Savita Subramanian on Equity and Quantitative Strategy

Published May 16, 2024, 10:34 PM

Bloomberg Radio host Barry Ritholtz speaks to Savita Subramanian, managing director and head of US equity and quantitative strategy at Bank of America Corp. She also leads the firm's environmental, social and governance research. She has been a ranked analyst in the Institutional Investor survey for the last nine years. Prior to joining the firm in 2001, Subramanian was an analyst at Scudder Kemper Investments in New York and San Francisco. Subramanian is on the advisory board of the UCLA Master of Financial Engineering program, on the membership committee of Q Group, and is a member of the Chicago Quantitative Alliance and the Society of Quantitative Analysts. 

This is Master's in Business with Barry Ridholts on Bloomberg Radio. On this week's podcast, what Can I Say? Savita Subremanian formerly of Merrill Lynch, they got bought by Bank America. She's been with them for twenty three years. Her current title is Head of Equity and Quantitative Strategies. Savita is one of these women in the world of finance who is a powerhouse. Her quant work is wildly respected on the street. She's a regular on the Institutional investor All Star. I think, like the past eleven years. She manages literally hundreds of models and helps create just an endless amount of research and content. Her work is super high quality and is relied on by a lot of institutional as well as main street investors. I found the conversation really fascinating. She is one of the few people who combine quantitative investing with behavioral finance, not a common one two punch, and she's fantastic at it. I found the conversation to be absolutely intriguing, in a whole lot of fun, and I think you will also with no further ado, my discussion with Bank of America's Savita Supermanian. Thank you so much, Supermanian. I think I'm getting your name, Supramani.

I've heard all sorts of things.

I try not to butcher people's names. But let's talk a little bit about your background. So BA in mathematics and philosophy from Berkeley, an NBA from Columbia. I'm kind of intrigued by the idea of philosophy and math. What was the career plan?

Yeah, well there was no career plan really, so at Berkeley I ended up changing my major a few times.

From what well, I started out as.

An electrical engineering computer science major, uh huh. And then I realized that there are basically no girls in any of those classes.

Well back then, maybe not more today now, Yeah, which.

Is a huge relief.

But I also realized that I love to write, I love to read, and I kind of wanted to have some sort of a liberal arts aspect in my career. I took a class called existentialism in film and Literature. It's like one of these Berkeley classes, right, you know, this like completely pointless once you graduate, But it was.

It's pointless one year I took an existential class in college. Yeah, I got a great mark on the midterm and the final was a paper which I never handed in. The professor asked me why, and I said, what does it matter? And he's like, you know, I feel compelled to give you a great Yeah. I wish that was a joke, but it's actually it's actually true.

So I wasn't that smart. I did all the work.

I read a quote from you way back when you said your parents were pushing you to be either an engineer or a doctor. Is this true? I mean, it's such a cliche Indian parents, Jewish parents go to school become a doctor.

Well, I mean there's a reason it's a cliche. It's pretty much the norm.

I mean, it happened to like me and everybody I know who's a you know, child of an immigrant from India, So it's kind of I mean, I think it was. You know, it was the seventies. It was unclear how anybody was going to make their living.

My parents were.

Both in high tech. My dad was an engineer, my mom was a software person. So really, yeah, they were both steeped.

In technology in Silicon Valley.

In Silicon Valley, they were you know, early early days in Mountain View, before it was you know, googleized routed. Yeah, exactly, before there was traffic, but it was it was I think that my parents, you know, they came here for to have a better life, to make some money, you know, not you know, to to basically live the American dream. And I think that the only legitimate careers were really in the sciences or you know, kind of practical applications. Today they've completely accepted me for who I am, as the dark you know, dark art of finance person.

But but back the.

Exactly.

See for Jewish parents, if you go to law school, they'll put up with them.

It's like the old school is just barely accepted.

Right, It's all right, well, well will allow it. It's three years, will allow. But really, medical school is our first choice exactly.

Yes, you know the drill.

So I was a rebel and and I mean the reason I did mathematics and philosophy was that I have a very short attention span. So I found myself getting kind of bored with my mouth problem sets, and then I could shift to philosophy and then go back and forth.

So it was actually pretty ideal for me.

So how do you end up at Scudder Kemper in both New York and San Francisco In the nineteen nineties. At that point, I know you will talk about your internship a little later, but at that point, are you like, I think this is the career I want to be in.

No, I had no idea when I graduated what I wanted to do. In fact, I was convinced that I wanted to be a professor in philosophy. And I took the gre and all those tests, and I applied, and I was going to get a PhD in philosophy, and I did all the work. But I realized I had to support myself while I was waiting to hear back.

So I got a job in finance. I moved to New York because I'd always wanted.

To be in New York. New York was my destination. And I got a job at Scudder doing something really random.

I think it was.

I think I was working as a technical writer on their software application. But I was just kind of bouncing around and looking for, you know, place where I could earn a study living and bide my time before I went to grad school. And then I started to realize that philosophers of professors of philosophy end up having to live in really random places in the country, and.

Wherever they get a job.

Wherever they get a job there, you know, they don't make a lot of cash.

And meanwhile I.

Was doing you know, I was working at this financial services company, and I was really interested in what they were doing. It was kind of like philosophy meets mathematics, because finance, to me is sort of a fuzzy science with no answers.

Very logical.

So it's got this math angle where you know, it's all numbers, but then there's this behavioral angle and psychological angle where you know, it's kind of a fun problem to tackle. So I realized I could make a lot more money working in finance and being a philosophy professor, and I basically kind of stayed the course.

Today's episode of Barry confirming his priors is brought to you by so that very much is you know, one of the reasons I was looking forward to this conversation is how much everything you write is just right in my sweet spot. You can pull that out. But let's I want to talk about the internship. So let's let's let's go over there. So I mentioned you were an intern in college, and this is kind of fascinating. You interned for a Merrill Lynch quant team, which fast forward twenty plus years later, that's now the team that you lead at Bank America Merrill Lynch now known as b of A Right exactly.

So that was actually my internship during business school. So after working at Scudder, I realized I didn't really have the foundations for financials. I didn't understand, you know, kind of how to parson income statement. And so I went to business school. I decided to go to business school and get that formal education. And then in the year the year in between your one and two of business school, I did my internship with Merrill Lynch with a gentleman named Rich Bernstein.

And yes, you know him.

I know Rich.

And that was the beginning of, you know, a wonderful career. But it's it's sort of strange. I don't know whether to feel proud or depressed about this. But I am the only person I know from business school. I graduated Columbia two thousand and two, and I'm the only person I know who stayed in the same.

Job for the last twenty three years.

So you shouldn't be depressed about that. You should think about you should be grateful for Oh, I found what I wanted to do right out of school. It's true, and I've been honing that craft for twenty three years.

That that is, that's half full.

A lot of people, especially in finance, kind of flit from flower to flower until they find the right nectar. Yes, that works for them, and it's kinda Look, it's not just me. I've seen a bunch of people. They start out as brokers, they eventually get a CFP and they go to the advisory side, or people start out with the CFA and they decide, you know, I would rather manage the portfolio than tell I'd rather be a PM than advise the PM. And so people kind of have to, you know, that journey. You were fortunate that so not only did Scudder lead you to business school, but business school led you to the job that you've had for the rest of your life.

Rich to quant strategy, now equity. It's just been a dream come true.

So you had mentioned the behavioral side of finance. Not a lot of quants marry behavioral finance to the mathematical side. Tell us how this sort of mixture, which I love, it works so well for me. I started on a trading desk. I kind of stop into behavioral finance in the mid nineties, right before all the cool kids were doing it, and it suddenly like, oh, all of this stuff that seems sort of random, Now at least there's an explanation for the randomness, and it kind of makes sense why people do the things they do. We're you know, we're just not wired for.

This, right, right, right? Right?

No.

I think that that's.

The part of it that I find the most interesting is the idea that you know, a stock price doesn't really have a you know, the fair value of an investment instrument is somewhat arbitrary, right, And then it's you know, it's supplied demand, it's perception.

Perception is reality for many of these companies. So, I mean, I think the.

Day that I realized that behavioral finance deserves a very prominent place in the arsenal of models.

That we all use was when I got it.

I got the job as equity strategists, and I realized that probably the most important number that I publish is our year end target. It's kind of a silly number, but people are going to think you're smart or dumb based on that number. And so I said, Okay, let's use all these quant models that I've been building for the last ten plus years, and after testing all of them, it turned out that there was one model that was better than everything else predicting the next twelve months of S and P returns, and that was a behavioral model.

Really, how do you measure behavior in a quantitative model for equities?

It's a very cool model.

And I actually was lucky enough to inherit it from my former boss, Rich, who I think inherited it from his former boss. So it's been around at Merrill for you know, since the eighties.

Who was who was Rich's former boss?

I can't remember. We'll have to get him on and ask him.

I've had him on. Yeah, I'm sure he's told me, but he may.

Yeah, we'll we'll look it up in the annals. But you know, it's been around for it predates Rich Bernstein's so so basically this model is just a simple straight average of all the Wall Street strategists recommended allocations to stocks in a balanced portfolio. So if you go to your broker and he or she tells you you should put you know, sixty percent in stocks, or you should put forty percent in stocks. We take all those numbers from the different houses and we average them together. We've been doing this every month since you nineteen eighty, and it turns out to be the best contrary indicator.

Oh really, I thought you were going to go with, Oh, it's a very wisdom of crowds and whatever it averages out run.

The opera to the opposite.

Yeah, no kidding.

That was the punchline of indicator, and I thought that was so fascinating. But then when you peel back the onion, you realize there's a reason for it. It's because you know, when everybody's looking at all this data and it all seems terrible, chances are that information's priced into the market and it's going to surprise in the opposite direction.

I want to say to go back to Rich Bernstein's boss. Was it Bob Farrell or was Bob Farrell two bosses before? Gosh, I don't kind of remember him as late eighties, early nineties.

Yeah, Bob Ferrell was I never seventies eighty like way before my time?

You ever have?

Oh yeah, yeah, yeah.

I met him at a market technicians association all night. Then I interviewed him for one of their events. But Bob Farrell's ten investing rules. Yes, that was gospel, and to this day is still like, you're hard pressedifying another ten rules that are as insightful and astute and still relevant.

Completely.

It's he always been spectacular.

Yeah, he was onto something and he probably he created this, this framework. I don't recall, but I mean I still have financial advisor sending me these Bob Ferrell quotes.

And like, bring it, this is great. He was. He was a legend, right.

I want to say that might have been one of his quotes. I could quickly find it, which was something like, if everybody's talking about it, it's already reflected in the price. No, there's no surprise there exactly when all the experts and forecasts agree, something else is going to happen. That's right, rule number nine from Bob. So you're you're definitely channeling a little Farrell. Ye. So, given this, how do you draw a price target or a market forecast from here's the average of all the Wall Street strategists. Let's say it's plus eight percent. Yeah, what do you do with that? On average? Well, you about plus eight nine percent on the S and B we Yeah.

So here's the thing.

I mean, if you think about just how much this number changes over time. So it's been you know, back in two thousand and one, strategists were telling you to put about seventy percent of your money in stocks. But then you know, just in I think it was twenty twelve, coming out of the financial crisis, you know, after after one round of QI, Europe was in a you know, a recession.

Everybody was Brexit, Grexit, it was all happen.

Everything was all happening. The US just got downgraded. And that was when that indicator plummeted to forty three percent.

Wow, which was exactly the right time you wanted to buy equities. I remember printed money.

Since twenty ten, eleven, twenty twelve, there was so much skepticism yeah about equity markets. And my pushback to people was always, show me another time when down fifty seven percent wasn't a spectacular entry right into US equities, right? And the answer is always twenty nine and thirty two? Okay, is this like thirty two? Is this remotely like twenty nine? Right? I mean you already had the dot com implosion. If you want to say that down eighty one percent was your twenty nine, fine, But that was you know, seven eight years ago and here we are down fifty seve.

Here we are again.

I know, I know, it was an interesting time, and that's right when I got the job as strategists. So it was really interesting because I was looking at this model, which was my holy grail.

Right out of everything.

We'd back tested, this had the best predictive power over the next twelve months highest R squared and it was telling us to back up the truck on equities. It was as low as it had ever been since the nineteen eighties.

Wow.

And I remember, you know, thinking, oh my gosh, is this a data error, and I like, triple quadruple check the data. But it was, you know, really a prescient signal that a lot of bad news was really priced into the market and it was more likely to move higher. And you know, since then, it hasn't dropped to forty three percent, but it's been pretty low. I mean, I think we've been in this market environment since the GFC where global financial crisis, where folks have just been worried, and the most recent event that we anchor our memories to is this horrible credit crisis that derailed the banking sector, that crushed the consumer, and now we're just assuming that's going to repeat over and over again.

That's the post GFC PTSD.

Exactly.

What was your experience during the first quarter of twenty twenty during the pandemic, SMP down thirty four percent. Yeah, neatly within the quarter. I noticed some people kind of panic, then here comes and other people like, no, Dow, I'm thirty four percent. I'm a buyer.

But yeah, I think that it was.

It was one of those moments where I think I went on TV at some point and they said, you know, do you buy here or is.

There more to go?

And I yes, and yes.

I said, you buy here. You pick your stocks, but you buy here.

There are gonna be a lot of really high quality companies that have been crushed by fear and loathing and you know, just heading for the hills. And this is an opportunity that we're probably going to look back on and want to buy what I wish we'd bought these companies.

You know.

Unfortunately, sometimes people in media or elsewhere they talk about catching the bottom and rather than being the bottom tick, you could look at that big sweeping parabola and say, I don't need to be at the bottom. I just want to buy as we're getting close and buy as we're moving away from it, and so that two years from now, my average cost is just far below where the markets so exactly, you don't have to nail the bottom.

No, and you never will nail the bottom.

Yeah, someone is going to get lucky, someone's going to get that bottom tick. But ninety nine percent of people or not right right, So rather than try and pick that yeah, hey, down x percent, at down twenty five percent, I'm a buyer at down thirty percent, I'm a buyer and I don't have enough dry powder that I can keep buying down forty percent, down fifty percent completely at a certain point when everybody's terrified. It's a spectacular it.

Is, it's a spectacular buying opportunity. I mean, there's one thing that I've looked at that seems to be a good leading indicator of, you know, when you want to start stepping in, which is I mean momentum.

Right.

There's a reason that there are.

So many momentum investors because the market usually figures out whether things are kind of getting worse or getting better. And one of the models that we've used to determine whether something is actually cheap and attractive or cheap, and a falling knife is a falling knife is looking at earnings revisions coupled with price momentum.

And what we've found is that.

When stocks are going lower but analysts haven't taken down their earnings, so it looks cheap, but it's only because the cell side is late to react, that's when you don't want to buy it.

Uh huh, you want to. So if there's downside momentum and you've had a whole bunch of hey, we're changing our earnings estimate, we're changing our price targets, right, that means it should be mostly priced.

Then exactly, So you want to buy a falling You want to buy a value stock when its price decline is starting to slow down, but estimate revisions are still deeply negative. So you're in this environment where everybody hates risk and they're downgrading, downgrading, downgrading, but the market's telling you, Okay, things are actually not as bad.

Huh. Really interesting. So let's talk a little bit about a day in the life of a big bank's chief quant tell us, how do you spend your time, what are you doing during the day, and what do you, you know, what keeps you curious, what keeps you wondering about what comes next?

Yeah, so my day.

Is never the same, and I'm sure it's like this for you. I mean, most people have kind of things thrown out them that are, you know, out of the ordinary.

And I can't say that, you know.

I walk into the office and I sit down at my desk, and I start chugging away at the computer, even though that's what I secretly want to do.

That's what work from home is for. Yes, stay at home, keep your face in the computer. You're good. Once you get into the office.

It's that's game over.

But no, but I think that where I get my best ideas is from talking to super smart people like you, like our financial advisors, like our hedge fund clients, our long only investor clients, pensions. So everyone out there who's been a professional investor for a while has some edge that is, you know, otherwise they would have been fired or left the industry. But I've found that people's edges are different from one another. So I feel like every time I talk to somebody new, there's an angle.

That I haven't thought about. And then what I like to do is try to recreate.

That framework in a model, a replicable model, and then test it to see whether it's something worth throwing into.

The mix or not.

And you know a lot of my work is just looking at does does this you know this this indicator like a PE ratio? Right, we all talk about pe ratiows and how you want to be you want to bilo pe stocks and you know, sell expensive stocks. But turns out the PE race shows sometimes predict performance and sometimes they don't.

You can it's kind of worthless if you can tell is this is this a good moments where I MPE? Or is this a bad moment? Yes?

Is this a good value stock or is it a value trapped?

So those are some of the things that we test and then you know, from talking to clients, we get ideas around should you have a regime indicator? Should you think about what regime the market is in to train your framework on what types of attributes to look for? What attributes right now are scarce versus abundant? And where will investors pay up for a scarcity in the current environment. So you know, a lot of these are really born from behavioral finance and thinking about how people you know, look for opportunities, whether they're going to be a bargain hunter or whether they're going to be risk averse and look for unassailable growth. But it's interesting because I think that my best ideas to this day have come from talking to our really smart clients out there on the field.

So you guys run literally dozens of quant models. I get your research. I get a handful of research specific people at I still think of as Merrill Lynch, but me too, but I notice. So we'll talk about the content you guys put out, which is enormous, and we'll talk about the models. Let's start with the model since you mentioned it. So you talked about the consensus of strategists and how that is often I'm assuming not always, but frequently a contrary indicator.

Yes, it's often, I mean really, it works the best at extremes, so if you're in some kind of neutral territory, it's not as informative.

But if true for all sentiment measures.

For any sentiment measure, exactly, So there are times when you really really really want to pay attention to it, and then there are other times where it gives you a little bit more of a muddled signal.

So that one stands out as prescient. What what else do you think adds a whole lot value and helps you navigate what's going on?

So I think when when you look at I mean one of the things that we've started looking at is just like kind of non financial data, so you know, not fundamental data like w And.

You're making a face as you say that, so I could tell you're like, you're like, is the jury still out on that? Or how are you playing with non financial data?

Look, I think that some of it is really useful. A lot of it is just garbage.

When you say garbage, is it is it not accurately depicting that subsector of the world, or is it just a noisy series with not a lot of signal in it.

I mean a lot of it is just noise or or corporate management trying to gain the system. I'll give you an example, So let's talk about earning surprise.

Right.

Earning surprise is something that should work. Right if a company beats everybody's expectations on earnings, it should drive monstrous performance, especially if.

It's a big beat.

But what we've all realized over the last you know, twenty years since reg FD in two thousand and one is that management gains their numbers and then they beat these made up numbers systematically, and that surprise factor no longer seems to be as effective as before we had this sort of massaging of consensus SYSTEMA.

The day before we recorded this, you put out a research report strong quarter earnings per share up six percent year of a year with better guidance. And here's the really amazing part. With eighty three percent of the S and P five hundred reporting earnings, sales are roughly in line, and the stats were seventy two percent of these companies being on earnings. So if three quarters are beating on earnings, what's the.

Value cares exactly?

Maybe we pay attention to missus because those guys really screwed up and couldn't beat their made up numbers. So, you know, I think that there are different factors that tend to you know, at some point work and then everybody figures out that they work, and then they start getting gamed. I mean, quants have basically made markets that much more efficient by or maybe inefficient.

I'm not sure what the right way to do well.

I think I agree with you. I think quants have made generally speaking, big money relying on data that's consistent. Yeah, you know what starts to happen is the inefficiencies get arbitraged out.

Right, and the inefficiencies go away.

So some people have blamed quants on why value has underperformed, why small caps aren't doing what the small cap factor is supposed to be.

I don't buy into that.

I'm right. I think the jury is still out on that accusation.

Yeah.

That said, there are a lot of models out there that aren't particularly great. Let me ask you what quant models do people seem to really be enamored with that you think aren't really worth it. You mentioned pe and fair value. Those aren't particularly useful to them.

Snapshot multiples are not useful, right, I think price to normalized earnings is useful. But you know, the other data set that I just wonder about is flows.

Because they're always on such a giant lag, like they were outflows throughout twenty three from mutual funds. Right, And if you're saying, well, I guess if you're going the other way, if you're saying it's a sentiment indicator. But that's not how people talk. People talk about, Oh, we have all these giant inflows into markets, right O.

Way cares that was yesterday, right, I mean, why does that tell us anything about the future.

You got me, give me another model you think is overrated that people rely on.

So I think another model that's overrated is just pure momentum, because I think momentum works when it's yes, exactly, so it's when it works well when it's accompanied by a fundamental reason. But the idea that you can predict price using price, to me, just seems to flaunt some kind of basic financial understanding.

Isn't that the entire undergirding of trend following.

Yeah, so trend following.

I mean I worry because I think we've been in a market where trend following has worked remarkably well for at least you.

Know, a decade, certainly for commodities and for currencies, yeah, exactly, maybe less so for equities or fixed income.

I mean even inequity is.

One of the best performing quantitative factors has been momentum.

For a really, really, really.

Long time, and one of the worst performing factors has been valuation. So we're now in an environment where all the forty five year old portfolio managers out there have been have worked their entire careers in these momentum fueled markets, and they've been trained to believe that valuation doesn't matter. And I think that's wrong, because valuation does matter. You know, it matters over a longer time period than maybe just the next day or two.

Valuation matters.

Eventually, it matters.

And in fact, one of the most powerful market timing models not over the next year, but over the next ten years is looking at just a price to normalized earnings ratio for the S and P five hundred that has explained eighty percent of ten year returns. That's a super high ursc.

How do you think of cape?

Yeah, so this is.

A cyclically adjusted PE ratio, and I think that that's exactly what you want to pay attention to when you're thinking about the long term. Unfortunately, nobody has the luxury of picking stocks for a ten year period anymore, except for in you know, our personal accounts. But professional money managers have basically been trained to believe that price predicts price, and that has worked for a really long time. But I feel like there aren't any value investors left out there.

Do you ever worry about that?

So I have a vivid recollection of reading Adam Smith's The Money Game and not really understanding the discussion he had when I first read this, you know, thirty years ago, that there's a fund manager and all this fund manager does is hire young, twenty something fund managers. And he describes it as they're smart enough and not battle scard enough to buy the stuff that terrifies me. And so I will ride these managers until they blow up, and then I'll fire them and replace them with the next. Like it's a chapter in the Money Game. And when I was younger, I didn't get it. But exactly what you said about if you're forty five, yes, and per you know, up until last year, the current generation of bond managers never seen a rising rate environment exactly. So what ends up happening is you have to bring in these young people who don't come with the baggage and memory. Yes, so they'll do things that you you're terrified of, and then eventually the conveyor belt replaces them. But I didn't understand that when I first read it, I don't know, twenty five years ago. Now I kind of get it for exactly the reason you described.

It's brilliant. Yeah, yeah, yeah, that makes sense.

And that book is just absolutely a you know, a Wall Street classic.

Yeah, and maybe that means that we should only have the tales of the distribution, like the really old investors and the really young investors take out.

So it's a bar belt take out everybody. You and I were out. They got to be older than me or or younger than you, and that's that's the range. So thank you for getting us losing the job, right, But there is something to be said. So sometimes that works out and sometime that is disastrous. Yes. So on Twitter, I've been having this ongoing DM conversation with the guy he's still anonymous behind TikTok Investors, And what he does is he goes to TikTok and he finds the most absurd, ridiculous investment or money advice on TikTok. And it's that exact thing. It's twenty something with no experience, the one, the one he said this morning is this guy who's twenty something. He says, So I figured out how I never have to pay taxes again. I make all my money in bitcoin. I got a bitcoin credit card, I go to the supermarket, I do this, I do that. It's all tax free, Like, who's gonna tell me I can't do that? And then the voiceover is the irs, Yes, they tracked all of those. Everybody, right, you're gonna get a ten ninety nine from wherever your bitcoin exchanges that goes to the I R S. What do you think they like they woke up yesterday? I mean, come on. So the problem with people who don't have the battle scars, Yes, the problem with those of us with battle scars are sometimes we're a little risk averse. The problem with people with no battle scars or they have no sense of hey, there's a whole lot of risk in here, in not paying your taxes, or in day trading from home or whatever some of the.

Meme stocks and whatnot. Yeah, no, you're right.

So you need that sort of institutional knowledge, that domain knowledge from the super old investor, and then you need this like whole cadre of young investors that are kind of moronic but also are willing to step in and take.

A lot of risk.

So what you're saying, it takes all kinds.

It takes all kinds. It takes.

So when I started out on the desk, one of my favorite, my head trader, had all these great lines that I should have written down. I only remember some of them. But I used to ask a question, why is this person saying this? This is so obviously wrong and money losing. And he's like, Hey, someone's got to be on the other side of the trade. Otherwise, who are you going to buy from? Right? I guess that's true. It's two sides to make them.

That's the fascinating thing about markets, isn't it. There's always somebody that's willing to sell at a certain price, and there's always willing there's somebody that's willing to buy.

So speaking of selling, let's talk about something that dates back decades, the cell side indicator. I remember it in the early days with the Maryland cell side Indicator. Now it's the Bank of America. What is the cell side indicator? How does it work?

This is the model I was telling you.

About, the consensus.

Using Wall Street to do the opposite and make lots of money.

Mm hmm. That's exactly what it is.

And you had nothing to do with its creation. You inherited it. I have you tweaked it all since you've had it.

I've looked at it to see whether you know it makes sense to use differently or legs whether there's information content in the actual distribution of strategists numbers.

But I think it's just kind of it's a simple.

Tool that just works because of the fact that, you know what we were talking about, just the fact that sentiment, when everybody thinks one thing, the market's going to do the opposite of whatever they're expecting.

Has the change in institutional sales and trading, and just the way the cell side has morphed over the past few decades. A lot of the cell side has moved to the buy side. Yeah, a lot of big big funds have their own analysts now that they used to rely on on the street for right, Does that change this at all?

No, It's interesting.

This is one model that has still kind of retained its efficacy. In fact, it's become more effective since the global financial crisis if you just look at its track record of predicting positive or negative returns. So it's kind of interesting to see that just this old, kind of hoary chestnut of a model still works exactly the same way it always did and kind of sussing out group think hurting and basically doing the opposite. So that's why It's one of my favorites.

So you guys have a huge institutional and sort of mom and pop main street client base. What sort of analysis do you do with your own data? You mentioned flows Connor are so laggy. Is there anything you see, especially on the behavioral side from like Herb Greenberg used to talk about his email hate meter, like if he said something and he got like a ton of I'm going to be right, Yeah, I'm onto something here. If everybody hates yes, I use.

That as an informal gauge of you know what, if we're getting a lot of pushback on a call, I feel, you know, stressed out because everybody's yelling at me, But I also feel better about our call. But look, I think there are lots of tools you can use. So one tool that I really like is looking at positioning of the byside because what we've found is, especially today, there's a lot of group thing, there's a lot of career risk driving investment decisions.

When you say especially today, hasn't that always been true?

I don't know.

I mean one of the things that I've been looking at is just active share, the average active fund, and it's gotten very like the average active fund has gotten closer and closer to the benchmark over the last five years.

Bill Miller says active management is being destroyed by closet indexers. Yes, and that's the guy who beat thesm P five hundred and fifteen years in a row, right up until the financial crisis.

Yeah, And I think that is there empirically, that's borne out by what we're seeing in our data. But what's really interesting is if you have a list of companies, one of the things we do every month, then it's just a laborious, horrible process. I used to do it, and now I'm fortunate to have one of my teammates do it. But you just basically scrape all the thirteen f's out there, come up with what everybody loves and what everybody hates. And it's kind of like the cell side indicator. If you've got a stock that is massively overweight, everybody owns.

It in the professional community, there's probably not.

That much upside it was left to buy, exactly.

So I think that positioning data is important.

I love looking at like a new tool that we've been using more is kind of natural language processing applied to research or transcripts or you know. I'll give you one example. So we came up with this analyst tone metric tone Tony. So we look at our own research and we track whether analysts within a sector are getting more positive or negative by virtue of just their their language, not their ratings or their.

You're counting how many great quarter guys or we're.

Well, yeah, essentially we're looking at we're using these like dictionary, these lexicon models to suss out how increasingly positive or negative analysts are getting on certain companies, certain sectors, certain themes. And it turns out to be a very good leading indicator for analysts changing their ratings, for stock performance, for earnings revisions. So there is something to be said for NLP or you know, kind of these more big data tools that are actually tracking broader signals over a long period of time.

So that's a very specific application of AI to research. How do you see AI coming into your space, into the quants or behavior space. Everybody says it's going to have a giant impact. When do you see that happening? If not already, I.

Mean I think it's already happened.

If you think about just like industries have just gone away, right, you can.

I mean, look, I think it's going to replace some of us.

It's going to replace a lot of these processes that we do that are really really boring and laborious. But I think at some level you still need to have that domain knowledge and that level of expertise that trains the models.

I mean, essentially, I think.

That we could just create a pocket analyst at this point. You could create an analyst that, you know, basically puts together the rough limbs of a you know, an earnings report, a report on earnings or report on you know, a specific event, and then you have the analyst himself or herself read it and make sure it makes sense and you know, tweak.

It, et cetera. But there's a lot of that route.

Activity that can be replaced by AI. Whether AI can invest better than a human being, I doubt it, because you know, I think that at some level you need that domain experience, you need that behavioral angle. You need to analyze what's different this time, because there always is something different this time. I think that that's the other thing I've learned in finance is that you can never just apply the last crisis playbook to the current environment. And that's something that I think it's hard to train a bot or a process on how to actually sort of determine what you need to factor in this time that is different from all of the historical data.

They may not repeat, but they rhyme as the old joke and very very true.

Yeah exactly. But there's always something that nobody's paying attention to that's going to blow everything up. And that's what you know, we need the human beings to fly around and look into the whites of the eyes of company management and you know, kind of figure out what's really going on behind the data. And I think it's like there's an example of this if you think about, you know, even that NLP process that I talked about, where you're looking for positive and negative sentiment. So one of the things that happened over the last you know, ten years, is that management realized that quants are scraping their transcripts on conference calls for positive and negative words. And then there was a way to game it. You could just inject more positive words or you know, take out all the negative words. You could you could basically edit your script so that it would look like, you know, you were you were saying all the right things for a quant model. So those are the types of things that I think, you know, AI is never going to figure out, you know, when that's already in the market, when folks are gaming the system, versus when it's an actual, accurate signal.

Huh, that's incredible. So let's talk a little bit about some things that are going on. I saw a quote of yours that I really liked. The idea that the market is too expensive should be debunked. Explain why.

Yeah, So I think that there is this tendency of quants myself included, to look at a time series and say, okay, if the pe of the S and P five hundred right now is twenty one times, and it has mostly been below fifteen times, and whenever it's been twenty one times in the past, it's gone down. Those types of analyzes I think are just deeply flawed, especially in light of the fact that the market itself is not one kind of monolith that's always the same. It's a changing animal. And if you look at the S and P today, fifty percent of it is asset light innovation oriented healthcare and tech, whereas in nineteen eighty seventy percent of it was manufacturing asset intensive, et cetera.

So let me ask you a question about that asset light side. People Michael mobisonas one, have made the argument that intangibles, intellectual property, patents, algorithms, et cetera, are deserving of a higher multiple, that they don't require a massive investment in factories, and they're not capital intensive, right, they're not manpower intensive, they don't need a ton of labor. Shouldn't they be awarded a higher multiple than you know, a steel factory, right.

Right, right, right.

So that's the idea is that the margins are more stable, they're less reliant on risky labor, which you know, people can go on strike or sue companies, whereas processes can't. Yeah, so I think there's there's a validity to that point. I mean, when I look at the S and P today, it's you know, it's not only is it a different animal in terms of its sector mix, but it's also less levered. Everybody took advantage of super low interest rates to turn out their debt, and you know kind of so fixed rate obligations are day rigueur for the JUST and P company versus floating rate obligations. A few years, you know, prior to the crisis. I think that also when you look at the labor intensity of the S and P five hundred, it's become much more labor light. And oh, by the way, AI is going to give us the opportunity over the next ten years to become even more labor light. I think the whole bulk caase around AI right now is not buying the chip makers, it's buying the index because the index is about to become that much higher quality.

You know, let me see if I understand that, because it's really fascinating. Everybody's so focused with Nvidia and now Intel has kept quite a bit and a few other chip makers. But really what you're saying is, look at who has a giant or outsized set of labor costs. Either they're going to be able to reduce their headcount or their existing headcount is going to become so much more productive working with AI that we're not recognizing.

You know, those describing that that that premium to all the clunky services companies out there. Like this is why I'm bullish on large cap banks.

One of the reasons is which are cheap now relatively speaking.

Which are still in that value cohort and they are also one of the few sectors that's become more labor intensive since the financial crisis. Why because these regulated banks had to hire all these legal and compliance and expert folks to make sure we weren't doing anything bad. Right, So today, think about all those processes, those are much easier to replace with an automated AI, like you know, bought whatever you want to call it, than than than any period of time in the past. Generative AI is new, it's a new thing. It's it's a game changer for many industries. Call centers have gone away. I mean entire industries have gone away overnight because of the advent of generative AI. And that's where I think it's really bullish, is in the ability to replace a lot of these rote activities that people right now are being paid to do. So one of the things that I've seen in my quant work is that if you look at any sector of the market, in any peer group, and you look at the labor intensive companies and the companies that are labor light, the companies that are labor light almost always outperform their labor intensive peers. So we are sitting right now at a point in time where over the next five to ten years or I don't know how long it takes, the S and P five hundred has this opportunity and this new tool to become even labor lighter than it is today.

That is hugely bullish.

Huh, really really interesting. So this leads me to what you've said not too long ago. There's a lot more to the S and P five hundred than the Semis and the megacap tech. Is this is AI what's driving? Hey, you got to look past past Nvidia and pass the magnificent seven to who are going to be the beneficiaries of all this new technology?

Yeah, I think that's right.

I think it's not just new economy chip purveyors, but it's also the companies that buy the.

Chips and become better.

But I also think there's something going on right now that we should be really excited about, which is that interest rates are no longer at zero. They're at five percent. So the Fed has done a lot of work for us. Companies are behaving much more rationally today than they have in the past. They're thinking about how to become more efficient. This is something they haven't thought about for a really long time because they had all these easy ways to make money. If I'm a corporate, if I'm a CFO and I'm not going to make my earnings numbers next quarter, I could have borrowed cash for free and bought back enough shares to beat that number. So there were lots of low quality ways of making money since the global financial crisis. But now we're back to a more normal hurdle rate. Five percent interest rates is not super high. I think it's manageable, right, and companies are making all the right moves. If you look at even these growth companies like Meta or Alphabet are now initiating dividends. They realize that part of their mantra needs to be cash returning and capital discipline.

As well as growth. So, you know, I think that.

We're at a point where the reasons to be optimistic on stocks are that much more than when we were at zero interest rates pre pandemic.

I mean, think about it.

The market has absorbed so much bad news over the last few years.

You not too long ago someone asked you about markets climb a wall of worry, like it's a bad thing. Yeah, isn't that a good thing? Isn't that people are stressed out about things that the market's already sussed out.

Right exactly, I think that's right. And I think, you know, even when you think about where we were in twenty twenty one, at the end of twenty twenty one, I felt really nervous about stocks because for the first time, we were forecasting.

Negative real rates.

Uh huh, which is really, you know, kind of a.

Problematic to say the least.

It's irrational negative real rates. That's an irrational Let me.

Borrow some money from you, and I need a quarterly check from.

You, exactly.

I mean, it doesn't make any sense. We were forecasting something that didn't make any sense. You know, every economist out there was forecasting negative real rates, and that just felt like something had gone wrong. Nobody was expecting two wars to break out. Nobody was expecting the Fed to hike interest rates from zero to five in a very short period of time. By the end of twenty twenty one, our sell side indicator was at the most bullish levels we'd seen since.

Really the global financial crisis.

Yep, nobody thought anything was going to go wrong, and then whamo, you saw a bear market.

So today, and by the way, a bear market in both stocks and bond and bond it's something that you don't see every forty years was the last time we saw that exactly So there the cell side indicator really worked exactly as planned. So let's talk about where we are in the current cycle. I know you like to discuss there are different phases of the of the both the market and the economic cycle. Where are we in this cycle and what does that mean for the next couple of years.

Yeah, I mean, so this is one area where I'm going to say this time it is different. I'm going to see those dreaded words because I think that, you know, where we are today is not necessarily as clear cut in terms of late cycle, early cycle, you know, recession, no recession. I think we you know, I think we've had areas of strength and areas weakness over the last few years. I mean, we had a global pandemic, a complete shutdown of global economic activity, and then you had certain pockets of the economy become oversubscribed and other parts of the economy become undersubscribed. And there's there's been that shakeout ever since. So I still think we're in this environment where goods versus services, we're working out that demand. We've seen inventory tightness and inventory laxity, so we've seen a lot of like kind of cross currents that would problematize just calling this a normal FED hiking cycle.

I do think that the.

Other factor that has shifted demonstrably and deserves more airtime is the idea that you know, if you look at the areas of risk today across the spectrum, corporates and consumers were just given a bunch of money from the Fed and the government. The areas of risk and indebtedness are sitting in the on the government balance sheet, right, not necessarily on corporate or consumer balance sheets.

Right. Everybody refinanced except Uncle Sam exactly.

Uncle Sam took the whole pile of it, and it's sitting right there on our balance.

And I recall seeing a number of senators and congressmen, and they should chisel this on their tombstones. You know, if we refinance at lower rates, it'll just encourage more spending. It's like, no, they're going to spend more no matter what the rates are. You might as well get a better rate, you know. It was just one of those like dumb things that politicians say that you know, as soon as you hear, it's not true, and now we're stuck with a lot of debt and we didn't even get a benefit of a decade of low rates.

Right right.

I mean, I think this debt sitting on government balance, she's something to worry about. I mean, I think the other aspect to worry about is not publicly traded equities, which are marked to market on every change in every macro now, tick by tick, tick by tick on a millisecond basis. But if you look at private credit, private equity, commercial real estate, we already know it's it's you know, it's problematic residential real estate. We haven't seen a lot of turnover in residential real estate because nobody wants to walk away from older. Yeah, so I think those are the areas where we should be more worried. But if you're looking at a stock, it's pricing in the current environment of rates inflation, like kind of everything that's going on right now is in a publicly traded equity vehicle.

Not too long ago, we were having a conversation about, you know, so everything going on in the college campuses. Now. We were talking about the various endowments and how they performed and somehow in twenty twenty two, when when stocks were down about twenty percent and bonds were down about fifteen percent, these endowments, some of which are twenty thirty forty percent alternatives like private equity and private credit, they did just fine. It's it's great when you get to mark to make believe. You know, you could just put what should we mark this? I don't know what do you want it to be?

Right?

Right, Let's put it flat for the year flat in this environment looks great. I wish I could get away with that. I actually have to report real performance, not made up stuff exactly. And I've heard consultants pitch it. You know, in a down year, you have like two years to change your mark on that, and by the time you change your market it's probably recovered. Yeah.

I mean, I think this is an area that could be ripe for regulation. I just don't know how the regulators will figure out how to regulate it, and I'm sure that that will create this sort of whack a mole type of environment.

Well, if you remember back during the financial crisis, when everybody had to mark to market, even things held to maturity that were underwater, they had a market to market, and that was one of the changes that came about. Okay, if this doesn't have any payments due and you're it's in your hold to maturity account, you don't have to mark to market, which allows a lot of junk to kind of get swept under the rug absolutely, and that becomes you know, that becomes a feature, not a buck.

And here's the really worrisome thing. So if you think about just private equity, the amount of capital raised since twenty seventeen is basically it doubled the size of the private equity market. Think about how we were we were geared in twenty seventeen, twenty eighteen, nineteen twenty. We weren't thinking about five percent interest rates.

Right, it was we were low for longer.

This suflation is going to stay low, disinflationary pressures, disruption, blah blah blah. That was the mantra during that entire stretch of time where where a ton of money was raised in these long duration growth themes that were priced for an environment of zero rates forever.

Right, you're getting nothing on bars, but hey, look I can get you five or six percent in private equity. The only rub is it's locked up for seven years exactly. So once you had the pandemic, which changed everything, you had the biggest fiscal stimulus since World War Two and the first CARES Act, to say nothing of CARES Act two, those two undred President Trump and Karsact three under President Biden. The fiscal you mentioned regime change earlier, yep, the previous regime was all monetary in the twenty tens. In the twenty twenties, it's mostly fiscal fiscal.

It's inflationary, it's protectionist. I mean, everything going on right now, deglobalization and physical stimulus, these are inflationary trends. So I think that the idea that inflation and rates are going to remain low is you know, it's problematic. And you know, I mean even this year, look what happened. The Fed was supposed to cut like what was it four times?

That's well. We were also supposed to get a recession and that was I know. Ye today he's right and none of them happen. That's that is your cell side indicator and action. All the consensus things or acession in twenty two or a recession in twenty three, the federal start cutting in twenty three. Now we're going to push it out to twenty four. None of that has proven to be true.

Yeah, yeah, yeah, I mean I think that where we are today is actually a reasonably healthy point for equities. But the areas that I worry about are that is that bottomless pit of you know, unmarked assets that have doubled or quadrupled in size in asset allocation. I mean, think about the average teacher or firefighter's pension plan. It's thirty percent ill liquid today versus wow, five percent you know, back in the two thousand. So you know, stuff has changed, and that's where I worry. But I don't worry as much about you know, big cap companies that everybody is tracking and watching and monitoring.

So I want to get to my favorite questions that we ask all of our guests. But before I do that, I just have to throw a curve ball at you. So you had mentioned your predecessor, Rich Bernstein, who had been with Meryl for a long time before he went out and launched Rich Bernstein Associates, Responsanate Advisors Advice RBA. Right when he left Meryl, he was roasted, and you famously read about ten bullet.

Points ten things I've learned from Rich. In my ten years working.

For they were hilarious, perhaps my favorite. A midlife crisis on Wall Street doesn't have to involve a ferrarian hair plugs, a Mini Cooper, and a leather rubber metal man bracelet will do just fine. Tell us a little bit about your Rich's exit roast.

Oh goodness, it was terrible because I went first and I said ten really mean things about Rich and then everybody that did the speech after me said really nice things about.

But that's what a roast is supposed to build.

Well, I was like, this is not a good roast. You guys need to get into the trenches and say some mean things. But I was the really mean one and everybody else was reliving.

So if they were going to do a roast of you, what would the worst thing they say about you on the way?

Oh gosh, there's so many things they could say.

Well, what's the nice thing we would say about you? Let me rephrase that. What would you be most proud of someone saying about you?

Well, that's a good question. I think I would be happy if somebody said about me that I was.

I helped them in their career. I mean, I think that's what we're all here for. But I think the terrible things that people could say about me were that I, you know, chronically forget my ID, like four out of five days a week. I don't bring my ID to the office, and I have to get the security guard to look me up in the system.

They're sofisted. This is absolutely true story one day. So sometimes I take this off when we're recording. On the other side of that studio is where Mike sits, some guy named Mike Bloomberg, and he must have taken his off and gone up to get coffee or something up there, and on the way back, the guard says, sorry, I can't let you down without a U A tag and to his credit and this is a good display of leadership, turn around, went down to the basement, got a temporary came back and everybody saw it. If Mike did it, well, then how could we not. That's right, That's that's pretty hig So what happens when you show up without your you know, your badge?

Well, the sad thing is that all the security guards they know me because I'm vivoting.

Don't you have to swipe in?

Well, they give me a bat like a temporary idea and then I go upstairs. But but yeah, there are a lot of things that that I could be roasted on. I always walk the wrong direction out of a door. I always go the opposite direction of where I'm supposed.

To be going.

No, you don't have good internal gyroscope.

Good, Yeah, my compass is completely destroyed. But yeah, there are a lot of there's a lot of raw material to roast me on.

I mean, it was well, I.

Hope I get invited to that. That sounds like that'll be fun. So let's jump to our favorite questions that we ask all our guests, starting with what have you been streaming these days? What are you watching? Oh? Well, just watching listening to whatever?

Was I just finished.

Watching The Gilded Age, which I thought was really fascinating.

It's a Gilded Age.

It's on HBO Max, and it's about like old New York, like basically, you know, the Upper east Side, in the in the in the railroad baron.

Was that really the Gilded Era?

I suppose that's what they call it. I mean it seemed pretty interesting. It was kind of fun if you live in New York to watch that.

I rewatched Breaking Bad.

Because we were just talking about I saw the first season and kind of tapped out afterwards.

I know, No, I mean, I I hate to say this, but I really feel like you need to give it another season.

I mean, during the during the pandemic, we were you know, you're stuck at home. We went through a bunch of things like mad Men. I had never watched a single episode of that without when that was on TV, and we blew right through it. So the competition for things that were like when someone says you got to give it a couple of seasons, I'm like, it turns out I don't have to. But I understand. I understand the point. Yeah, we talked about Game of Thrones. Yeah, are you a fan?

No, can't get into it.

I watched the and I know a million people say it's the greatest show. You're sci fi fantasy guy, you should love it. Like, first of all, I can't keep up with all the names. My brain is oatmeal, right, It's like, wait, I need a I need a notepad, like this is who of Visigoth? Of what? Like? I just I like, I think.

I fell asleep like three times trying to watch the first episode.

The first the first couple of episodes are very slow, and then the other you know, so the first season of White White Lotus was great.

Oh yeah, I loved White Loadus.

But we're watching the second season and everybody is just a They're not Succession bad, which is another show that everybody says it's great and why do I want to spend my time with these people? But like I want to be entertained and come away with like right, yes, not like wow, those people are jerks. Thank goodness. I don't work with anyone like them. It's just like so what else? So so if you watch The Gilded Age, yes, did you see the Crown? Oh?

I love the Crown Love.

Every episode was a joy, yeah, just visually a feast.

For the It was my twelve year old son watched that, which really which was kind of.

Cool because I didn't realize he.

Was, well, how did he How did he find it?

I don't know.

He just wandered into the room while I was watching it, and then he sat down and then he was engrossed, and we're watching this series together about the Queen of England.

It was really fascinating. It was it was I know it's sort of semi fictional.

But semi I.

Found myself asking questions and googling things. O me too, Did that happen? Really? It was amazing. Give me one other thing you're watching that you thought was fun.

Okay, let's see Breaking Bad, the Crown.

Gosh, I'm coming up blank.

You know the the problem with Breaking Bad? There was a show I don't remember what I watched called Fauda about Israeli counterintelligence agents that are infiltrating various terrorist groups. And it's so stressful that if you watch this show after eight o'clock at night, you're not going to sleep till midnight. And like you, I'm an early riser. I can't like be on the edge of my seat wondering who's gonna, you know, be found out and been murdered by the.

Okay, I just remembered a show that gave me like PTSD twenty four.

Have you ever watched though, Oh sure, oh oh, with a clock ticking down the whole time?

It was like, but I binge watched that because you can't not watch an entire season if your calendar alive.

Once you get once you get into one episode.

You're just gonna put it was so stressful.

I think that might have taken years off of my life.

We just finished The Gentleman, which is also kind of stressful and you so I always save some comedy show as sort of like a palate cleanser. Now it's Brooklyn ninety nine, but before that, it was, oh god, FANTASTICA ted Lasso was like regular. The other show that's we've been watching on HBO that we loved is Hacks Is. Season three just dropped and it's so great.

Yeah.

So it's a woman comedian in Vegas who is slightly past her sell by date and her pushback against the men that run the casinos and the writer who wants her to become younger and hipper in her material, kind of a tell all thing, and it's just really fascinating.

Look at that.

So season one and two were both great. It's not quite as cringey as Curb, but there are moments where you like, don't don't do that, don't do that. Oh you know, you just see it coming. It's just don't tweet that. That's just going to bite you in the behind. Don't don't, But you get sucked into it and you're rooting for the character. So that's a perfect example of fascinating characters who are flawed but likable like you want them.

You want them to see that, right exactly.

Maybe I'm too old school Hollywood, but I don't really want to watch people who I can but you.

Hate I know, right, right exactly, you don't need to go home to people.

That are turn That's right to someone say something that like, I think at the slap that guy you mentioned, Rich Bernstein, tell us about your mentors who helped guide your career.

Oh, Rich, definitely, like just one of the key people that you know really made me who I am today. I mean, I have to say my mother is like, really who I imprinted on the software coder?

My mom was a coder. Yep.

She came here from India when she was just twenty years old. She had an arranged marriage they're now divorced, one of the worst arranged marriages of all time.

But she was you know, she had a lot of guts.

She wore a sorry to work every day, really, but somehow ascended the corporate ladder at Digital Equipment Corporation and became a manager. Even though people were like, you need to stop wearing the sari, she kept wearing it.

She was true to herself.

So I kind of look at her as a role model of how to just get starf I've done, you know, fade the haters and you know, do something good for the world, create some value.

Really really interesting. Let's talk about books. I mentioned Adam Smith's Money Game. What are some of your favorites? What are you reading right now? Oh?

Right now, I'm actually reading.

Well, I'm rereading an Agatha Christie novel that I love. Which one the Murder on the Orient Express. Sure, I know I'm obsessed with.

You know, there's been I think three or four movie film versions. I don't mean like subsequent.

But they're all terrible. Have you seen them?

So? Not like the early ones are kind of talky and slow, but they're kind of interesting character studies.

And oh yeah yeah, it's they're truer to the book then you know, it's not supposed to be a James Bond novel, right, but some some of them try and turn them into almost actions.

Yeah, yeah, yeah, yeah, yeah. My favorite book of all time is a book called Confederacy of Dunces.

Sure did you read that long time ago?

I love that book.

I the author is, it's.

John Kennedy to o'tool, and.

Then I did not read it thinking of a different book.

Okay, so I'll get you a copy. It's it's a good one.

Hold on, I'm also reading this book by Peter Atia on how to live huh well, not necessarily long, but how to remain healthy and thriving. I mean, I find that health is becoming a bigger part of my serious, you know, concern set these days as I get older. I mean, I turned fifty a year ago, and I'm starting to think about, you know, I want to see my grandkids, So how do I keep this thing going and be happy and healthy.

It's not just about longevity, but of quality of life.

Exactly, and that's what that's what Peter a Tea is really focused on. So I thought that was an interesting one. But yeah, there's so many things to read. I don't read a lot of non.

Fiction, especially oh really, I don't read a lot that.

Has to do with financial markets.

As I've gotten older, I find myself reading more and more nonfiction.

Really.

And when I was younger, you know, a big sci fi fan.

Yeah, just like Dick. That was my favorite.

So my people don't realize Minority Report, Blade Runner Total recall these are all and then the the I think it was the Amazon series, Uh, that takes place when it's a it's an alternative history where Japan and Germany when World War Two.

It's Amazon series.

That's an Amazon series based on a Philip K. Dick book, which of course escapes my my recollection. I read that One Man in the High Tower was the film Dick book, right, and that became an now Amazon series. I can't believe I pulled that that title out of that.

That was really good. I kind of forgot.

The nice thing about getting older is that you can reread and it's fresh.

Right, Three Stigmata of Palmer Eldridge, you bick Like, I remember those books being super dense and super you know, heady, Yeah, and rereading them now it's like, oh, okay, I have a different context. Yeah. What sort of advice would you give a recent college grad interested in the career in either finance, quantitative analysis, or investing.

Well, I mean the first piece of advice isn't specific to finance, but it's just, you know, don't be a jerk.

Okay.

I think there are so many people out there who are trying to prove that they know more than the next guy that you know, they stopped listening. They're just like you know, trying to seem smart. And I think that's your number one enemy in.

What drives that? Is that a modern thing with social media or is that always throughout your career.

I don't think an issue, just like insecure people that needs to prove themselves. And what I've found is, you know, if the way you treat people that are working for you says a lot about you. And the problem is if you're mean to the people that work for you, someday they might become your boss. So I think that's another piece of advice I would give.

This has nothing to do with you being an intern at the Merril Kuan shop and eventually leading that job.

No, no, no, I've not personally experienced that too many times in my life, but I've heard about it many times, and I think that's just bad practice when it comes to finance and investing. I think the idea of being flexible in thought, always checking your own by bases. I mean, this is where the philosophy comes in. So Friedrich Nietzsche' is this has this theory of constantly overcoming and that's the idea that you should always critically examine your assumptions and make sure that you're not making a mistake.

Life is struggle, Yes, I mean life is struggle.

That's also a Nietzschean great right, But I think the idea of just always kind of checking yourself and seeing whether you're assuming things that aren't necessarily true.

And our final question, what do you know about the world of investing today? You wish you knew when you were getting started in the early two thousands.

Look, I wish i'd started investing earlier. I was always too risk averse, and then once I started to get some kahones, I was, you know, ten years into my career, I wish I'd just socked away more money.

And you know, kind of.

The riskiest, most volatile asset classes, because that's where when you're young, you can really take a punt.

For the risk and if you have a setback, so what, yeah, overcome it.

There's time, and volatility get gets easier with time. I think the other kind of metric that I wish I'd known about is and this is specific to the S and P five hundred, but the interesting thing is, if you own the SMP for.

A day, you have about a fifty to fifty chance of making money or losing.

Money, but meaning the next day, the next day.

So you know, your probability of making money by buying and selling the S and P over a one day period is about a coin flip, a little bit better than a coin flip. But if you have a buy and.

Hold over a ten year period, your probability.

Of losing money is demnimous. It's like less than five percent. So that's the idea of just extending your holding period, set it, and forget it. I think those are some of the tricks that I try to impress upon individual investors. Is you know, the day that you want to see well, because the market just went down a lot, is probably the worst day to sell. Because the best days for the S and P typically follow the worst day.

They cluster together, huh.

So it's just, you know, get rid of emotion when it comes to investing.

Savita, thank you for being so generous with your time. This was really fascinating. We have been speaking with Savita Subhimanian. She is the head of US Equity and Quantitative Strategy for a Bank of America. If you enjoy this conversation. Check out any of the five hundred we've had over the past ten years. You can find those at iTunes, Spotify, YouTube, wherever you find your favorite podcast. Speaking of podcasts, check out my new podcast At the Money, short conversations with experts about your money, earning it, spending it, and most of all, investing it. Find that wherever you find your favorite podcasts, or here in the Master and Business feed. I would be remiss if I did not thank the crackstaff that helps put these conversations together each week. Sarah Livesey is my audio engineer. Attiko Vaalbroun is my project manager. Anna Luke is my producer. Sage Bauman is the head of podcasts here at Bloomberg. Sean Russo is my head of research. I'm Barry Britons. You've been listening to Masters in Business on Bloomberg Radio.

Masters in Business

Bloomberg Radio host Barry Ritholtz has in-depth discussions with the people and ideas that shape ma 
Social links
Follow podcast
Recent clips
Browse 628 clip(s)