any sense. So we bought that. That’s probably fairly valued today. And obviously one of the classic mistakes is selling things too early. Could it continue to compound? Yes. But if you look at why the whole Mag Seven hyperscalers have done so well over the past two to three years, the answer has been number one, growing faster than everything else, and number two, they’ve got these huge incremental free cash flow margins. But if you look at what’s been going on recently, they don’t really have big incremental free cash flow margins anymore because they’re dumping so much money into the AI space that there really is no free cash flow. And now you’re betting on it materializing down the line.

[00:33:47] Barry Ritholtz: So where do you take the other side on the AI situation?

[00:33:51] Bill Miller IV: You know, if you actually look at the dollars required to be found in revenues five years out, they’re so substantial that number one, they’re bigger than the entire software-as-a-service business right now globally around the world. And number two, the total revenues that are required to justify all the investment that’s gone in is bigger than the combined revenue of the Mag Seven today. And those companies have been scaling for 30 to 40, 50 years in some cases. And so you gotta find that in five years to make all this investment worth it. And if you think about the structural way it works, it’s all this CapEx investment upfront, and then it’s very little marginal cost. So you potentially have a race to the bottom on pricing on the top line in a few years as well. So that gives us a little bit of pause, whether or not it’s right, who knows?

[00:34:47] Barry Ritholtz: So what I’m hearing is that there’s a probabilistic quantitative discipline. You’re looking at value, you’re looking at growth rate, you’re looking at risk, combined with a qualitative judgment about management and specific industry. And whether these moonshots are gonna pay off or not. How do you balance between the squishy qualitative side and the more quantitative, mathematical side?

[00:35:13] Bill Miller IV: Well, I think there always has to be a quantitative value perspective in anything we’re buying and thinking about, often from a total addressable market perspective versus the current valuation. One of the big themes for us also is alignment. So we wanna see managers actually using their capital. So it’s capital allocation and alignment. Are they using their capital in ways that align with our view of the stock? Are they buying back a lot of shares if it’s mispriced? Hopefully, yes. Are they aligned with you as a manager of the company? Principal-agent conflict is one of the biggest sources of value destruction you can possibly imagine. And so that’s important to us. As managers, we are the biggest investors in our own funds as well, so we think that’s important.

[00:36:04] Barry Ritholtz: Oh, really? Very interesting.

[00:36:06] Bill Miller IV: Yeah. But it’s a first-principles-based approach. One of the things we pay special attention to, I think more so than most, and can be opportunistic about moving on, is insider activity. So when you see a big insider buy, if you can then reverse engineer a quantitative value perspective into that insider buy, that makes a lot of sense. That can be a really compelling signal.

[00:36:30] Barry Ritholtz: I just saw a big Wall Street Journal piece on, do insider buys indicate future performance? And I saved it. I haven’t read it yet. What’s your take? The assumption is, there’s a million reasons to sell a stock if you need liquidity, there’s only one reason to buy a stock. Do you stay with that conclusion?

[00:36:51] Bill Miller IV: Insider buying is indicative of positive things to come. I think it’s a potentially high-signal source of information. In the aggregate, does it necessarily guarantee it? No. But if you can contextualize and say, okay, this CEO is really smart, he’s done this sort of thing in the past, he has a plan for this company, here’s what it’s looking like, and he just put a huge amount of personal capital in. That can be a really good signal.

[00:37:19] Barry Ritholtz: So it’s not binary. There are other factors that have to be considered. It’s a little more nuanced than the way we typically think of it. Context matters. Always really interesting. Coming up, we continue our conversation with Bill Miller IV, Chief Investment Officer at Miller Value Fund, talking about today’s market environment. I’m Barry Ritholtz. You’re listening to Masters in Business on Bloomberg Radio.

[00:37:47] Barry Ritholtz: I am Barry Ritholtz. You’re listening to Masters in Business on Bloomberg Radio, or watching us on YouTube Television. I’m speaking with Bill Miller IV. He’s Miller Value Fund’s Chief Investment Officer and portfolio manager. He works with his father, Bill Miller III, the famous value investor. So let’s talk about what’s going on in the current environment. If you look at today’s markets, where do you see things that are very much mispriced, either by asset class, sector, geography, factor — what’s out there that’s not fully priced, or what’s out there that’s overpriced?

[00:38:25] Bill Miller IV: Yeah, I think aspects of the current environment remind us of 1999. So you’ve had a narrative-driven performance led by AI. A very narrow market for the most part with Mag Seven leading, huge returns to the momentum factor last year. But then if you look at the actual macroeconomic backdrop, you’re seeing deregulation, you’re seeing weaker dollar, and you’re seeing economic acceleration potentially in the US. And so when you think about all those things combined, and you look at what happened between 1999-2000 all the way until ’06-’07, you had the market go effectively nowhere for seven years. I mean, it went down and bounced around. Because I think valuation heading into that period was very high. But what did really well during that period? Actually, small- and mid-cap value. And if you look at the relative valuation discrepancies today between SMID value and large growth, they’re right at the same sort of extremes that occurred in 1999. And so you have the same valuation extremes. You have compelling valuations in a lot of the small-cap, mid-cap value space, and you have an economic acceleration backdrop. So that means that a lot of more cyclically oriented things, value-oriented names that care more about what’s going on in the economy, there’s a much lower hurdle rate for those guys to exceed the expectations embedded in the valuations over the next five to seven years than there are in the massive AI space.

[00:39:59] Barry Ritholtz: So let’s talk a little bit about small- and mid-cap value. Last year, 2025, we only saw two of the seven Mag Seven outperform the S&P 500, which tends to suggest, hey, maybe this is broadening out. We’re gonna see more mid-caps and more small-caps. The value skeptics are gonna say, hey, we’ve had so many false starts in value. It’s been 15 years of growth winning. How do you respond to that?

[00:40:25] Bill Miller IV: Yeah, I think that those snapbacks can be violent. We actually had one of our research providers recently called mid-cap value a quote-unquote inferior asset class. I mean, that sounds like capitulation to me. There’s a lot of unloved stuff out there.

[00:40:42] Barry Ritholtz: That’s really interesting. So energy? What sectors?

[00:40:45] Bill Miller IV: Yeah, energy’s interesting to me right now. You know, if you look at its weight in the market, it’s three or four percent. But if you look at its free cash flow contribution over the next year to the market, it’s gonna be 10 to 12% most likely.

[00:41:02] Barry Ritholtz: What’s that historic relationship look like?

[00:41:04] Bill Miller IV: I don’t know if it’s that large to be honest, that gap. And so, you know, energy’s unloved. It’s underperformed for so long. It’s not the best industry from a capital allocation alignment perspective, but it’s gotten a lot better over the past few years and I think you could see those types of stocks do really well. You know, sadly I do think it’s a really cheap call option on global strife right now. Energy prices, they’re bouncing pretty close to the marginal cost of production.

[00:41:36] Barry Ritholtz: Which is shocking when you think about Russia and Ukraine and Gaza and Israel and what’s going on in Venezuela and who knows what’s gonna happen. By the time this comes out, we can own Greenland. So given all of that, what does it mean to see, despite all this geopolitical turmoil, energy prices are almost reasonable?

[00:41:57] Bill Miller IV: Yeah, they are. They’ve started to turn up and energy’s done well over the past few weeks. It could continue to do really well. So that’s why we’re overweight energy.

[00:42:08] Barry Ritholtz: What other sectors do you like?

[00:42:10] Bill Miller IV: You know, financials, we’re still overweight. I think you’re gonna continue to see curve steepening and that should be decent earnings growth in those. I think utilities are finally attractively valued again at 10 to 13 times earnings in a lot of cases with very clear growth pathways. And I’d say little risk. We don’t have enough energy in the country and utilities are pretty attractive here, especially as AI and data centers continue to come online.

[00:42:40] Barry Ritholtz: You take very concentrated positions, at least compared to traditional value managers. How do you position-size these? Is this just strictly a function of, hey, we’re not closet indexers. We have a high active share, and when we have high conviction, we really go all in? To follow the poker analogy?

[00:43:00] Bill Miller IV: Yeah, that’s a good way of putting it. I mean, if you consider that most stocks underperform the index for their lifetime in it, it’s an interesting exercise to come at it from the entire other side and just say, okay, what are the 10 to 15 names that you think have the highest probability of actually outperforming? Instead of what most active managers do, which is they have these risk constraints and they can only overweight certain sectors a little bit. The closer you are to the benchmark, the more likely you are to underperform it, ’cause you’re just layering higher fees on something that looks more like the benchmark. So we’re very comfortable taking bets entirely outside of the index with the obvious caveat that there’re gonna be periods when we’re gonna underperform meaningfully, just ’cause we’re taking entirely different risks. And there’ll be some periods where we outperform by a lot. So I think that’s really the only way to do it, is to not be a closet indexer. And you have to match the investment process to your IP. For us, thinking that the edge is on the 37th page of the Excel spreadsheet’s just not realistic. If you’re Fidelity and you got a guy that’s been following a certain industry for a long period of time and really understands the nuances of every single company and what could change, that might make sense, but it just depends on what you’re trying to do, and you have to match up those two things.

[00:44:35] Barry Ritholtz: So we’ve been kind of dancing around AI throughout this conversation, so let’s talk about that a little bit. Are you thinking of AI as its own investment entity? Are you thinking of it as disrupting traditional business models? Are you thinking of other businesses, forget the Mag Seven, the Mag 493, as being the beneficiaries of AI to be more productive, efficient, profitable? How are you thinking about AI as an investor?

[00:45:03] Bill Miller IV: I think it’s all of those things. Yeah, it’s all those things. I use it all day every day.

[00:45:09] Barry Ritholtz: How do you use AI throughout the day for your process, both for selecting investments and just managing a large investment firm?

[00:45:18] Bill Miller IV: Well, it’s an enormous time saver, and it’s not necessarily always a time saver on the investment front, although it often is. It can just be a time saver personally. Like if you have an interpersonal issue that is weighing on you, sometimes you just throw it into AI and you get a better answer than you could’ve gotten from asking your three closest friends and move on. So if you’re thinking in units of time, it’s a huge time saver for me personally. I think a lot of life is about asking the right questions, and you got a pretty good set of answers there, or method for answering questions. You pointed out earlier it can be wrong often, and you have to consider that, but it’s got a lot of good perspectives in there that can bring to bear on a lot of different things.

[00:46:09] Barry Ritholtz: So what tools do you use? What’s your favorite AI at the moment?

[00:46:13] Bill Miller IV: We have ChatGPT and Gemini going for business, both for business. And then we’re also adding Claude here soon. I just put Claude on a couple of desktops and a laptop. And the coding side of it is really fascinating. And I can see why people are concerned that this could replace certain, at least menial kind of work, grinding work. Like, oh, it does this so much faster and better than I could ever grind out on my own. Yeah, Claude, especially Claude Pro, it’s really kind of impressive. And the question is, is $200 a month a lot? Is that not a lot? Is that a fair price?

[00:46:51] Barry Ritholtz: I think it sounds like a lot of money compared to, what is Perplexity, 20 bucks a month? That seems like practically free for that much power. So you’re using it everywhere.

[00:47:02] Bill Miller IV: Yeah.

[00:47:03] Barry Ritholtz: What are you hearing from your peers? Is this the sort of thing that everybody has gone all in on? Is the fear, hey, if we don’t do this, our competitors are, so we better step up?

[00:47:15] Bill Miller IV: I don’t know if it’s fear just as much as the ability to cover so much more ground in the same amount of time or less. You know, it’s just a super powerful technology and we use it a lot.

[00:47:27] Barry Ritholtz: Really interesting. So I wanted to get to this question. We’re talking about the current environment. AI is obviously a game changer, but we’ve gone through a few decades of major regime changes. We had the era of monetary policy and then starting in 2020, we’ve had the era of fiscal policy. When you’re looking at central banks and the government, higher for longer, zero interest rates, all these different things, how do these geopolitical variables affect how you think about putting capital to work? How you think about risk?

[00:48:02] Bill Miller IV: Well, I think one really big-picture change, going back over the past decade to today, is coming out of the financial crisis, capital effectively had no cost. I mean, you saw the insane amount of money printing that occurred, but that’s because that was to offset a huge hole in CapEx that had gone into housing that wasn’t necessarily needed. And we had to work that out from a supply-demand perspective. And we’ve now done that. But if you go back and read what the Fed said, there was a study that came out of the San Francisco Fed where they used computers to look at the language that was used in meetings about how to set rates. And what they found was that the 2% inflation number that’s the bogey was supposed to be a symmetrical goal. It wasn’t symmetrical at all the way they were setting rates between roughly 2010 and 2020. And so that has an enormous implication for the way all kinds of different assets perform. And I think that’s why massive growth had the run it did over the past decade. ‘Cause when capital has no cost, you’re willing to look out a huge distance.

[00:49:13] Barry Ritholtz: Embrace more risk. ‘Cause what are you gonna get? One-and-a-half, 2%? It doesn’t make sense otherwise.

[00:49:20] Bill Miller IV: Exactly. And so that’s why huge growth had the run it did, ’cause capital had no opportunity cost. And now if you look at where we are with mortgages at 6% and capital actually has a cost again, it has major implications for the kinds of assets that are likely to do well in the future. And it comes back to the whole theme we talked about earlier around SMID value cap, more capital-intensive things potentially having a better decade now that capital has a cost again.

[00:49:51] Barry Ritholtz: Let me share a favorite factoid with you. Former Fed Vice Chair Roger Ferguson wrote a white paper on the origination of the 2% target. And he traced it back to some random television interview in the 1980s in New Zealand where someone threw out 2% and that was it. It just magically stuck. And you can find that paper online. It’s pretty hilarious. It’s just such a random number. There’s no underlying thesis for why it’s two and not three or one.

[00:50:21] Bill Miller IV: Yeah, it just seems like, that sounds about right. Well, I think it’s gotta actually be higher than that if you think about it, because certainly in an era of fiscal rather than monetary stimulus, you’re gonna inherently have higher prices.

[00:50:37] Barry Ritholtz: Well, I mean, if you think about the fact that most consumers’ overwhelming savings vehicle is their home. What’s the blended rate on mortgages right now in the system?

[00:50:48] Bill Miller IV: Four and a half.

[00:50:49] Barry Ritholtz: Yeah. Well, half the individually owned homes, there are no mortgages. And the remaining half, it’s a crazy set of numbers of two-and-a-half, three, three-and-a-half, four. Everybody was smart, locked in a fixed rate before the pandemic.

[00:51:04] Bill Miller IV: Well, so if house prices in the aggregate don’t appreciate by more than that interest rate, people are going broke in their primary savings vehicle. So housing actually does need to increase in value over a long period of time or people slowly go broke. So I think that 2%, I know it was thrown out there, but I think it actually has to be higher over the long term to kind of make the math work for most people.

[00:51:32] Barry Ritholtz: I couldn’t agree more. Alright. I only have you for a limited amount of time. Let’s jump to our favorite questions, some of which I know the answers to. Starting with, who are your mentors who helped shape your career?

[00:51:46] Bill Miller IV: Wow. So Mr. Keeney was my dad’s original business partner, and he’s a fascinating human. Worked until the day he died, I think 92. An incredibly nice human being. I don’t think he ever said a bad word about anyone. One of the things that was so interesting to me about Mr. Keeney is he didn’t start his career at Legg Mason in research until he was 50. So a lot of young people think, oh, here I am locked in this career. Oh, there’s always time to switch. And then he hopped over at 50 to start this role where he had a prolific career and influenced a lot of people and did that for 40-something years. So he was a very smart guy. Generous to a fault. One of my favorite stories about him: him and my dad were heading out for lunch one day, downtown Baltimore. And a homeless person comes up and starts with the story. I haven’t eaten in this many days, and blah, blah, blah. And Mr. Keeney sits there listening to it, and he gets out his wallet and he gives her, I think it was like a $50 bill. And he says, oh ma’am, here, just go get yourself some hot soup. Take care of yourself. And she looks at it, she looks back at him, she looks at it. She goes, the hell with soup, I’m gonna get me some whiskey.

[00:53:06] Barry Ritholtz: That’s a great story.

[00:53:07] Bill Miller IV: So he was incredibly generous. A human being who contributed a lot to animal welfare stuff. I’m a big believer in animal welfare causes. So he was an influence on me. I can also think of a handful of times from business school that, not necessarily an individual mentor, but just one-liners from business school that I remember over the years. So that line I gave you earlier about Ken French and how long it takes for a manager to prove whether or not his work is statistically valuable or not. The other one-liner he told us is never pay a load for a mutual fund. He said, if there’s one thing you take away from my class, it’s never pay a load on an investment fund.

[00:53:51] Barry Ritholtz: And that’s certainly still true today. Let’s talk about books. What are some of your favorites? What are you reading right now?

[00:53:59] Bill Miller IV: Right now I’m reading a book called The Mattering Instinct, by, I think it’s Rebecca Goldstein. But it’s a fascinating book on the mattering instinct. And it’s about people’s desire to matter and what that means. So there’s a lot of psychology in it. There’s a lot of philosophy in it. The basic premise is that we’re all just trying to overcome entropy. The tendency for disorder and systems to increase and we’re all gonna die eventually.

[00:54:29] Barry Ritholtz: I was gonna say it’s a losing battle, but while we’re here.

[00:54:32] Bill Miller IV: Exactly. Well, let’s do something interesting. So that’s what I’m reading now. I just read prior to this, Let Them, the Mel Robbins book. I think it’s the best-selling book last year. And I can sum that one up pretty succinctly. It’s focus on what you can control and don’t let anything else get to you.

[00:54:52] Barry Ritholtz: Sounds like good advice.

[00:54:54] Bill Miller IV: It’s good advice. And I mentioned that to my dad ’cause I was reading it and he’s like, oh, haven’t they, did you ever read Marcus Aurelius? This is Meditations. This is not a new idea. Stoicism created the idea of controlling what’s within your control 2,000 years ago.

[00:55:12] Barry Ritholtz: Exactly. And I have read that, and that’s a phenomenal book as well. It’s just good to have more modern stories that you can relate to. What’s keeping you entertained these days? What are you streaming? Either podcasts or Netflix or whatever.

[00:55:28] Bill Miller IV: That’s one of my things I don’t really do. No Netflix. I’ll watch competitive events. I’ll watch sports, I’ll watch an occasional standup comedy show, but I don’t watch the series.

[00:55:40] Barry Ritholtz: Did you see the Australian Open this year?

[00:55:42] Bill Miller IV: I did. I watched some of that. It was pretty awesome. I have the finals DVR’d. I haven’t watched it yet, but I know you’re a tennis guy.

[00:55:51] Barry Ritholtz: Yep. It’s rare to find someone who can take Djokovic and put him back on his heels.

[00:55:57] Bill Miller IV: Yeah, well the Sinner match was pretty awesome. I’m saving these, I watch ’em like months later when I get around to it. Alright, I do golf. So that’s something I’ve just started taking up. I’m terrible. I’m an 18 handicap, high-variance 18 though, so I can have some pretty good days. But it’s interesting ’cause there’s a similarity to investing in golf: you get better at golf by narrowing your misses. And I think that’s also true with investing. If you start narrowing the misses, it’s a way to get better.

[00:56:31] Barry Ritholtz: Charlie Ellis made the same argument with tennis. Most tennis players lose ’cause they make all these unforced errors. Other than the pros, most of us would be better off being less bad rather than trying to be more good, if that makes any sense.

[00:56:47] Bill Miller IV: Absolutely. You can shave a lot of strokes doing that.

[00:56:50] Barry Ritholtz: Final two questions. What sort of advice would you give to a recent college grad interested in a career in either investing or value or what have you?

[00:57:00] Bill Miller IV: Choose your dad well. That certainly helps. I love what your father said to you in terms of creating future optionality by studying and doing well in school. I’ve never quite heard it phrased that way, but that really sums up, why do I have to study algebra? Because you’re just creating optionality. Investing is about optionality and creating more options for yourself down the road. And so anytime you can invest in yourself and create additional options is a good thing to do.

[00:57:32] Barry Ritholtz: Yeah, to say the very least. And our final question. What do you know about the world of investing, valuations, portfolio management today that would’ve been useful when you were first getting started 20 years ago or so?

[00:57:46] Bill Miller IV: Well, you know, we were talking about books earlier. I personally think that the best book on personal finance is The Psychology of Money by Morgan Housel. So if you haven’t read that, anyone that gets a bank account should be required to read that and just internalize the concepts. I know if you’ve been in the industry a while, not all of it’s new, but it’s a lot of really good reminders on how you should behave to create wealth over the long term for yourself.

[00:58:17] Barry Ritholtz: Absolutely. Bill, thank you for coming in and for being so generous with your time. We have been speaking with Bill Miller the Fourth. He is the Chief Investment Officer and portfolio manager at Miller Value Funds. If you enjoy this conversation, well, check out any of the 600 we’ve done over the past 12 years. You can find those wherever you find your favorite podcasts: iTunes, Spotify, Bloomberg, YouTube. I would be remiss if I didn’t thank the correct team that helps put these conversations together each week. I’m Barry Ritholtz. You’ve been listening to Masters in Business on Bloomberg Radio.

~~~

The post Transcript: Bill Miller IV, CIO, PM, Miller Value Fund appeared first on The Big Picture.

My guest on today's podcast is Justin Brownlee. Justin is the founder of Brownlee Wealth Management, an RIA based in Houston, Texas, that oversees approximately $500 million in assets under management for 75 client households.

What's unique about Justin, though, is how he has grown his firm rapidly in part through targeted outreach and content on LinkedIn for his ideal target clients.

In this episode, we talk in-depth about how Justin initially created blog content (and eventually a podcast) on financial planning issues specifically for his target audience of oil and gas professionals (which provided significant material to post on LinkedIn), why Justin focused building his LinkedIn network to include individuals in the oil and gas industry (often looking for individuals working at target companies) rather than adding professional colleagues and friends to better target his posts (and those who engage with them) to his niche, and how Justin found that success on LinkedIn wasn't necessarily a matter of getting more engagement in terms of total reach, but rather better engagement from his target audience (with one post that was only applicable to 10 to 15 people generating four new clients).

We also talk about how Justin emphasizes revenue per client as a key metric in order to continue to profitably provide high-touch service (with six total employees serving the firm's 75 client households), how Justin includes tax preparation in his service offering for clients (and how he decided to use an external CPA firm to prepare client returns rather than handling them in house), and how Justin finds that his firm's fixed fee approach is both appealing to his high-net-worth clients (who appreciate its clarity and often lower price point than common AUM structures) and to his firm (as clients often bring in a higher percentage of their assets than they might under an AUM model).

And be certain to listen to the end, where Justin shares how he decided to start a firm in the first place (and the financial risks he and his family took to do so), how Justin decided to add a partner (who also serves as the firm's chief operating officer) early on as he began to gain traction with clients, and how Justin has found that being relentlessly positive has been crucial to surviving the ups and downs that come with starting and running a financial planning business.

So, whether you're interested in learning about using LinkedIn to target good-fit prospects, the metrics that can lead to profitability for a high-touch firm, or using a fixed fee approach that provides benefits for both the firm and its clients, then we hope you enjoy this episode of the Financial Advisor Success podcast, with Justin Brownlee.

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In this article, Senior Financial Planning Nerd Sydney Squires discusses how to select an assessment that surfaces the team's needs… and how to use results to inform strategic decisions that actually make a difference for team satisfaction, productivity, and retention. Kitces Research on Advisor Wellbeing underscores that high job satisfaction is not just about the firm culture and vision… but also how the day-to-day feels. Team members who feel effective and engaged in their work are far more likely to avoid burnout and remain in their roles in the long term!

Not all assessments, however, are equally useful in practice. The most effective tools are psychometrically sound (i.e., producing consistent results), contrastable (able to show clear differences between individuals), and focused (avoiding overcomplication). They offer nuanced insights – avoiding false dichotomies like introvert versus extrovert – and resonate with the individuals being assessed. The most valuable assessments fall into two categories: communication style tools, which help teams navigate interpersonal dynamics; and aptitude tools, which clarify how individuals approach work tasks. Assessments like Insights Discovery, CliftonStrengths, Kolbe A Index, and Working Genius are especially well-suited for advisory teams, offering practical frameworks for workload allocation, role fit, and collaboration strategies.

Advisory firms benefit most when assessments are tied to a specific goal – such as improving communication or refining role fit – and followed by structured team conversations. These debriefs create opportunities for reflection and honest dialogue, helping team members understand their results, identify potential conflicts or synergies, and begin to articulate how their roles might better reflect their strengths. The most fruitful discussions happen not when assessments are used to box people in, but when they spark curiosity and collaborative problem-solving about how work gets done. In the long term, assessments can also be used in one-on-one conversations to evaluate seat fit. Sometimes, it can be difficult to 'admit to' or talk about friction in a role, but using assessments as a starting point can provide a helpful point of entry to highlight (potential) gaps between an employee's ideal and current role.

Ultimately, the real power of personality assessments lies not in the test results themselves, but in how those insights are applied. Used strategically, assessments can help managers diagnose sources of team friction, support more satisfying role design, and even inform smarter hiring decisions by identifying where gaps exist within the current team's mix of strengths. Most importantly, they create a common vocabulary for discussing the otherwise intangible elements of work – like communication, energy, and motivation – that drive both individual and firm-wide success. When woven into the rhythm of firm operations, assessments become not just a tool for understanding people, but a lever for unlocking better performance, stronger engagement, and more durable advisory teams.

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This week, I speak with Bill Miller IV, Chief Investment Officer and the Portfolio Manager for the Miller Value Fund about his start in investing. We discuss the rise of bitcoin, and how it may mirror technology in general. We also discuss his firm’s approach to high concentration and conviction investing.

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

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

Be sure to check out our Masters in Business next week with Judd Kessler, the Howard Marks Endowed Professor at the Wharton School of the University of Pennsylvania. The winner of the Vernon L. Smith Ascending Scholar Prize,he is the author of is Lucky by Design The Hidden Economics You Need to Get More of What You Want.

Current Reading/Favorite Books

The post MiB: Bill Miller IV, CIO, PM, Miller Value Fund appeared first on The Big Picture.

Also in industry news this week:

• A report from fee-for-service payment processor AdvicePay finds that subscription charges remain dominant amongst advisors using its service, with average fees charged climbing over the past year
• Client retention is advisory firms' top marketing objective this year, according to a recent survey, as firms look to both hold on to current clients and encourage them to make more referrals

From there, we have several articles on retirement planning:

• An analysis of a range of retirement income strategies identifies those that lead to the most consistent annual income throughout an individual's retirement
• How the way income is generated from a portfolio in retirement can be influenced by the composition of a retiree's spending (and the other sources of income available to them)
• How the timing of different income sources (e.g., Social Security benefits) can call for different approaches to evaluating risk and generating income during different stages of retirement

We also have a number of articles on investment planning:

• An analysis of historical oil price trends and stock market returns indicates that higher oil prices don't necessarily lead to weaker stock market returns going forward
• A look at previous oil shocks suggests that the length and size of oil price shocks are key factors determining whether a subsequent stock market downturn might occur
• How higher oil prices can flow through to the broader economy (and the factors that help determine whether elevated oil prices might tip the economy into recession)

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

• New business applications were up 37% in January, suggesting that some workers are taking matters into their own hands amidst speculation about future AI-related job losses
• How an influx of private equity capital is reshaping the skilled trades industry for business owners, employees, and consumers
• Why avoiding the pitfalls of "entrepreneurial seizure" is important for employees who decide they want to start their own business (but might not recognize how running a business is different than working for one)

Enjoy the 'light' reading!

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At the Money: Divorce Planning for the Ultra Wealthy (March 18, 2026)

DESCRIPTION:   Divorce is difficult under the best of circumstances, but when the uber wealthy split up, the complexities and potential missteps are even greater. And it’s not just because there are a few extra zeroes at the end of each number.

Full transcript below.

~~~

About this week’s guest:

Patrick Kilbane is General Counsel of the RIA Ullman Wealth Partners, where he leads the Divorce Advisory Group. In addition to his years as a divorce attorney, he is also a Certified Divorce Financial Analyst (CFDA) and Wealth Advisor at the firm.

For more info, see:

Professional Bio

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:

Intro: You’re a rich girl, and you’ve gone too far
‘Cause you know it don’t matter anyway
You can rely on the old man’s money
You can rely on the old man’s money

Barry Ritholtz: Half of all marriages end in divorce. That’s just as true for the ultra wealthy and celebrities as it is for the rest of us. Jeff Bezos, Bill Gates, Kanye West, David Geffen. What happens when there are billions to divide?

I’m Barry Ritholtz, and on today’s edition of At the Money, we are gonna discuss the finances of divorce for the ultra wealthy. And full disclosure, I am not a billionaire and I remain happily married for 33 years.

To help us unpack all of this and what it means for your portfolio, let’s bring in Patrick Kilbane. He works at Oman Wealth Partners, where he is a CFP and General Counsel. He leads the Firm Divorce Advisory Group.

Patrick, the old joke is true. The wealthy are different than us, they have more money. All kidding aside, just how different are billionaire or celebrity divorces from the run of the mill splits?

Patrick Kilbane: Believe it or not, celebrity divorces and billionaire divorces are not all that different. They may have more assets, more zeros in the bank account, more complicated assets. But what you really gotta do is you gotta take a step back and you gotta figure out what you’re dealing with.

And then the biggest difference, I think, between a celebrity or a billionaire divorce versus the run-of-the-mill divorce is the privacy issues that go along with that. And we can unpack that a little bit more, but I think that’s a big non-financial issue that we’re dealing with in those cases.

Barry Ritholtz: So you’re talking NDAs and things along those lines for everybody involved?

Patrick Kilbane: NDAs and depending on what state you’re actually getting divorced in, there’s open government and sunshine laws that can get access to the divorce files.

One of the things that I enjoy working on the higher net worth and higher profile divorces is most of the time both parties to that case are very cognizant of that issue. So what we tend to do is we work very collaboratively and get everything settled and valued and tied up nice and neatly.

We are constantly thinking about how to keep away from the press.

 Barry Ritholtz: We mentioned people with a lot of zeros on their net worth. When you have ultra-high net worth couples splitting, are the mistakes that they make more or less the same as what we see in normal divorces? Or are there things that happen that are really problematic and potentially not reversible?

Patrick Kilbane: They are the same. The problem is a 1% tax mistake in your case or my case is magnified tremendously in that billionaire divorce case. The mistakes are the same. The consequences are tremendously more consequential in that type of case.

What I found in these higher net worth cases, generally, a young couple who starts making and earning and accumulating significant assets, they start doing what I call estate planning 2.0 or estate planning 3.0.

As I tell everybody, there’s two types of money problems, too much and not enough. And these people have the too much problem. So they have very complicated estate plans that are designed to not be busted apart.

This is a couple that’s been married 35, 40 years. They have SLATs and GRATs and QPRTs and these complicated estate vehicles. Well, okay, how do we separate them? What are the tax consequences as a result of separating or blowing apart that estate plan? And do we really want to do that?

Barry Ritholtz: I was out with a couple of guys right before the holidays. One of them was divorced, and another person at the table said, “Gee, I wish I could afford to get divorced.” That’s the too little money as opposed to too much money.

But let’s talk about the too much money. A lot of assets are not liquid. The headline value looks like it’s really big. How do you figure out the difference between what something appears, the liquidity factors, and then of course you end up either with a concentrated position or a tax headache, if there’s a liquidity event and sale for the divorce. How do you navigate those areas?

Patrick Kilbane: Let’s think back to the financial crisis. 2009, 2010. The late Elaine Wynn and Steve Wynn were getting a divorce and we think of Steve and Elaine Wynn, and we think about people that have tons of cash, cash flows, and no problem.

The Wynns had to liquidate shares of Wynn Resorts to free up money for their divorce case. So if Steve and Elaine Wynn have to sell assets from a liquidity standpoint in a divorce case, you can imagine that other business owners may have to do the same thing. And then, like you said, maybe the couples are going through a business sale or there’s some other liquidity event.

The great thing about these cases is generally people are motivated together to reduce tax liabilities and work together to maximize the size of the pie. And I think again, in the billionaire celebrity divorce case, there’s more motivation from both sides to do that.

Barry Ritholtz: What do you do with things that are kind of hard to put a dollar number on? Carried interest, RSUs, restricted stock, even deferred comp options. How do you navigate that?

Patrick Kilbane: There are all sorts of other professionals that are experts in placing a value on that.

You gotta step back and say, okay, what are my goals and what are my estranged spouse’s goals? So all of the contingent assets that you just rattled off, they have some sort of expectation that you’re still gonna have to be linked together for some period of time in order to realize those assets. And maybe the person who’s employed and is compensated in those alternative ways, they may not want to have their former spouse contacting their human resources department or their executive compensation department.

Then the question becomes, do we have enough liquidity to buy that person out? What sort of risk premium are we assigning on carry that may actually not materialize? Are these assets deferred? Are they qualified? Are they non-qualified? What sort of growth rate do we model? When we’re coming up with that, do we think that growth rate is fair?  If we don’t, then do we just say, okay, fine, I’m gonna roll the dice and I’m gonna ride along and see what happens with the carry and whether it materializes or not.

And then I think history is a good place to look to too. If we’ve been married for a significant amount of time, how have previous iterations of the funds done and how comfortable do I feel about carry actually being there.

Barry Ritholtz: You mentioned outside experts. How do you, as the advisor, coordinate with outside lawyers, accountants, and estate attorneys? You’re sort of trying to make sure the client isn’t stuck as a project manager as they’re undergoing this very emotional experience.

Patrick Kilbane: It’s not fair for the client to be the project manager. They’re the ones who are leaning on professional advice and having litigated for nearly a decade, I generally know all of the best of breed divorce lawyers in the area, and I’ll lean on law school classmates to find the best of breed divorce lawyers all over the country. And the divorce lawyer is going to be the quarterback. I think it’s very important to understand where the divorce is actually taking place.

So you can have a great expert witness, but if that expert witness is not known to the judge or they’re just simply not able to communicate their work product and make the court understand what’s going on, then they’re not a very good expert.

You really have to know where you’re at, know the experts that have significant experience doing this type of work. And then if that expert is well known to the court and to the opposing parties, and they do sort of a B-plus job, then maybe we need to sort of backstop them with that national expert that is really, really precise and really refined, that can help out.

I said this to a client the other day. I’m sort of the offensive coordinator. I know enough to be dangerous, but I’m not in the business of giving out legal advice. If I wanted to do that, I would still be an advocate. But we work together. I make suggestions. The head coach, the lawyer, has gotta be the one who ultimately implements the plan.

Barry Ritholtz: I mentioned in our introduction, Jeff Bezos and Bill Gates. It raises the question when you have highly appreciated founder stock at a very low-cost basis, and then all of the capital gains that come with getting liquid with that.

When I look at folks like Larry Ellison or Bezos or Gates, they’ve let it run for so long. What we saw with Gates is he literally, I think, just this week, there was an $8 billion transfer of Microsoft stock before the sell-off to the Melinda Gates Foundation.

What are best practices with dealing with things like founder stock at a really low cost basis?

Patrick Kilbane: You hit on one of the strategies right away. If philanthropy or charitable giving is part of the equation, then we bring in an expert in talking about, if a charitable foundation isn’t set up, what’s the best way to maximize a gift to charity. And you hit the nail on the head. Donating appreciated stock to the charity, to a charitable foundation, to a donor-advised fund is certainly a way to do that because, as you know, you get the market value for the contribution of the stock. You don’t have to worry about the capital gains tax, nor does the charity. Everybody wins.

 Barry Ritholtz: We saw that with Bezos, his wife also, right? A big chunk of Amazon stock went into her philanthropy. What do you do when it’s not a public company? What do you do when you have a highly valued private company? Things like tangible book value and goodwill. They’re so squishy. How do you put a dollar value on that?

 Patrick Kilbane: Sure. We’ll oftentimes bring in expert witnesses at valuing those privately held companies, and as you and I talked before the taping Barry, there’s two components to the value of a business. There’s the tangible assets and the goodwill. Well, in the context of a divorce case, we have to drill down into the goodwill and we have to say, alright, what component of the goodwill is the enterprise goodwill?

And then what component of the goodwill is attributable to the marital litigant? So let me give you an example. Let’s say there’s Barry Ritholtz Insurance Agency, or there’s State Farm Insurance where Barry Ritholtz is the registered agent. So if I live in some proximity to the State Farm office where Barry’s the registered agent, maybe I’m going there because I know Barry, but more likely than not, I’m going there because of the brand State Farm. So there’s more enterprise goodwill there. But if I’m going to the Ritholtz property and casualty insurance up the street, it’s probably because I rode the train to the city with Barry, maybe Barry sponsored the little league baseball team, Barry was referred to me by somebody else that you helped who needed those products. So those are the issues that we have to get into.

And on my team, you and I and your listeners know how significant small businesses are to the American economy. Well, in the higher net worth cases, a lot of these families have small businesses. It’s the biggest asset in the divorce case. So I found my business partner, Caitlin, she was working at a business brokerage firm. And I thought, man, this woman has great credentials, great presence. She has that business valuation expertise. So on my team, I have somebody who came from the valuation world to help the lawyers and our clients spot those business valuation issues because they are so essential to the divorce case.

Barry Ritholtz: Since we’re talking about ultra high net worth potential divorces, one of the things I was thinking about was liability protection. A lot of these families have umbrella policies. They have very specific lawsuits and potential liability they’re trying to shield themselves from. How do you manage that throughout a divorce process?

Patrick Kilbane: I mean, that’s probably the most important question that you’ve asked me. We can divide, we can design the best portfolio, have a great asset allocation, have strategy to redeem company stock and dilute concentrated positions. But if you don’t have the right protection in place, if you don’t have an umbrella policy, if you don’t have an umbrella policy that is taking into consideration uninsured motorists. And I’m gonna even back up before we even get to insurance and look at how assets are titled.

I live in Florida and Florida is one of the jurisdictions in the country where you can hold property as tenants by the entirety. And most of the other jurisdictions you can hold property as joint tenants with right of survivorship, and I don’t wanna make this a law class, but tenants by the entirety means that you and your spouse own an undivided 100% interest in that asset. Joint tenants with right of survivorship means that Barry and his wife each own 50%. So if you’re a tortfeasor and you don’t have an umbrella policy, I can go after 50% of your brokerage account, but if you hold it as tenants by the entirety, then you and your wife have to be the tortfeasor for me to try to go after those assets.

What about titling cars? How many advisors are looking at how their clients title their car? I’m dealing with a case right now where somebody that I know was killed by a 16-year-old motorist. Well, the insurance companies are smart. They don’t wanna just title the car in the kid’s name, right. They’ll charge a higher premium to make sure that either mom and or dad is also on the title. So they can have mom and dad’s assets be used to satisfy a judgment. So these are all the things that I try to help people look at and say, hey, look, just by the way you title your assets, you can shield yourself from a potential liability.

Barry Ritholtz: What are your thoughts on finding hidden assets, and not just Swiss bank accounts, but other ownership of companies, of real estate, of what have you that perhaps one of the spouses is not fully aware of?

Patrick Kilbane: Right? That’s why tax returns and corporate tax returns and following the money and watching where it goes is so significant. Most of the time, one spouse trusts the other spouse or has no dealings whatsoever with what’s going on at work and the business accounts and so on and so forth.

It’s really important. You talked about big money mistakes before. Before you agree to a settlement, get a CPA to help you sit down and take a look at the tax returns and see how the money’s flowing. Generally there are things on there that raise significant red flags, which may make you wanna pause and say, okay, I need to take a look at this. I need to look at the corporate bank accounts. How are these retained earnings consistent with other businesses in the same industry? Is this too much? Did the salary significantly change? Did distributions significantly change? How have the historical expenses changed right around the time that the divorce was starting to bubble to the surface?

Barry Ritholtz: So to wrap up, billionaire divorces aren’t all that different from run-of-the-mill divorces. Sure, there are a couple more zeros at the end of the asset list and some complications, but generally speaking, the risks, the boxes you wanna check and the other issues that you’re gonna run through aren’t all that different from traditional divorces.

I’m Barry Ritholtz. You are listening to Bloomberg’s At the Money.

~~~

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

The post At the Money: Billionaire Divorce Planning appeared first on The Big Picture.

In this 186th episode of Kitces & Carl, Michael Kitces and client communication expert Carl Richards discuss the tension between the deep, transformative work advisors offer and the initial (transactional) problems that bring clients to advisors in the first place.

A powerful illustration of this disconnect emerges when advisors reflect on clients’ emotional responses to money itself. A client who associates money with childhood instability or parental conflict may react viscerally to financial conversations in ways that seem disproportionate on the surface. Nearly every advisor would agree that understanding this backstory is critically important to serving the client well. Yet few firms have a clearly defined, systematic way to uncover such information with existing clients – let alone explain it as a value proposition with new ones! This capacity to hold space during life transitions – divorce, widowhood, retirement, liquidity events, health crises – is where trust deepens and relationships transform. These are the moments that create lifelong clients and enthusiastic referrers, yet the client themselves may struggle to articulate exactly what the advisor did and why it was so valuable.

The marketing dilemma, then, is how to communicate this deeper value without resorting to clichés like "peace of mind" or abstract promises of transformation. Rather than leading with lofty language about purpose or self-transcendence, advisors can meet prospects where they are by addressing the concrete problems they expect to solve while subtly demonstrating the broader journey through storytelling. Sharing anonymized narratives about real client conversations and experiences allows advisors to show, rather than declare, the deeper levels of their work. These stories function as an upstream filter, attracting clients who resonate with a more meaningful engagement while still honoring the practical entry points that bring them in the door.

Ultimately, the profession’s highest value may not lie in spreadsheets or portfolios, but in guiding clients through the intersection of money and meaning. Advisors need not abandon technical excellence or overtly market "self-transcendence" to fulfill this role. Instead, by competently solving the presenting problem while remaining attentive to the emotional undercurrents that surface along the way – and by thoughtfully sharing stories that reflect these transformations – they can align their marketing with their true impact. In doing so, advisors elevate their work from transactional planning to transformational guidance, strengthening client relationships and deepening first-time connections with prospects!

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My guest on today's podcast is Andy Panko. Andy is the owner of Tenon Financial, an RIA based in Metuchen, New Jersey, that oversees $323 million in assets under management for 105 client households.

What's unique about Andy, though, is how he has been able to add additional advisors to his firm (quadrupling the assets he manages over the past few years) while maintaining the strong level of work/life balance that he desires.

In this episode, we talk in-depth about how Andy decided to bring on two new advisors (creating additional business management requirements for himself) despite running a highly profitable solo practice that met his lifestyle goals, why Andy sought out mid-career professionals when making his new hires (due in part to their established professionalism, ability to operate independently, and the likelihood they would stick around for the long haul), and how Andy decided to set a client capacity of 60 households for himself and for each of his advisors based in part on his firm's tax-focused planning and meeting calendar.

We also talk about how Andy charges his clients on a flat-fee basis (with one price for single clients and another for couples), which is enabled in part by having clients who fit a similar profile (those nearing and in retirement who want tax-informed decumulation and retirement planning advice), why Andy decided to pay his advisors a highly competitive base salary (rather than combine a base salary with incentive compensation) that reflects the client workload they take on (enabled in part by knowing exactly how much each new client will pay in fees), and how Andy thinks the flat-fee model is a plus both for his clients (who receive a high level of service at a price point that is often less than they would pay on an assets under management basis) and his firm (which can easily assess the time and revenue tradeoffs of bringing on new clients and advisors).

And be certain to listen to the end, where Andy shares how he attracts a steady flow of prospects by creating educational content on his retirement specialization (creating a separate brand that's an outside business activity on his ADV), how Andy has overcome the loneliness that can occur from having a solo (or now, remote multi-advisor) practice by engaging with the advisor community online and at in-person events, and how Andy has succeeded in achieving his lifestyle goals in part by adjusting his workload in line with his outside responsibilities (for example, by intentionally maintaining a solo practice while his kids were younger).

So, whether you're interested in learning about growing a firm while maintaining strong work/life balance, hiring mid-career professionals directly as advisors, or using educational content to attract a steady flow of good-fit prospects, then we hope you enjoy this episode of the Financial Advisor Success podcast, with Andy Panko.

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To start, probate is not a punishment for failing to plan; rather, it is the statutory estate plan that applies to every resident of a given state. Probate serves as infrastructure for establishing who has legal authority to act, clarifying ownership of assets following a death, providing a process for identifying and resolving claims, and creating procedural deadlines and guardrails to ensure an estate is settled with finality.

Notably, probate procedures vary by state and the complexity of the estate, so the probate experience can be quite different depending on a decedent's particular circumstances (ranging from a simplified process to one with expensive court supervision and more cumbersome administrative requirements). Nonetheless, for certain clients, the public nature of the probate process can be a bigger concern than the administrative burden.

To attempt to avoid the probate process, some clients set up trust structures that bypass probate. However, doing so doesn't mean avoiding the need for administration, which requires many of the same tasks as probate (e.g., identifying assets, valuing property, and transferring ownership). In effect, trust administration functions as a 'private' form of probate, operating outside the court system but subject to similar responsibilities and risks.

Even when estate planning is done 'well', individuals can still be exposed to the probate because of what happens (or fails to happen) after documents are signed. Such issues include acquiring assets after their estate plan is completed (and not coordinating ownership and beneficiary designations), inconsistent titling, digital and intangible assets (e.g., online accounts, intellectual property, and social media accounts), and out-of-state property (which can trigger "ancillary probate" and the possibility of multiple probates in multiple states). There are also cases (e.g., when family conflict exists, when a guardian must be appointed, or when there are creditor concerns) where going through the probate process might be preferable to private administration, given the structure and clarity it can provide.

For financial advisors, the value of probate literacy is in part a matter of client expectation management, because if clients have been conditioned to believe that probate equals planning failure, the presence of probate can trigger frustration, distrust, and/or confusion. Conversely, if probate has been explained as a normal part of the process that may apply in certain circumstances, its occurrence is less likely to feel like a shocking surprise. Also, understanding probate can allow an advisor to serve as a 'central coordinating figure' after a client passes away, reducing uncertainty and smoothing the asset transfer process for the client's survivors and beneficiaries (allowing the advisor to build trust with this group throughout the process).

Ultimately, the key point is that by shifting estate planning conversations from "avoiding probate" to "coordinating administration", advisors elevate the discussion and set realistic expectations that can mean a better client experience and a higher likelihood of maintaining the relationship intergenerationally!

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This dynamic reflects two distinct 'modes' of financial planning. The first is problem-to-solve planning, which addresses the 'presenting' issue that brings a client through the door. These are the functional, tangible concerns at the base of the value pyramid: organizing finances, reducing risk, determining retirement readiness, securing insurance coverage, or optimizing investments.

In this 185th episode of Kitces & Carl, Michael Kitces and client communication expert Carl Richards discuss this oft-transformative journey from the presenting problem to the deeper ones. The presenting problem merely acts as an entry point into the relationship. Attempting to lead instead with abstract promises of 'transformation' risks missing the reality that most prospects don't yet have language for those higher-order benefits, nor are they actively shopping for them.

However, as clients experience life transitions, the advisor's role expands beyond technical problem-solving. In moments of transition, what began as a quantitative planning exercise evolves into education, organization, and emotional steadiness. The technical solution matters immensely, but the intangible value of reassurance and guidance is truly transformative in the long run. It is in these transformative journeys – retirement transitions, widowhood, divorce, business exits, or long arcs of wealth accumulation – that advisors often build their strongest client relationships and referral sources. Clients who experience meaningful change with their advisor frequently become passionate advocates, even if they struggle to articulate exactly why. What the advisor may describe as financial purpose or clear goals, the client will likely describe as a lack of worry or burden!

Ultimately, the key insight is that while most clients will continue to arrive with concrete financial questions, advisors who recognize those problems as gateways to deeper engagement can deliver far greater value than technical expertise alone. By addressing the immediate issue while remaining attuned to the broader life context, advisors position themselves to support clients through the transitions that ultimately define their financial (and holistic) well-being. In doing so, they move beyond simply answering financial questions, instead becoming trusted partners in their clients' evolving lives: creating relationships that are not only more durable and referable, but also more fulfilling for the advisor and more impactful for the people they serve!

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My guest on today's podcast is Helen Stephens. Helen is the founder of Aspen Wealth Management, an RIA based in Fort Worth, Texas, that oversees $670 million in assets under management for 342 client households.

What's unique about Helen, though, is how she has grown her firm thanks in large part to early investments in Search Engine Optimization (SEO), which have paid off over time not only through prospects finding her through Google searches but also now by getting leads from ChatGPT and other artificial intelligence tools.

In this episode, we talk in-depth about how Helen's SEO strategy has evolved over time as Google has changed how it evaluates sites (moving from creating backend pages that mentioned her location and services to high-quality content that demonstrated her expertise in serving her ideal-fit clients), how creating high-quality content and serving a local geographic area has now paid off through referrals from ChatGPT (which often occur when a consumer goes deep enough into planning questions that ChatGPT suggests that they seek out an advisor), and how that while Helen's commitment to SEO and content creation took time to pay off in terms of a steady pipeline of prospects, it has contributed to her approximately 30% annual growth rate over the past five years.

We also talk about how Helen made the decision to move away from internal content creation to work with an all-in-one marketing service that handles the full scope of her marketing needs, how Helen's firm uses an intake form to divide leads into those who are likely to be a good fit (who then receive a call from one of the firm's advisors), those who are edge cases (who get a call from the firm's client services professional), and those who aren't good fits (who receive referrals to more appropriate sources of financial advice), and how Helen has found success establishing a program to serve high-earning young professionals who are likely to transition into her ideal target client profile over time.

And be certain to listen to the end, where Helen shares how she started transferring equity stakes early on in her firm's history (first as gifts, then as owner-financed purchases) in part to reward loyal team members who helped the firm grow, how Helen is executing a succession plan in which she will eventually sell her entire stake in her firm to internal buyers (allowing the firm to remain independent for the long haul), and how Helen sees success for herself not only as transitioning ownership of her firm to second-generation successors but also to see a third generation obtain equity stakes and ultimately lead the firm into the future.

So, whether you're interested in learning about generating good-fit leads through SEO (and now answer engine optimization), how to work with an external marketing agency, or how to complete a succession plan that will keep the firm independent for years to come, then we hope you enjoy this episode of the Financial Advisor Success Podcast, with Helen Stephens.

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In this article, Kitces Director of Research Mark Tenenbaum and Senior Financial Planning Nerd Sydney Squires discuss why a firm's organic growth slows as the firm matures – and how firms can resist and even reverse this effect.

As a starting point, marketing costs must be weighed holistically, considering not just 'hard' dollars spent on tools, events, or advertising, but also the 'soft' cost of advisor time. Kitces Research shows that while the typical growth-oriented firm spends about 3.2% of revenue on hard marketing expenses, roughly 71% of total marketing costs actually stem from advisor and staff time. For a newer firm with limited revenue but excess capacity, the advisor's time is relatively inexpensive, so they tend to favor marketing tactics that require time rather than money.

However, as marketing efforts take effect, the firm grows, advisor income rises, and capacity fills. As a result, the cost of each hour spent on marketing increases dramatically, driving a powerful anti-scaling effect. While the hard costs of marketing generally decline as firms grow, soft costs tied to advisor time eventually climb to nearly 8% of revenue for firms at $5 million or more, causing total marketing costs to rise as a share of revenue.

This phenomenon can be described as a "marketing capacity crossroads". Firms then face a strategic choice to maintain firm growth. They can either accept slower organic growth and supplement with acquisitions, or fundamentally redesign their marketing approach to rely less on advisor time and more on scalable hard-cost investments or delegated team members. Larger firms where advisor time comprises less than half of marketing costs achieve materially lower revenue acquisition costs than peers who remain heavily time-dependent!

Yet navigating this crossroads requires a deliberate shift. Advisors must examine which parts of their marketing truly require their unique expertise and which can be eliminated, automated, or delegated. Even high-touch strategies like events or content can often be partially delegated to team members who handle the operational and strategic groundwork, leaving the advisor focused only on the elements that genuinely demand their presence. In some cases, firms may need to invest in entirely new marketing channels – such as SEO, paid advertising, or outsourced marketing expertise – that may complement current marketing efforts, but are ultimately less constrained by advisor bandwidth.

Ultimately, the firms that sustain strong organic growth at scale are not those that simply work harder at the same tactics, but those that reengineer their marketing to decouple growth from the rising cost and scarcity of advisor time. By recognizing and proactively addressing the marketing capacity crossroads, advisory firms can ensure that their marketing strategy evolves alongside their firm!Read More...

Also in industry news this week:

• Although RIA M&A activity has continued at a strong pace, acquirers are increasingly targeting "adjacent" businesses like CPA firms offering tax preparation in order to expand their value proposition (showing that organic growth is still an imperative for all RIAs, even for PE-backed firms that have been focusing more on inorganic growth until recently)
• While many consumers rely on general-purpose AI tools like ChatGPT to generate answers to their questions, a comparison of several such tools shows that they still fall well short of performing reliably when it comes to doing investment research and analysis

From there, we have several articles on tax planning:

• While tax planning is a common way for advisors to add value, giving clients guidance on tax payment – and avoiding significant under- and overpayments of quarterly estimated taxes – can be highly valuable as well (particularly as the complexity of the tax code makes it increasingly difficult for someone to intuitively estimate their tax liability in the first place)
• Missing a Required Minimum Distribution (RMD) can incur a hefty tax penalty of up to 25% of the missed amount – however, the IRS allows individuals to apply for a penalty waiver in cases where RMDs were missed due to reasonable error or circumstances such as cognitive decline (which is unfortunately not uncommon among aging clients of financial advisors)
• When non-real-estate-experts invest in rental property, they occasionally aren't aware of the ability to take depreciation – and when that happens, the IRS specifies a process for correction that allows the taxpayer to make up for all of their years of missed depreciation at once (rather than amending multiple years of tax returns)

We also have a number of articles on practice management:

• The hiring and team retention principles that RIAs can learn from top-performing consulting firms
• The potential opportunities of offering internships to develop the next generation of advisory firm talent (and pitfalls to avoid!)
• Why compensation conversations need to be bigger than one-off annual conversations – and how to tie individual compensation to firm growth goals

We wrap up with three final articles, all about (personal and professional) risk management:

• Whether or not it's worthwhile to try to anticipate and prevent every type of risk, or if advisors (and clients) should just focus on the upside, rather than unanticipated (and unlikely) adverse events
• How economic shifts over time have made us wealthier than ever… but have also decreased autonomy for young people – and how to balance both purpose and guardrails in young people's lives
• Why risk tolerance goes deeper than just questionnaires, and how to help clients balance personal and financial constraints to find a fulfilling balance

Enjoy the ‘light' reading!

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Despite advances in technology, human advisors remain in strong demand, and the gap between the number of clients seeking an advisor and the number of advisors available to serve them is only growing. Which means there's something about working with a human advisor that still resonates with clients – which ultimately comes down to the advisor's ability to connect with the client on a human level, to understand and validate their goals and values, and to motivate them to reach those goals, none of which can be fully replicated by technology.

As evidence of the human effect on financial advice, a recent study by the AI meeting note tool Jump analyzed thousands of client meeting transcripts and showed that on average, meeting with financial advisors helped raise a client's emotional state (in terms of the feelings of positivity, confidence, and certainty they expressed) materially from the start of a meeting to the finish. The effect persisted even when external events (e.g., market volatility or events in the client's life) negatively affected the client's emotional state going into the meeting, underscoring the value advisors can provide when the client is feeling pessimistic or uncertain about their financial situation.

Furthermore, Jump's analysis found that certain behaviors and actions by advisors during client meetings strongly affected their ability to influence clients' emotional state. For instance, advisors who frequently used either empathetic statements (e.g., saying "that must be hard for you" or "you must be so excited!" in response to the client's situation) or emotional check-ins (e.g., asking "How are you feeling about that?" when it's less certain about how the client sees the situation) were able to raise their clients' emotional state by nearly twice as much as those who used those techniques the least. Which gives advisors a concrete set of skills to better connect with and manage their clients' emotional state – in other words, exactly the type of human connection that clients value most about working with a human advisor!

Ultimately, with advances in AI increasing the capabilities of technology to compete with human advisors, advisors are often told they must become experts in technology to deliver the kind of service clients demand. But the evidence shows that the better investment may be for advisors to lean into their 'human' abilities to connect and communicate with clients on an emotional level – because while technology is constantly evolving and today's tech skills might be outdated in a year (or less), the human skills that clients really value will serve advisors for their entire careers!Read More...

In this article, Senior Financial Planning Nerd Sydney Squires discusses the newest Kitces Research on What Actually Contributes To Advisor Wellbeing and how advisory firms can create work environments and compensation structures that increase advisor satisfaction and long-term retention.

There are four primary factors that make a difference for senior advisors: compensation, equity, a team structure that minimizes administrative work, and a solid culture and work/life balance. While firms cannot manufacture a universally 'perfect' senior advisor role, they can focus on the factors that most consistently move the needle for advisors through the lens of the firm's resources and mission.

Regarding compensation, higher income is associated with higher wellbeing (though there are diminishing returns beyond roughly $250,000!). However, beyond base compensation, the compensation structure makes an immense difference. Advisors with at least some variable compensation tend to report higher wellbeing and significantly higher earnings than those on purely fixed salaries. Variable pay reinforces autonomy, aligns incentives with firm growth, and rewards business development skills. The most effective designs strike a balance – providing enough stability to reduce financial anxiety while preserving upside tied to client relationships or firm performance. Even modest variable components can meaningfully enhance both satisfaction and earning potential.

Beyond compensation, equity opportunities have an outsized impact on retention. The mere presence of a credible path to ownership substantially reduces a senior advisor's likelihood of leaving. Advisors without ownership opportunities report lower wellbeing and materially higher anticipated turnover, while those with future equity potential are far more likely to envision a long-term future within the firm. Structurally, firms approach equity in different ways – granting ownership based on client development, allowing buy-ins at fair or discounted valuations, or phasing in partnership over time. Excessive barriers may unintentionally push ambitious advisors to seek ownership elsewhere, including by launching their own firms, but firms that offer a path to equity that is clear, attainable, and aligned with the advisor's worth can ensure long-term retention.

Operational structure and culture further shape the day-to-day experience of senior advisors. Firm size itself is less important than team design. Advisors supported by associate advisors and client service staff – particularly within ensemble structures – report higher wellbeing than unsupported solos. The dividing line often comes down to administrative burden: the more time advisors spend on compliance and paperwork, the lower their satisfaction; the more they can focus on client relationships, strategic planning, and prospecting, the higher their engagement. At the same time, traditional performance metrics such as clients served, revenue per advisor, or hours worked exhibit diminishing returns on advisor wellbeing. Workweeks extending materially beyond roughly 38 hours correlate with increased likelihood of turnover, even if wellbeing scores remain superficially stable. A sustainable workload and authentic firm culture – where mission, compensation, structure, and expectations are aligned – form a cohesive value proposition that attracts advisors who resonate with that model.

Ultimately, senior advisor retention is all about intentional design: variable compensation with stability, a realistic path to equity, strong team support that minimizes administrative drag, and a culture that protects work-life balance. Together, these create an environment where senior advisors can thrive. No firm will appeal to every advisor, but firms that clearly articulate their model and align their structure with their mission are far more likely to attract and retain advisors who see that vision as their own. When senior advisors find the right blend of autonomy, opportunity, and support, they do not merely stay – they build, grow, and contribute at the highest level, strengthening both the firm and the clients it serves!

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Also in industry news this week:

• In its latest annual "Dirty Dozen" list of tax scams, the IRS highlighted schemes involving non-cash charitable contributions and capital gains fraud (suggesting that financial advisors can play a valuable defensive role for clients who are pitched such schemes)
• Amidst the current hot M&A market (and a desire amongst buyers for fast-growing firms), the size and length of earnouts are increasing in some deals, highlighting the value for sellers of looking beyond headline valuations to the terms of the deal to ensure they maximize their return

From there, we have several articles on investment planning:

• How a "total portfolio approach" that groups investments by risk and performance characteristics (rather than asset class) could lead to a smoother ride for investors
• The pros and cons for investors of holding rental real estate properties (and how financial advisors might be able to recreate many of its upsides within an investment portfolio)
• How financial advisors might explain the benefits of portfolio diversification to different types of investors based on their risk tolerance and capacity

We also have a number of articles on client communication:

• Given research findings that consumers often aren't effective at crafting goals on their own, a series of exercises can allow financial advisors to help their clients set better goals (which can lead to more effective planning recommendations)
• An alternative approach to setting "SMART" goals that could lead to more inspiring goals (that could also lead to a more meaningful journey along the way to achieving them)
• A three-part approach to creating a "statement of financial purpose", which can serve as a foundational document for clients and lead to better-informed planning decisions

We wrap up with three final articles, all about prediction markets:

• A primer on prediction markets, including what makes a particular market effective (and more likely to predict outcomes correctly)
• How financial advisors can effectively discuss prediction markets (and the responsible use of them) with curious clients
• How prediction markets have extended well beyond front-page news to include sports- and entertainment-based bets that are drawing in younger users

Enjoy the 'light' reading!

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My guest on today's podcast is Adam Dell. Adam is the founder of Domain Money, an RIA that operates virtually nationwide, serving 1,400 clients and expecting to generate approximately $10 million in revenue this year.

What's unique about Adam, though, is how his firm has used technology and a flat-fee model to rapidly scale growth delivering financial planning to next-generation clients, both internally and as a white-labeled offering for other firms.

In this episode, we talk in-depth about how Adam built a financial planning software solution from the ground up to focus on the unique issues facing his ideal target client (such as home affordability and equity compensation), how Adam is leveraging Artificial Intelligence (AI) tools to reduce the administrative burden for financial advisors at his firm (and how his firm decides whether a task needs to be performed by an advisor, reviewed by a human, or can be automated), and how taking a modern-looking, tech-forward approach to planning (as well as charging on a flat-fee basis) has helped his firm attract clients who might not be as receptive to (or meet the asset minimums of) traditional planning firms that aren’t focused on their unique needs and preferences.

We also talk about how Domain is adding approximately 150 clients per month through a combination of paid advertising, affiliate relationships, and a growing number of client referrals, how Domain also serves clients by offering a white-labeled service for financial advisory firms who attract leads that might not meet their asset minimums at the moment but are a good fit for Domain’s services (offering these other firms the opportunity to generate revenue from these leads and potentially serve them directly as they accumulate more wealth), and how Adam has added three new advisors per month to keep up with this client demand (creating an onboarding plan that includes a number of months spent working alongside the firm’s current advisors to better understand how Domain creates plans for its clients).

And be certain to listen to the end, where Adam shares how his entrepreneurial journey (with Domain being his fifth startup) led him to create a tech-forward financial planning firm (and attract investors in the process), how Adam was surprised about the relatively slow rate of technology adoption amongst financial planning firms (though understood why some firms might be hesitant to rock the boat given the industry’s typically strong profit margins), and how Adam has ultimately found the financial advisory business to be rewarding not only for the business growth opportunities but also for the chance to provide clients with moments of delight when they can better understand their financial situation and reach their financial and lifestyle goals.

So, whether you’re interested in learning about building a financial planning solution to meet the needs of younger clients, taking a multi-pronged marketing approach to generate a steady flow of leads, or creating an advisor onboarding plan to serve a growing client base, then we hope you enjoy this episode of the Financial Advisor Success podcast, with Adam Dell.

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However, helping clients articulate meaningful goals is often more difficult than it first appears. Many clients feel uncomfortable discussing their finances openly, especially with someone they have only recently met. At the same time, clients often struggle to connect specific financial goals with the deeper values driving them. A client who says they want to buy a boat, for example, may actually be expressing a desire for family connection, relaxation, or a sense of accomplishment. Without exploring those underlying motivations, advisors may end up planning around surface-level objectives that fail to capture what truly matters.

In this article, Senior Financial Planning Nerd Sydney Squires describes how the CLEAR Framework can provide advisors with a structured approach to bring more depth to discovery conversations. The process begins by Capturing the Goal, clarifying the client's objective in practical terms such as timing, scale, and expectations. Advisors then Learn the Client's Current Approach, exploring what steps – if any – the client has already taken toward the goal. Next, advisors Examine Emotions, asking how the client feels about their progress and what achieving the goal would mean to them personally. After gathering this information, the advisor Acknowledges and Confirms their understanding by summarizing what they have heard and allowing the client to refine or correct it. Finally, the advisor invites the client to Reveal Additional Context by sharing any remaining details or considerations that might influence the goal. Taken together, these steps move the conversation from surface-level facts to a deeper understanding of motivations, assumptions, and emotional significance.

Ultimately, the key point is that effective discovery meetings are not just about collecting a list of goals, but about understanding what those goals represent. By asking thoughtful follow-up questions, listening carefully for emotional cues, and creating space for clients to reflect on their values and experiences, advisors can uncover the deeper meaning behind financial objectives. Frameworks like CLEAR provide helpful structure, but their real value lies in supporting curiosity, empathy, and deeper listening throughout the conversation. And when advisors move beyond simple goal capture to explore the deeper motivations shaping those goals, they are better positioned to craft recommendations that resonate personally with clients – improving engagement and follow-through while helping ensure that the resulting financial plans truly support the lives their clients want to lead!

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There’s an excess of news flow from the SCOTUS rejection of IEEPA tariffs to the current Middle East/Iran war.

I suspect some important items are getting overlooked. Perhaps the biggest is the goings on in private credit.

I don’t want to get distracted by gates and redemptions, belated marks, or even blow-ups. Instead, let’s address the Tweepadock in the room: The combination of unfettered growth and massive consolidation has significantly reduced the number of public equities, even as the entire public markets themselves have grown enormously. This has led to a huge surge in the number and variety of alternative asset classes, most notably private equity and debt.

Should you be considering adding illiquid debt, credit, equity, or RE, there are some issues you may wish to consider. Too often, the debate gets framed in binary terms, but reality is often far more complex and nuanced.

The Argument: The big selling point is that illiquid alternatives may improve your risk-adjusted returns, add diversification, and provide access to non-correlated returns. These are proven results from many top-tier managers. The drawbacks are illiquidity, lack of transparency, high fees, and (to borrow Cliff Asness’ phrase) volatility-laundering.

The biggest variables affecting all of the above are 1) Timing, or when you deploy your capital, and 2) Fund/Manager selection, or the exact fund and vintage you choose. It’s not as simple or clear-cut as much of the sales literature makes it out to be.

Illiquidity Premium: Investors in private alternatives select from a universe of options that do not provide daily liquidity. This creates a broad choice of potential investments that can (and sometimes do) generate a higher return than the public markets provide. The trade-off is that you have to be willing to tie up your capital for years at a time. And the caveat is that not all private investments generate an above-market return.

Do you need Privates? For the typical households with a diversified portfolio of stocks bonds whether through mutual funds and ETF’s or direct indexing, likely do not need alternatives. But that doesn’t mean they don’t want alts or aren’t interested in either additional returns and or diversification.

Households with $5,000,000 in investment portfolios or less are likely fully diversified, so long as they are willing to withstand the occasional market volatility and drawdown.

In the $5-10 million range, the main question is how long you’re willing to lock up capital. Life changes do happen, and if you need liquidity, exiting alternatives early can be costly. For households with portfolios over $10,000,000, the key question is whether alts meet their long-term goals and suit their financial planning needs.

Do Privates need you? As we’ve seen across all sorts of institutional products, the appeal of the retail investor is that they have become an immense pool of capital measured in the 10s of trillions of dollars. As the number of private funds have expanded many have exhausted how much they can tap the institutional investor base. It was inevitable that they would reach out o the 401K and retail investor base – the dollar amounts are simply catnip to so many funds.

Sturgeon’s Corollary: I’ve mentioned sturgeon’s law and its corollary too many times to count; the key element to remember is that most investment products are mediocre at best. This is true for mutual funds, ETF’s, SPACs, hedge funds, venture funds, as well as all forms of illiquid alts including private credit and debt.

I used Claude to access Cambridge Associates data and create the chart at top showing the dispersion among top and bottom quartiles of alternatives. Venture capital is the big outlier, with the widest disp[ersion imaginable. But private equity, and debt also have a very wide dispersion — good funds do a little better than public markets, and mediocre funds do much worse.

Quality: If you can get into the top decile (quartile even?) of alts/privates, that changes the calculus as to whether or not you should be deploying your capital in that direction.

The top tier is more than just good returns: it’s a long-term track record, transparency, reasonable fees, intelligent co-investors, and a general high degree of ethics and professionalism. I have heard far too many horror stories about alts gone wrong to advise you not to blindly stumble into too many of the available options.

My Conclusion:  I remain unconvinced that the MEDIAN alternative fund is worth the fees, illiquidity, and complexity. Unless you can get into a top fund, it is simply not worth the headaches.

Previously:
Sturgeon’s Corollary (December 4, 2025)

Your Co-Investors in BREIT (December 12, 2022)

MiB: Private Equity/Credit

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NOTE: I wrote this entire post myself. I used Claude to generate the chart and table above; I use Grammarly to spell/grammar check the Word doc it was drafted in. 

The post Ill-Liquidity Premium appeared first on The Big Picture.

The transcript from this week’s MiB: Matt Cherwin, Co-Founder and Chief Investment Officer of Marek Capital, 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 — Matt Cherwin Interview

[00:00:02] Narrator: Bloomberg Audio Studios, podcasts, radio News. This is Masters in business with Barry Ritholtzl on Bloomberg Radio

[00:00:21] Barry Ritholtz: This week on the podcast, another extra special guest, Matt Sherwin, is co-founder and chief investment officer at Merrick Capital. He previously spent 16 years at JP Morgan Chase and then a bunch of years at Citigroup beforehand running all sorts of spread markets, head of securitized product, lots of CIO and risk management titles. I came to know Merrick through a live event we did at Bloomberg last year. I found that his approach to credit and trading is absolutely fascinating and what Merrick is doing is really quite interesting. I thought the conversation was brilliant and I think you will also, with no further ado, my conversation with Merrick Capital’s. Matt Sherwin. Matt Gerwin, welcome to Bloomberg.

[00:01:20] Matt Cherwin: Thanks for having me. This is exciting. That was kind of, that was, that was a bigger windup than I was. I,

[00:01:24] Barry Ritholtz: I like a expecting, I like a big windup. Okay. ’cause it gives us an opportunity to roll back to the beginning and say, alright, bachelor’s in economics from the University of Pennsylvania. What was the original career plan? I, I don’t imagine people going to college and saying, I wanna be the head of global spread markets.

[00:01:43] Matt Cherwin: No, but that’s super interesting because our oldest is a sophomore in college now and he’s in the Business School of American. And I was just talking to him yesterday and he said, I’m now in, I think they call it like finance for business. I really like this new class. And I said to him, that reminds me so well of when I was in undergrad business school and I did the first couple semesters at econ and I hated it.

[00:02:08] Barry Ritholtz: And it was, I had a similar experience for that

[00:02:10] Matt Cherwin: Economics and it was like, you know, I, I shouldn’t have hated it as much as I did, but at the time it was ISLM curves, it was supply, it was demand, et cetera. And it just, it felt, it didn’t feel very practical to me and I didn’t do very well then. I didn’t go to class very often. I didn’t do very well. But then we got to kind of the next semester, right, which I think they called Finance 1 0 1, right. And was like, bond math, discounted cash flows. And I was like, oh this, I like right, okay, I am in the right place.

[00:02:39] Barry Ritholtz: Well, it’s much more realistic and you’re not dealing with homo economy ’cause that is this theoretical, although version of humans, you

[00:02:46] Matt Cherwin: Know, looking back on, I wish I had listened a bit more at some of those others, but you know, something I say maybe we’ll we’ll get to is like it just and recommendation I would give to other people. It took me a little while to realize what I was interested in, what I was interested in being interested in. And when I got into some of those classes, kind of the more financey kind of stuff, I was like this, I like this makes sense. I wanna learn more. And I think that’s kind of where it starts. I always wanted to get, I just like when there’s, you know, numbers on the page, it adds up to something you’re trying to make money. It’s hopefully positive at the end. It might be negative. It’s pretty clear cut. At least the goal is. And I always like that. I always gravitated

[00:03:26] Barry Ritholtz: Towards that. So, so economics way too abstract and academic, but business and finance, practical, applicable, real life usage. Yeah.

[00:03:36] Matt Cherwin: Which is interesting too. ’cause I also, I’m a little bit like a, this a little exaggerated, but I’m a little bit of like a history buff. So like it was interesting that, that what didn’t, didn’t appeal to me. ’cause I do like kind of the history of it. How did we get here? And I think that’s always something that I’m like in this form as well, going back to learn more about financial systems, how money works, how they thought it used to work, different schools of thoughts. And I think really helps you understand where you’ve been, where you are, where you’re going.

[00:04:08] Barry Ritholtz: So when you look back when you were group treasurer or chief investment officer at, at the JP Morgan division, you were, you were involved in, what sort of lessons did you take away from that? You’re, you’re in the real world managing real risk, real portfolios. How, how did that experience change how you perceive risk? Yeah, it’s

[00:04:28] Matt Cherwin: A great question and I’ll tell you. So like obviously I had a career with a background in trading, running, trading teams both on the buy side and the sell side. And it was really that experience that this next piece that was transformative for me and you know, really brought us to the point where my partner Derek Goodman and I decided let’s form Merrick. And you know, I’m sure we’ll get into that a bit. But what happened was I spent 20 odd years trading mortgages, rates, corporate credit, high yield products like that, working with specialty finance companies, some that I worked with, some I had a hand in running this kind of universe. And then in late 2019, the opportunity to move over. And this was a different building, different, you know, Waldorf key card, different team and be the CIO and the treasurer. So this is now buy side, running the capital of the firm, the investment of the firm, hedging and managing structuralists.

[00:05:27] Matt Cherwin: Lots of things wrapped up in there. But the real thing was, the point in time where this happened was late 2019, a few days later, was the repo crisis. If we remember that when all of a sudden if you wanted to borrow overnight against treasuries, it cost you 10%. Right? Okay. Six months after that pandemic breaks out. And why I bring that up is so much changed in dramatic size at rapid speed that I saw something I’d never seen before. And it was, how does the financial system really work and what does it mean and how does it apply to everything that I’ve done? And it was one of these moments where I felt like I just went from being the captain of the ship, you know, my own little thing, right? We’ll be a little expansive with it. I went from being a captain of ship to going to work in the engine room and seeing the actual gearing and how it works and how it doesn’t and what could stop it from working.

[00:06:26] Matt Cherwin: And you spend years, you know, you pull a lever, you think the boat goes faster, but you don’t know why and you don’t know what could stop it from doing that. And you don’t know what could make it work more efficiently. But now you go work in the engine room and you see it and you understand it. It was just this aha moment. Like, we’re two guys with glasses, right? So, you know, when you go to the the, you get a new prescription, you get your new glasses, you put ’em on, you’re like, oh my God, I can see, right? And by the way, how was I walking around the streets of Manhattan with that old prescription? But now I could see clearly and honestly 20 odd years into my career, that’s how I felt at that, that moment

[00:07:03] Barry Ritholtz: In 2019. Yeah,

[00:07:05] Matt Cherwin: I would say like in early 2020, about six months in, it was kind of like, oh my goodness, it’s coming together now. I wish, I wish I had known this for the 20 years that proceeded this, but I felt like now I know nothing and I’m starting to learn.

[00:07:20] Barry Ritholtz: So I have to ask. So my experience with 2019 was that wobble seemed to go by so quickly compared to oh 8, 0 9, where, you know, to me you saw a lot of warning signs first in housing and then in securitized product and then in construction. And then, you know, the market didn’t peak till October oh seven and the next 18 months were kind of fun if you were on the right side of it. But if you weren’t, I’m, it must have been a, a bloodbath. It sounds like you derived more out of the 2019 experience than you are on a desk in oh 8, 0 9. What sort of scar tissue did that leave? How, how, yeah. Informative was that Mom,

[00:08:05] Matt Cherwin: That’s really interesting the way you kind of put those together. And so to set the table a bit, oh 7 0 8 when I, I got to JP Morgan late oh 6, 0 7, 0 8, 0 9, I was in charge of head of team. We traded asset backed security, say credit cards, auto student loans, subprime mortgages, remember those? Yeah, CLOs. So really kind of like the center of what ended up happening after that. And I would say it was so overwhelming at the time. I mean we were there two in the morning hand marking bonds. Okay. Walking across the street between the two buildings. Like is there more information this company might buy that company before the market opens? What else can we do? The numbers were huge. It was almost like a bit more than you could process at the time. But I think each one of these became every step there was like, I understand what I’m doing better now because the first thing I ever did was I started, I was a cashflow structure.

[00:09:11] Matt Cherwin: And actually at that point in time, the guy who ran the department was a friend of mine named Bruce Richards, who went on to start marathon and has had a fantastic career. And we keep in touch and he said, I said, I wanna be a trader. And he said, well, I want you to be a structure because if you learn how the cash flow works, how the structure works, then you’ll be a better trader later on. I think each piece helped me understand the risk better and then the system it sits in and that helps you understand the risk better. And then when you understand the risk better, you understand the system, it sits in better and it builds and it builds on top of each other. So I would say in oh eight I learned more in oh eight we saw, we felt like we were the tip of the spear in like a bad way.

[00:09:55] Matt Cherwin: And we could see it was getting worse and it was accelerating and we could see that people were maybe even underestimating. And I remember some conversations around at the time that we were basically saying like, think bigger, think broader, think worse. That’s the context we’re talking about. But all of that helped me understand how does my product that I’m trading fit into an investment bank? How does an investment bank impact the system? I think when I went into 2019, obviously a lot time had passed, I’d had more experiences, et cetera. I remember sitting in a meeting, we’re in 7:30 AM traders meeting, this is with the CIO group. And we go around the table, my, you know, rates lead, my credit lead, et cetera. And the repo guys walk in and they say, Hey, we can lend against treasuries at 10%, should we do more? And I said, guys, I, this is my third day with this team. Okay, I’m the person in the room who knows the least about what you’re talking about. But if you need my authorization, you have it. ’cause that sounds pretty great.

[00:11:04] Barry Ritholtz: 10% yield begins with

[00:11:05] Matt Cherwin: Treasuries. That’s fantastic. My response to you is how much can we not, can we do more? Like how much can we do? Meaning more and more. And that just became the beginning of like, why did that happen? How did we get here? What’s the, where did it come from? Where does it go? And I found that certain people knew certain pieces, but not the picture. And then you’re like, it it, it was just starting to pull at

[00:11:30] Barry Ritholtz: And that was your job to know the whole picture.

[00:11:32] Matt Cherwin: It be, it became, it became the only, it became the focus of what I wanted to know. Because unpacking that would help me understand how do we get here, why does this happen? And by the way, what are the pieces that put this all together and how do we, how do we take advantage of that? How do we protect ourselves, but also how do we take advantage of that? So it it was this, the whole thing was this, one of those types of things you say, I opened up a door, three doors behind it and I wanna keep going that direction. And it felt to me like a pure and pure version of everything I’d done in my career getting closer and closer to the source and pricing really,

[00:12:11] Barry Ritholtz: Really fascinating. One of the things I think a lot of people don’t realize about JP Morgan Chase during the financial crisis, and I never doing the research for Bailout Nation, I never got this really sourced the way I would’ve liked to. But JP Morgan Chase had their own derivative scare a couple of years earlier. And the word was, Jamie just said, clear all this junk off of our balance sheet. We don’t, we can’t handle this. Risk doesn’t seem to be worth the potential upside. So heading into oh 8, 0 9, they weren’t dealing with the same sort of existential danger that Merrill Lynch and Wells Fargo and go down the list all had, all had to go through. They, they were ended up being an acquirer of distressed assets, not a, a seller of distressed assets.

[00:13:09] Matt Cherwin: Well I think, I mean it was a tremendous place to work. I worked with incredible people, I learned a lot and I worked with great, great people that you’re just part of a terrific team. It’s fan, it’s fantastic place. I learned something that became transformative to everything I’d spent my career doing. So that’s why we set out to, and I said I want to do this. And that’s why we set out to build Merrick. When we said, you know, I recall Derek and I sat down one day and I said, let me just, here’s how I think about markets. I think about it in terms of money, capital, credit, liquidity and regulation. That’s my thought. Money capital credit, liquidity regulation, M-C-C-L-R. How

[00:13:53] Barry Ritholtz: Do you separate money from capital?

[00:13:55] Matt Cherwin: So I think money to me is how do you make it, how do you destroy it? How does it move through the system? To me, capital is a little bit more of how much do you have, how do you measure it, how much do you have? Are you making more, you destroying it. Credit is really, how is it being formed? How is it moving through the system? The financial system is changing now. It’s very different than it was a few years ago. We actually, when we were, you know, really trying to get our ideas on paper, we wrote a paper that we outlined saying, we described what we thought was the new version of the financial system. We said the financial system is changing your defacto recreating glass stegel. You have gcis. If you come from some of this framework, you know, are the globally systema, systematically important banks, systemically important banks think JP Morgan, Wells, bank of America, et cetera.

[00:14:50] Matt Cherwin: We said they’re the new g sibs people like Apollo, Blackstone, KKR, BlackRock, these are Aries, these are the folks that are actually making credit extension decisions in this economy. Okay? You have the traders like Citadel Securities, jump, Jane, some of these other names everybody’s familiar with. This is disaggregating the financial system and putting it into different buckets. So basically we think about where’s it coming from, where does it go? Who wins? Who loses? What are the flywheels here? This is a process that we apply to everything we do. Some of the guys on the team call it mcle, M-C-C-L-R. It’s the lens that we look at because we believe money, capital, credit, liquidity and regulation drives, economies, markets, and prices. And then you can really start to understand monetary policy, real estate, housing, the types of specialty finance companies we’ve talked about consumer. So this to me actually explains how it all works.

[00:15:57] Matt Cherwin: And we apply that. It’s a huge addressable universe. We trade rates, mortgages, securitized products, corporate credit related equities. It’s an enormous addressable universe with investors that have very narrow mandates that transact at different points in time and sometimes non economically and bound by potentially non-economic rules. Which means there are a lot of overlaps that people don’t take the advantage of and there’s a lot of gaps that they quite simply don’t bridge. And the setup for all of this, I think, and I’ve seen some stuff, a lot of your, your, your listeners have seen quite a bunch of stuff. We’ve seen things go right, we’ve seen things go wrong. This is one of the best setups we’ve seen in a long time. And so that’s why we went out to say I saw some interesting stuff, I learned some interesting stuff. There’s an opportunity set that we want to prosecute right now and it is an incredible time to do so. So we built a team. Sorry, go ahead. I was

[00:17:01] Barry Ritholtz: Fantastic team. I was just, no, I’m fascinated. Yeah, I, I I wanna roll back to something you said earlier, which was glass stegel is sort of being backdoor reapplied. Is that a function of people being risk averse or is that a function of people just specializing in their own silo? So you don’t have, you know, glass Eagle for people who aren’t economic and policy wonks separated the FDIC safe banks from the riskier investment banks. And once that was repealed in the late nineties, didn’t cause a financial crisis, but allowed all these banks to merge and get bigger. And maybe it made the crisis a little worse, but it, I don’t, I don’t think of it as the underlying cause, but the idea that the market is working its way back towards that is kind of fascinating. Right? So let’s address that

[00:17:59] Matt Cherwin: Right as you laid out, like Glass Sal to say, to oversimplify basically said like, you can hold deposits, you can underwrite securities, you can trade securities, things like that. And there were rules right? Now there are like some rules that say what you can and can’t do. But really there’s a lot more that has morphed into what people like to call private credit or we’re going to extend credit through these fashions, or some of the rules don’t apply to this group so we can trade the markets differently or we can make markets in a way that maybe the big banks can’t. And then the big banks say, well we’re viewed as super safe because I would argue we are. And that has its advantages also. So it’s like we recreated these artificial boundaries. What is great for us and the way we look at the world is we saw that, we see that, we understand that we also see and understand and think about all day long and put it into our portfolio construction and the, the, the risk that we build, it’s all up for grabs again, right?

[00:19:03] Matt Cherwin: So we’ve got Kevin Walsh nominated to be the Fed chair and Mickey Bowman is the vice chair for supervision. And they are, I dunno what, what the right adjective for it is, but they’re changing the rules and they’re pulling some of them down. And in my opinion, people just don’t understand which of them matter and which of them don’t. And the market moves to place on some that simply don’t matter. Like it’s lack of understanding of what SLR was and how that worked. And we don’t need to dive into that. But to simplify, they said we’re gonna remove this rule and it’s a big deal. And we at Marck said, you can take it off. It doesn’t matter. So everything the market’s doing in reaction to that is a potential opportunity for us vice.

[00:19:48] Barry Ritholtz: In other words, vice versa. People are overreacting to a regulatory change that is insignificant long term in

[00:19:54] Matt Cherwin: That example. Yeah.

[00:19:55] Barry Ritholtz: Coming up we can continue our conversation with Matt Sherwin, co-founder and chief investment officer at Merrick Capital, discussing why he launched the firm in 2024. I’m Barry Ritholtz, your listening to Masters in Business on Bloomberg Radio.

[00:20:22] Barry Ritholtz: I am Barry Ritholtz. You are listening to Masters in Business on Bloomberg Radio. My extra special guest today is Matt Sherwin. He is co-founder and chief investment officer of Merrick Capital’s specializing in a variety of alternative credit and related private products. Previously he spent 16 years at JP Morgan Chase where he had a number of very important titles before that Citi Group. Are we, in all that unique a period of time, is the opportunity set that much greater than what we typically see in the normal? You know, this is a little more geopolitically volatile administration than, than even the previous Trump administration. Is that a driver or is it the deregulation and misapprehension of, of what these rule changes mean? I

[00:21:12] Matt Cherwin: Think it’s a combination of what’s going on. So we have, we just kind of use some little catchphrases among the team that help us sort of like, you know, gravitate around concepts or communicate quickly. We say this is an administration that’s in the business of being in business and that’s just a, there’s no opinion or or judgment one way or the other. It’s just a, it’s just a statement. What this environment is Also, we also came up with something that we thought was just made us chuckle. One, like it’s important to have a little bit of sense of humor. We found our investors actually do read the materials very closely and they tend to have a sense of humor, which is good. But we created this thing, we called the one big beautiful chart and we just said, you know what they really need, they need rates to get down and they needed to come down a lot more than what the market and the curve has already priced in because of how much debt the country has, what it costs, what they want to accomplish.

[00:22:08] Matt Cherwin: So here’s what they need to accomplish and they’re gonna do everything they can to, so, you know, we construct portfolio, we have a, we have an investment thesis, we have a narrative. Everything we put in the book has to fit that narrative has to contribute to what we’re trying to achieve. Has to be the best version of that or has to protect us from what could go wrong. So getting back to your question a little bit, we think it’s a very business forward environment, business forward administration. We think that it is one that needs rates to come down. We are going to have a new fed chair in the middle of June and there he’ll say all sorts of things in the confirmation hearing, but really it will be a catalyst potentially for change in the middle of the year. And then we have a bias within markets to strip back some of the layers of, of regulation and away from whether you support that or not, I can tell you ’cause I’ve been on the other side of it, the layers of process and bureaucracy and spending your time back solving instead of what could we do better.

[00:23:14] Matt Cherwin: When you change what your goal is and how you’re pointed, you’re gonna get different results. We think that combination is spinning flywheels in the market now that in our opinion people are just, they’re underestimating the power of some of these flywheels.

[00:23:31] Barry Ritholtz: Huh, really, really interesting. Last question before we talk a little bit about Merrick. In the old days, and I was never a big believer in this, but everybody else was, there was some constraints on deficits and ongoing government debt. ’cause the bond vigilantes would punish you. The bond vigilantes seem to have disappeared in part replaced by the stock vigilantes who, any policy they don’t like, they just sell off until they have their hissy fit, until they get their way. And then, okay, thank you very much and we’re off to the races again. What do you think of the, you know, eighties, nineties era bond vigilantes? Is that just ancient history? There’s no discipline on deficit spending anymore or, and by the way, I think deficits are not all that relevant. Look at Japan, look at the US history. We’ve been warned about deficits and they haven’t caused much of a problem, most of this history. Yeah,

[00:24:31] Matt Cherwin: I mean look, I love the term and I think we’ve seen some of those episodes last year we saw around the whatever we call liberation day in April, like there were a couple days where treasuries and mortgages said like, enough, okay, that’s it. And we’re either going to have one of those days where they are giving stuff away or you gotta pull back. And I think what we saw was the administration did pull back. So I think in some level it’s still there. But part of what we do at Merrick and what influences our thought process is big parts of this have been really broken down. The markets are so big now that it’s been broken into specific functions, like people have a thing to do and they do that in a narrow mandate. We have a more flexible mandate to us, the products, their widgets, their tools in the toolbox for us to achieve our goals and our investment thesis and the portfolio risk and construction and diversification that we’d like to have.

[00:25:33] Matt Cherwin: But the markets are hyper specialized in very, very large markets. So you get some of those episodes where it’s like, oh, crowded trade, we gotta get out. I think the question of does the administration react to the markets, does the markets react to the administration? It’s something that we’ve actually focused on quite a bit. We actually, you know, we wrote another piece in June of 2025 that we called the War Fed and it was just about what could happen. And we sort of went through to your point like the concept of risk-free rate and credit spread are completely intertwined and commingled now and they don’t exist separately. So I think that’s some of the concepts you’re getting at. Like, is this a problem for credit? Is it a problem for rates? Are those the same thing? Now one of the most interesting things, and I I would just say before we get back to your, your question is, what was really interesting observation to us was during the last government shutdown, whatever mini version of that we’re going through right now, it was almost in the data was not forthcoming and then vol went down.

[00:26:45] Matt Cherwin: So it was this sort of like a little bit like if we don’t know, maybe nothing’s happening, but what it also was, was a little bit to the, to what you were saying is when things were a little less hyper-focused, they actually were a little less jumpy around small moves. And that was a big takeaway, big takeaway for us. Hmm. It’s a big thing you’re gonna hear from Kevin Walsh. If he ends up in the chair seat, you’re gonna hear a long narrative from him for his time in that seat of we need to step back from the day to day and the minute by minute information and think about the big bigger picture and the trend and where we’re headed and be a little, be a little more forward looking. I think that’s the kind of guidance that you will get from that chair.

[00:27:34] Barry Ritholtz: Hmm. Really, really interesting. So, so let’s just start out with why you left the comfort of a big shop to have the headache of your own firm. What, what’s the El elevator pitch? What problem does merit capital solve that couldn’t be solved at a large Wall Street bank?

[00:27:54] Matt Cherwin: Look, I think quite simply, there are some things that banks can do and some things that banks can’t do. There are some things that they can do and that they don’t want to do. In my career, I’ve always been involved in these types of markets being rates, mortgages, securitized products, corporate credit, the equities related to that around it, these types of specialty finance operating companies. And always felt that when you have, when you can apply the various lenses to these products being the trader lens, the structure lens, the operator lens, you understand it better and you get the gearing and the pieces. And when you learn about the financial system that it sits within, then you actually can understand, but take advantage of the risk and return in a more elevated and efficient way.

[00:28:47] Barry Ritholtz: I wanna address that. Is it that the big firms, the bigger banks were risk averse and didn’t want to take advantage of it where they were prohibited on a regulatory basis or when they’re just doing their macro risk assessment, Hey, we’ll go this far but no further.

[00:29:04] Matt Cherwin: I, I think it’s even simpler than that. We look at the world through our lens. We look at the world through the Merrick lens of money, capital, credit, liquidity and regulation, which drives economies, markets and prices. That helps us understand the drivers of the capital markets that we sit within. Helps us understand monetary policy, housing, finance, commercial real estate, finance. Understand both the gearing of it, then you can look at something and you can say, okay, I’m looking at Citigroup, I could buy it, I could sell it, I could understand what they’re doing in the markets. They have a footprint in what that means for the markets. Do I wanna buy that? So like where are the flywheels? What does it spin to next? So everything we were doing was very much about what do we want to do because we see a very large addressable opportunity where we have a unique perspective, a defined lens, and a way of applying that to these big liquid markets that we think very strongly we can take advantage of in a way that people simply haven’t had the opportunity to learn about and to understand and apply to these products with the type of flexible mandate that we have.

[00:30:18] Matt Cherwin: Which boiled down means we look at the world a little differently. These are big addressable markets which have dislocations, volatility, and opportunity all the time. And we can use that combination to achieve what’s a very, very simple goal, improve the return a little bit while reducing the risk a little bit.

[00:30:38] Barry Ritholtz: That’s all anyone can ask for better returns at lower risk. I’m, I’m kind of fascinated by the overall Merrick investment philosophy we’ll get to, but let’s, let’s start with a little bit with structure. I think of you guys as an alt credit shop, but you also look a little bit like a multi-strat shop, like a, is it, so we’re kind of a hybrid, like tell us about the structure.

[00:31:05] Matt Cherwin: We just define what we do. Okay. We are who we are. We do it the way that we do. We run, we’re, right now we’re running a hedge fund which trades these products as like I said, tools in the toolbox as as widgets. We do it in one collaborative portfolio. So our setup, our structure, we’ve got an amazing team. We have specialists in rates, in mortgages, in non-agency mortgages and a BS in credit in CLOs. I am on the phone every day with traders and salespeople myself. We trade it as one book,

[00:31:42] Barry Ritholtz: One portfolio. So it’s really a multi-strat within a single expression.

[00:31:50] Matt Cherwin: It is what we think is the best expression of the trade.

[00:31:54] Barry Ritholtz: Well I shouldn’t call it multi-strat, it’s really multi-asset. It’s a variety of different credit assets all under one umbrella

[00:32:01] Matt Cherwin: Within our lane. Okay. Sticking to our knitting, what we believe we know very well, what we know we have a differentiated insight into and extracting from that. Okay. The team is phenomenal. They have a ton of buy-side and sell side experience. They work very well together. It’s very exciting to be, I mean, and additionally doing this together, like Derek and I doing this together, putting our name on the door like Merrick is Matt and Derek, right? Because we spent way too much time trying to think of what’s a clever name means

[00:32:40] Barry Ritholtz: They’ve all been taken. Good luck in New York,

[00:32:42] Matt Cherwin: You know, means, you know, alpha extraction in Sanskrit or some something, you know. And Derek’s wife one day was like, enough, it’s Merrick, Matt and Derek now go do some real work. And I think she said in a little bit more of a spicy way, but we were like, yeah, that could work. Alright, let’s do that.

[00:33:01] Barry Ritholtz: I, I think just a little footnote, if you’ve ever incorporated an LLC or any other entity in New York state, every Greek and Roman, god, every Babylonian god, every sebus na name, the creature from mythology, it’s either a fund or an LLC. Yeah. They’re all, they’re all taken. It’s astonishing.

[00:33:21] Matt Cherwin: But the real point I I, I wanted to make also that I don’t wanna lose is this was putting our name on the door. Okay, it’s our name, it’s our reputation ’cause and that really cemented it for us. That was something we really wanted. I took some time off and which was fantastic and I met some of the most amazing and interesting people in the world. When you’re unaffiliated, people speak to you in a different way. Huh. That’s interesting. Because they had no one to talk to. Okay. I sat down with the CEO of one of the world’s largest pension fund sovereign wealth funds. And we had, and I’d never met the person before, we had an hour long conversation because he just needed to talk to someone. And I learned a lot in that. And I met some of the most interesting people in venture cap, in alt, in private equity, et cetera.

[00:34:07] Matt Cherwin: And it was just more way of learning parts of the system. But it got to the point where after my, you know, academic wander through the wilderness, I was like, okay, you know what? ’cause at the time we had three teenagers living at home and it was an amazing time. I used to always say, you should be able to retire in your forties and go back to work in your fifties. Like that’s the way business should work. Obviously that’s a luxury that very few have, but I was getting to the point where I was like, okay, I feel great. I want to do this. I miss markets, I love this. I want to get back to it and I want to do it in the way that I want to do it. How

[00:34:41] Barry Ritholtz: Long of a gap was that between Jason

[00:34:42] Matt Cherwin: And that? Well, I took like about a year off. You know, it’s a, you know, it’s a riot. So in our deck we put a little timeline of my experience and Derek’s experience and just to help people understand who hadn’t met us, who we are. And at the very end I put, you know, this is my background, simple. I was here for 10 years, I was there for 16 years. And then we put like a level one year nugget on the end of the timeline that just said chilling. But no G, no G, just C-H-I-L-L-I-N. Right? I don’t remember,

[00:35:11] Barry Ritholtz: Which is a very un wall street sort of thing.

[00:35:15] Matt Cherwin: Well it was like our 900th version of the deck, right? And we were just getting a little punchy and we’re like, it made us laugh. Okay. Right. You gotta have a sense of humor. It made us laugh. So we were like, this is going in. Every investor brings it up, they bring it up and they love it. And you know what, to us it’s like, wow, you are reading every part of the deck. Right? And also, it’s nice to know you have a sense of humor, but getting back, getting back to it was like PE people,

[00:35:40] Barry Ritholtz: This is always shocking. People read the footnotes.

[00:35:43] Matt Cherwin: Oh yeah. That’s been a big learning for us. Yeah, they read it. So when we were doing all this, you know, my wife was like, yeah, why would you wanna do something for anybody else? And I thought to myself, exactly what are we gonna work hard at? What are we gonna make sure succeeds the thing that we put our name on the door, our reputation that we believe other people don’t get it, that we believe is the right way to approach these markets that we believe can extract from a setup is, which is one of the best that we’ve ever seen. So if you tick all those boxes, why would you do it for anybody else?

[00:36:24] Barry Ritholtz: Huh? Really, really intriguing. So it’s 2026. I’m legally obligated to ask how do you use artificial intelligence in research portfolio construction or operations at Merit Capital?

[00:36:37] Matt Cherwin: Sure. I would, I would sort of make two, two points. I’m an AI optimist, that’s not one of my two points. So that doesn’t count. We use it every day. We build stuff more quickly. We build our own tools and we build ’em more quickly than we ever could before. You know, the guys on the team, they’re building stuff at their desk in a week that would’ve taken a year Wow. To do somewhere else, literally. And I know because I’ve been in that, and then once you built it, it would’ve taken like six months to get approval to release it into your sys, et cetera. This is like Lightspeed versus what we used to do. Now, changing a little bit of how you frame that question, AI is a really, really interesting thing in financial markets as well. Okay? So I don’t think we’re there yet, but we’re gonna get to a place where people are using it for risk management, they’re using it for compliance, they’re using it for KYC. But put all that aside, the most interesting to me right now is we look at the AI CapEx boom and we say, here’s a product that is commercial real estate with securitization technology around it. You’re talking about where is it? Is it built? If not, how long is it gonna take to build it? Who are the tenants? How long are the leases? What are they paying? What’s it worth when it’s all done? Is there residual risk like you have in an auto lease?

[00:37:56] Matt Cherwin: Only some of it comes to the securitized market because it’s just not that, that market’s not big enough for it, right? So it comes to the corporate bond market. So that to us is like, that’s the type of opportunity that piques our interest where we say, this is something that looks like A, B, C, and it’s being wrapped up and put into a different market that is asking 1, 2, 3. And those are good questions, but it’s really like, put it all together, look at all the factors. What are the additional, are you getting more structure, are you getting less, are you charging for the risk? Are you paying away for it? So the AI CapEx boom to us is actually like a source of very cheap risk for us to look at. And each one has a little bit of different flavor and we’re very opinionated about which ones we like.

[00:38:45] Barry Ritholtz: Huh. It sounds, it sounds really fascinating. It also sounds like anytime there’s a novel area, the opportunity for mispricing seems to really,

[00:38:56] Matt Cherwin: There’s that, there’s that, we look at some of those first time issuers we have, like, we have some things in the book. We have something called the North Star Playbook, which is what are companies and bonds that have clear missions and objectives that they can execute on that are aligned with us with the instrument that we have or misaligned or that they’re not able to execute. But some of it, it’s actually not just about the novel structures. Let’s look at agency mortgage-backed securities. Those have been around for a long time, right? Okay. Couple weeks ago, tweet from the pre or whatever we call a, a post on truth social, right? 4:26 PM I’ve instructed my representatives to buy 200 billion of agency MBS boom bomb in the agency mortgage back market. This is a, there are, was it 12 billion, 12 trillion of these things outstanding in the agency. Mortgage market is 9 trillion, hundreds of billions of a trade every day. And that was a aftermarket post tweet that

[00:40:00] Barry Ritholtz: Set off. And

[00:40:01] Matt Cherwin: Do you do, when that happens, event, so then

[00:40:03] Barry Ritholtz: Are you out buying into that, that rise to take advantage? Are you, are you a price taker, a price maker? What are you doing when that that’s happening? It’s

[00:40:12] Matt Cherwin: Both. We look instantly at like, what does this mean? What was our expectation? Now in that instance, we expected the GSEs who will be the one to actually buy it. We expected the GSEs to be buyer. I think our view was a little bit at the high sider outta consensus even. We thought this is gonna be a support mechanism for this market over the course of the year. Fannie and Freddie are gonna buy a lot of this

[00:40:32] Barry Ritholtz: Stuff, assuming they haven’t already started two 10 million.

[00:40:34] Matt Cherwin: Well, they have been, and that’s a great point. They had been, but buying 200 billion with like an aftermarket tweet and nobody knew like, is it gonna be 200 and then another 200? Are you gonna start buying? You gonna buy 40 tomorrow? How’s this all gonna work? This exceeded even our expectations. And you saw right away, I think we were positioned for that type of event. We were positioned to take advantage of some of the policy risk as opposed to get hit by some of the policy risk. You could see that there was a massive short covering rally right after that. And you could see that that wasn’t necessarily people’s expectations in how they were, how they were set up for it.

[00:41:14] Barry Ritholtz: I, I have, I have a mortgage related question to this. Okay. But I’m gonna save it to the next segment. Coming up, we’ve continue our conversation with Matt Gerwin, co-founder and chief investment officer of Merrick Capital, discussing credit and risk in today’s markets. I’m Barry Riol, you’re listening to Masters in Business on Bloomberg Radio.

[00:41:48] Barry Ritholtz: I’m Barry Ritholtz, you’re listening to Masters in Business on Bloomberg Radio. My extra special guest this week is Matt Gerwin, co-founder and chief investment officer of Merrick Capital. Previously he spent 25 or so years running credit and various types of risks at JP Morgan Chase and Citigroup. So we were talking earlier about the Trump tweet directing the GSEs to buy $200 billion worth of agency paper. You would’ve thought that should have sent yields plummeting and mortgage rates down, which would stimulate the housing market. I assume part of the motivation for that tweet and for that purchase. What, what’s going on in that market and why does it seem so difficult to drive rates lower?

[00:42:36] Matt Cherwin: Right. That’s a great question. And as silly as it sounds like 200 billion, it’s just not enough

[00:42:41] Barry Ritholtz: Pocket cash, right? Walking around money,

[00:42:45] Matt Cherwin: That’s one way. I

[00:42:46] Barry Ritholtz: Mean in a $12 trillion market, sure. 12 trillion, it’s not even 1%.

[00:42:50] Matt Cherwin: Yeah. If you’re, if you are, if you’ve got 35 trillion in treasuries, outstanding and yeah, yeah, it’s a big number and it moves the needle. But what they, they really want to move it. They keep it there. Like that’s a little bit of the hard part because don’t forget that the Fed owns 2.2 trillion, so they’re gonna buy 200 billion. Didn’t give a lot of information. And that sort of helped them in that moment. The lack of information after probably led some of it to kind of like bleed out and unwind a bit. But the Fed owns 2.2 trillion and those are paying off and that’s approximately 180 billion a year. So then you start to think about like, well if the rate moves and mortgage prices go up, or some of the money managers going to sell a a hundred billion over time and do you kind of neutralize it?

[00:43:43] Matt Cherwin: So I think it’s helpful. It’s indicative, here’s the real takeaway for us. Okay, so at that moment it’s how do we trade this? What’s the price? What’s the next step? But then we’re really thinking from there, like what does this mean? What’s going to happen next? And sort of coming full circle, what it really does is show you how hard they’re gonna try to drive the mortgage rate down to drive rates down overall to sign up for an agenda and a plan to get rates down. Okay. So some of it is what do we do in that specific market? And some of it is, how’s it informing our view of the bigger picture.

[00:44:23] Barry Ritholtz: So you guys have two i i, I don’t wanna say conflicting, but somewhat different risk factors you’re juggling with, obviously when you buy paper you’re thinking long term and we wanna watch this play out to our broader thesis, but at the same time you’re actively trading on the short term. How much do these complement each other? Or do you ever find yourself long in one duration of the portfolio and short in another? How do you, how do you balance this out?

[00:44:55] Matt Cherwin: Yeah, I mean we have longs and shorts across the book within mortgages within credit we, there’s we’re, you know, long what we like and short what we don’t to keep it super simple or long, what helps contribute to our thesis or prote and vice versa. And you know, protect the convexity profile that we’re looking to achieve. We are, we trade every day. We are active in these markets. It’s part of more of a sort of a medium term thought process, how they’re gonna play out. But every day is iterating on that. Is this still what we think? Are we positioned with the best version of it? Do we have the bonds that are going to contribute to what we are trying to achieve? Like right now we’re very focused on the flywheels that exist within financing markets. And if you think about what does that mean?

[00:45:46] Matt Cherwin: Okay, so rates come lower, we talk, we rates go lower. We talked about that a little bit, but credit spreads are also really tightening. And when rates are lower and credit spreads are tightener tighter, your cost of borrowing has gone down. Means you can refinance all sorts of assets. It means some assets are even at that point in time worth more valued highly. Now that it’s worth more, you’ve got a lower LTV loan that you could take out an even tighter credit spread on. And how did these spin and what is it? So this is very much what we’re thinking about now. I think the market completely underestimates the power of those flywheels and what it can be achieved. So we, that is one of, we look at our portfolio and say we want to have about 20 trades in it. And the trade is not one line item.

[00:46:33] Matt Cherwin: A trade could be 30 line items, but the flywheel is a trade. It’s a little bit of a, maybe even a bigger higher order one. But we look at what is happening at that moment. Is there something to take advantage of? But also what are the ripple effects of what’s happening in that moment? And what does the market need to do? What is it going to do? Does it understand this? And then we unpack it and say like, where, where’s the opportunity? So coming back to what we talked about, we believe, when you look at the world through this lens, we look at markets through the Merrick lens that the lack of connections made through these markets and the lack of extracting from some pretty obvious pockets are an opportunity. And I would like we talked about to improve your return and reduce your risk.

[00:47:26] Matt Cherwin: And it’s a process. So it’s just as much a process in a machine through which you’re extracting alpha from from the market. We have our views, we hope to be right. It’s also, it’s a process through which you work through these markets that you extract all the time. And the mandate is pretty clear. Like, as I think of it, the mandate’s very clear. You need to make money when markets go up and you need to make money when markets go down every day, every month, every quarter, every year. And you probably won’t. But that’s the mandate. That’s what, and that’s you’re going for. And it’s, it’s quite simple when you frame it out that way. You

[00:48:04] Barry Ritholtz: Mention in 2019 there was a sea change in how you perceived what was happening in the market and how different that had become. How does that affect how you look at and define risk? It, it risk definitions have obviously changed over your career, but 2019 was such a sea change. What’s different about managing risk today?

[00:48:27] Matt Cherwin: Yeah, I think, I believe managing risk at scale is a skill. Okay. You have your numbers and you want to know what those are and those are indicators and those are starting places. VAR is a number and a starting place and an indicator stress is un numbered DV oh one CS oh one, these are we, I like to look at the world in a stress-based framework and we create a bunch of different stresses. Some are quite simple. Rates go up, rates go down, credit crunch, a flight to quality. Some we had our little like, you know, we’re getting a little punch drunk. We have one we call QE forever and ever. And looking at these, it’s really about, like, it’s a starting place for a conversation. Okay. Because you do need to know where it’s coming from and what’s the attribution, what’s the return attribution, where’s it, where are you hoping it comes from and what’s the risk attribution and very importantly what could go wrong. Understanding that what you’re trying to achieve, but knowing where the exits are, like, I think it’s really like a philosophy to, to risk and to managing risk to make sure you’re pointed to achieve your goals while managing your risk properly and knowing what you would do if things changed. Right? You have a plan and then things change.

[00:49:49] Barry Ritholtz: Hmm. Really, really interesting. What, when you’re looking out at a variety of different opportunities, what do you think today presents the best risk opportunity looking at structured credit corporates relative value? What, what, what is really drawing your attention? Yeah,

[00:50:06] Matt Cherwin: We really thought that one of the places to extract from the flywheel is in securitized markets. Actually as an example, like we’ve been very focused on trophy quality office in gateway cities. And this goes back a little ways,

[00:50:20] Barry Ritholtz: These are the super A residential, yeah, commercial real co office

[00:50:24] Matt Cherwin: Commercial, right? So that all came to be from us pulling it, the thread of how the financial system works. We talked a little bit about the new Gs Cs and what you had was everybody was going back to work back to the office, but took longer than we kind looking back on it, that took a long time. The part of the financial system that was changing were those new Gs, CS, Apollo, Aries, KKR, Blackstone, BlackRock. And they were coming back to the office and they were growing and they were finding that two things. One, they needed nice offices to kind of, you know, get everybody where they want ’em to be. But also they were growing and they outgrew what they had and then they went looking for more. And what they found was there’s actually not that much trophy real estate out there. And so like our view on the evolving financial system led us to have very strong conviction about a supply demand imbalance in commercial real estate when applied correctly. And then we just looked for what’s the best place. And it’s tightened a lot, but actually it think it continues to and has been because it’s like the, it’s continued to be one to two steps behind the fundamentals. So what that really means, the way we think about, to wrap it up in a nutshell, this is a triple B bond that we think is a double a

[00:51:35] Barry Ritholtz: Hmm. Really, really in, because everybody’s painting with a broad brush of, hey, forget bs, even a buildings are 60% occupied in terms of staff, but

[00:51:45] Matt Cherwin: They’re not, they’re a hundred percent occupied with the waiting list.

[00:51:47] Barry Ritholtz: I mean in terms of staff returning to office. Yeah, so it’s fully leased, but the, what is it? Castle key cards are running 60% of pre pandemic levels in a lot of cities. But the a plus the bigger shops, the JP Morgans, they want everybody back in the office, as does Goldman Sachs, as does a lot of these places. And they’re all in trophy properties.

[00:52:08] Matt Cherwin: And it’s not just New York, it’s Miami, it’s actually San Fran has come a long way. There’s certain buildings there that we like. We actually, I would say a little bit outta consensus, we like DC certain po not the government buildings, but nice offices, like we said, this is administration that’s in the business of being in business, which means you gotta go see ’em and make your case. You want to get some business done, which means you need lawyers with a nice conference room that need a decent office and et cetera, et cetera. I mean, like, it sounds a little glib, but it’s

[00:52:37] Barry Ritholtz: True. It’s the cost of doing business. It’s

[00:52:39] Matt Cherwin: True. Yeah, absolutely. And so you can see there are certain companies that are buying buildings, knocking them down in DC and building brand new ones. And there are buildings that are being taken offline to convert to resi. By the way, everything we wrapped up in what we said, the conversion from office resi is actually spinning faster now in dc some buildings are being con and just outside DC some buildings are being converted to data centers. Interesting. So actually like interesting stocks being removed all the time anyways, it’s just an example of how, like we’re pulling on threads and we’re finding where we can best take advantage of it and like what are the next couple steps? And ultimately we’re looking for what’s something that’s already gotten better except the price hasn’t changed yet.

[00:53:22] Barry Ritholtz: Huh? That, that’s really, that’s really interesting. You, you’ve mentioned stress scenarios a couple of times. We know that correlations have a tendency to go to one and liquidity disappears.

[00:53:35] Matt Cherwin: Well, I think I’ve seen that personally, right? Liquidity enough times over your career liquidity disappears. Yeah, I think I would just wrap that up. We, I make two comments to people. I say like, one, you don’t go outta business ’cause of your assets, you go outta business because your liabilities.

[00:53:49] Matt Cherwin: And when you start looking at that side of the balance sheet first, then you understand things a little bit better. And then also, you know, with, with my traders and all the people I work for, and it’s really great. ’cause some of the people I hired a long time ago, they’re MDs at places now. They’re all, it’s, I actually take a lot of pride in the people I’ve worked with who have gone on and done fantastic things. I really, really hate the phrase money. Good. Okay. I don’t think anybody should be allowed to say it. It is this like false crutch. I also, in many, many conversations have said to people, I think you’re right. In fact, you’ve convinced me, I believe you are right. I’m just saying, you know, you’re gonna get fired long before we know the answer to this question. Okay, let’s take everything we thought, everything we’ve known, and let’s put it into the context of how do we apply this in markets? What’s gonna happen, what’s everybody else doing? And how do we take advantage of that?

[00:54:40] Barry Ritholtz: Huh? Really, really fascinating. Last question before I get to my favorite questions, what do you think investors? I

[00:54:47] Matt Cherwin: Thought those were your favorite

[00:54:48] Barry Ritholtz: Questions. Oh no, though you’ll, you’ll, oh, okay. You’ll see the favorite questions. All right. What do you think investors in the credit and alt space are not talking about, but perhaps should be? What topics, assets, geographies, data points are getting overlooked, but really shouldn’t.

[00:55:05] Matt Cherwin: Yeah, so it’s a great question. We touched on a little bit. They’re underestimating the power of this flywheel. Like with, with the background I’ve had, and we’ve talked about and I’ve seen a lot of things blow up. Like we could come up with a lot of examples of things that could go wrong. I think they’re underestimating the things that could go right or what the power of financing and the mechanics around financing and the provision of liquidity and credit, credit spreads when they’re good and when they’re tight and when the machine is flowing. What that financial engineering can really do to both un recover value and create value. I think they’re underestimating. Huh? Really, really. The other quick thing is in the middle of the year, if Kevin Wars ends up sitting in that seat, and if we get a little bit of the, the setup that he’s looking for. He’s gonna change everything, right? So he believes we’re gonna have a big productivity dividend from ai, and we’re gonna have a big productivity dividend from deregulation. And then that would allow you to have lower rates and a smaller Fed Balance sheet at the same time. And if he gets a little bit of what he needs to craft that argument, we’re gonna have a very different second half of 26th than the first.

[00:56:21] Barry Ritholtz: Huh. Really, really interesting. All right. Right. Let’s jump to our favorite questions, our speed round. We’ll get you guys outta here at a reasonable time. Starting with, who are your mentors who helped shape your career?

[00:56:33] Matt Cherwin: Oh, I’ve worked for some pretty amazing people, and I tried to learn from everyone. I’ve just had the, the bosses that I’ve had are, you know, legends in this industry, whether it’s Bruce Richards, T and Perlow. Oh, Jimmy DeMar, Ziems, Daniel Pinto. I mean, these are guy, these are people who defined these markets. And they all had a huge impact on my career.

[00:56:56] Barry Ritholtz: Huh, really interesting. Let’s talk about books. What are you reading now? What are some of your favorites?

[00:57:02] Matt Cherwin: Oh, you know, but like I am in front of a computer screen and reading so much, and I read so much analytics, research, et cetera. When I get home, it’s a little bit more like, hang out with my wife and kids. And it’s a little tv.

[00:57:14] Barry Ritholtz: Well, that’s my next question. What are you listening to or streaming? Oh, give us your favorite next. Netflix, Amazon Prime, whatever.

[00:57:22] Matt Cherwin: I will watch pretty much anything. Taylor Sheridan. You know, like

[00:57:26] Barry Ritholtz: We spent season two of Landman. It’s so good. Like

[00:57:29] Matt Cherwin: Landman, all the Yellowstones, everyone. 19 80, 18, 23, 19. All of those lion, any of those, I’m suckers.

[00:57:36] Barry Ritholtz: Linus was also great. This should be a new season of that coming out one of these days.

[00:57:41] Matt Cherwin: Yeah, there is. I mean, I think I’ve watched both seasons like a hundred times.

[00:57:45] Barry Ritholtz: Final two questions. What sort of advice would you give to a college grad interest in a career in investing, credit trading, what have you?

[00:57:54] Matt Cherwin: I just think it’s not, you know, it doesn’t have to be a commitment for life. Just look at it as what’s something I’m interested in being interested in. I think you can pick the kind of people you work with and you want to be around good people who will teach you, who will support what you’re doing. And just say, I’m gonna give this a spin for three to five years, and if I like it, I love it, maybe I’ll sign up for another five. But you know, you have an opportunity to try something out and see if it’s for you.

[00:58:22] Barry Ritholtz: And our final question, what do you know about the world of trading credit, investing in alternative sources of, of liquidity and other products that would’ve been helpful 25 or so years ago when you were just getting your legs on? Do you

[00:58:38] Matt Cherwin: I wish I knew a fraction of what we are applying at Merrick. Any point before we did this, if I knew a drop of what we’re doing when I sat in other seats. Yeah, I’ll put that all in the I wish I knew bucket.

[00:58:55] Barry Ritholtz: Really, really absolutely fascinating. Matt, thank you for being so generous. Thanks for having me with your time. We have been speaking with Matt Sherwin. He’s co-founder and chief investment officer of Merri Capital. If you enjoy this conversation, well be sure and check out any of the previous 600 or so we’ve done over the past 12 years. You can find those at iTunes, Spotify, Bloomberg, YouTube, wherever you get your favorite podcasts. I would be remiss if I didn’t thank the correct 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 Ol. You’ve been listening to Masters in Business on Bloomberg Radio.

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The post Transcript: Matt Cherwin, Co-Founder and Chief Investment Officer of Marek Capital appeared first on The Big Picture.

This week, I speak with Matt Cherwin, Co-Founder and Chief Investment Officer of Marek Capital, an alternative asset management firm launched in 2024. He is responsible for the firm’s investment strategy, portfolio construction, research and risk management.

Previously, he spent 16-years at JPMorgan Chase & Co where he held titles of Chief Investment Officer, Group Treasurer, Co-Head of Global Spread Markets, Global Head of Securitized Products, and Global Head of Asset-Backed Trading.

His framework for analyzing markets relies on five vectors: Money, Capital, Credit, Liquidity and Regulation.

A transcript of our conversation is available here Tuesday.

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

Be sure to check out our Masters in Business next week with Bill Miller IV, Chief Investment Officer and Portfolio Manager at Miller Value Fund. Previously, he was at Legg Mason Capital Management covering specialty finance + consumer spaces with a focus on high-yielding securities. Miller competed in the Poker World Series Main Event. He began his career working for his father, famed investor Bill Miller III.

The post MiB: Matt Cherwin, Co-Founder and Chief Investment Officer of Marek Capital appeared first on The Big Picture.

At The Money: Finding Alpha via Unique ETF Strategies  (March 12, 2026)

If you want market performance (beta), you buy broad index funds. But what if you want to use a portion of your portfolio to try to beat the market (alpha)? One option is to pursue alpha via quantitative ETFs.

Full transcript below.

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About this week’s guest:

Wes Gray is founder and CEO/CIO of Alpha Architect. He helps managers turn strategies into ETFs by providing turnkey, white label platforms to handle all of the complex and expensive office operations.

For more info, see:

Professional website

Masters in Business

Personal Bio

LinkedIn

Twitter

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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:

Intro:
Only to be with you
But I still haven’t found
What I’m looking for
But I still haven’t found
What I’m looking for

Barry Ritholtz: Index funds have dominated capital flows since the Great Financial Crisis. One of the rare exceptions is the pursuit of alpha via quant funds. These create very specific return characteristics that aim at somewhat different goals than the big broad indexes.

I’m Barry Ritholtz, and on today’s edition of At the Money, we’re gonna discuss how to pursue alpha through exchange-traded funds. To help us unpack all of this and what it means for your portfolio, let’s bring in Wes Gray of Alpha Architect. He’s a quant who also specializes in ETF constructions. Wes also runs ETF architect.

So let’s start very basically, Wes, when you talk about alpha in an ETF wrapper, what do you actually mean? And we are talking about excess returns over cap weighted beta or is it something else?

Wes Gray: Yes. So let me frame it – alpha is obviously a loaded word and it can mean a lot of things to a lot of people. On one extreme, you got Jim Simons, you know, busting out 50% returns with no risk. But guess what? You are never gonna be offered this ever in your life, period. Because if I could do that, I would just manage my own money and become a billionaire, right?

The alpha for the rest of us, at least in my mind, is it’s basically delivering unique differentiated strategies – after fee and after taxes – that help you shape or differentiate your portfolio beyond the core of what you already have there in the form of like your Vanguard Beta, right? But, but let’s be honest, we’re we’re not gonna, it’s, it’s not the alpha in the RenTech sense, it’s the alpha in unique different boutique helps you shape your portfolio outcomes.

Barry Ritholtz: And, and just to clarify, if we ought to believe Greg Zuckerman’s book on, Jim Simon’s, it was 62% a year and they did kick out everybody except the founding partners in the Medallion fund. It didn’t scale much beyond a few billion dollars, but still 62% annually for 30 years, nobody’s even in second place. It’s, it’s amazing.

Let’s delve a little deeper into Alpha. How do you think of it? Is it behavioral? Is it structural? Is it informational? Or is it simply here’s where the model generates returns above what the market is, is doing on average?

Wes Gray: Yeah, so if we’re gonna talk about kind of alpha or the kind of stuff that we wanna focus on in the context of a ETF wrapper that’s public and has some capacity, I think it really boils down to boring things like that Vanguard can’t do.

For example, like how do I differ? How do I deliver something low cost, great tax outcomes, that’s also very unique, trades a lot and is gonna change or, or shape your portfolio in ways that could be favorable for you beyond just buying SB 500. And usually that’s gonna be related to diversification benefits, portfolio insurance benefits and what have you.

It’s the poor man’s alpha. It’s not the, it’s not the two and 20 alpha, but that’s just the reality of, you know, being in a product with a lot of scale and serving the public.

Barry Ritholtz: It’s funny you say that I, when I think of alpha, I typically just think of factor exposure, value, momentum, quality, etc. How much of ETF based alpha – “poor man’s alpha” – is really heavily focused on factor exposure?

Wes Gray: I would say pretty much all of it is. And if it hasn’t been factor exposure yet, it will be ’cause people just need to invent the factor that then explains that aspect of your performance.

Obviously, if you’re in a transparent wrapper, like at an ETF, everything can be explained with factors at some level. It’s just a matter of, did we think about that factor yet? And so again, the alpha idea is like, we wanna deliver you these u these unique market factors, but, and we wanna make sure you capture all those efficiently, low cost and with good taxes. That’s kind of the goal of ETF Alpha.

Barry Ritholtz: I have an academic question for you, and you’re kind of an academic, so you’re the right person to ask. You know, you, you studied with Gene Fama; all of these factors are public and well known and in an ETF where it’s transparent and disclosed, why doesn’t this alpha just get arbitraged away? How does this still persist if everybody knows about it?

Wes Gray: Yeah, so I think humans are gonna human…

And let’s just take the most basic example, the value factor. Buy cheap stuff everybody hates.

We all know that over a hundred years or 200 years in every market and every data set you can ever find, there’s typically some sort of edge to buying cheap stuff that everyone hates.  But then there’s a dirty secret for 10, 20 year stretches. It can underperform your benchmark and you’ll look like the biggest idiot on the planet.

Everybody knows it has a long game historical edge. Everyone knows if you buy the cheap house in the neighborhood versus the most expensive, you’re probably gonna make money on average over the long haul. But that doesn’t mean everybody is gonna go all in on buying like the, the value factor, right? They’re gonna go buy Bitcoin, they’re gonna go do momentum, they’re gonna do all, all kinds of other things.

I think a lot of like the quote unquote alpha, it’s alpha in plain sight, but it’s, that doesn’t mean it’s like easy to do because it, you know, you gotta have discipline, you gotta have long time horizon, you gotta stick to the plan, you gotta stick to the program.

It’s, it’s kinda like dieting and like being in shape. Like we all know how to get ripped, eat, exercise and sleep appropriately. Don’t eat bon bons, don’t eat McDonald’s, but the alpha is there. We all know what you’re supposed to do, but that doesn’t mean everybody does it. It’s the same exact problem with investing in these quote unquote alpha factors and why they don’t get arbitraged away.

Barry Ritholtz: It’s funny, I’m gonna paraphrase my favorite white paper of yours that you put out a quite a while ago. “Even God would get fired as an active value investor or fund manager.”

How is that possible? I love how you sum up so many different parts in the title of that, but if God’s gonna get fired as a value investor, what chance do the rest of us have?

Wes Gray: Well, exactly, and there’s been follow on research, I think someone in your shop actually did it where what if we were God the tactical asset allocating manager, same problem. Like you could underperform the benchmark for a long period even though you’re literally perfect and you’re like Biff, if you remember back to the future where he is got like the little almanac. It’s just the, the reality is markets are volatile and they generally work in a way that they’re gonna push you to maximal pain before the gains are there. And, and that’s just the nature of how markets clear and how they work. So is what it is, and I can’t explain it, but like I said, humans are gonna human in the past, in the present and in the future.

Barry Ritholtz: So I have a couple of technical questions to ask you and then I wanna dive into some of the more really interesting ETFs Alpha architect manages. But before we get to that, the perennial challenge with everybody who is a quant and everybody who works with factor investing is that they do these back tests and there’s a tendency to either overfit, I mean, we’ve never seen a back test that we didn’t love. The problem is if the future looks exactly like the past, well then the back test is great, but most of the time that doesn’t happen.

How do you prevent that sort of overfitting? How do you prevent, oh my God, here’s the perfect back test and, and not understand why that that model isn’t really gonna work in the future.

Wes Gray: I think at the outset the best rule is just never trust any past performance, especially hypothetical, but even live past performance.

The reality is what you should understand is what is the process fundamentally, and then obviously why has this work and why will it continue to work?

For example, if if someone shows me a back test that says, Hey, I made 50% returns a year with like no risk and you don’t have a 250 IQ like, you know, the RenTech guys, which nobody else does, I’m gonna say, well that’s great, it’s in the back test and I’ll grant you, let’s just assume it’s true. That’s pretty straightforward. Why would that exist in the future?

Unless you got a great story about how terrible this is simultaneous to how great it is, it’s just not believable or credible, right?

And, so that’s my benchmark is don’t believe any back test, especially if it shows a great thing, unless it also shows why it’s so bad, why is there so much career risk? Why is this underperformed the benchmark year in year out, potentially for decades to get me fired and to wanna jump off a cliff? Like I wanna know that information because now I’m like thinking, oh, that back test might actually be legit then, but, but there’s, but there’s a trade off. It’s not like it’s an easy thing to deal with in the future. So, you know, that’s what I’d say.

Barry Ritholtz: Let’s talk about some other risks from back tests, drawdowns tracking error, trail risk, crowding. What other things do investors tend to underestimate or quants underestimate when they’re looking at a model?

Wes Gray: Just pick ’em all. They underestimate everything. And the reason is because of incentives.

Generally speaking, I only focus on academic research and peer reviewed journals, not because academics are the best or smartest or most practical, but they have the least warped incentives in a sense that they’re, they’re also warped too. Like no one’s biased.

Barry Ritholtz: Well they want tenure, but they’re not, they are not Form fitting; not fabricating alpha.

Wes Gray: Exactly.. Their currency is like ego prestige like getting published, which is, it’s not show you this back test to go buy my product. So, so just because of the incentive problem tied to like back test from an asset manager, it, it’s, you know, it’s just, it’s, it’s like kinda like there’s a, there’s a study on how to, there’s drug from like sponsored by Pfizer research, like I just can’t believe it at the outset, right?

I think in our business where if it’s a back test and unfortunately it was produced by an actual firm that sells the product, you just have to discount it damn near 99% and, and you know, go look for like other evidence from like quote unquote people who are less biased and you know, unfortunately that that’s really boils down to academic researchers, but they have their own biases as well.

As far as I know, that’s the best you can find out there.

Barry Ritholtz: Let’s talk about some of the funds that you help put together and help manage starting with both momentum and value: QMOM and IMOM are US-based or international momentum strategies and then QVAL and IVAL as US-based or international value strategies. These seem like such core factor models. Tell us a little bit about these four products and who tends to be the investors in these? 

Wes Gray: Generally speaking, what’s the genesis of these products and and why are they very different but also very bad potentially for people?

I was an academic, right? I’m a PhD sitting around here spinning the data tapes and I just wanna figure out how to invest my own money. And I read all these papers, they’re like, great, take the thousand largest stocks, you buy the top 10% on book to market and this works over long-haul.

So naturally, because I’m not in the investment management industry, which we’ll talk about in a second, like these products are designed like that to deliver these kind of academicy factor looking things like, hey, top 1000, let’s go buy the top five or 10% on momentum and call it a day monthly rebalance. I’m oversimplifying. That’s the idea. And I like that because it’s grounded in the actual formation of how academic portfolios are actually created.

Now that’s not what normal people do. I learned what normal people do is you start with the S&P 500 index, right? And then you do little tilts plus or minus because why would you wanna do those academic factor things? Because you’re gonna get your booty fired real quick because you’re gonna deviate like a madman from those underlying core benchmarks. And that’s just the, the lot that we chose.

Barry Ritholtz: But that also means you have a very high active score and you’re not a closet indexer.

Wes Gray: We, yes, it, it’s, we are, we are not closet indexers and we have very high active share and we’re definitely doing something different and unique, but we don’t like to sell our products be because it’s really important that people buy our products to understand what they’re getting into because of this whole problem that they can outperform and we look like heroes, they can underperform, we look like zeroes and everything in between. It, it really does require kind of this 10-year horizon and a lot of understanding of the process and why it works.

Barry Ritholtz: So let’s talk about what’s I think is your largest ETF and, and it’s a based on a box spread that ETF I’m gonna say that again. It’s based on a box spread that option riders have been using for a long time to generate a low-cost lending situation against stocks. BOXX is the alpha architect one-to-three-month box ETF that’s coming up on $10 billion and then a little more intermediate duration underlying box a tell us about these two strategies. They seem really interesting.

Wes Gray: The fundamental idea here is that we can access the market price risk free rate through the box spread market, which we can have a whole nother podcast on how the heck that works and what it is. But just think about like instead of going through the treasury market where I access what the government’s gonna give me, effectively I can go through the box spread market and access the implied risk-free rate amongst like broker dealers, banks and traders and everyone else in between

Barry Ritholtz: Which is much lower.

Wes Gray: Yes, and, and, and so what box is trying to do is how do we deliver excess returns, net of fees and taxes and all that good stuff over the equivalent duration.

We’re, we’re targeting one of three month duration.  You know, obviously if you’re gonna do treasury bills, you could do one to three month duration there. The, the key goal is how do we beat that?

And, we have done this and the idea is like it’s just that funding market has a little bit less slack and there’s some other reasons why it outperforms, but we’re just trying to capture that net of fees and net of taxes in box and in box A. There’s also a trend component, but it’s the same idea. How do we, how do we access these funding markets and fixed income markets but deliver ’em in such a way that ideally we can outperform and, then potentially have other benefits along the way.

Barry Ritholtz: Let’s talk about two really interesting funds. I love the stock symbol chaos, CAOS, the alpha architect tail risk. I’m assuming that’s exactly what it sounds like? You are, you are managing the potential for there to be a market crash.

Wes Gray: Yes, with a twist

There is no free lunch in in options and, and broad market exposure. I’m not here to say that this is a alpha generator in some sense, but what that product is doing is most tell risk funds. Like why do you buy a tail risk fund? And I wanna get protected if the market blows up. Well what’s the downside of a tail risk fund? Well, we bleed out to zero over time because I’m buying puts all the time.

What CAOS represents is a trade off where we say, listen, we’re gonna buy the protection. So if the market bombs out, it’s gonna make money, we’re gonna be selling put spreads to fund that, and we’re gonna invest your collateral as efficiently as possible. And what does that mean? Well that means that we’re not protecting you in like say the 0 to 20% range in like a slow bleed out. You’re also gonna lose money, right?

So, chaos is just saying, hey, we’ll deliver the deep tail risk but we’re gonna have to pay for it by eating risk in like the, the small drawdowns, but that’s what pays for our insurance. And then we’re just trying to deliver all that in a tax-efficient, you know, fee-efficient manner. So, you know, people kind have tail risk protection but without the bleed. But again, it’s just reiterate, it’s not a free lunch in the sense that we just, you know, sell you insurance that always works and you never lose money. Just to be clear on that,

Barry Ritholtz: I  do recall was it the first quarter of 2020 during the pandemic, this exploded upwards like 25, 30%. Am I remembering that right?

Wes Gray: Yes. It’s designed where if the market blows up and the VIX explodes, this thing, I mean, I can’t guarantee anything, but it should, with very high expectations, make a lot of money if that fact pattern is true.

So if Trump says something crazy or you know, North Korea nukes us tomorrow and the VIX goes to a hundred, and the market’s down by 50, chaos will probably be doing pretty well.

Barry Ritholtz: And the last one I want to ask ’cause I love all of these unusual box chaos sort of things that are not the typical ETF hide high inflation and deflation. I love the symbol, HIDE hey you need a place to hide during an inflation spike or deflation HIDE is is the place. Tell us a little bit about that ETF.

Wes Gray: Yeah, same idea. We call this poor man’s managed futures ’cause it’s 29 basis point and we’re trying to deliver that kind of exposure if you’re familiar with it. But the basic idea is like listening to you.

The idea is like this: listen to me. For your diversification, you want something that could protect you if there’s hyperinflation or potentially shield you if there’s deflation, but we don’t know what it’s gonna be. So all that product does is say, hey, we’re gonna focus on bonds, which can help you in deflation. We’ll focus on commodities, which will help you in inflation. And then we have real estate as kind of an in-between option, and we just tre

If the bonds are doing great ’cause we’re trending towards deflation, own those. If, you know, if inflations look crazy, great, we’re gonna own commodities to get ahead of that curve and then if nothing’s got any movement, we’re just gonna own cash and hide literally. So it’s just you hyperinflation or deflation protection in one product, so you don’t have to think too hard.

Barry Ritholtz: So to wrap up, for those of you who have a core index approach, but want some satellite ideas to surround the passive index, consider ETFs that focus either on specific factor strategies or specific option strategies that could work to your advantage, both in terms of diversification and non-correlation to what the core market is doing.

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: Pursuing Alpha through Exchange-Traded Funds appeared first on The Big Picture.

The transcript from this week’s, MiB: Ed Perks, Franklin Income Investors CIO / Franklin Advisers President, is below.

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

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Masters in Business with Barry Ritholtz
Guest: Ed Perks, CIO of Franklin Income Investors

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

[00:00:13]  Barry Ritholtz:  On the latest Masters in Business podcast. My conversation with Ed Perks, he has been with Franklin Templeton since 1992. He has all of these various titles. He’s not only PM of their flagship Franklin Income Funds, but he’s CIO of Franklin Income investors, president of their advisors group. Member of these executive committee. Not many people have been with the same firm their entire career, right? Of right out of college. Ed Perks is one of them. Few people more knowledgeable about fixed income and non bond yield. I thought this conversation was fascinating and I think you will also, with no further ado, my conversation with Franklin Templeton’s. Ed Perks. Ed Perks. Welcome to Bloomberg.

[00:01:10]  Ed Perks:  Thanks, Barry. It’s great to be with you. Well,

[00:01:12]  Barry Ritholtz:  That’s really quite an impressive cv. Before we get into the various assets you manage, let, let’s start with your background economics and political science BA from Yale. That doesn’t sound very much like a fixed income manager. What, what was the original career plan?

[00:01:33]  Ed Perks:  Yeah, it certainly wasn’t finance and you know, at Yale, I, I really kind of, you know, certainly had a, had a broad cross section of, of studies, you know, like many of my classmates. I think if it wasn’t med school, it was either law school or, or going into government. I think that’s kind of some of what I was thinking during school. Really didn’t, didn’t transition to trying to pursue a career in finance until actually I, after I graduated and at that time I moved out west. I wanted to, you know, experience a different part of the country. And particularly in the early 1990s, the San Francisco Bay area had a pretty robust financial services Sure. Community. And so I headed out after graduation without a job and, and was able to land at Franklin.

[00:02:19]  Barry Ritholtz:  Plus you’re done at one o’clock in the afternoon. That’s, that’s the,

[00:02:23]  Ed Perks:  You do start a bit earlier.

[00:02:24]  Barry Ritholtz:  You start at five 30. It’s very, very five in the morning. I remember walking into an office in San Francisco and at 8 45 there are pizza boxes around and it’s sort of Oh, that’s right. We’re on New York Wall Street time. ’cause the market is live. So let’s talk a little bit about the 1990s. You joined Franklin Templeton. Is this your first gig outta school in 1992? You’ve been at Franklin Templeton your entire career, is that right?

[00:02:50]  Ed Perks:  Yes, it is. Yeah,

[00:02:51]  Barry Ritholtz:  That is pretty rare these days. Tell us about what attracted you to Franklin Templeton in the beginning and what’s kept you there for, geez, coming up on 40 years, is that right?

[00:03:03]  Ed Perks:  Yeah, well, when I loaded the, the car up on Long Island, I drove a, a small Mitsubishi Mirage hatchback across country, no satellite radio, right. No air conditioning, no cell phones. So it was a different time. But got out to California, really had the, had the thought that I might experience the West Coast for a year and a half or two years and, and make my way back to New York and, and get, get the, the real job, so to speak. Right. You know, and I was really fortunate to land at, at Franklin at a time of, of just tremendous growth. Not just in the industry, but for our firm overall. I actually joined the original Franklin funds prior to the

[00:03:45]  Barry Ritholtz:  Templeton

[00:03:46]  Ed Perks:  Prior, prior to the Templeton merger. Yeah.

[00:03:47]  Barry Ritholtz:  Wow.

[00:03:48]  Ed Perks:  So that, yeah, that certainly dates me and makes me, I guess a little og. So, you know, I think what was really interesting, and I, I landed at first and took a role in, in marketing research. I knew very little about the industry structure and I wanted to learn, and it gave me a great cross-section of, of different investment strategies. I had taken, you know, a class at Yale Investment Analysis taught by, you know, pretty legendary endowment manager, David Swenson of course. 00:04:20 And I think at the time I maybe hoped that it was a bit more of a, you know, a a typical stocks for jocks kind of class. And, and in fact it was not. But that did plant a little bit of the seed and, and, you know, but I knew I had work to do to kind of prepare myself for a role ultimately in, in pursuing research. And, and after about a year and a half and taking one of the CFA exams, I was able to get that junior role as a research analyst in the Franklin equity team,

[00:04:51]  Barry Ritholtz:  1990 San Francisco. The tech boom was just ramping up late eighties, early nineties. What, what was that experience like? That had to be the roaring nineties had to be quite an experience in San Francisco.

[00:05:04]  Ed Perks:  Yeah, I’d I’d say it really kind of kicked into gear more in the 96 7 time period, and then certainly right through the irrational

[00:05:10]  Barry Ritholtz:  Exuberance

[00:05:11]  Ed Perks:  Era. Yes. And that was premature, but there was still plenty of, plenty of time to go in it, but it was a very exciting time to be out there, not just in the tech community, but thinking about some of the regional investment banks, Montgomery Securities and Hamburg and Quist and Bobby, Bobby Stevens, you know, so you had a lot happening. The, the, the economy as a whole, I’d say at that time was, was far more diversified than it is maybe today. Obviously technology is such a dominant player within Northern California.

[00:05:39]  Barry Ritholtz:  Yeah. It’s not that anything else got smaller, it’s just that tech ballooned up so large and it dominates everything. Although, to be fair, i I I think finance has, it hasn’t grown as fast as tech, but it certainly expanded lock, you know, fairly lockstep with technology. What’s fascinating about your time, your early days at Franklin Templeton, you did credit, you did convertibles, you did equities. How important was that sort of cross asset experience to eventually becoming more of a specialist?

[00:06:13]  Ed Perks:  Yeah, I think it was a key component of it. I really was drawn to early days. I was drawn to the different type of analysis that you would perform based upon the kind of company you were, you were following, or industry you were following. And we did have a, a, a broad cross section of, of strategies managed at Franklin. So as an analyst following companies, you kind of always had something to pitch a given portfolio manager on. And that was something that really attracted me. So whenever we had some movement in the group or growth adding resources in certain area that was interesting, I kind of was inclined to put my hand up and, and that led to a lot of the progression of, of the career ultimately moving out of the analyst role in 1997 and, and taking on the duties of portfolio manager for that dedicated Franklin convertible security fund.

[00:07:05]  Barry Ritholtz:  So over all these different experiences and over time, how does that lead to the evolution of your philosophy as an investor? What, what beliefs did it strengthen and and what beliefs did you learn to Yeah, this just isn’t generating any, anything that’s worthwhile anymore.

[00:07:25]  Ed Perks:  Well, I think the first thing is really kind of understanding who you are as an investor. And, and I, I’m a pretty firm believer in this, that over time I, I came to understand that I like a certain type of investing. I like buying things that, that trade at reasonable valuations that might not have a, an immediate catalyst, but something that you can look out over a longer period of time. By having that longer term investment horizon income naturally became something you’d focus on in terms of just thinking about it from the standpoint of getting paid to wait while your investment kind of performs the way you think it, it, it has the potential to. So that’s something that, that certainly started to resonate at the early part of my career. But I would say actually getting involved in convertible securities was a pretty significant defining moment for me in that you can pursue investing in convertibles, which are hybrids which have fixed income characteristics and have an equity tie as well, and seek out investments that have the potential for positive asymmetry. So securities where with a given time horizon and a certain move in the underlying common stock, you’ll do better on the upside, then you will get hurt on the downside. And it was just something that really appealed to me and I think is a core component of what we’ve done historically and tried to do in our multi-asset income strategies.

[00:08:53]  Barry Ritholtz:  Let, let me throw something out to you. I have noticed as both a trader and an investor that the equity guys who started in fixed income seem to have a greater appreciation for risk management and for thinking about asymmetrical trades where your downside is X and your upside is three x or 10 x or whatever. What is it about fixed income analysts and investors that makes them so hyper-focused on risk management?

[00:09:23]  Ed Perks:  Yeah, fundamentally, you’re just doing a different, different type of analysis. And I mean, one of the things that we found kind of most fascinating over the years is given we have a, an internal team of equity analysts and an internal team of credit analysts, that opportunity, when you’re meeting with company management and you’ll sit down with both analysts and companies typically come to investors thinking they’re on an equity roadshow or a fixed income roadshow. Right. And when you sit down and now you want to talk about it from both perspectives, that’s some of the most interesting meetings we’ve had over the years with companies. They in fact do have kind of different stories for those different investor groups. So I think it gives you that, that broader perspective of, of what the capital allocation decision making process looks like at a given company. And ultimately what we’re doing is trying to figure out what money they will have, IE what our margins, how are, how are profits growing and what they’ll do with that capital.

[00:10:17]  Barry Ritholtz:  So in your present roles, you have the latitude to kind of go anywhere either in the cap structure or the allocation table or geographically, how does that affect how you think about what, what’s interesting, what’s, what’s attractive? Like, it it’s almost overwhelming that sort of freedom to pretty much consider almost every asset class. Yeah,

[00:10:43]  Ed Perks:  I would say that’s actually kind of our ideal situation and we are in that today. I think there was a lot of, a long period of time post-financial crisis 2008, nine, where, you know, almost the intent of the policy was to eliminate large sectors and the fixed income markets from being attractive to investors, Tina. Right, exactly. So, you know, I I really kind of viewed today and, and you know, the bond market being back was announced pretty loudly in 2022. So you know, today the fact that we can look across, you know, the, the swath of fixed income markets and find, you know, interesting areas, you know, it may be more income focused. IE if we’re not expecting a significant downdraft in interest rates, the total return potential from fixed income might be more muted. But they can play a really interesting role in, in generating that kind of stable core, total part of total return that we expect income to be.

[00:11:38]  Barry Ritholtz:  We are gonna talk a lot about fixed income coming up, but your CIO of income investors, what’s the biggest macro variable that the CIO of Franklin Templeton income investors looks at every morning?

[00:11:52]  Ed Perks:  Yeah, I mean we, we really think there’s kind of two components to what we need to do. And, and you know, one, I would put in this, this more kind of where we can be proactive. It’s the, the, the, you know, the extent to which we think there’s risk on the equity side of markets, credit risk in markets or, or macro or interest rate risk. Those are the three kind of big risk components that we actively try to think about. I would say that sets our kind of compass for how we want to allocate the assets. And even though over long market cycles, we may be pretty equally split between fixed income and equity assets in our strategy at times, even in the last five years that’s been 75, 25 1 way and then flipped the other way. So there is a tremendous amount of latitude and, and then, you know, I think on a day more daily kind of basis, certainly something that we’re experiencing in, in pretty good dose to start the year is, is those more reactive components of risk. And, and you know, we do think right now policy matters a lot and it’s, it might be fiscal policy, monetary policy, regulatory policy, but we’re in, we’re reminded almost on a daily basis now that there’s a lot of other factors, foreign policy, geopolitical risk, that, that certainly influence markets. It doesn’t mean we’re gonna make wholesale changes to the portfolio, but being able to engage and get our investment team focused on, on where opportunities might be is a big part of the day-to-day

[00:13:19]  Barry Ritholtz:  Role. So, so let me ask that question. We we’re waiting for some major Supreme Court decisions in a whole variety of areas. There’s the ongoing battle between the White House and the Federal Reserve that, that, that’s been heating up lately. It’s been sort of simmering for really a year. It seems every morning you wake up and there’s some tweet or something else that are roiling the markets, wait, we’re gonna cap credit cards 10%. Good luck getting a credit card. If that happens. How do you interact with all this news flow? Is it something you ignore? Is it noise that you have to sift through or are you constantly hunting for what’s really meaningful here that’s not reflected in prices already? What could potentially move markets if this seems to catch a little bit of fire?

[00:14:12]  Ed Perks:  Yeah, I, I I think the, the desire would be to, you know, tune out that noise to largely ignore it. But the reality in markets, those examples that you’ve given drove some pretty significant movements, even if just for a short period of time, you know, I would use the, the major banks, those that are more focused on issuing credit cards as an example yesterday in, in in stock, you know, price activity last week, maybe some of the large defense contractors, how they were impacted by some of the announcements. Those are some pretty significant swings that we do have to pay attention to and do have to think about whether or not there’s the opportunity. But I think if you can step back, think about it a little bit more rationally, clearly we wanna engage and get the insights from our dedicated analysts on those specific situations. That’s where some opportunities come in. And, you know, I think whether it be an an isolated, very specific, maybe more short term event that’s, you know, one, one instance. But if we go back a year, you know, there was a two to three week period of tremendous volatility around a policy shift that really gave investors an opportunity around that, that tariff day and, and liberation day.

[00:15:21]  Barry Ritholtz:  Yeah, it was a week of, you know, turmoil and then on pause and off to the races. We had, you know, the most recent DOJ referral with the Federal Reserve. I spoke to a buddy on a bond desk over the weekend when this happened and I, I love the attitude of, well look at the two year, it doesn’t care. So why should I care? I, is that a little too glib? How do you look at how the market, especially fixed income market reacts to the news flow? Is that really the ultimate determiner of what’s noise and what’s signal?

[00:15:58]  Ed Perks:  Yeah, I think it’s a good, I might broaden it from the two year to say, let’s look at the curve. Okay. Especially today where I think there’s probably more sensitivity around where longer term interest rates are, are sitting and potentially could go, you know, to me anything that that increases the confidence, the raises the uncertainty level around the economy, I think our, our challenges that, you know, if we were to see the long end respond unfavorably too would be quite problematic for markets coming

[00:16:27]  Barry Ritholtz:  Up. We continue our conversation with Ed Perks, chief investment officer of Franklin Income investors and President of Franklin Advisors discussing the broader fixed income environment. I’m Barry Ritholtz, you’re listening to Masters in Business on Bloomberg Radio. I’m Barry Ritholtz. You are listening to Masters in Business on Bloomberg Radio. My extra special guest this week is Ed Perks. He is CIO for Franklin Templeton income investors. He is also has been PM of a number of their fixed income and hybrid funds, including their flagship Franklin income fund, which he became lead pm I wanna say 2002, is that right?

[00:17:21]  Ed Perks:  Joined the PMT in 2002 and and lead in 2004.

[00:17:25]  Barry Ritholtz:  2004. All right. Not, not two. That’s 20 plus years. So, so let’s talk a little bit about what’s going on in fixed income. Lot of cross currents. Here’s what’s happening with the Fed, here’s what’s happening with the dollar overseas has become more attractive. Let, let me just right outta the box. Where are you seeing the most compelling risk adjusted income opportunities today? High yield investment grade dividend equities? And I know you could go anywhere, so what, what do you like

[00:17:56]  Ed Perks:  These days? Yeah, you know, I would say in fixed income we are really pretty diversified across the, the range. I mean, for us that is, is US treasuries, it’s agency mortgage backed securities, it’s investment grade, corporate bonds and, and high yield corporate bonds. And you know, we, we have different factors there. You know, one, we do think the carrier, the income component of fixed income is, is quite attractive again today. And, and like I said before, it’s, it’s been a while since, you know, that was the case or there was a long period of time where that was certainly not, not a function, not a, a a, a benefit that investors in fixed income had spreads on the corporate side. Do, you know, concern us a little bit, but at the same time, you know, we have seen extended periods of time historically where spreads spreads have stayed on the tighter side near historical lows. 00:18:45 So, you know, our view is that you want to be diversified, look a little bit more at idiosyncratic risk. So sometimes in our, in our strategy, we do think the biggest lever that we have moving from one asset class to another is, is the most appropriate. We certainly had that in, in 2021 and 2023 today we think that lever is a little less important and it’s a little bit more about relative value between sectors and or security selection, idiosyncratic risks. So I think in the past year, moving out of some of the significant overweight that we had in investment grade, corporate debt, for example, in favor of agency mortgages ’cause spreads had really widened out was something that worked out well for us in 2025.

[00:19:28]  Barry Ritholtz:  I noticed you didn’t mention tips, treasury inflation protected securities. Is that something that at the current level of inflation and the current yield there is that attractive? Yeah,

[00:19:39]  Ed Perks:  It, it, it’s not something that we’re focused on on today. You know, I think to the extent that we see inflation continue, you know, to come down and settle in at a lower level, that tips may become something that we want in the portfolio to the extent that then inflation could a surprise to the upside.

[00:19:55]  Barry Ritholtz:  And let’s talk a little bit about those corporates you mentioned. Are we getting enough spread between investment grade and high yield corporates to make the juice worth the squeeze or ’cause for a long time there’s hardly any daylight between the yield in both. How, how do you look at that? Are, are corporates cheaper, expensive, high investment grade relative to high yield?

[00:20:21]  Ed Perks:  Yeah, we do think moving up into the higher credit quality components of high yield is probably one of the more attractive areas. You know, we also like to, so if you’re looking at triple B BB spreads, we want to be in, in the higher quality credits to the extent that we’re owning a broader section of high yield, which we do in our strategy, it’s emphasis more on the latter security selection. What is an individual company doing to be able to ance the debt to term out their maturities or ultimately to improve the overall credit quality. We do think rating agencies lag by a significant margin. Right? And if you can get ahead of that and use your fundamental analysis that that’s a, that’s a a, an area within the fixed income markets we wanna be focused on.

[00:21:03]  Barry Ritholtz:  I’m trying to remember who I’m stealing this line from, but it’s definitely not mine, which is there’s so much variation in the B minus space that some of it is junk and some of it is IG and maybe some of it’s in between, but the variance is, is enormous fair statement. Yeah,

[00:21:22]  Ed Perks:  I think that is and, and you know, certainly there are investors that play only in certain parts and when you’re flirting with that lower credit quality component B minus into ccc, that that, that starts to change the dynamic of, of who the investor base potentially is.

[00:21:37]  Barry Ritholtz:  Hmm. So you’ve been doing this for a long time. You’ve lived through the financial crisis Zer zero interest rate policy, quantitative easing, the most recent inflation shock and and tightening cycle. For someone who has your authority to go anywhere, what of those types of environments are the most challenging to manage an income portfolio through?

[00:22:06]  Ed Perks:  Yeah, I mean I, I think certainly the periods of extreme volatility are gonna be challenging for any strategy and, and in my career, the ones that I’ll, you know, go back to certainly when managing the convertible fund around the.com crash and then in our income strategies, both financial crisis. So, you know, yeah, markets bottomed in March oh nine, but September of oh eight was pretty difficult for any investor. You know, to me, I think what’s really defined our strategies and maybe become a little bit of a, you know, the focal point of, of our approach is, is to continually look forward. I mean, I think the, the number of investors, even if we were to bring this more into the current, you know, time we spoke less than a year ago and tariff volatility was impacting markets. I think a lot of investors have the tendency to, you know, to sit on their hands a bit when there’s this kind of volatility playing out in markets. And maybe even, even the worst case would be going to the sidelines, which we know a lot of investors did in September of oh eight or March of oh nine and yeah, well,

[00:23:10]  Barry Ritholtz:  The first week of April of last year.

[00:23:12]  Ed Perks:  Exactly. And, and that’s where I think because we have such a flexible mandate, our tension turns more to how can we optimize the positioning of the portfolio. We always have assets that are benefiting in some way, have some liquidity profile to them that lets us focus on being, playing offense a little bit more during those periods of time. And I think that’s something that has, has always enabled us to kind of recharge the portfolio. A pretty firm believer in the price you pay matters concept, whether it’s an income investment or, or something that’s designed to create more capital appreciation. And, and that’s something that, you know, really has enabled us to kind of ultimately come out of periods of volatility and deliver for our investors. You know, even though there might have been some, some bumps along the way.

[00:24:01]  Barry Ritholtz:  So 2022 was the first year that saw double digit losses in both stocks and bonds since 40 years earlier, 1981, which I recall was also a rate hiking environment, not quite as aggressive as what we saw in 2022. I’ve noticed people talking about anticipating that again and pretend preparing for it, is that a little overly cautious. How often do we see stocks and bonds both down that significantly in the same years? Is that likely to happen anytime soon? Well, I

[00:24:37]  Ed Perks:  Think the, the, the backdrop was, was really set for that dynamic. And what I mean by that is where rates had had, had declined to, you didn’t have the carried offset negative returns in fixed income and the resetting of where rates should have been, you know, provided that, that the fuel to, to drive those kind of negative total returns. So we really think we’re in that, certainly not in that position today. Never say, you know, can, can we, you know, don’t expect that that can never happen again, but certainly not the backdrop that we’re envisioning today. So just the rationale or why are bonds, can bonds be a diversifier in a multi-asset portfolio? You know, I think we would’ve argued, and if you look at our asset allocation in, in 2021, we did not believe so and they certainly did not offer attractive income for investors. Right? So,

[00:25:30]  Barry Ritholtz:  And that was good for 20 prior 20 years. They were not producing a whole lot of income after 2022 yields were, look, money markets were over 5% for a while. Now we’re in a rate cutting cycle. How does that affect how you look at fixed income products? Are you looking to extend duration? Are you looking to extend credit quality? Is there now reinvestment risk if you’re too short? How, how are you thinking about this?

[00:26:00]  Ed Perks:  Yeah, we’ve made such a significant move in, into fixed income in 2022 and, and, and, and 2023 that, you know, we do have that now in the corporate space in particular, we have companies that are, are engaging the market refinancing. So some of the real prized kind of investments we were able to make at the time, you know, we are now seeing some cash coming back into the portfolio. But way we treat that is that just because a dollar comes out, maybe a high yield bond is called away or matures, which they do in fact do at times. It doesn’t mean that dollar goes back into the high yield bond market. For us, it’s, it’s always gonna be that net next most attractive place that we’re looking today. We might be looking, you know, more specifically in structured equity or in convertible securities where, you know, we think outside of the, the very large mega cap tech companies that have driven this market since 2023, that there’s pretty reasonable valuation. So there’s a, a lot of companies, whether it’s utilities or industrials, that I think have a pretty interesting profile for the rest of the decade. So if we can pursue investments in their common stock, maybe there’s a two to 3% dividend yield. But if we can access a convertible, we can blend that yield up to something that’s more attractive for a strategy and yet still retain, you know, a pretty interesting profile. On the upside,

[00:27:18]  Barry Ritholtz:  My assumption is if something is being called away, it’s that it was too generous and now they’re refinancing at a more attractive rate. Let’s talk a little bit about the Franklin Income Fund. You’re only the third lead manager of this flagship fund. You followed Charles Johnson fairly legendary in the fixed income world. And, and tell us a little bit about what it was like taking over as lead manager of that fund.

[00:27:48]  Ed Perks:  Well, first lemme mention, I I had a chance to, to sit down with Charlie last month. Something I try to do on his regular basis as I, as I can and to still see and, and, and, and meet with him and, and hear the stories of, of some of the history is something that I really, really cherish and, and value doing. You know, I I think from the standpoint of, of 00:28:13 The, the path that that we’ve been on with Franklin income, you know, joining in in 2002 was, it was a large strategy for Franklin at the time. It was, you know, around 8 billion in, in assets under management. And I think what really kind of maybe though defined the strategy was that period coming out of the financial crisis and, you know, navigating our way and, and being able to engage the broad cross section of markets and, and perform very well for five year period really helped establish this. But at the same time, you know, we realized that investors, financial advisors do like a, a range of different strategies or the ability to use different vehicles to deliver an investment strategy. And that was something where in 2000 and and 22 we launched Franklin income and SMA vehicle and in 2023 we launched Franklin Income strategy and an ETF. So it’s been, and and you know, to see that strategy you get adopted in, in different vehicles is something that was a big part of taking this strategy that’s been so important for Franklin Templeton as a whole to a, a, a different type of

[00:29:23]  Barry Ritholtz:  Investor. And, and for listeners who may not be familiar with the Franklin Income Fund, a couple of things really struck me about it. First, not too long ago it celebrated its 75th anniversary. Ain’t a whole lot of funds that have been running continuously for 75 years, since 1950. And, and then secondly, and this amazes me uninterrupted monthly dividends dating back to the launch, which was I think 1948. Is that right? Yeah, that’s unbelievable. It

[00:29:55]  Ed Perks:  Is a great, it’s, it’s really a great story. It was part of the original custodian funds for Franklin and the, the first four were, you know, really the four asset classes at the time, a bond fund, a a stock fund, a a preferred fund, and a utility fund. And then the final series of custodian funds was the income fund, which meant, was meant to look at those other four strategies for asset classes and find the most attractive income investments. So Sure.

[00:30:21]  Barry Ritholtz:  The four food groups, that’s the core and you create a whole meal out of that. So you mentioned agency mortgage backs. What, what else do you look at that are either asset backed or CLOs or any exotic other products that theoretically generate pretty good yield relative to the risk the investor assumes?

[00:30:46]  Ed Perks:  Yeah, I mean I I I think that agency mortgages tend to be our, our core component within that part of the fixed income markets. But we’re always evaluating different opportunities, asset backed oriented investments. And you know, right now we’re, we’re pretty light. We do have a fair amount of corporate debt that is secure debt.

[00:31:05]  Barry Ritholtz:  So I recall coming out of the financial crisis double line as an example, had a ton of mortgage backed and it just seemed as everybody refinanced and refinanced their homes, the available paper just disappeared. I’m doing this off the top of my head, but it was something like 90% mortgages when it started and ended up at like 25 or 35% mortgages. We’ve seen a significant slowdown in home sales yield has been higher than it’s been for the past 20 years. So we haven’t been seeing a lot of refinancing and or a lot of new issuance. Is there enough mortgage backed paper out there? What, what’s going on in that space?

[00:31:50]  Ed Perks:  Yeah. And, and certainly it’s been topical just the last week or so with, you know,

[00:31:56]  Barry Ritholtz:  Fannie and Freddie purchases. Exactly. Exactly. Had 200 billion a month or some wild number Yeah.

[00:32:00]  Ed Perks:  And an additional 200 billion. But even beyond that, there could be an extension. So, you know, we did see the mortgage market react, right. We saw spreads kind of come down and you know, ultimately bringing longer term rates down is gonna be probably the biggest beneficiary in terms of activity within the housing market, but Right.

[00:32:17]  Barry Ritholtz:  Do we have to get down to 5% mortgage rates to see this really kick up? Or where are we now six and change six and a quarter?

[00:32:25]  Ed Perks:  Yeah, I mean I I I think certainly that needs to be the direction of travel, what that, that specific number needs to be to get some activity. Probably there’s some other factors as, as as well. Certainly the, the overall healthy the economy and the labor market are gonna be a major, major component of, of being able to get some of that activity going in, in the housing market. How, how

[00:32:44]  Barry Ritholtz:  Closely do you track macroeconomic news like the, if I had to describe the labor market today, I would say it, it’s still solid but not as strong as it was a year ago or even six months ago. Really since April we’ve seen it kind of soften up. We’re not seeing big layoffs. Do you, I always feel like a macro tourist when I I visit that space. ’cause it’s not my charge to predict labor markets. How, how do you integrate looking at all these data points that seem, as you said earlier, so noisy, so hard to find the signal in there.

[00:33:25]  Ed Perks:  Yeah. There, there’s something like the labor market clearly has taken kind of a, a, a front seat, right? We had the Fed really focused on fighting inflation and, and then as we saw the labor market weakening ultimately in, in, in encouraged the, for the fed to, you know, begin a, a resumption of the, of the interest rate cuts. Now, you know, I think there’s a kind of a reluctance in the labor market on both sides, right? There’s a reluctance maybe at the corporate level to hires a lot of uncertainty. Some of that was brought on by the, the onset of tariffs and just the uncertainty around where that was gonna impact businesses. And then I think you can ignore AI and the role that that’s happening, right? So there’s this reluctance maybe to hire and a reluctance to fire. So we’re, we’re stuck with a little bit more stagnant component in the labor market. Hmm.

[00:34:10]  Barry Ritholtz:  Really, really interesting coming up. We continue our conversation with Ed Perks, CIO of Franklin income investors talking about where he sees value in various equity markets. I’m Barry Ritholtz, you’re listening to Masters in Business on Bloomberg Radio. 00:34:43 I am Barry Ritholtz, your listening to Masters in business. I’m Bloomberg Radio. My extra special guest today is Ed Perks. He’s chief investment officer at Franklin Templeton Income investors as well as President of Franklin Advisors. He has managed several go anywhere as well as income funds for Franklin Templeton, including the flagship Franklin Income Fund, which can purchase pretty much anything it wants that generates income. Let’s, we’ve we’re talking earlier about the fixed income portion. Let’s talk about the equity portion. And I recall reading something you said as we were coming outta the pandemic about the dominance then of growth stocks over value. How has your views changed over the past five years of other than 2022 double digit gains in equities?

[00:35:43]  Ed Perks:  Yeah, I think, you know, we’ve gone through this, this period since the pandemic with different cycles within the equity markets and certainly there was a, a tilt immediately towards growth and, and, and, and value underperformed. I think it’s, it’s shifted a bit, certainly in 23 and four we saw it, it transition to more of a market cap dominance. And, and that certainly has, has proceeded I think since the beginning of, of 2023, something like the s and p 500 market cap has, has nearly doubled the performance of the s and p 500 equal weight index. So, you know, we do think there’s a lot of other things kind of under that initial layer if you pull it back and, and look at the broader equity markets that there’s a lot of opportunity across industries where companies are benefiting from the expansion in the economy that are benefiting from the secular dynamics that we see, whether it be in, in manufacturing investment or technology investment.

[00:36:39]  Barry Ritholtz:  Hmm, interesting. So we’ve also seen active equity management under fairly intense competitive pressure really for, for a good couple of decades. How does that change how you look at, at equity selection or asset allocation?

[00:36:57]  Ed Perks:  Yeah, you know, I, I think, you know, from a, maybe a bigger picture, you know, the move towards more passive exposures, the flood of money into passive investments has maybe exacerbated some of these dynamics around particularly the, the, the dispersion between the, the mega cap stocks, the market weighted indices and, and the average stock or the equal weighted indices. You know, I think for us it really becomes more about, you know, security selection. There’s still plenty of liquidity in those other stocks and, and to the extent that we can turn over rocks that maybe other investors are not looking at that are not being influenced as much by the magnitude of flows coming into passive indices is something that, you know, is a big part of our overall allocation. But I would really go back to, you know, this kind of view that as an income investor we can look for opportunities where we’re not trying to identify the catalyst next quarter or two quarters from now, we’re looking at investment with favorable fundamentals that we think over time can deliver for investors. And that income component, once again, kind of a significant part of maybe the near term total return.

[00:38:07]  Barry Ritholtz:  So, so let’s talk about those different asset classes that you’re not looking for. Great quarter guys. You’re looking for great decade convertibles, equity bonds credit. Do, do you play in the private space as well? How significant is that? Tell us about all these different multi-asset options you have and is there an overall core philosophy that sorta strings all of these together keeps ’em all in one philosophical bucket? Yeah,

[00:38:38]  Ed Perks:  I, I think one of the more interesting components, you know, of our, of our strategy is, is taking a little bit more of a holistic approach for how we invest in a company. I mentioned before, you know, sitting down at times with company management teams when you’re approaching it from both an equity and fixed income analysis standpoint. Well, looking across the capital structure, it’s pretty common that, you know, between a third or 40% of the portfolio will be invested in companies where we own multiple parts of a company’s capital structure. Meaning,

[00:39:07]  Barry Ritholtz:  Meaning their bonds, their equity and their convertibles or some combination, which

[00:39:12]  Ed Perks:  It’s, it is somewhat common in a multi-asset strategy to have kind of different components.

[00:39:20]  Barry Ritholtz:  And if you, you like the company, if you’ve done the research and its income, not just capital appreciation, why not own everything? Do the valuations fluctuate within the same company from corporate to equity to convertible? Sometimes a part of their cap structure is more appealing than others.

[00:39:38]  Ed Perks:  Absolutely. And that’s something that we’ve really seen over the last five years, certainly when longer term rates were a lot lower, really across the board there were companies where we saw equities trading in mid-teens multiples with 3% dividend yields. And the same benchmark longer term debt from those companies yielding one and a half to 2% didn’t

[00:39:57]  Barry Ritholtz:  Make any sense. Right,

[00:39:58]  Ed Perks:  Exactly. Well

[00:39:59]  Barry Ritholtz:  I recall

[00:40:00]  Ed Perks:  At, at that time we’d be very tilted to the common stock and using other things within the equity, structured equity in particular. But fast forward two years rates surge higher. Those same companies, the stocks, many cases were at the same levels or same valuations, yet bonds had gone from yielding 2% to maybe yielding five, five and a half percent. I

[00:40:18]  Barry Ritholtz:  I recall a couple of the big tech companies, and I want to include Microsoft and Apple in them, in, in that list issued 2% long-term bonds and yet the yield was almost that and you had all the upside of the equity. Like i I I don’t know who is enthusiastic about that. How do you, when you see a new issuance like that, 2% what do I care about 2% or is 2% attractive in a zero rate environment?

[00:40:49]  Ed Perks:  Yeah, I think for us it’s, it play, it’s, it’s much harder to have that make sense in our strategy to play a role in the portfolio. But it’s something that, you know, the more that’s out there, we may not have participated in those new issues in 2020 or 2021, but come back in 2022 when rates move and invest grade suddenly

[00:41:08]  Barry Ritholtz:  They’re attractive.

[00:41:08]  Ed Perks:  Right. Yeah. I don’t think, you know, many investors didn’t expect that investment grade corporate bonds could drop 20 to 25 points and, and they did. So there’s always a time for it and the more of that that is issued in the market just gives us that, that opportunity down the line just

[00:41:21]  Barry Ritholtz:  ’cause it’s investment grade doesn’t mean it’s not subject to interest rate risk. Right. I I think that’s kind of, you know, fixed income 1 0 1.

[00:41:29]  Ed Perks:  Yeah, that was part of the, you know, like I said before, the very loud announcement that the bond market made around, its, its returning to a more normal functioning in 2022.

[00:41:39]  Barry Ritholtz:  So, so let’s talk about the flip side of that real default risk. We, we haven’t seen a whole lot of defaults other than a handful of very specific corporate. It was a big fraud case recently that company and in all its fixed income in the automotive sector crashed and burned. But for the most part, fraud default rates have been fairly low. How do you look at, at that risk and is it a sort of top, top-down macro approach or is it company by company balance sheet line by balance sheet line?

[00:42:15]  Ed Perks:  Yeah, I think first, from a top-down standpoint, you know, we have had a nice tailwind, we have had an economy that’s been growing. We’ve had capital markets that have provided solutions to companies that need to get through. There’s also been a a probably a fair amount of, of, you know, restructurings along the way that in, in prior market cycles would’ve led to a higher default rate. So I think you have to make that that adjustment as, as well. I think for us in, in our strategy, it’s, it’s very much though about the fundamental analysis, the idiosyncratic risk and, and working we want to be in situations, particularly in, in lower credit quality companies, really understanding that that path that management has to ensure that the company moves to a more solid footing. And that could be the debt maturity wall or access to capital and liquidity to ultimately deal with debt as it comes due.

[00:43:10]  Barry Ritholtz:  How do you think about systemic risk relative to what the central bank is doing and the treasury depart is doing treasury department, when, when we look at, we had the financial crisis, we had the pandemic, we had the flash crash, we had that little hiccup with Silicon Valley Bank and some of the other banks that, that in reality were contained as opposed to what we saw during the financial crisis. Do investors look at these institutions as providing a put, providing a a, a ready rescue plan or is it more less about specific companies and more about we’re not gonna let the system collapse?

[00:43:58]  Ed Perks:  Yeah, that’s a good question. You know, I think we’ve been through a lot over the last 20 years a lot.

[00:44:03]  Barry Ritholtz:  Right? A lot and

[00:44:04]  Ed Perks:  A

[00:44:04]  Barry Ritholtz:  Hundred years worth of stuff in a decade and a half.

[00:44:07]  Ed Perks:  Yeah. I I think if you look at some of the policy measures, maybe not, you know, initially out of the gate following the financial crisis, but you know, the, the, the long tooth that some of those policies had and, and the distortion ultimately that was created in markets. I think there’s a, a different view of maybe the appropriateness of some of the policy today than there certainly was at the time. Look, ultimately the fear of systemic risk does create opportunity for us. I think being in a highly diversified strategy, not just from an asset class standpoint, but, but investing across the range of fixed income sectors and the range of sectors within the equity market certainly helps lend a bit of resilience to the strategy in, in the case where markets become a little bit more concerned about system systemic risks. You know, I I think one of the probably more interesting things that, that is happening today that I’m sure you’ve talked to other guests about is, is the private credit space where we’ve just seen tremendous growth, tremendous amount of capital being committed there and, and ultimately needs to be deployed. And I think some of this doesn’t have quite the same level of transparency that it would’ve had if it was in the, the public credit markets. So I think that’s something that, you know, we’re certainly close to and, and both looking at potential opportunities. ’cause we can play in private assets within our Franklin income strategies. But, you know, if there was something that, you know, we would want to keep very much on the radar is, is, is what is happening in that space in terms of credit quality.

[00:45:36]  Barry Ritholtz:  The, the criticism that has come up about privates is that it’s a form of volatility washing. You’re, you’re not getting marks on the regular that are market based. It’s all right, we think it’s worth about this, here’s what the peers are worth. So let’s sorta ballpark this. How, how do you think about that? Is that a fair criticism of that space? And you know, the main appeal seems to be, hey, it’s non-correlated, it’s potentially better returns. How, how do you look at, at the, the pitch from the private credit side?

[00:46:14]  Ed Perks:  I think it’s evolved in, in, in a healthy way. I think using volatility measures is somewhat debunked. I think, you know, leading with a sharp ratio when you’re comparing public and private assets is not the, not something investors should be focusing on. I, you know, I I think the, you know, ultimately it, it has a a, a meaningful place. The definition of public credit can be extraordinarily of private credit, sorry, can be extraordinarily wide. And I think as that capital has come in, it has started to look at a lot of different places to, to ultimately have or have its role in financial markets. So we certainly think it’s it’s, it’s a viable asset. We just in any, and, and really this goes kind of across any asset, when you see the kind of capital moving into a certain area, there’s just a greater risk of maybe less disciplined things happening. And that’s something that, you know, we think could become, you know, a little bit more apparent here as we move forward.

[00:47:11]  Barry Ritholtz:  Huh. Really, really super interesting. So we’ve talked about various asset classes, we’ve talked about privates versus Publix. What do you think the average income investor, yield investor doesn’t understand about either the SMA they own or the mutual fund or ETF? They own? I I, I know fixed income is not quite as intuitive as equities. You must hear from a lot of different clients. What, what’s out there amongst main street yield investors?

[00:47:44]  Ed Perks:  I think one of the biggest things that, that we come across is there’s just a, a a, a natural view that if you’re an income investor, you own a, a certain type of stock or have a certain type of equity exposure. And maybe that’s rooted in the concept of, you know, like utility stocks, right? Bond, like surrogates within the equity market. That’s what you must invest in as an, as an income investor. And the reality is, is much broader than that. Even in the component say of the SP 500, nearly 40% not paying a dividend or paying a very low dividend. That’s still something, whether it’s through convertible securities, going back to that kind of earlier part of my career or using structured equity where we can create a security that we can own for a year or two years that can replicate that kind of profile in our strategy. So that opens up the opportunity to own and we do in our strategy today convertible like instruments in Amazon, in Microsoft, in meta. So we really have a much broader cross section in the equity markets to pursue investments. Huh.

[00:48:49]  Barry Ritholtz:  Really, really interesting stick sticking with dividends, the s and p 500 dividend yield under 2%, way back when it was 3.54%. How do you look at dividend stocks as a whole? How attractive they are, the valuations there? How do you think about that group as, as a source of yield?

[00:49:14]  Ed Perks:  Yeah, I think it’s a group that you want to consider. I think back to the, just the profile we’ve had in, in equity markets, the dominance of, of mostly non-dividend paying stocks, the mega cap tech companies in particular. And not to say that they can’t continue to be decent investments, but there is that whole cohort that still focuses on dividends. Not just dividends, but consistent growth of dividends. I mentioned a utility company several times. One stock that we’ve actually held in the portfolio the entire time that I’ve been a portfolio manager is southern company. And what probably very few people would, would expect, if you go back to 2002 since that time period, southern companies actually matched the return of the SP 500.

[00:50:00]  Barry Ritholtz:  Hmm. Really, really interesting. We’re seeing signs of the market broadening out. Look, my favorite data point from 2025, everybody talks about the concentration and the magnificent seven outperforming only two of the Mag seven beat the s and p 500 last year. Amazing data point. How are you looking at the rest of the s and p 500? How are you looking at the value sector? Can we reasonably expect to see this broadening continue in the future?

[00:50:33]  Ed Perks:  Yeah, we do think, you know, there is some, some interesting value in parts of the equity market and, and maybe they are companies that have been, you know, a little bit out of the spotlight. You know, we do have a, a pretty good amount of sector diversification, so we’re finding opportunities in these different areas. It’ll be healthcare, it’ll be industrials, energy, utilities, even in materials. Some of these, these trends, let’s take globalization and, and really this move that is still evolving into maybe hemisphere controls and, and and nearshoring of supply chains, some things that came outta the pandemic. You know, all of that has pretty significant implications. So finding companies that have that a play on a select theme that you want i that you identify and want to play. We think there’s a lot of that opportunity in the equity market. I’ve

[00:51:22]  Barry Ritholtz:  Been mostly thinking about and talking about US equities. Last year was the first year where MSCI developed and, and even emerging market, just wherever you looked overseas, thumped, the US and the US was, you know, up almost 18% Nasdaq EPO a little over 20%. How do you look at the rest of the world when it comes to either fixed income or, or equities?

[00:51:49]  Ed Perks:  Yeah, I, you know, I I certainly think that made a a, a great storyline for 2025 reason being, you know, we go back and look at 23 and 24, though US stocks had outperformed so massively so,

[00:52:01]  Barry Ritholtz:  Or the past 15 years or so.

[00:52:03]  Ed Perks:  At some level we do think it was primed for a little bit of a reallocation towards non-US markets. And then you add on some of the policy dynamics around tariffs and, and

[00:52:13]  Barry Ritholtz:  The dollar dropping almost 10% last year. Exactly.

[00:52:16]  Ed Perks:  And that really led to some of that reallocation, a lot of the outperformance of non-US equity markets in 25 did happen during that period of time. So if you were to take a look at more of the second half, a little bit more balance between the markets.

[00:52:29]  Barry Ritholtz:  And then our last question before we get to my favorite questions, I ask all my guests, what do you think investors and traders are not talking about, thinking about that perhaps they should be, and, and you could, you’re a go anywhere investor, so you go anywhere with this. What, what assets, geography, policies, data points are getting overlooked but shouldn’t.

[00:52:52]  Ed Perks:  Yeah, I, I think we need keep, keep coming back to right now we really feel like policy’s paramount. So really focusing on where policy will, will ultimately take the market. Midterm elections are gonna continue to be a very significant overhang in, in markets. Maybe one of the things that concerns me that investors are not talking about is if we were to think about the level of uncertainty that some of these dynamics naturally create and how that right now really does not translate to the kind of expected volatility that might be there in markets. So just looking this morning at something like the vic in the VIX index, which a lot of investors will go to when they want to see implied volatility back to the levels it was at in February of 2025. So we did see a very, very

[00:53:39]  Barry Ritholtz:  Low, right, low

[00:53:39]  Ed Perks:  Low. And that tends to be, you know, a point where, you know, we want to be a little bit more cautious when naturally there’s not a lot of volatility expected to be coming in markets. You know, for us that means we can stay invested, we can focus on areas that deliver attractive income and, and really maintaining that nimbleness in the portfolio and the strategy that we have.

[00:54:02]  Barry Ritholtz:  Hmm. Really, really interesting. Ed, let, let’s jump to my favorite questions that I ask all of my guests starting with tell us about your mentors who helped shape your career.

[00:54:13]  Ed Perks:  Yeah, I’d certainly, first and foremost on that list is, is Charles Johnson joining Charlie in 2002 as a member of the Franklin Income portfolio management team. And really being able to understand his approach to investing and, and hearing the, the, the tremendous, you know, experiences that he had over time. But I think more importantly, him really enabling me to become a bit of the investor that, that I am today. And, and, and, and as we went through that, that transition and, and then went through difficult times, particularly the, the financial crisis. That awareness that, look, we’re not gonna get every situation right. We’re not gonna make every perfect investment, but really how you handle it and how you stay focused on the people that have entrusted their their money to us is, is just paramount importance. And you know, one of the first things that Charlie asked me to, to do in, in 2002 was a difficult time. Interest rates were coming down, there was a modest dividend cut for Franklin Income fund, which is not a very common occurrence, certainly not something that we, we enjoy doing. And getting a handwritten letter from an investor, a woman in Tennessee that was a, a little concerned that her dividend check had gone down and, and here he is the chairman and CEO of Franklin and, and portfolio manager still. And he gave me that handwritten note from the investor and asked me to respond directly to her. Really? And that was just something

[00:55:42]  Barry Ritholtz:  That, did you write a letter or did you pick up the phone?

[00:55:45]  Ed Perks:  No, we wrote a letter and, and that was something, I don’t recall having the phone number, but we did write a letter and, and really kind of laid it out and tried to help her understand just the dynamic. But to me that really resonated that, wow, this is so important to, to him, this is really, we need to stay connected to just the role we are playing in individual’s lives. And I, I think that’s something that I’ve really tried to not only carry on in in my career, but certainly instill in the broader team that helps manage Franklin income.

[00:56:15]  Barry Ritholtz:  Easy to lose sight of that. Right. So, so let’s talk about books. What are some of your favorites? What are you reading right now?

[00:56:22]  Ed Perks:  Wow. I’ll start with maybe what I’m reading right now. And this is something I’m, I’ve always enjoyed history and geography. The end of last year I picked up a, a, a place called Yellowstone because I was planning a sibling trip to Yellowstone and it was just really fascinating the history. I’m now reading a Daunted Courage by Samuel Ambrose, which is more of the, the, the Lewis and Clark Expedition. So maybe this summer I’ll be out in Glacier or in the Bitterroot Mountains on a trail somewhere. But I, I really enjoy, you know, reading. So I’m, I’m, I’m more of a nonfiction, you know, kind of guy. Occasionally I’ll pick up something else. Probably my, my favorite of all time is the Hemingway Classic For Whom The Bell Tolls where, you know, you’re reading a something that plays out over 72 or so hours and just something like that that really can let your mind kind of go. And the imagination take hold is, is always something that I’ve enjoyed too. I did just pick up a new copy. I think it’s probably something that as, as an American, we should all read. And, and certainly Walter Isaacson is not somebody that, that needs a plug of any of any sort. He wrote more of a pamphlet called the, the Greatest Sentence ever written, really. And that’s something that I think with America two 50,

[00:57:43]  Barry Ritholtz:  Because his books are giant.

[00:57:45]  Ed Perks:  I think this is around 50 pages. No kidding. So it’s, it’s the greatest sentence ever written. And I haven’t gone through it yet, but I’ve heard, heard him speak about it. And it’s just very inspiring. And like I said, it’s, it’s something that second sentence of the Declaration Independence with America two 50 is maybe something that we should all step back and make sure we read this year.

[00:58:07]  Barry Ritholtz:  I, I have for whom the bell tolls on, on my list, and I just read on vacation last month, The Sun Also Rises, but nothing beats the Old Man in the Sea. I, that book just always speaks to me, not just as a fisherman, but his prose is just so compact and tight and powerful. Real, really very impressive. You mentioned Yellowstone, so I have to ask, what are you streaming these days? What’s, what’s keeping you entertained?

[00:58:37]  Ed Perks:  I haven’t started Landman two yet, but that’s probably next. You know, I, I really kind of like to, and, and maybe there is a sci-fi element growing up. My sci-fi of choice would probably something like Stargate SG one or something where you can really detach. And I think that’s an important component. Let the mind rest and, and be transported a little bit.

[00:59:01]  Barry Ritholtz:  Let’s, let’s jump to our final two questions. What sort of advice which you give to a recent college grad interested in a career in fixed income portfolio management or just investing

[00:59:16]  Ed Perks:  In a way? It would be just that I see far too many college students, recent grads, that think they’ve already decided what they want to do.

[00:59:26]  Barry Ritholtz:  Specializing early

[00:59:27]  Ed Perks:  Yes. Or, or having a, a a a definitive, I need to find the job in this. And I just reflect on my own path that it, it evolves quickly. Get in a seat somewhere in an industry that you think is interesting and see where it takes you. And don’t be afraid to put your hand up when opportunities arise. Just, it’s, it’s, you have plenty of time, you have nothing but time.

[00:59:51]  Barry Ritholtz:  Don’t assume that first gig is where you’re gonna spend the next 40 years of your career. Is that your advice?

[00:59:57]  Ed Perks:  It, you know, it can happen.

[01:00:00]  Barry Ritholtz:  It certainly can. And, and our final question, what do you know about the world of investing today you wish you knew 30 plus years ago when you were first getting started?

[01:00:11]  Ed Perks:  Oh, it’s such a good question. I mean, a lot of ways, you know, you almost wouldn’t want things to be, to be entirely different. You know, I, I was fortunate in that I found that role relatively early on, that really solidified the kind of investor I think I am. What is that inherent DNA that I have as an investor? So I think the sooner you can kind of tap into that and then explore ways to, to follow your investing based upon that. Don’t try to be somebody that you’re not, you know, and I have colleagues that manage pure growth funds, that follow momentum strategies, and I think they do a phenomenal job. I also very much know that’s not a job that I would’ve ever excelled at. What’s the

[01:00:50]  Barry Ritholtz:  Old joke? Wall Street is an expensive place to figure out who you are. Absolutely. Ed, thank you so much for being so generous with your time. This, this has been really quite fascinating. We have been speaking with Ed Perks, he’s CIO of Franklin Income Fund, as well as member of the executive committee and PM for a number of different funds. If you enjoy this conversation, check out any of the 600 we’ve done over the prior 12 years. You can find those at Bloomberg, iTunes, Spotify, YouTube, wherever you get your favorite podcasts at. I would be remiss if I didn’t thank our crack team that helps put these conversations together each week. I’m Barry Riol. You’ve been listening to Bloomberg’s Masters in Business.

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The post Transcript: Ed Perks, Franklin Income Investors CIO / Franklin Advisers President appeared first on The Big Picture.

This week, I speak with Ed Perks, president of Franklin Advisers, Inc. and chief investment officer of Franklin Income Investors. We discuss income based investment compared to equities, along with overall portfolio strategy. We also discuss the evolving pitch for private credit.

Ed explains how he became interested in finance when he took his first investment class with the legendary David Swensen of Yale’s endowment.

A list of his current reading 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.

Current Reading/Favorite Books

Books Barry Mentioned

The post MiB: Ed Perks, Chief Investment Officer, Franklin Income Investors / President, Franklin Advisers appeared first on The Big Picture.