Masters in Business is brought to you by proper Cloth, the leader in men's customs shirts, with proprietary smart sized technology and top rated customer service. Ordering a custom shirt has never been easier. Visit proper cloth dot com to order your first custom shirt today. This is Masters in Business with very Ridholts on Boomberg Radio. This week on the podcast, I have an extra special guest. It's somebody I've known for actually a good couple of years. His name is Simon Lack. He's probably best known for the book The Hedge Fund Mirage. He's written several others. Funny story which we talk about in the podcast portion I get invited to speak somewhere and I really don't want to talk to this group because they're annoying, and I decided to do a little counter programming. And I know they're very, very big and fairly hedge fund investors that can't figure out why the returns have been so terrible. They think it's something they're doing wrong, and so I create a presentation called romancing Alpha Forsaking Beta. And one of the big sources I used in the book was Simon's Hedge Fund Mirage. Based on the strength of that presentation, which was really me being um rude. I get invited to speak at UM the Kennedy School of Socially Responsible Investing a couple of years ago, and I make a presentation about why Beta for many institutional investors is better than Alpha. Who else is presenting at the same conference, but Simon Lack and we chatted up a conversation and ironically we each were citing each other's research. It was It was pretty funny. I strongly recommend the book. He pulls no punches, especially given what he did UH in his earlier career, which gave him a front row seat to what was going on in hedge funds. I could wax on for a much longer about this, but really he is so knowledgeable and full of so much information. Rather than me continuing to babble with no further ado my conversation with Simon Lack. This is Masters in Business with Barry Ridholts on Bloomberg Radio. I have a special guest today who I have been looking forward to sitting down and chatting with for a long time. His name is Simon Lack. He spent twenty three years with JP Morgan prior to founding sl advisors in two thousand and nine. His career JP Morgan was spent uh doing fixed income derivatives and forward FX trading before he ran the Investment Committee in charge of allocating over a billion dollars to hedge fund managers, as well as foul thing the JP Morgan incubator funds and a number of private equity vehicles that took economic stakes in emerging hedge fund managers. That experience led him to write the first of his three books, called The Hedge Fund Mirage, The Illusion of Big Money and Why It's Too Good to be True. His subsequent books, Bonds Are Not Forever and Wolf Street Potholes Are are both must reads. Simon Lack, Welcome to Bloomberg. Thank you so it's I've been looking forward to chatting with you, and I have so many things UM to go over with you. Let's let's start, given what's going on in the world to fixed income in the Federal Reserve, Let's start with your book on bonds and and talk a little bit about UM. Bonds. Interest rates go all the way back to eight hundred BC, that's about four thousand years ago. How important our interest rates for consumer spending? Credit? And the over all economy. I mean critical, right, I mean, maybe the most important economic variable out there is interest rates and people getting her favorites and on their money, and from the investment side, or from the consumer side, or both from the investment site, certainly, but obviously low rates stimulate demand, allow consumers to borrow money to buy things as well. So it's it's critical. I mean, it's probably the most important variable. So here in the United States, we as a nation have pretty much set rates for much of the globe. Taking rates down to such low levels in the early two thousands really helped set the table for a global financial crisis. Now, the US is a little out of step with Europe and Japan in that Qui is over, zerp is over. We're embarking on a reat raising regime. The rest of the world is still cutting, still doing their version of que Does the United States still set the interest rate for the world, I mean, to a large agree, certainly impacts the emerging world and clearly sets its own rates. And it's a great situation for the US to be because the financial crisis came about through too much debt, and the solution to too much debt is low rates. And I've often said to people that if Janet Yellen or Ben Banankey before her had got up and given a speech and said, hey, listen, here's the deal. We've borrowed too much money and we're just going to keep rates really low and transfer real wealth from savers to borrows. If they've given that speech, monetary policy would have been as it's been. They haven't given the speech, but you've had the outcome that's consistent with that low rates are in our self interest. Well, the political pushback to that explicit statement would have been pretty fierce. Absolutely absolutely. So I think that although you know in my book I'm negative on bonds, it's not because we think bond deals are going to go up sharply. I think you're going to see rates lower than they should be from an investor standpoint for a long time. I mean, the return on bonds is just inadequate to justify putting money into them. So I want to I want to stick with the concept of of the US Federal Reserve Bank setting rates for the world. In your book, you actually right, and I guess this is a little bit of a forecast, or certainly is looking forward a number of years ultimately, the United States may find that it can no longer set its own interest rates. Explain, it's possible, it's possible. We have a you know, a very bad indebted position, and under most forecasts, it's only going to get worse. And eventually it's quite possible that other countries will decide what rates the lender's money at. But I think it's actually, although that's a possibility and it's something you worried about, I think it's more likely that we will continue to set rates, and will continue to set rates lower than they really should be for the interests of the lenders. And and you know, I have trust of the lenders, meaning to avoid default and make sure lenders get to get a fair return. And so I explore this idea of populism in the Bond Book, and a couple of years the books of the Way, hopefully ahead of the curve. And here's the thing, right, we've had this transfer of wealth from one generation to the next. The baby boomers have basically brought a lot of money to pay entitlements, and the next generation is going to be left to pay for that. So now, just so we've got a new president, and just suppose interest rates went to ten. Just suppose the Chinese and Japanese who added selling bonds. What do you suppose President Trump would say to those guys. And I think he'd say, hey, listen, if you want to keep selling bonds, I'm just going to cut the interest rate in half on what we pay you as weaponized fixed income instruments. Is that it's you know what I mean, it's it's not something that's at all on the horizons to day. But my point is that the moral obligation to repay what's been borrowed with fair value is going to become more and more tenuous over time because the people who are repaying the dead are not the ones who made the decision to borrow. And I think you're going to see that connection weaken, and it's going to be at the expense of the people who own the debt. Let me push back a little bit on this and and just observe there is a global shortage of high quality sovereign paper like US treasuries. We haven't been doing the sort of tax and spend or tax and borrow like we used to. We haven't been doing the big infrastructure projects. It seems that demand for quality paper absolutely overwhelms the supply. If the Japanese or the Chinese or other holders of US treasuries decide to suddenly hit the bit at once, how hard is it to imagine that all the paper just gets sucked up by foundations, pension funds and everybody else who could be I mean, you know, they've each got over a trillion dollars, and as a practical matter, it's hard to see how you could sell that sort of amount in a short period of time. But the Chinese, of course, have been reducing their holdings recently. I think part of without much impact to letting things roll off, and they'n not, you know, opening at all trans the way they were, so it hasn't caused really any discernible disruption to this point. So I think that's true. I'm Barry Hults. You're listening to Masters in Business on Bloomberg Radio. My guest today is Simon Lack. He is the author of the hedge Fund Mirage, The Illusion of Big Money and Wow, it's too good to be true. And I have to reiterate for listeners that you spent twenty three years at JP Morgan. Part of that time was you sitting on an investment committee that was responsible for allocating over a billion dollars in hedge in money to hedge funds and emerging market emerging managers, and you had a front row seat to really the emergence of hedge funds as a major set of players in the market. I mean, it was so cool because in the early nineties, that's when I first started investing in hedge funds, sitting on that committee, and it was a very obscure backwater and you'd go and see these very talented people in a small office with very complex strategies, with leverage and Cayman vehicle, and it all sounded quite risk and banks we're not doing that. I mean, we were really sort of pioneers in terms of allocating proprietary capital to that. And it was so cool. I mean, there's never a boring meeting with their hedge fund manager. Each one of them is interesting in their own way. And of course the industry just completely took off. And in the early nineties when we were doing that, the markets were very inefficient and you could make some very very attractive returns, and as in most things in investment, you know, popularity is eventually going to kill it, and that's what happened over the last ten or fifteen years. Let me put a little flesh on the bones. And this comes right from the hedge fund mirage. A m for all of hedge funds was a hundred and eighteen billion dollars ten years later, by two thousand and seven it was two point one trillion, and last year we just crossed three trillion. So despite all the talk about this is the end the hedge funds, they've been under performing. Everybody knows the fees are too high. They continue to accumulate massive amounts of capital, and it's an extraordinary disconnect by generally public pension plans. I mean, those are the those are the big source of capital today for hedge funds, not so much high net worth investors. And they what they do is generally investors will understand that small hedge funds are better than big ones. I mean it can be expensive to have a portfolio of small hedge funds. You need a lot of them. They also know that any big hedge fund they look at was better when it was smaller. That's why it's big today. There are inefficiencies that can only be mortified. You can't put twenty billion dollars into it, and so they missed the obvious third step, which is that a small hedge fund industry was better than a big one. And I would challenge any institutional investment hedge funds today to ask themselves what's the optimal size of the hedge fund industry? And generally those investors don't even contemplate the question. They don't think of it in terms of any sort of finite pool of arbitrage type profits to be exploited. And it's a huge disconnect. It's a huge error, and they're getting the results that they deserve for such shallow analysis. The themed short seller Jim Chanos, who himself runs hedge fund Kinnicoast Associates, was a guest on the show and he said when he launched his hedge fund, and I think it was sometime in the eighties, because there was a couple of hundred guys, they all generated alpha. Now there's eleven thousand hedge funds, those same two or three hundred guys are the ones generating the alpha. That's a little bit of exaggeration, but not a whole lot, is it. I mean, the problem is that it's very hard to forecast who's going to do well, you know ahead of time. So there's always going to be happy class and there's always gonna be hedge funds that do well. But hedge fund performances mean reverting, and so you have a set of investors who very largely look at performance to decide where to invest. I mean, I sat in so many meetings with hedge fund managers and you have the whole discussion about security selection of portfolio construction. So one manager leaves your caucus and we talk about it, and then somebody says, you know what, he was up fifty last year. Yeah he's pretty good. Yeah, I like him. He's pretty good as opposed tone you want to take your money off of that, Yeah, so hege. So you've got this the way hedge fund investors are helplessly momentum driven hedge funds are mean reverting investments. This is never going to be a good combination. They're always buying what worked yesterday and it's actually less likely to work tomorrow. But they're generally institutional investors in hedge funds are not that sophisticated. In my experience, my head of research gave me a little tidbit which I found fascinating. In America today, there are more hedge funds than taco bells. Amazing. Do we have either too many hedge funds or none enough taco bells. What's the takeaway? I think you get better value for money taco bell. There's no question about that. Given the choice, I'd picked the Taco Bell. So here's the fascinating anything about this. There are a small all group of of the alpha generators that chainos referred to. And whether it's Jim Simons or Cliff ast Nests or d Shore or Steve Cohen or go down the list, the concept of the significantly outperforming manager seems to keep everybody else in pursuit of that alpha. They're willing to forsake beta in order to chase alpha. Is it just that simple. It's a problem with the accounting treatment that public pension plans use, and it's a little bit of an obscure issue, but basically, with a pension fund, normally use a corporate bond rate to figure out what your liabilities are. Pension plans used the expected return on their investment portfolio, which is a made up number. It's yes, it's an estimate, right, And that's the account of standards that government entities have to use. And the result is it biases them towards hedge funds because of their historic performance. Let's let's put more flesh on this. So if you're a public pension fund that let's use Jersey is an example, because there's such a mess anyway. So the New Jersey pension funds sets up what they're expected returns are, and they create that number by saying, here's the historical returns of stocks, here's restored historical returns of bonds. And oh look how giant there are expected returns are for hedge funds. And that means that New Jersey has a smaller tax obligation to put money into the state pension. That's entirely correct, and so taking hedge funds out would cause their unfunded position to be worse and put more pressure on the governor to add, you know, to raise taxes. Even though hedge funds have been as a group, have been significantly underperforming mutual funds and certainly underperforming the index. Aren't we just creating a giant, bigger problem down the road. Aren't we just kicking the can? Yeah? The can is totally wrong. And in fact, the other end of that is if if a pension fund own treasury bills, which they wouldn't, but if they did, and they pay what quarter percent, and that affects they're expected return and the discover rate on their liabilities. If they burned the cash that was in those trosury bills as opposed to keeping them, if they literally if they burned on my fire, it would drive up their expected return because cash is a drag, and that higher expected return would translate into a lower present value of their obligations. And so that actually look as if they're in better shape even after destroying some of the assets that they would use to meet those obligations. And it's obviously, you know, an unrealistic example, but the math is what it is. You put in an asset with a high expected return, it makes your funny position look better regardless of how those assets do. And so it's a huge problem and it's unlikely to be a crisis because it unfolds over time, but it's to the cost of taxpayers in any state, including New Jersey where I live, who have that. I'm very ritolts. You're listening to Master's in Business on Bloomberg Radio. My special guest today is Simon lack of sl Advisors. He previously spent twenty three years with JP Morgan, where he spent a good part of his time allocating money to hedge funds and other alternative investments. Let's talk a little bit about something that has come up in one of your books, Wall Street Potholes, about what is now called the fiduciary rule. When when we look at people like your attorney, or your accountant, or even your doctor, they're all obligated by law to serve your interests. Why shouldn't financial advisors have that same obligation. Yeah, I mean it's a fair question. I think that a lot of investors think they aren't dealing with the fiduciary when they're really not. And I think that the easiest solution is to just ensure fair disclosure that if you're not a fiducier, that your business card says I'm not a fiduciary. Because there's also a big segment of the investor market who perceives that dinner with the fiduciary is more expensive because the fiduciary is going to charge an asset fee and there's a lot of ass who say, look, I don't want to just pay you a fee every quarter just for my money sitting now. I want to pay you a fee when I do a transaction, which is the non fiduciary model. And I think that the regulations should be flexible enough to allow both of those to exist. But I certainly think it should be disclosed. People should know whether they're dealing with a fiduciary or not. What what about twelve B one fees? Where advisors and and and we you know, we run into a nomenclature title issue when we have brokers, advisors, registered representatives, go down the list of names. Not all of these people are fiduciaries. And some of these people are both brokers and fiduciaries depending on what had they happen to be wearing at that moment. It's still relatively complicated, isn't it. It's complicated for people don't understand and and so it's a very very highly regulated industry barriers, you know, and it's hard for me to believe that even more regulations, the answer it should be just explained clearly to people. So you're in favor of transparency and disclosure, not full on fiduciary obligation. Right, But disclosure doesn't mean that it's buried in a document. Disclosure means it's on your business card. Really, I mean, really it should be really. So if I'm so, I've I've previously had a Series seven, which I gave up, and I've also had a sixty five. The series seven is the brokerage license. The sixty five is the advisory license, and I found complying with all of the rules as an advisor. The fiduciary standard is incredibly simple. The governing question is what's in the client's best interest. You have a lot more room as a broker to do things, but the compliance is much more complex, absolutely right. And in my business, I'm a fiduciary, and it's dead simple. You just do what's right for the clan. As you say, the broker dealer model, where you're not where you have the lower standard, there's so much potential for conflicts. So there's so many more rules and regulations. So let's let's talk about that a little bit. How if you want to have a disclosure obligation on non fiduciaries, do you simply want their business card to include the word non fiduciary. Is it that simple? I mean, maybe it would say, you know, my responsibility is to act as an agent of the company I work for. Some wording non fiduciary might be you're telling me that wouldn't be in six point tiny text. They can regularly sec regulation fund size as we do. So I'm thinking about things like twelve B one rules where mutual funds and this goes way back to two when this wasn't an especial lucrative business. Um mutual funds were paying brokerage firms for carrying their product line, just like various food companies pay for shelf space in a supermarket. Hey, you want to be eye level, You want to be at the end of the row. You don't want to be on the bottom shelf in the middle of your lost So various fun families would pay these fees, and it really wasn't well understood, and whatever disclosure there was, we're buried in pages and pages of fine print. Nobody really understood that, And so the disclosure can always be better. But also investors have a responsibility to invest the time to understand that. I mean, it doesn't have to be that expensive to invest money and you don't have to be paying twelve B one fees or loads. You know, we run a mutual fund in my business, and you can access it very cheaply through SHOUB and Fidelity with I shares with no upfront fees, or you can access it for a financial advisor, where there will be some fees. And so it really is up to the investor to decide do I want to go into this fund through an advisor and pay for him for the advice and that may be justified, or am I happy doing my own research? And I think that that, you know, the vast majority of retail investors don't do enough hard work and research on who's going to be investing the money and how and the economics around that. They're so focused on warching an individual stock they forget that there's alpha creation outside of just assets. So we call that organizational alpha. It's absolutely right. I mean a case in point is, you know, we we specialize in energy infrastructure, and there's fifty billion dollars of mutual funds and ETFs that are taxed as corporations, and so only sixty of the return on those assets goes to the class MLP or something like that. That's I mean, so investors are paying, they're investing in funds where only two thirds of the return goes back to them, and I can tell you the vast majority don't even realize that they're subject of this tax, and it just shows that they don't read the prospectuses. I'm very redults. You're listening to Masters in Business on Bloomberg Radio. My guest today is Simon lack of sl Advisors. He spent twenty three years in the trenches at JP Morgan, where, amongst other things, he allocated a ton of money to various hedge fund managers and UH founded a few incubator funds that specialized in emerging managers. Let's let's talk about your most recent book, Wall Street Potholes. You are very critical of the industry where we apply our trades. Tell me what the pushback to the book was. I think generally has been well received. I mean, Wall Street's got mostly honest people, but not everybody, and it's certainly a very expensive place to do business at its worst. And so the goal of that book was to try and educate the clients, not to get Wall Street to change what it's doing, but make the clients better educated, so they can be more discriminating and ask better questions about what they're paying for. I'm so glad you say that you said that, because I've said this to people and they look at me like I have two heads. My reputation has been a critic of Wall Street, and when I say, most of the people I know who are can finance are completely honest. Some of them have their compensation system missile misaligned, but it's always us a handful of bad Yeah. Absolutely absolutely. I mean, like you, I've got a lot of friends in the business, right, These are honest people. I mean, it's not that the industry is dishonest. You get some bad actors, and you get I think you know, complexity and insufficient research by investors, and you get people being charged too much for things or inappropriate products, and the subsequent effects when people are dishonest in this industry are outsized. It's billions of dollars and the spillover effect of the real economy can be very destential. Yeah. So let's talk about about some of the potholes you reference in the book Non Traded Reads. Let's discuss this a security that should not exist. It's a disgusting product it really, I mean that might say that might be one of that might be the worst investment that could ever be sold to retail. Really, So the fees fifteen points, I mean, if you think hedge funds are expensive, fifteen points of upfront fees. Now, I saw one piece of two and twent fifty. You put in a hundred dollars, you've got eighty five dollars on day One's working for you. I saw one. At least it's liquid and you could sell at anytime you want. Yeah. I saw one piece of research saying non traded reachs, which of course are not liquid and can't be solved, and being sarcastic, I understand, and non traded reads are better than the publicly traded reads because they have less volatility. Sure, and they have less volatility because the prices don't move because they're not traded. My house has no volatility, so it doesn't trade every so. Yes. So so this fellow said that the illiquidity of non traded reachs benefited the long term investor because it prevents you from making an impulsive and self destructive decision to sell it because you can't. And it's so stupid. I mean, it's so self serving. I couldn't believe that this fellow was much less volatility. You know, that's we build a gate in that prevents you from selling this for your own your own good and then of also littered with conflicts of interest. And it seems to be that if you tell investors how many ways you're going to screw them, it's okay to go and screw them. Disclose, disclose it. So what I'll say, well, how you're going to lose your fortune? So even though a reat is supposed to invest in real estate, they charge you additional fees to buy real estate, to manage it, and to sell it. There's extra incentive fees paid to the management. There's there's granting of extra shares to the management. I mean, it's utterly anybody who has sold non traded reads honestly should not feel that good about what they've been. So two questions about this, and and by the way, I've had some friends who have written about it very very negatively, very disparagingly. Two questions. First, how much money is in non traded reads? Oh? Today, I don't know it's going to be in the it's going to be in the hunters of billions. Oh really, I think it's Yeah, I think it's going to be in the low hunt. My guests would be a couple hundred billion dollars. And I may be confusing this vehicle with another one, but wasn't. Non traded reads are writtenly set up for a very very unique and specific purpose, and now it's just been completely morphed into something else. Like what who who said? What was the thinking behind the original non traded I think I don't know the answer, but I believe that they are sort of arbitrage in the regular system because non traded rates are registered securities, and the register they could be sold to anybody, but by no accreditation requirements, any suitability issues, not there for your suitability lament. But they're basically their their public securities. But because they're not publicly traded, they don't draw any research because there's no commissions. And so if you're going to design a security that really does fleece investors, you don't want sell side resource to write about it. So if it's not traded, there's no commissions, there's no incentive to write research about it, so you can stay in the shadows because there's no money to be made being critical of non traded rich has the SEC looked into making these sec to their credit? Has an investor Alerts page on their website which has non traded rates on there. Don't buy this. So you could ask your own investment advisor do you push products that are the subject of an SEC investor alert? And if yes, why that would be a fair question. That is a fair question. Let's talk about structured notes. Why, what are structured notes and why are they rarely the best choice? So structured notes are basically securities that give you exposure to the return on an asset class, generally with some barrier or some protection against losing more than a certain amount of money. And of course structured notes are created by Wall Street banks issuing them and then hedging the risk out, generally with options, and so you can always create the same exposure yourself with options if you want to counter party risk. Counterparty risk because there will be three to five points of fees that are taken out that are very hard to discern after you've done the transaction, and so almost anything you can do with a structured note you could do more cheaply elsewhere. So a previous guest was Ken Fisher of Fisher Investments, and if you go anywhere on the internet you'll see Ken's ads. I hate a nuties, but not all types. Click here to find out why. Tell me what your thoughts are on both fixed and variable and nuities. I mean, annuity is generally a terrible because once you're in, you can't get out, and you can't see what the fees are. Right, it's not even visible to what the fees are, and there's exit cost if you want to cancel it, and you can't see what the return is going to be relative to the index. So their whole products, and of course the people who issue anuities are just investing your money in stocks and bonds to create that return, taking out several points of fees in the process. People don't realize that annuity is just a wrapper around whatever portfolio you wanted to be exactly. By the way, if you look at um the nonprofit version of four in one case four or three b s, and you drill down into what's offered for teachers at various public schools, it's something like seventy plus percent our annuities and the only the best reason to own an annuity is because you've already exhausted all your other tax deferrals. But a four H three B is a tax deferdentity. Why are you putting a tax de ferdentity in a tax to ferdentity with a giant fee. It's a bad name. It's well, this is mostly insurance, not so much. That's true. That's true, and there's a proper usage of annuities, but I assure you that is not it. So so what about high frequency trading? You've you've called it a tax. Other people. Bill McNab a Vanguard says that there's a way to work within it. It narrow spreads and makes everything cheaper. I tend to be more in your camp. Someone's got to pay for that, and it's really the investor. Yeah, I mean, it's a very complex topic. I thought Michael Lewis wrote a fantastic book about that with Flashboys. What. He's a terrific writer anyway. But um, there may be some liquidity benefits from high frequency trading, but the fact that it's in many cases based on faster access to the markets and using connectivity and fiber optics to beat you to the price. I mean, Michael Lewis goes through the example of essentially front running h f T algorithms front running you know, a human driven order. I mean, if a human was doing what these algorithms are doing to be illegal, and so clearly they shouldn't be allowed to do that. In in Flesh In Flesh Boys, he describes as soon as you come out of the Holland Tunnel on the New Jersey side, opposite Wall Street is a whole run of buildings and they're essentially ghost buildings, just filled with floors of servers. And the reason they're there is it's physically closest to the street without actually being in Manhattan. You can actually get space because the latency the closer you are, the faster the thing. It's the speed of way. And the New York's Stock Exchange renting out space for service to reduce latency is clearly not in the public interest. I mean, I think the New York's docquestration should be utility. It should never have been converted into it for profit entity anyway, couldn't possibly agree more. Let's let's talk about leveraged e T F. I really am interested in this three time leveraged inverse s and P funds. Tell me why I'm an idiot from wanting to buy that. I mean, there's no way that anybody achieves their investment objectives with with two or three times levered e t s. And in fact they're designed if you read through the perspectives is it tells you that they're designed to eventually go to zero. So the course of explain why, because people really don't understand, it's because of the negative effect of compounding. It's sort of like, if you imagine a security goes up by ten percent, by a security a hundred dollars goes up by ten hundred ten if it goes down by ten percent, it goes to So it's gone up and down by ten percent, but you're a dollar worse off. That's what compounding does. We have been speaking with Simon lack of sl Advisers. If you enjoy this conversation, be sure and stick around and check out the podcast extras, where we continue chatting about all things financial and Wall Street. Be sure and check out my daily column on Bloomberg View dot com. You can follow me on Twitter at rid Halts. We love your comments, feedback and suggestions right to us at m IB podcast at Bloomberg dot net. I'm Barry rid Halts. You've been listening to Masters in Business on Bloomberg Radio. Hey guys, let me ask you a question. Do you have trouble finding dress shirts that fit well? Thanks to proper Cloth, ordering custom shirts has never been easier. At proper cloth dot com, you can literally order a high quality, perfect fitting custom shirt in less than five minutes. Create your custom size by answering just ten simple questions, no need for measuring tape or trips to the tailor. Perfect fit is guaranteed, remakes are completely free, and expert staff are standing by to help. For premium quality, perfect fitting shirts, visit proper cloth dot com Custom Shirts made Smarter. Welcome to the podcast. I don't know why I do that. I do that every time, Simon, thank you so much for doing this. I've been looking forward to this for a long time. And and a little background. I have to share the story because it's it's so true. I won't mention the name of the group, but there's a wealthy group that is notorious for inviting people to speak to present to their conference, and they don't want to pay anybody for it. And my you know, if you're a nonprofit. If your school, I've spoken, we actually met. We met at the Harvard Kendidy, I've spoken an n y U, Columbia, m I T University, Wash, I've spoken all over. If you're a nonprofit, I don't feel the needs to stick my hand in your pocket. If you're a billion dollar entity and you're not a client and I want to you want me to come chat, I'm happy to just share of the right. I think it's pretty So this group was hounding me. I don't remember what happened, but for whatever reason, maybe it was bail Out Nation, for whatever reason, suddenly my phones are lighting up, and I know their audience. I know who their clientele is, very very wealthy people who I think should read your book because they're there. Their capital is malinvested, misinvested, and they don't Professor Meyer Stateman would say they're investing for expressive reasons, not utilitarian return on capital. And so I finally say, Okay, I'm gonna do your conference, but it's it's gonna be my presentation. It's not going to be what you want. And they said fine, So I created the presentation called Romancing Alpha Forsaking Beta. We happen to be recording this the day after Valentine's Day, and all of the data points or much of the data points from within your book ended up in my presentation. Really it's the other way around. Most of the presentation data points came from you, or or certainly at least the start. And and some of my favorite um numbers that that I brought into the presentation. I just have to share two of these because they're insane. In two thousand and eight, the hedge fund industry lost more money than all the profits it had generated during the prior decade, possibly more than it had generated. Ever, how on earth is that? Possibly it's amazing, isn't it. I think that's just amazing, And for his for an industry that used to call itself the absolute return industry. I mean, a R magazine is called that because of the industry it covers. But hedge funds, of course, over time moved the goalposts or the consultants moved because it was an absolute return, because obviously they lost the huture amount in two thousand and eight, and then it was relative return. But then their relative returns have also been pretty bad, so now it's an uncorrelated returns that you're looking for, and they are uncorrelated because they're pretty bad and the worst the most other things you can invest in. So they just got too big. I mean, the industry showed that at a trillion dollars there's enough opportunities to generate attractive returns, and you go above a trillion dollars, there aren't. And it's a form of sort of cognitive dittizens by investors that they don't recognize. This driven in part by the consultants and the mechanic treament that we discussed a little earlier. I've found that the errata of the pension ones are different than the rata of the meaning the misunderstanding and misallocation of the high net worth individual. There is a lot of bragging rights, even to say on the links my hedgephone money, this guy is killing me. He used to be so hard, you know, he's crushing me this year. I don't know what I'm gonna do with this guy. That is a form of social signaling and bragging, and I didn't realize that until fairly I think that's true. But you know, the high net worth investors are generally smart people. Because you have to be smart to be to get rich. No, not not always. You can be lucky, right, But they're not the big attention investors that, no, they're not. And you know what, when you hear this term sophisticated institutional investor, I'm telling you public pension plans are some of the least sophisticated people I've ever met. I have to share a quick war story, and I may have shared this previously. After the presentation. You and I each gave a presentation at the Kennedy School, which was filled with um representatives of various endowments and state pension funds. Apparently someone went back to their state pension fund to trustee and said, hey, you know this guy Ridholtz told an interesting story. You might want to have him come speak to the advisory board. So I get an invitation, and you know, again, nonprofit. I'm happy to do it for free. And I won't identify them, but I'm sitting I get arrived early, and I'm sitting in the back of the room, and I'm listening to one hedge fund consultant after another do their presentation, and and my carefully crafted bullet points throw them out the window and I immediately figured out these guys are never going to do business with me until there's a wholesale slaughter and replacement of every person in that room. They're doomed. They're just going to cost the taxpayer billions of dollars down down the road. So I basically said, I prepared a nice, tidy presentation, but you don't want to hear it. I'm going to tell you something else. And I proceeded to destroy all the nonsense that I had heard in the previous hour and said said, I don't understand why you would believe. And I used this that's where that metaphor comes when when you're uh, when your scouts come out and tell you this guy is the greatest picture ever, this is the greatest batter we've ever seen. And year after year they're sending you one bumb after another, and all these guys wash out of the league. Why do you keep listening to them? All I heard was here's why we did so terribly last year. But at least you're you know you're you're paying a lot for it. And here's why we're gonna do better next year. It's it's come for the under performance, stay for the high fees. And I don't mean to imply that there aren't hedge funds that do really, really well. It's that these guys have no ability to find them, to manage them, and to know how to say, okay, it's time to move on. Well, that's absolutely right. Unless an interesting thing about how you should use hedge funds because hedge fund returns on average of poor. So generally, if you're investing in an asset class, you want diversification. That's the only free lunch. But that's assuming that the asset class has an average return that you want. Now, because with hedge funds, you don't want the average return. Diversification is going to make it more likely that you get the average. The only way to be a hedge fund investor and be successful is to be good at picking funds. And certainly less than half the people, right I mean I say less, I would say it's a very small percentage. Maybe you know there's a quote I've been trying to chase down, and the earliest mention I found of it, I want to say in the ft, and I don't remember was the late nineties or early two thousand's, and the quote goes something like a hedge fund is a wealth transference vehicle masquerading as an asset class. Yeah, well, I mean that sounds like something buff it would say your Charlie Manga, right, But I've never been able to track the first one. I want to say it was early two thousands or late nineties, and I know I'm sorry it was the economist, not the f T. But I've never been able to find the original quote for that. I mean, you've got to love that bet the Buffett had with Protege, right, genius, I mean not even close. And they went through the financial crisis with that bat right he was in. This bet was done before two so he had the whole collapse in stocks as well as part of that. Vanguard has this wonderful chart showing the effect of a two percent mutual fund versus a ten basis point hedge fund and how that compounds over time, and it was it was insane. The gap was huge. So they redid it it one and a half percent, and then they redid it a one percent, so it's ten basis points versus one, and it's still enormous. How on earth can you capture how can you make up for the loss of two percent up front and then of the net gains. Another data point from you that's astonishing says that all right, total hedge fund profits two thousand and ten, we're four hundred and fifty billion dollars four nine billion dollars. Seventy billion of that went to investors, three hundred and seventy nine billion were fees paid to hedge funds. That's sixteen percent to the investors and to the fund managers. Yeah, and I mean it's all based on public data. I mean, anybody can figure this out. You just take the assets on the manager for the industry assumed two and twenty the returns of public and so public I thought a lot of the routine industry returns, so for those for that for those data, and it was done very very conservatively, because we assume, for example, that all hedge funds were charging incentive fee when CENTI fees, and then they all stopped after the financial crisis, when some still were, So we didn't adjust for survivor bias, which the numbers it's something like a year wink out of existence and a new batte because of the high water mone. We didn't make any adjusts that, so that worse than it's worse. It's definitely worse than that. And and anybody recommending hedge funds should have to justify why with those numbers it's a good place to put your money. So here's my pushback, and let me anticipate the angry emails there. And we mentioned this earlier. There are a handful of managers who are spectacular, whether it's Jim Simons or d Shaw or David Tepper or I could give you a list, and what makes that list of cliff astness is another one in Ray Dalio. What makes the list so special, isn't that, Hey, these fifty guys are spected, and it's almost all guys are spectacular managers representing the hedge funds. They're the outliers. It's the other Yeah, And you know, Berry, the people who are happiest with their hedge fund investments recognize that the diversified, poor folio of thirty forty hedge funds is never gonna be good. The people that are happiest have a couple of hedge funds. They have a couple, maybe they've got Ray Dahlio or David Tepper, and they're not relying on hedge funds to solve their underfunded pension problem. Right, They were relying on hedgephones to add a little bit of something extra to the portfolio. And those are the intelligent people. And that's not the institutional approach to hedge fund invested, but that's how the people who actually are successful of picking hedge funds do it. I have to another war story. So we review a lot of four and one ks in the office for people, and I'm I'm reviewing. I'm reviewing the four oh one K. I won't even mention the field the persons in and I can't figure out. Wait, First of all, the foreign K is immense for a firm with a handful of people, Like how do you have so much money? In this long story short when the firm was forming and they formed their um from form firm, their forgh one care the founders of the firm we're working with. I think it was D sure, I'm not positive. Which is a fund that has done fabulously well. I left out Howard Marks is another guy. Spectacular returns, d Shore, spectacular turns. And apparently when you're when it's just a partnership, you can have hedge funds in a four oh one k up to a certain point, and then once you have a whole bunch of other employees, it becomes complicated and hard to do. So the founding partners original investment in d show the returns are mind boggling, like a year for twenty years and they didn't touch it. They left it alone. It grows tax free home run. But but if you're not in the that sort of situation, I think that situation is is the lottery ticket that tempts everybody because there's always when it's just like in a casino, there's always paid that are winning. Right, it's very hard to That's why the bells and lights, they make a lot of noise when the food machines play out, right. So, yeah, there's always going to be hedge funds that are successful, but there's not enough that a're libably successful to justify having thirty or fourt These guys have been successful for decades. How many hedge funds you know? Again it's that top fifty, top hundred. And then of course when they're successful, they don't need your money anymore, right, because they've made so much in fees. They start to close and you know, just managed to My favorite story is Jim Simmons of Renaissance Technology. The Medallion Fund is their biggest, best a year for thirty years. Stop and think about how insane that is. And we know we know that's true because I think it was eight or ten or twelve years in they said to their outside investors, Hey, thanks a lot, here's your capital back. We unfortunately can't use it anymore. And that fun that Medallion Fund is only Simmons and his employees. Yeah, so he's great and he's made a normal huge fortune. I mean, it's it's mind box. That's the only word for it. There's just nothing else. There are funds that have been up a hundred percent for a year or or triple digits, but that's a one off. It's some crazy situations, extraordinary. But investors overestimate their ability to access funds like that, right, and when they are good, then they make so much money that I need yours. So you were allocating billions of dollars to this asset class for a long time. Did any of them, you know, light up and have the bells and whistles go off, Did any of them really hit the cover of the ball or or what was what was in the nineties. Yeah, in the nineties, Yeah, we we had some some great funds that we're doing things that were very obscure at the time. And then when I got into the seating business, the hedge fund seating was all about making money from the business of hedge funds. So in two thousands, in other words, you're part of the You're not an LP, you're we're GP. We were part of the general party economic interest in the g P because we we we felt at that time that institutions were going to start looking for hedge funds and there was a lot of money and the business of hedge funds was going to be so much better than being a client of hedge funds. And so that was how we say that again the business of hedge funds. Being being a partner with hedge funds was better than being an investor. And absolutely, So what's the typical structure you want the back in those days, we would put in twenty five million dollars in exchange for the economics of the funds, so you were owner of the g P x y Z Capital, Inc. And then they would go out and using hey, GP Morgan because is hard. So we'd be the first investor in and so we wanted hedge funds obviously that could make money, but that could grow as well. And in that strategy we made so much more of our return from the economics of the business. You know, the hedge returns ourselves are kind of mediocre, but they were good enough to raise assets, and it was sharing in the fees that drove our returns. Performance. The performance was just it was was okay, it wasn't great, but the fees really boosted ours else up better than they would have been otherwise. That that's similar to you you're selling the pics and and shovels to the golden exactly. You're not out looking for gold. You're absolutely that's absolutely fascinating. There's some other questions I did not get to. I don't want to keep. By the way, I have many friends who run hedge funds. I am a fan of some of the biggest and best hedge funds in the country. People always write me and say, why do you spend so much time busting on hedge funds. I don't mean to. I mean to bust on people who make big promises and fail to deliver and charge a big fee for film. I mean you know what, I don't really blame the hedge fund managers. I blame the investors and the consultants, because all the hedge fund manager is doing is saying I think I've got the best hedge fund, and any business owner is entitled to say that. Hedge fund managers don't walk around saying everybody should have a big hedge fund portfolio. They say, look, I don't know about the industry. I just think I want a great hedge fund. Did they contain thirty times the earnings that are corporate executive retain for themselves? Meaning? What why the feast? It's the greatest structure in the world if you're side of it. But hedge fund managers were the wrong business. Yes, yes, yeah, I don't want a hedge fund. Obviously, you can't write the hedge fund mirage and run a hedge fund. That wouldn't look too cool. I want I want to I've actually joked about this privately, but I'll out myself. I want to form a hedge fund called bad Idea Capital. And the disclosure documents, every paragraph is not like a warning, not like the usual boiler print risk. This is a horrible idea right on the fees. This hedge fund is designed to transfer as much wealth as possible from you, the ignorant investor, to me, the savvy manager, Like I want the private placement memorandum and to be hilarious but legally enforced. Nobody will read it anyway. That's that's I think bad idea capital should be a warning, but I don't know if it would be. Yeah, it's it's an amazing somebody would do it. So here's before we leave hedge funds um and again, I don't like bad hedge funds. I love great hedge Yeah, I believe it or not. I I still have all my hedge fund industry friends and more. Because of the book, I had a lot of people say, to be Simon, you're right, there's a lot of mediocrity in the business. Not my fund, of course, but there's a lot of media will be absolutely everybody, And so the hedge fund industry is populated by a lot of smart people. And people said, yeah, you know what, you make some good points in the book and so on, and so I yeah, Michael Mobisockle is at the paradox of skill that there are so many smart, hard working, well incentivized really savvy people looking to invest there and looking to run of funds, that the opportunities for alpha are essentially competed away and so so so you end up it's not that these are dumb guys by any stretch imagining these are. You don't want to be competing with with these guys. They're that good. There's just so many some of the smartest paper in finance one hedge funds, because that's where the money is. That's and that's absolutely right. It's amazing. So here's a quote from from I think this is Wall Street potholes, but I have to ask, if you want to defraud people, a slightly mysterious trading strategy with an apparent strong history of performance in an LP structure, generally outside the regulatory framework, is one of the best ways to do it. Now, what that describes is either a run of the mill hedge funds or Bernie made off. And it's an amazing thing. And I think that's something the hedge fund right that quote. But you know, there's a book called the Hedge Fund Fraud Casebook. Really just think about this, but there's enough material to fill a book on frauds of hedge funds. Now, the hedge fund industry is very largely run by honest people. However, if you want to defraud people, you're not going to start a mutual fund because it's impossible to DeFord people with a mutual fund. You're so, I would say it's impossible, but it's hard, it's really hard, right, So if you want to to afford people, hedge funds the place to do it. So, unfortunately, the hedge fund industry attracts people who want to do that. So it's not that it's got a lot of crooks, it's just that attracts the crooks. Well, you know what Willie Sutton said, right, go where the money is right? Why do you write that what rob banks? Well for all the months that's right, doesn't make sense to robbed gas stations. Of course there's no money there. Um, So there's an issue I haven't I'm gonna I'm gonna challenge you on something that that you said before, and I want to repeat it precisely. The fault lies squarely with the many sophisticated investors who have applied a far less critical analysis and cynicism to their allocation decisions. So you're you're blaming to some degree, you're blaming the investors. Shouldn't all of the various regulators, and shouldn't the entire industry be a little better at self policing? Aren't we burden shifting here a little bit? I mean it's no, it's definitely the investors and the consultants that help them. And I mean it's as simple as any investor should force themselves to ask the question how big should the hedgephone industry be? And how big is too big? And if they don't ask that question, that very sort of fundamental question, they're just not working hard enough. So, in other words, it's your money you're putting at risk. You better know what the heck you're doing with it? Right, How could you not ask that questions? Okay's three trillion dollars the right size for the hedgephond industry, and it's fair enough for investors to say, I have analyzed, said I think they can manage up to five trillion. And here's why has anyone really said that? No, they don't even ask the question. They don't even ask the question. So your number is a trillion? Is about well, because that's what the evidence says, right, add a trillion dollars and lower. The returns were good. Now was it the size of assets or was it the number of funds? Because it was well, I think it's funds. It's the size of assets most clearly, because there's a finite pool of inefficiencies to exploit. But I'm sure the number of funds is a factor as well. But the size of the industry is a bigger problem. The size of the industry. Um, I'm going through. Uh oh, we we're talking about the wealth transfer earlier. Let's let's put some flesh on those bones. So the baby boomer generation, which are people just a little older than me, I'm I just kind of I'm in between generations. Um, they're sitting on a pile of about thirty something trillion dollars and they're retiring at some ungodly number, sixty five thousand a day, a week, some crazy number. The millennial generation, the twentysomething generation, everybody who was born I don't I don't know what that number is. After I think, Um, they're now a bigger demographic group than the boomers. So the first time a we had Gen X, we had Gen Y. This is the first time a defined group are bigger than Remember, not a whole lot of babies during the war, and then when all the g I is forty million g i's come home in nineteen forty five six, suddenly, uh, everybody moves to the suburbs. We developed the automobile culture, the rise of interstate highways and and the rise of suburbia, and boom a ton of kids. That was a giant demographic and now the here it is fifty years later. Now the millennial generation is bigger than that. So this already plus thirty one trillion dollar wealth transfer that's going to take place, first to the surviving spouses, typically the wives who tend to outlive the husbands, then to the children in the next generation. What should this coming generation be doing thinking about preparing themselves for when this wealth transfer takes place. How should they be educating themselves to become stewards of capital. Well, they should clearly be taking a much longer term focus on investing than it's prevalent today. I mean, it just seems that people are more short term in focus every year than the year before. So that would be the first thing. Average holding period is some days or something. It's it's even if you're back at h f T it's still it's getting shorter and shorter and Chris, and when you think about it, the whole point of investing is to give yourself the ability to consume more in the future. You need to stay ahead of inflation after taxes. And yet so much of all the media is focused on short term out performance, whereas the market going tomorrow, and the media presents that because the people, because the viewers want that. That's just that's just supplying demand working. But at the same time, it's clearly not the right way to say for the long run. I mean, transaction costs and taxes and churning are all going to destroy wealth over time. So I think the first advice I give people is is have a long term investment plan that doesn't rely on having to figure out where the market is going tomorrow or even next month, and stick with that long term plan. So we talked earlier about the fiduciary rule. My question for you is is isn't the genie really out of the bottle. If we look at how fast a firm like Vanguard has grown. There were barely a trillion dollars before the financial crisis. They are now four trillion dollars. We look at black Rock, which is also another giant index are five trillion dollars. Haven't much of the investing public figured out I'm done with market timing, I'm done with wacky non traded reads. I'm not picking stocks. I'm just going to buy a portfolio of indexes and put it away for a few decades. It has that taken rude enough that the Fiducier rule is here no matter what the d L does. I mean, I don't know that clearly. Vanguard's growth has been a good thing in terms of people invested in the long run, but that doesn't necessarily mean just because the index funds are big, doesn't mean people are not going in and out of them. And market timing as well well, when we look at firms like Dimensional Funds or Vanguard, their clients tend to be pretty stable and they're not. So it's a good thing. That's absolutely a good thing in terms of wealth creation for their customers. Definitely, that's that's good. So more of that would be better. And the thing is in investing, it's very hard to people to accept that. I just want to get the average return because average seem client you know who wants to be averaged. That's an ad that we see on TV all the time. And yet average and investing is better than if you just get the index return. Obviously you're doing better than the average because the average includes people who are always trading and spending money. Most people don't, you know, most people fail to keep up. Howard Marks tells a wonderful story about the early part of his career where he's talking to a UM I want to say, a client or a pension funds and the person basically gives him this fascinating insight, don't be in the top ten percent because the only people who were in the top ten percent in any given year. In order to achieve that, you're gonna end up in the bottom ten percent another years. Where you want to be is the second quartile. If you're and you do that consistently over time, your gross returns over that over twenty years will put you in I want to say, top five percent. That's interesting, So he's saying to be in the top deck all over the long run to if you want to find your way in the top deck, don't have any blow ups. So don't be bottom ten percent ever, and target the second quartile because you compound that over twenty years and the up ten. If you're top five percent one year and bottom the next year, that does much worse than that's good advice. Yes, it's fascinating. Yeah, I can see that. So so when we look at Vanguard, by the way, they're about a third active, two thirds passive. But they're big focus is not so much passive as low cost. If you keep your costs under control, that you eliminate that direct we get to win twenty And you know, it's a fascinating company because they asked me to go and give a presentation on the hedge umbrage a few years ago, and I drove out that to Valley Forge and they totally, it's a campus. It's it's a campus. But if you you might have been that. I interviewed Jack Bogel there. So yeah, so you go in and I joked with them and I said, you know, I'm glad to see that the only German car in the park and lot was mine. Right, everybody's got a domestic guy. They are known for really watching their first of all, the reason they're in Valley Forge, Pennsylvan. They're not even forget New York. They won't even be in Philly Philly expense, so they you know, before they were there, this was just this wasn't even suburbs. It was excerbs to the invest in public totally. I mean, I have money with Vanguard. My kids are investment Vanguards, so I think it's full disclosure from my wife's four three B is all Vanguard, and my portfolio is a mix of Vanguard, d f A and a handful of other Black Clock, Wisdom Tree, but it's mostly Vanguard. Good that they they have Jack Bogel, um, so I've worked my way through Vanguard, Jack Brennan, the previous CEO. That's a guest. Bill McNabb was twice and Jack Bogel. Let me tell you that was a thrill. First of all, you've seen the campuses. It's a campus. Yeah, absolutely, You're like, I can't believe this is a financial services firm. I thought I was walking through, you know, uh, like a Vermont Liberal Arts very tight security though ye get into absolutely absolutely. And then Bogel, I think he's eighty six. He we should all be as sharp as he is at a sharp as attack. And just you can hear his voice, he's passionate, he's incredibly knowledgeable. He built a four trillion dollar Definitely, it's it's really quite fascinating. I don't even know. I don't even know where else to go. My own Vanguard. Most of my money's in energy infrastructure. But so let's talk about that. So because that's really fascinating. We we have a new president and both candidates during the campaign talked about building infrastructure. My definition of infrastructure and other people's definition are very, very different. Tell me what your definition of energy infrastructure. Well, energy infrastructure is pipelines, storage assets, it's compressor stations, it's all of the hardware that moves hydrocarbons from under the ground to the consumer who ultimately needs them. And it's just a really really cool place to be invested. Because America is heading towards energy independence and I think we're just about there. We export on natural gas, we were net exporters. In November. Basically, OPEC took on the American private sector and lost. That's that's the headline. Say that again. I love that OPEC took on the American energy sector and they lost. Two years ago, OPEC said, Okay, we're going to let the price of oil collapse. We're going to keep pumping and we're going to crush those shale producers in America, those high cost producers, and that industry did what the American private sector does so fantastically well. They innovated, they found new technologies, productivity enhancements, They've had all kinds of ways to bring down their break even and OPEC basically conceded defeat in November said we can't do it. We just can't afford to keep the price this low. And so America today is the swing producer, which is amazing. It is absolutely from from the oil embargo in ninety three to forty years later. It took four decades for this country to basically say we are not going to be dependent on anybody else for energy. I mean, two years ago, we weren't even thinking about energy independence, and now there's a very real pathway to energy independence over the next five to ten years, where will be met natural gas ex borders. Still importing some crude oil, but less than we you us to and in a much much more. I mean, we've fought wars in the Middle East in part because we spent five trillion dollars or maybe more between Afghanistan and Iright, it's a fantastic story for America. And it's just you know, America has the labor force in the energy sector, the access to capital, the technology, technology, also the fact that mineral rights belong to the landowner in America, which is very very un as opposed to the sovereign, as opposed to the government. Right, So that facilitates expratio production. And it's just a financial incentive to get because it's it's easy to you know, you just have the e MP company, the drilling company, and the landowner. I mean, I was in Pennsylvania last year given a presentation and I met somebody who's who's got you know, one percent of their property has some drilling equipment. Again a six thousand dollar monthly check. They're growing corn on the rest of the land. They're happy. Right, So let me push back on this because I want to talk more about Allen g And and nat Gas and in the industrial production of energy. Um. So it's great they're getting six thousand dollars a month. What about when they turn on the tap water and flaming water comes out? Yeah, So when you when you frag, when you drill down, and for a natural gas include all, you're going much farther down than the than the water table. Typically aquifers are a few hundred feet down and drilling goes down thousands or five and so accidents can happen. But there isn't anything about the overall technology of fracking that is bad for drinking water. And yes, of course there was that gas Land movie, but I think generally, you know, we drill thousands of wells a year in America. It's another very very highly regulated industry, and I think that that's the exception. What about all the earthquakes in Oklahoma. I used to get three or four a year, Now they're getting thousands. I think that's an example of where there's certain geologies that you learned maybe we shouldn't be tracking there, right, And so we learned right. But America has been fracking for decades really wells, thousands and thousands of wells, and so there's always this feedback loop and you're learning, and that's the learning process is going on there. What about the pushback that now I just converted my house to natural gas from oil, it's cheaper, it's it's supposed to be much cleaner, much cleaner. But the pushback that I've gotten from some of my environmental bodies is, hey, when you use natural gas to get that out, a lot of methane and other very big chemicals get released into the atmosphere, and it's effectively the same as coal or oil. I think that overstates it, but you do release methane when methane is what you're burning, right, so I think it is what goes into the natural supply. So there can be leaks and so on. So there's a lot of regulations around capturing that, and clearly there's an economic incentive for the companies to capture that so well, not if the cost of capturing it is more than the value of the guests, but then they wouldn't drill because methane is the basic commodity that you're getting out of the ground. And so methane captures improved and leaks have gone down dramatically as a percentage of natural gas extracted over the years. So there's lots of data to show that we're getting more efficient than that. I'm better at it over time. I can tell you this is our first winter and it's been a with natural gas, and it's been not as cheap as I expected, but so much cheaper than oil we we have. We used to have a thousand gallon tank, and I get these deliveries. I'll get a bill for eighteen hundred dollars and then the next month there'd be another. Wait, how did I go through a thousand My house isn't that big, and it was cheaper. Um, so you get bills in the winter, it's three and four and that's running everything in the house on it, including the fireplace, which used to be a pin in the neck to clean up. I love lighting the fire, cleaning up after it. And now I grabbed the remoment I go, all right, fire. So here's a cool thing, right. We've explored natural gas from Pennsylvania food pipeline down in Louisiana to the Sabine Pass where it's liquefied and put on one of those big tankers, and that to the United Arab Emirates in the Middle East where they are awash in natural gas. And why are they buying our gas because it's cheap, Because we're really good at produce cheaper than they are producing enough to cover the transportation cost. That's amazing because look at the cost. So it's a big difference between oil and gas. I think a lot of people don't realize not every barrel of oil clus the same. You go to Saudi Arabia, hundreds of grades Saudi Arabia, the oil is as cheap and can as can be defined. It's easily accessible, it's not too hard to find, it's not too deep, and it's fairly um it's fairly clean, it's not heavy right process, it's it's all good. On the other hand, you're going eight thousand feet below the ocean. That's expensive oil to find. Well, and here's the thixt draft. You've had a trillion dollars of cutbacks in exploration budgets for crude oil because of the price collapse a roe over what time period between now and three or four years of exploration. Yes, basically that's a huge drop, and so it takes a while to bring new cruds that crude I'll supply on Right in America, shale production happens very quickly. And when the price goes down, they still stop drilling. They have these drilled uncompleted, well, they start drilling again. Ninety days is the is the payback time typically from when you first start the really too, when you get enough cash back to pay for the cost that you've incurred. And so that's put America in a fantastically strong position in terms of providing more and more of our own energy, and as you said, for gas, for for oil, for both, for both. I mean, let's talk about gas for a minute. It's been said that the United States is the Saudi Arabia of coal, the Saudi Arabia of gas, but not the Saudi Arabia of oil. Why is that, Well, North America. A lot of that depends on the price. And so North America, which is obviously including Alberta and British Columbia with all the tar stands at a high enough price. There are Saudi type reserves of crude oil there, but it's very expensive to extract. So typically those estimates of what's available at ultimate recovery depends on the price and the technology and so they so they can change. I would say that recoverable oil in the United States, estimates for that keep going up every year because of new technologies. I mean, look at the Permian Basin in West Texas. We've been drilling there for almost a hundred years, and it seems in thesest growing place there's a land rush crying on there. They get in because the new technology is making it impossible to extract crude or from areas that were thought to be basically non economic anymore. Describe the new technology because I find some of this stuff fascinating and full disclosure, my now retired brother in law for many years was a senior attorney in the legal department of Amaco. That little b p Amico thing he was, he was involved in, and he has been telling me for a long long time the way technology is changing is going to change as much as the alternatives have their own attractiveness. What's going on in carbon based stuff I've been hearing for a long time is just mind boggling, including the ability to drill sideways. Yeah, I mean, who would think you could do that? So, yeah, drilling sideways longer laterals. They'll have spider formations now where you drill down a well and then go laterally in multiple directions so you can be more efficient. They used the drills for less time, so they finish a well more quickly, So obviously that cost lester. Drill gees in they get out and there they'll they'll use actually more sad. So sand is one of the things they pump down into the ground when they do the fracking and the grains. So it was water another chemics. It's mostly water. I mean it's water by volume. There's some other chemicals, but the sand is critical because when they push the water down, it fractures the rock and the grains of sand prop open all of these tiny little cracks. So now one of the innovations has been that more sand with finer grains, really even smaller cracks open and allows better production from well. So there's lots of innovation and and and technological improvements that are happening all of the time. And it's less than five million dollars to drill a well, which sounds like five million dollars five million dollars. And what is that produce in terms of income? I mean, it depends on the play, but you could easily have wells that will pay you back in thirty days if it's a very high producing well. So I'm trying to be respectful of whatever compliance rules you have. So I don't want to go any place you can't go. But you run an MLP, right, Yeah, we run an MLP mutual fund. The name of it is the Catalyst MLP and Infrastructure Fund. And so what do you buy? You're obviously really knowledgeable about. Well, you know what's really cool about that strategy is we found an analogy with hedge funds, believe or not. So. MLPs Master limited partnerships are partnerships that own pipelines, and they're organized like hedge funds legally now mean that you're the general partner and everybody else, right, so the investors have no liability and you have all whatever liability there's right now. It turns out that an MLP general partner runs an MLP the same way that a hedge fund manager hedge fund GP runs the hedge fund, And you can buy MLP general partners and they have the same type of preferential economics that hedge fund managers have. So it's sort of like if you could buy hedge fund managers or hedge funds, what would you buy? When you buy the hedge fund managers, you just can't because they're private. In the mlppers this you can actually buy the MLP general partners and that's what we do. And the beauty of that is that MLPs are growing. MLPs are growing their assets because we need more infrastructure because the oil and gas is in places it wasn't always. North Dakota was not a big place for crude or Pennsylvania is not a big place for natural gas. So m LPs are growing their assets. And you know, if you invest in hedge fund managers, when hedge fund assets are growing, you know that's going to be good because more assets, it's more fees. And it's the same thing with MLP general partners. So our mutual fund which was last year's best before mutual funds up sixty five, you allowed to say that, I can say that's public information. So I had a conversation with someone who runs an et F shop who said he couldn't say that because there's certain hoops he has to jump through, even though one of their funds was had generated the highest return in the calendar year. What do you need to be able to do in order to say our MLP was the best performing energy MLP last year. I mean, I think if I'm just studying public information, I feel pretty comfortable with that. Um. Okay, the e t F folks, who I think are governed by Finnrott told me. They can't just say here's the math. Somebody else has to say it and then they could quote them. I don't know. I don't know SEC regulations. So you don't deal with the finn Ren sense, which is good for you. And they're but but it's the catalyst MLP and infrastructure fund investors canna look at up. So the holdings are other MLPs, the MLPs and the general partners on MLPs. The MLP general partner looks like a hedge fund manager, got it, And so that's so it's not a fund of funds, it's a fund that holds other MLPs. Absolutely, So I know the restructure is really tax advance advantageous tax wise, because so long as N of the net gains passed through, there's no tax at that level. Am I stating that correctly? How is how MLP structured relative to two tax I mean, there's similar MLPs don't pay tax and that's why. But they do issue a K one and lots of investors they hate k ones. They hate the fact that the MLPs don't pay tax, but they hate the k ones and so their accountants have taught them to hate the Yeah, and I think that the problem with k ones of overstated. But the world is you're right. I think you're right. Um, so, so the K one passed through shows up. It's almost like getting a ten ninety nine. Well, fund gives a ten ninety nine, so we masually we take the K one out of it. For the client. The client gets at ten ninety nine, but they get exposure to m LPs but they don't have to deal with the k ones that happens at the fund level. Oh really, yeah, I had no idea about that. That's interesting. I don't have an issue with k ones because they get one and I have to deal with it. Of course, if you're dealing with one, alright, one or ten doesn't exactly what are zero is a big different. Accountants overstate it. I've talked to a canist who complained about it, and I said, why don't you just charge more for that? How much do you charge to do the Well? I don't know. I just don't like the words. Well, they charge hourly, so if it takes longer, they're going to charge more. Everybody spends a hundred grand preparing their taxes, right, isn't that what your I got to talk to my that's um, hey, listen. You know everybody has the thing that they're naturally good at. And I know if I had to do my taxes myself, I would be in tears before I was finished. Whatever they charge me, and in anywhere near that sort of money, I'm happy to pay it because I don't The greatest thing about Henry Ford was was the assembly line, where each person did what they specialized in. And I'm happy to say, please do my talk. I just don't want to. Just trying to check that it's correct is complicated. You have to. I'm a big picture guy. I'm not a detailed guy as much as I get into the weeds with number and data, numbers and data and stuff. Being able to track all that is and the people who do it well are worth their win and goals, and it's a it's appalling that it's so complex. So the original concept of submitting your taxes on a postcard from Steve Forbes, We're never going to see anything like that. It's so hard because with tax reform, the losers know who they are and the winners don't, right, and so the winners don't appreciate let me, let me qualify that lots of people who pass through these doors. One of the themes that come up over and over again is I know how how lucky I have been in my career life profession I've heard time and time again for people that this happened and it was serendipitous and it changed my whole life. So I think some of the people who are the tax winners are very much aware of that. Maybe not enough, but my point is in terms of tax reform, change the tax for sure, there's winners and losers, right, and the problem with the change is that the losers of vocals may not really know that winners. And that's that I completely misspoken. And it's tax reform that's that's needed to simplify it so at least it might fit on a couple of postcards. So you're a little more plugged into what's going on in d C than I am. Are we really going to see any form of corporate tax return in our lifetime or personal tax reform or closing of loopholes? Or is that just election year? I mean it looks that way, right. The consensus is that work at some simplification, lower corporate tax rates, fewer personal brackets for taxes, and so, so you think that's going to actually happen. I would say it's better than but I couldn't say probability, but it's probably. You know, the odds seem to favor that. I since Donald Trump seems to only appreciate tweets. Just this morning, I exhorted him, can we please stop with the National Secure the nonsense and the immigration junk, and why don't you not your win and clean up the tax code and stop with all this other stuff which I'm waiting for the hate mail to come. Wouldn't that be great? I mean, Reagan was the last president who really oversaw any sort of big tax reform, and so I think that it's well well overdue. And what's amazing is Reagan, unlike Trump, had to deal with an opposing party. Not that Trump doesn't have to deal with it, but currently the Republicans controlled the House the Senate, and it would be great if we got bipartisan approval of tax form. That might be naive to assume that we'll get that, but un least they get some Democrats on board. I think that you don't have to do a whole lot to get Democrats on board, especially if you dangle a two trillion dollar infrastructure plan. Hey we're gonna repatriate to trillion. That could be done. That right, But it's been there for a long time, using the time, maybe this, this is the time it'll get done. And and I'm not talking about income distribution. I'm talking about making the task code simpler, fairer, better, not saying Okay, we're gonna take money from billionaires and give it to piece or vice versa. I'm talking about making it a little less complex and a little more the complex and the Yesne Parkling, I mean you're probably like me that I have a tax return that's probably two d pages. I mean, it's amazing they get any money. It's so complicated. I send them all my money and they send me back what they think I should get. So it's a one pager and they say here's what you're gonna live on this, and I say things. So it's I work it and I have. All my accountant does is double check their work. And so far that seems to be. It seems to be working out. I know I only have you for a finite amount of time. Let me get to some of my standard questions, my favorite questions I ask all of my guests. So we know you spent twenty three years at JP Morgan. What did you do before that? Well, I worked in London for a couple of years. I worked you originally from the from the UK. I worked in the Stock Exchange in London. So so, so you're from London. Where did the Australian accent come from? I don't know. That's that's start that I've only spent a week there in my life. Is that true? Um? So you were in London, who did you work for? In London? I worked for a company called Desert and Bevan, which became part of Barclays, and I was a money broker for a short period of time and I transferred with them to New York. Explained to us ugly Americans what a money broker? Well, money broker deals with big banks and other institutions trading currencies or derivatives or eurodollar deposits, and that's what I did for a short time. I did that for a few years, and then I moved over to banking and joined what became JP Morgan in the age. So what motivated you to come to the United States? Uh? You know, I was born in Canada, and so I spent some time in Canada with my dad. My parents split up. I was young, so maybe it's Canadian accent. So I always had this idea that would be nice to move back to North America and New York. It was obviously a much bigger financial center in Toronto. So I moved to New York and and at the time I thought maybe I'll move up to Toronto at some point, but dropped that idea because once I got here, it was just like how why would you be anywhere else? That is a question a lot of people wrestle with um, and the answer is weather. Weather is right. So so I'm here. I have no interest in going anywhere else. But whenever anyone says, why would you want to leave New York City, it's the way it's feywhere for the climate right, it's it's I walked the dogs early in the morning. This morning it was twenty two degrees. It's going to be forty five today. Maybe it was, maybe it was twenty seven today. Yesterday it was twenty two. I have a have an I pad on the wall, and all of those is run the weather app. There are a bunch of other apps that I can access there. But when I walk out that door, I'm like, look at the temperature outside, and then I have the thermometer outside and I could check if the iPad app is accurate, and it is. It's mostly um, let's talk about mentors. Who were the people who influenced the way you think about finance. Yeah, I get you know, I spent a lot of years in trading and as a follical Don Layton, who's now the CEO of Freddie Mack who ran the trading JP Morgan, and he he was he was just tremendous. He was a great leader. He's a great leader. Um, He's he really exemplified integrity and strategy with detail orientation. There's another fellow who's retired now, Bill Pike, used to around government bond trading when I was there. He's about thirteen or fourteen years older than me, and I was in my twenties when I was first working there, and he was running government bond trading, and it was just always fascinating listening to his interpretation of market psychology and how people were thinking about bonds because that's what I was trading at the right. And so you know, there are two people that I work with in those days when I was a lot younger, and I have still have a tremendous respect for both of them. Let's talk about investors. One. Investors have colored the way you look at the world of investing. I mean, obviously Buffett has a has a that's a fault setting everybody, everybody cannot not see. And we don't invest in necessarily the things that he invests in because that he doesn't you know, he's but his process is fascinating. Well, just the idea that you want to have a mote and that you want to be holding things that you'd want to own forever. And that's a hard thing to do because that's not the time frame that a lot of investors have. And we found that two years ago when energy infrastructure was down a lot. Yeah, and we found just just how high quality our investors really are because they stayed with us and in many cases they added money. We picked up new clients, but that's sort of a self selection that we add clients who understood that we're not going to get you out of the high we're going to be invested for the long run. So that that really helped a lot. That that is Ah, that is quite fascinating. Let's talk about any other anybody else besides Buffett, especially You're you're an energy. Who else besides Buffett catches your attention? Who else in there? It's interesting? No, he's probably the one you could do a lot worse. Yeah, exactly, that's right. You can't get it that, you can't get hurt, saying Laarren Buffett. How about books you you mentioned, um a couple of books earlier. You mentioned Flashboys by Michael Lewis. Anything by Michael Lewis, I totally Can I tell you something? I have blind Side, The blind Side tied up for vacation. It's the only book of his I haven't read. How is there? I'm looking forward to that. Yeah, I mean listen, I read Moneyball. Listen to me, right, Baseball? I mean it's fascinating. You've forgotten more than I know about baseball. And I loved Moneyball. It was it was fast, it was a great book. I just read The Undoing Project amazing, which is all about behavior, finance and Traversky and Daniel Cannerman. I love the digression in the beginning about the basketball. Yes, yes, yes, And it's the same thing. It has nothing to do with the sport. It's about what assumptions are everybody making that's wrong. Yes, So, Michael Lewis, I'm reading Finding Pixar Today, which is by former CFO of Pixar, Lawrence Leaving, Lawrence Leaving previous and it's wonderful. They've just done the I p O. Okay, so you're you're deep into it. Yeah, it's fastening book. Well, you know what caught my attention is Andrew Ross Saukin commented on it and he said, like every great Pixar movie has a happy ending as well, and I'm looking forward to that. So so I'm reading that here's a guy who were closely with Steve Jobs. Yeah, nobody really I never heard of this guy? Did you ever heard? And he tells stories about Steve Jobs that are I learned from the book that Steve Jobs became a billionaire not because of Apple, because yes, he made so much more money out of Pixel in the beginning anyway, So that's what I'm reading to that became the biggest shareholder in Disney through the Pixel of the acquisition. Yes, absolutely, absolutely, Yeah, So that's great. Who else? Who else do you enjoy reading? What are the books do you like? Well, you know, I read Finance Misbehaving by Richard Taler last year, which builds on the work by Cannaman and first and so I read all the books on the financial crisis. They're still coming out. I mean, I thought Hank Paulson's book was Back from the Hank Paulson's was I forget that his but that was terrific um Back from the brink, I think was his my list to read. But Nankees it was good as well. I mean, we were so fortunate to have people like Paulson and Bernanke in the positions that we were in at that time. Howard Marks said the same thing you did. I really because imagine that meeting where Paulson gets all the CEOs in the room and says, here's the deal. You're all going to take ten to twenty five billion dollars of capital and you're not leaving until you get So he's got you know, Jamie Diamond in there, and and and Lloyd Blank find and people who are not used to being told that, and who else could pull that off? One or two people said, we don't need the money, we don't want to take it. Why do we have to take this And the answer was, well, you're gonna need it, and even if you don't need it, we have to hide who does need it exactly. It was fascinating. It was absolutely the right strategy, and so few people could have executed that. The former CEO of Goldman that's what it took. He was one of their peers. Right. So, um, so, all of the books under Financial Crisis I thought were really good. I find so that there are three books that I feel obligated to read Paulson's, Bernanke's and Gethner. And I can't bring myself to read Bernanke or Guythaner because they were kind of they were there beforehands and helped contribute to the crisis. Paulson say what you will about Goldman Sacks. You can bash Goldman Sacks all you want. You can't really say they were a major cause of the crisis. Well, they created some synthetic c d os and they did stuff for John Paulson, but you can't say these guys were the approximate cause of of the there was I had. I had a list of about twenty five people, and Goldman Sacks people, organizations, institutions, they don't even make the top um. I've pushed back against that argument, and it goes something like this, if lending to the poor caused the crisis, then the boom and bust should take place in places where the poor are. The boom and bust wasn't in Harlem, it wasn't in South Philly, it wasn't in the bad parts of Chicago. It was in California, Arizona, Nevada, and Florida. It had nothing what's over to do with lending to the poor. So that's been my counter argument. But it was increasing home ownership to open to the high sixties, for sure. But you had you had Clinton, you would Bush, you had every Republican and both parties, both parties of bipartisans. However, however, look at the Democrats in California and the Republicans on the Federal Reserve. When you had all of these non bank lenders not covered by uh Fannie and Freddie unable to buy their stuff because it's nonconforming loans and not covered by the fdi C, you have a whole run of like four hundred lend to securities UM mortgage underwriters located in California. People started to complain about them. William Poole went to Alan Greenspan, then chair of the Fed. Greenspan called them innovators. Leave them alone. People went to the Democratic controlled UH Congress, California Senate, an Assembly and same thing. Hey, these are our business owners, these are thriving businesses in California. Leave them alone. So it is fairly bipartisans. It was an oversight and a public policy failure that allowed that behavior to take and some missincentivize, some miss or were My favorite was the I'll be gone, You'll be gone bonuses, where you take the bonus you leave, and if it blows up after you're gone, it doesn't matter someone else. So let me keep plowing through any other books you want to bring up before So the Pulsing book is also on my list. How about nonfiction? Do you ever, I mean, how about fiction? Do you ever read anything that's not nonfiction? I'm in the same loop as you. Everything I read as nonfish and well, Pillars of the Earth, Pillars of the Earth. Who is of the Earth? Yeah, you're asking me, you know you can look that up after what type of book is? It's a novel based in medieval Britain without the construction of a cathedral, and um that is a and there was and then there was a sequel ken Ken Filets, Ken Filet. That is sort of an epic story Pillars. I don't read a lot of nonficxure, don't a lot of fixture. This thing is one all manners of award. Yeah. Look, that's a fascinating It's one of those stories that you were sorry when it's finished because you were so into the characters. It's sort of a multi generational story all around the building of this cathedral in medieval Britain, and it's and the characters are well developed, but it also tries to give you a flavor what everyday life was like for people who are not you know, royalty, but regular people living in sixteenth century Britain. Enormous and brilliant, A great epic tale, crammed with characters unbelievably alive across the gulf of centuries. Wow, that's a hell of it. Yeah. So, like I said, I don't mean a lot of fiction, but that's one of my favorite. I need I need one more fiction book to bring a vacation that this one. Maybe it um so since you've joined the industry, what do you what do you see as having been the major changes that have had the most impact. Well, it's the speed, isn't it. And it's and it's a lot less personal. I mean it used to be when I started the business, transactions happened face to face. In many cases are over the phone with people that you knew, So you had a lot of iteritive transactions with familier people. And of course exchange flaws have largely gone and everything about trading is so impersonal. Now software is eating every software is doing everything. So there's a there's you know, it's a whole global community where you don't know the people that you're training with, and that's had all kinds of ramifications. That and the speed has led to an even greater focus on the short term. I get this question from from readers all the time. What do you what do you ask your guests what they do to relax or for enjoyment out of the office. Um, I play golf. That's the time you're in Florida part of the year. Yeah, so I belong to a club down in Florida as well. Um I used to play a lot of chess. Um New York's a fantastic place for chess. Now I can play on walk right over to Washington Square Park, get embarrassed by some twelve years. Oh yeah, there's some good players there. Um. I just started doing the New York Times crossword on my wife my tablet, you know, and and and that's a lot of fun. So so you know, it's an odd thought process. I find the cross words. I've never been into crosswords, and I just, hey, this is easy. I get on my tablet anyway in bed, and yeah, it's it's it's pretty cool. I think it's good to have. It's good to to test your brain and to and to work on new challenges. One of the ways that you just you know that you don't age as quickly to what otherwise. It's a different thought process I find. So I hate looking at a blank crossword. I despise them. My wife will take a hard crossword puzzle and get stuck nine tenths of the way through. Come right, and that's the easy. But I need the cross word is terrible, and you have to know geography, and I don't know the name of that river in this stage. But it's fascinating and it is does keep them mind well, earlier in the week is easier. The Sunday Monday, it's fabulous. Anybody could do the Monday, right. I used to take the train with someone who was retired, and her greatest pleasure was if she can finish the Friday New York Times crossword puzzle before the train pulls in. I mean it's like at eight minute, right, that's she She's really had pretty good Monday. It's before we're half with it, right. Um, So let's talk a little bit about millennials and people just graduating in college. What sort of advice would you give somebody who says, hey, I'm interested in finance. What would you tell them through Instident of Finance. Well, the first thing is have a have a career strategy. I mean, one of the ironies I've found for myself is I've I've had more of a career strategy as I've got older. But of course, the time to really develop a strategies when you're young and you've got your whole career ahead of you. Have a strategy, stay focused. The people who are successful pick the right goals and they stay focused on achieving those goals. I think that going into finance totally. Make sure you're doing things that that are going to be demonsibly good for clients. Make sure that whatever you're doing there's a there's a clear value add for the client, and it's and it's got some meaning for the client, because then it's more likely to be sustainable. And my final question, what is it that you know about in vesting in the world of finance today that you wish you knew twenty five years ago when you were starting. I mean, I think behavioral finance is so fascinating. I mean, it explains so much more. This is under Richard Tyler talks about in finance misbehaving. Is that so much of economic theory assumes people are just these agents rational products, right, he calls them e cons Right, these theoretical people, and of course you get booms and busts and all kinds of emotion because of human activity. And really appreciating the impact of human decision making on markets is something that I've come to appreciate much more in the last five or ten years relative to when I started out earlier. On, Simon, thank you so much for being so generous with your time. We have been speaking to Simon lack of sl advisors. If you enjoy this conversation, be sure and look up an inch, ro down an inch at any of the other hundred and thirty nine or so such previous conversation sations. I believe you will find most of them to be absolutely fascinating. If you want more information about Simon, go to Amazon or any fine bookstore and you can get the Hedge Fund, mirage, Wall Street, potholes or bonds are not forever you publish house where, don't you? What? So if someone else wants more information about you, what's the best online? Go to our website s l dash advisors dot com. Well just google me, Just google Simon Lack, Google Simon Lack Um. I would be remiss if I did not thank our staff. My recording engineer is Medina Parwana. Taylor Riggs handles all of our booking, Charlie Volmer as our producer, and Michael bat Nick is the head of our research. Our research team, our crack research team. We love your comment, comments, feedback and suggestions right to me at m IB podcast at Bloomberg dot net. I'm Barry results You've been listening to Masters in Business on Bloomberg Radio Masters in Business is brought to you by proper Cloth, the leader in men's custom shirts. With proprietary smart sized technology and top rated customer service, Ordering a custom shirt has never been easier. Visit proper cloth dot com to order your first custom shirt today