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1:34

this week an extra

1:36

extra special guest.

1:39

This is Masters in

1:41

Business with Barry Ritholtz

1:44

on Bloomberg Radio.

1:46

This week really

1:49

an extra extra

1:51

special guest Lisa

1:54

Shalit chief investment

1:56

officer at Morgan

1:58

Stanley. has had a

2:01

number of fascinating roles in Wall

2:03

Street, which is kind of amusing

2:05

considering she had no interest in

2:08

working on Wall Street. And yet,

2:10

she was CEO and chairman at

2:12

Sanford Bernstein, she was CIO at

2:15

Merrill Lynch Asset Management, and they're

2:17

outsourced. Chief Investment Officer model. So

2:19

she's seen this industry from all

2:22

sides. Not only is CEO running

2:24

operations running a substantial firm, but

2:26

as CIO for Morgan Stanley is

2:29

over six trillion dollars. She is

2:31

directly responsible for a hundred billion

2:33

dollars. There are a few people

2:36

in this industry who understand what

2:38

it's like. to work with institutions,

2:40

work with families, work with individuals,

2:43

as well as work with advisors

2:45

and brokers, the way Lisa does.

2:47

She absolutely has a unique background

2:49

and a unique perch on wealth

2:52

management and what's going on in

2:54

the world. I found this conversation

2:56

to be absolutely fascinating and I

2:59

think you will also with no

3:01

further ado my conversation with Morgan

3:03

Stanley's, Lisa Shalat. Thank you. It's

3:06

great to be here, Barry. It's

3:08

great to have you. I've really

3:10

been looking forward to this conversation.

3:13

You have an absolutely bonkers CV.

3:15

We'll get into that in a

3:17

little bit. I'm just old. Better

3:20

than the alternative, I like to

3:22

say, right? But let's start with

3:24

your background in your career. Applied

3:27

Mathematics and Economics from Brown and

3:29

then a Harvard NBA. That sounds

3:31

like you were on a career

3:34

path to a Wall Street quant

3:36

from early on. Tell us what

3:38

the career plans were? Not at

3:41

all, right? In college, I was

3:43

a... time disc jockey. I you

3:45

know abhorred the idea of working

3:47

on Wall Street and so you

3:50

know coming out of school once

3:52

I realized that journalists and folks

3:54

in radio don't make much money

3:57

in the long run no offense.

3:59

This is my side hustle not

4:01

offended at all. To anyone around

4:04

here you know I thought I

4:06

was going to take the high

4:08

road and and be a management

4:11

consultant so that's what I did

4:13

for the first job. your mind

4:15

to say all right let me

4:18

let me go see what these

4:20

finance bros on Wall Street are

4:22

all about? Yeah so you know

4:25

I did the consulting thing both

4:27

before and after business school and

4:29

you know fundamentally I was never

4:32

home. I was traveling and on

4:34

an airplane all the time I

4:36

was literally arriving back home Saturday

4:39

mornings leaving Sunday nights. I was

4:41

starting to hit those magic numbers

4:43

in the 30s when women are

4:46

like, if I don't get it

4:48

done now, it's now or never.

4:50

It's now or never. So I

4:52

took the plunge, I quit, I

4:55

did not have a job, and

4:57

I said, okay, I'm going to

4:59

go out there and see what's

5:02

going on. I knew that I

5:04

wanted to work with clients. That

5:06

was one of the pieces of

5:09

the consulting gig that appealed to

5:11

me. I wanted to work with

5:13

super smart people. also something I

5:16

had loved in that career. And

5:18

I really just wanted to be

5:20

somewhere where I was constantly learning

5:23

and growing, right? And I'm a

5:25

New Yorker, so I was coming

5:27

home. Most of the search people

5:30

at that time, you know, said

5:32

to me the only place to

5:34

go if you want to do

5:37

that is Wall Street I kind

5:39

of balked And they said but

5:41

there's just this one place. There's

5:44

this one place and the one

5:46

place For for those on Wall

5:48

Street in in the mid-90s that

5:50

was very special was very independent

5:53

Was Sanford Bernstein I walked in

5:55

the door and I literally fell

5:57

in love I can honestly tell

6:00

you I walked in the door.

6:02

I knew I was home. uh...

6:04

and i always thought i would

6:07

die there but obviously you know

6:09

life is long and stuff happens

6:11

but it was a wonderful wonderful

6:14

it was the seminal chapter in

6:16

my career i'm trying to remember

6:18

did they get rolled up with

6:21

pim co and from alliance is

6:23

that right so uh... so that's

6:25

how became alliance burnstein was independent

6:28

when founder mister burnstein passed we

6:30

needed to settle his estate and

6:32

a decision was independent made to

6:35

merge with Alliance Capital, which was

6:37

a growth shop at the time.

6:39

We thought it would be synergistic

6:42

because the asset management business of

6:44

Sanford Bernstein, as everyone I think

6:46

knows, was a deep value shop.

6:49

And so that merger happened, I

6:51

want to say, somewhere in the

6:53

early 2000s, we became Alliance Bernstein.

6:55

And you know, then, you know,

6:58

we kind of wrote it to

7:00

the great financial crisis and our

7:02

deep value exposure to financials kind

7:05

of helped unwind us quite a

7:07

bit. And I think, you know,

7:09

Alliance Bernstein really spun for quite

7:12

a long time and took, you

7:14

know, a long, long time to

7:16

get out of that mess. I

7:19

left because I got tired of

7:21

firing all my friends. Oh, that's

7:23

tough. Yeah. just in the investing

7:26

side you would share and CEO

7:28

chief executive officer yes that's got

7:30

to be a very difficult experience

7:33

right in the teeth of the

7:35

financial prices it was god-awful and

7:37

really you know The trauma was

7:40

when Lou Sanders, who at the

7:42

time had been the storied CEO

7:44

of the firm. He had been

7:47

my personal rabbi when he was

7:49

asked to step down. And, you

7:51

know, therein began, I think, the

7:53

unraveling and a little bit of

7:56

the loss of that, you know,

7:58

cultural juice that had kind of...

8:00

historically made that firm special. So

8:03

you leave Sanford Bernstein,

8:05

then which had really

8:07

become Alliance Bernstein, end

8:09

up at Merrill Lynch where

8:11

eventually your same

8:14

role chief investment officer

8:16

for Bank America Merrill

8:18

Lynch wealth management.

8:20

First, was there still

8:22

remnants of Mother Merrill?

8:24

when you joined post merger? There were

8:27

certainly remnants. So, you know, just

8:29

to reframe, you know, folks who

8:31

are Wall Street historians will understand

8:33

this chapter. One of the reasons

8:35

I went to Merrill, as I

8:38

was recruited by one of my

8:40

best friends who was Sally Krotchek.

8:42

Sally. Sally and I grew up

8:44

at Sanford Bernstein together as baby

8:47

analysts, and at that time she

8:49

was running, you know, the Merrill

8:51

Lynch brokerage business. for B of

8:53

A. And she hired me to

8:55

come in and be the chief

8:58

investment officer at wealth management. If

9:00

you remember during this period of

9:02

time, it was right after the

9:05

financial crisis, the worst of it,

9:07

it was 2010, 2011, and you

9:09

know, she had kind of gone

9:11

to bat very controversially asking the

9:14

bank to protect clients on some

9:16

of the products that had gone

9:18

bad. And that didn't go so

9:21

well for her. and within four

9:23

months of my arrival, she actually

9:25

heard that she was fired

9:27

on TV. We were together

9:29

in her office and there

9:32

was literally a cry-on on

9:34

the bottom of the screen

9:36

that says, you know, Krawchak

9:38

to leave Bank of America.

9:40

Merrill Lynch. Well, that was sweet

9:42

of them to do it that way.

9:45

You know, I have a vivid recollection

9:47

from the people I, we were talking

9:49

about. Yeah, you know, Frankl and Dave

9:51

Rosenberg, I know a lot of Rich

9:53

Bernstein, all these people I know from

9:55

the 2000s era Merrill Lynch, and one

9:57

of the fascinating things about...

10:00

Crawcheck was her defense of the

10:02

Merrill Lynch Brands post-merger and she

10:04

really helped turn around malaise just

10:07

a lack of office morale amongst

10:09

Here you have this storied name

10:11

that was picked up on the

10:14

cheap during the financial crisis and

10:16

was wildly underperforming as an organization

10:19

and full credit to her for

10:21

really saving Merrill Lynch as a

10:23

name and turning tens of thousands

10:26

of people's jobs around. She really

10:28

did Yeoman's work there, didn't she?

10:31

Yes, absolutely. So you become chief

10:33

investment officer for Bank America Merrill

10:35

Lynch wealth management. What did you

10:38

take away from that? You've had

10:40

this role in several organizations. What

10:42

was really unique and special about

10:45

Bank America, Merrill Lynch? Yeah, so

10:47

what, you know, when I was

10:50

running the wealth management business, you

10:52

know, reflecting on my experience with

10:54

Sanford Bernstein, Sanford Bernstein was what

10:57

we call a closed shop. Right

10:59

all the clients were getting proprietary

11:02

Sanford Bernstein asset management product and

11:04

when I arrived at Merrill Lynch

11:06

who was really my first exposure

11:09

to really entrepreneurial extremely talented and

11:11

aggressive financial advisors who were operating

11:13

with what we in the industry

11:16

call an open architecture platform, right,

11:18

where they could, you know, kind

11:21

of place best of breed product

11:23

with their clients. And so that

11:25

opened a whole new world for

11:28

me in thinking about asset allocation

11:30

and thinking about advice and thinking

11:33

about active and passive constructions to

11:35

get. thinking about alternatives and so

11:37

you know what made Merrill extraordinarily

11:40

special were the financial advisors who

11:42

were just spectacular. to your point,

11:44

the thundering heart. Yep, yep, remember

11:47

those ads from like the 60s

11:49

and 70s on TV. They were

11:52

absolutely unique. So culturally, I have

11:54

to think Sanford Bernstein and Merrill

11:56

Lynch were both very different. What

11:59

did you bring from those two

12:01

organizations to your work at Morgan

12:04

Stanley? Either philosophically or cultural. Yeah,

12:06

so I think from my time

12:08

at Sanford Bernstein, I like to

12:11

think I brought. you know, kind

12:13

of my love of original research,

12:15

my love of, you know, that

12:18

independent streak, that desire to really,

12:20

you know, call out conflict of

12:23

interest and saying, no, this is,

12:25

you know, this is what the

12:27

numbers really tell you. I like

12:30

to think I brought that. I

12:32

think, you know, from Merrill, it

12:35

was really that appreciation of how

12:37

do you work. through financial advisors.

12:39

So as a chief investment officer,

12:42

how do you earn the trust

12:44

of financial advisors to have influence,

12:47

right? Because they're what stand between

12:49

you and the client. And so,

12:51

you know, I think I started

12:54

that process in my career at

12:56

Merrill. I think in many ways,

12:58

I still wake up every day

13:01

and I think I've got more

13:03

to learn in terms of how

13:06

to be a better partner. to

13:08

financial advisors today at Morgan Stanley.

13:10

And what is kind of interesting

13:13

given the open architecture at Merrill

13:15

and the proprietary work at Alliance

13:18

Bernstein, Morgan Stanley's a little bit

13:20

of both. You have conciliate research

13:22

and a number of people running

13:25

their own funds that are specific

13:27

to Morgan Stanley as well as

13:29

the open architecture. How do you

13:32

look at the combination of both?

13:34

closed and open together yeah uh...

13:37

well look i i think it

13:39

it does a lot of things

13:41

first it avails me of some

13:44

of the best colleagues on the

13:46

planet, right? So I'm surrounded not

13:49

only by folks in the wealth

13:51

management business, but obviously I'm attached

13:53

to one of the best equity

13:56

in trading franchises globally, and then

13:58

to your point, you know, connected

14:00

to. PMs that you know are

14:03

walking the floors with me. But

14:05

look, you know, I want to

14:08

be really clear when I think

14:10

about my client's were arms length.

14:12

So proprietary product might be appropriate

14:15

for them if they're open to

14:17

it. if on the other hand

14:20

they say conflicts of interest matter

14:22

a lot to me i want

14:24

everything to be totally transparent we

14:27

have that those options as well

14:29

so you know i think about

14:31

it is as you know we

14:34

we work with clients we do

14:36

what clients are in their best

14:39

interest and i know it sounds

14:41

a little bit like an advertisement

14:43

but i really believe that well

14:46

the the next question the obvious

14:48

question is Who are the clients?

14:51

Are they institutions? Are they households?

14:53

Are they a little bit of

14:55

both? Yeah, so as you may

14:58

know, Barry, you know, over the

15:00

last, you know, really decades since

15:02

Gorman acquired Smith Barney, we've been

15:05

expanding our footprint in terms of

15:07

the client segments that we are

15:10

focused on serving really exponentially. So

15:12

while you might once upon a

15:14

time have thought about, you know,

15:17

the Morgan Stanley financial advisors, as,

15:19

you know, serving that. ultra-high net

15:22

worth, you know, core client. You

15:24

know, now we're, you know, serving

15:26

folks in the mass market through

15:29

e-trade, we're serving family offices, we're

15:31

serving institutions, we've done acquisitions in

15:33

the stock plan businesses, in the

15:36

retirement businesses. I, you noted in

15:38

my... bio that I run, help

15:41

run one of our OCIO businesses,

15:43

our outsource, where we're working with

15:45

foundations and endowments and family offices.

15:48

So now we're everywhere and we're

15:50

serving every type of wealth client

15:53

internationally domestic self-directed through a brokerage

15:55

account all the way through complete

15:57

discretionary. I recall back in the

16:00

day Morgan Stanley as well they're

16:02

kind of a Goldman Sachs want

16:05

to be and and that is

16:07

no longer the case it's the

16:09

best of Goldman the best of

16:12

Merrill and on This is really

16:14

inside baseball stuff, so I apologize

16:16

to listeners, but on the league

16:19

tables to say who's number one

16:21

in underwriting, who's number one in

16:24

attracting new wealth management, who's number

16:26

one in self-directed. Like you guys

16:28

are competitive across the board, and

16:31

it's not like the old days

16:33

where Goldman has a good year

16:36

and they take the top spot

16:38

everywhere. That doesn't seem to happen

16:40

anymore. It seems... like the industry

16:43

has become so competitive you want

16:45

to be in the top five

16:47

or top ten but the days

16:50

of you know taking them number

16:52

one with a bullet across all

16:55

these different areas they really seem

16:57

to have faded yeah they have

16:59

i mean i think uh... that

17:02

Ours is a business in almost

17:04

every segment that requires a lot

17:07

of scale. And as you know,

17:09

developing scale very often means investing

17:11

aggressively in tech, investing aggressively in

17:14

talent, and you've got to pick

17:16

your spots, right? And so, you

17:18

know, to your point, I think

17:21

every, you know, segment today is

17:23

a little bit of a gunfight.

17:26

I like to think that, you

17:28

know, in core wealth management, Morgan

17:30

Stanley and... and you know where

17:33

we've come you know first under

17:35

James Gorman and now hopefully under

17:38

Ted Pick's leadership is really you

17:40

know differentiating us and allowing us

17:42

to pull away from the pack

17:45

at least in wealth management. And

17:47

you mentioned the investment in technology

17:49

and people and the ability to

17:52

scale at your size and there's

17:54

only you know a dozen or

17:57

two companies that can make this

17:59

claim. that flywheel begins to

18:01

become very self-reinforcing and

18:03

you have the ability

18:05

to just continue to add divisions to

18:08

fill in oh we're a little

18:10

soft here let's let's bulk this

18:12

up a little bit and put a

18:14

little muscle on it because we

18:16

have the ability to offer these

18:18

services to all our clients what's

18:20

it been like watching the how

18:22

long have you there you're there

18:24

almost a decade right there over

18:26

a decade yeah so and from

18:29

2012 to 2025, that's a huge

18:31

run. A lot of big financial

18:33

players, Vanguard, Black Rock, go

18:35

down the list, have really

18:37

added some heft. So as

18:39

Morgan Stanley, what's been like

18:41

watching that over the past

18:43

decade plus? Yeah, it's been

18:45

extraordinarily exciting for us. Obviously,

18:48

you always want to be

18:50

working in a growth business.

18:52

And so, you know, we've

18:54

been in a situation where

18:56

we're hiring... People, which is

18:58

always exciting. We're going after

19:01

new types of clients, new

19:03

problems, new situations, which keeps

19:05

you on your toes and

19:07

keeps you growing. And, you

19:09

know, really completely new business

19:11

segments. I mean, I can't

19:14

tell you how to your

19:16

point that flywheel between moving

19:18

up market into institutions feeds

19:20

yourself directed business. I mean,

19:23

let me just give you

19:25

an example. Let's assume that

19:27

we are administering a stock

19:30

plan for a large corporate

19:32

client. Now we're going in

19:34

and we're saying to that

19:36

corporate client, instead of, you

19:39

know, having a financial advisor,

19:41

going to the country club

19:43

on Saturday, acquiring a client,

19:45

monoey monoe, one at a

19:48

time, we're now walking into

19:50

a C-sweet and saying to

19:52

that CFO or that chief

19:54

talent officer, hey. Can we

19:57

provide all of your employees

19:59

with finance? wellness program. Can

20:01

we give every single one

20:04

of your employees a free

20:06

financial plan? Can we give

20:09

every single one of your

20:11

employees a account or advice,

20:14

you know, to their first,

20:16

you know, purchase in a

20:19

529 account? Things like that,

20:21

where suddenly you're acquiring clients

20:24

at scale. Huh, really, really

20:26

interesting. What makes Thrivent different?

20:29

A combination of financial services

20:31

and generosity programs. Thrivent offers

20:33

advice, investments, insurance, banking, and

20:36

generosity, as well as resources

20:38

to fund service projects or

20:41

direct dollars to causes you

20:43

care from

22:30

Canva's media library or add animations and

22:32

interactive elements to engage your audience. It's

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all right there for you. Canva makes

22:36

collaboration simple too, and everyone knows presentations

22:39

are a team effort. Comments, reactions, and

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co-workers will too. Love your work with

22:58

Canva Presentations at canva.com. taking

24:30

a stint, a rotation through

24:32

wealth management and I joined

24:35

him to build the team

24:37

and really, you know, create

24:39

the platform that we have

24:41

today when Morgan Stanley and

24:43

Smith Barney were merging. There

24:46

was really no centralized CIO

24:48

office. It was the only

24:50

place that that talent was

24:52

coming from Smith Barney, from

24:55

the Smith Barney side. And

24:57

so we wanted to recraft

24:59

a more Morgan Stanley integrated

25:01

firm offering. And so I

25:04

joined Mike Wilson to help

25:06

build that. So let's talk a

25:08

little bit about what goes into

25:10

managing a hundred plus billion

25:13

dollars in assets. How do you?

25:15

develop that how do you

25:17

think about asset allocation and how

25:20

do you think about the end

25:22

clients given how broad your

25:24

audience and clients are

25:26

how do you create a set

25:28

of options that checks all the

25:31

boxes that you know you need

25:33

to check to do this right

25:35

but also gives of broad variety

25:37

of clients, what they're looking for.

25:39

Yeah, so Barry, for us, asset

25:42

allocation, all asset allocation starts with

25:44

financial planning, and all financial planning

25:46

starts with the client. But you

25:49

can't do a financial plan without

25:51

having what we call capital market

25:53

assumptions. You know, what do we

25:56

think every asset class is going

25:58

to do over the... next three,

26:00

five, 10, 20 years are.

26:02

customization of asset allocation really

26:04

starts with financial planning. That

26:06

is the linchpin. We fundamentally

26:08

believe that you've got to

26:10

understand a client's cash flow,

26:13

that the client has to

26:15

understand their own cash flows.

26:17

One of the things that

26:19

I know you know, having

26:21

worked with a lot of

26:23

clients, is very often clients

26:25

don't know themselves, right? The

26:27

good old fashion, hey, I'm

26:29

kind of aggressive, I'm kind

26:31

of conservative. Those are such

26:33

non-normative terms. you never know,

26:35

are we talking about politics?

26:37

Are we talking about, you

26:39

know, how usually you're talking

26:41

about whatever the market did

26:43

the past six months? And

26:45

that's what the determiner. And

26:47

so, so working through the

26:49

behavioral pieces, the getting to

26:51

know your client, they're working

26:53

through a plan with them,

26:55

really getting into what are

26:57

their hopes, wishes, dreams, you

26:59

know, what does money mean

27:01

to them? Why have they

27:03

accumulated it? What do they

27:05

hope their legacy will? Does

27:07

it have to do with

27:09

a charity, a cause, a

27:11

family member or members, and

27:13

build a plan from there?

27:16

Huh, really quite interesting. So

27:18

since you've joined Morgan Stanley,

27:20

and I'm going to assume

27:22

this isn't a coincidence, their

27:24

focus has increasingly been on

27:26

the wealth management side of

27:28

the business, which was a

27:30

big change to the 1990s

27:32

and the 2000s, tell us

27:34

a little bit about... Why

27:36

and how this focus shifted

27:38

and what your role is

27:40

in that? Sure. So look,

27:42

I think, you know, this

27:44

is, I think history is

27:46

going to be extraordinarily kind

27:48

to James Gorman. I think

27:50

James, I feel so extraordinarily

27:52

lucky to have served in

27:54

the firm while he was

27:56

the CEO. I think, you

27:58

know, strategically, you know, back

28:00

during the financial crisis, he

28:02

developed a vision, and that

28:04

vision was I believe that

28:06

the wealth management business is

28:08

a growth-oriented business. I believe

28:10

it needs scale, and I

28:12

believe that when combined with

28:14

a more cyclical markets-based businesses

28:16

or the banking-based businesses can

28:19

add ballast and create shareholder

28:21

value. And I think that

28:23

he embraced that vision and

28:25

that vision had kind of

28:27

three chapters to it. The

28:29

first was, you know, let's

28:31

buy Smith Barney and get

28:33

physical scale, right, just the

28:35

physical scale of a large

28:37

number of advisors, let's invest

28:39

aggressively in technology to to

28:41

support those advice. I think

28:43

the second part of that

28:45

growth was to say, let's

28:47

transform how we serve our

28:49

clients and the client's segments

28:51

that we serve. And they

28:53

started to explore these other

28:55

acquisitions, first, the acquisitions of

28:57

these stock plan businesses, which

28:59

are essentially tech businesses, tech

29:01

platform businesses, but would allow

29:03

us to go from acquiring

29:05

clients one at a time

29:07

to in groups. And then,

29:09

you know, the last piece

29:11

of the strategy was really,

29:13

you know, let's go after

29:15

E Trade and Eton Vance

29:17

and acquire those. And then

29:19

we'll have the machinery so

29:22

that you can, you know,

29:24

acquire clients at the early

29:26

stages of their life cycle,

29:28

allow them to be self-directed,

29:30

and ultimately graduate to advice

29:32

so that your financial advisors

29:34

actually constantly constantly... have a

29:36

source of new clients, of

29:38

new wealth clients, that they

29:40

don't have to be at

29:42

the country club every single

29:44

weekend. So what you're describing

29:46

is you're starting with clients

29:48

that have no minimum and

29:50

they're self-directed a D trade.

29:52

I don't mean this in

29:54

a negative way. They sort

29:56

of move up or... to

29:58

graduate to a little more

30:00

full service. They want a

30:02

financial plan, they want some

30:04

advice, they want to think

30:06

about whether it's saving for

30:08

home or college or retirement,

30:10

and then the next step

30:12

up seems to be full-on

30:14

wealth management where you're dealing

30:16

with philanthropy, generational wealth transfer.

30:18

A lot of bells and

30:20

whistles, including estate planning, tax,

30:22

you guys offer for the

30:25

full suite of services. Absolutely.

30:27

And I think one of

30:29

the things that a lot

30:31

of folks don't know about

30:33

us is we're the 800

30:35

pound gorilla in actually offering

30:37

alternatives to private wealth clients.

30:39

You know, we are larger

30:41

than some of our well-known

30:43

competitors by a factor. And

30:45

so what that means is

30:47

we're now in a position.

30:49

We're literally about 80 percent.

30:51

of the alternatives that I

30:53

would show you as a

30:55

client are either first look,

30:57

meaning we're getting the first

30:59

look or best price by

31:01

a lot. So it's funny

31:03

because you mentioned Gorman taking

31:05

over from. his predecessor. Yeah,

31:07

John Mac. John Mac who

31:09

I've had on the show,

31:11

who was just delightful. But

31:13

the Mac era of Morgan

31:15

Stanley seemed to have more

31:17

successfully navigated the financial crisis

31:19

than many of their competitors.

31:21

And part of me can't

31:23

help but feel that coming

31:25

out of the crisis in

31:28

better shape than so many

31:30

others really allowed Morgan Stanley

31:32

to blow up over the

31:34

next... 50, when everybody else

31:36

had blown up during the

31:38

financial crisis in the bad

31:40

way, they really bulked up

31:42

in the good way following

31:44

that. Is that a fair

31:46

assessment? That is a fair

31:48

assessment, Barry. I think I

31:50

look at it in a

31:52

very particular way. A host

31:54

of our competitors were forced,

31:56

quote unquote, into the arms

31:58

of the big banks, right?

32:00

So the B of A

32:02

Merrill situation. Right. Yeah, Bear

32:04

Stearns. Right. Exactly. You had,

32:06

you had, you know, City

32:09

had to make choices around

32:11

Smith Barney. It was very,

32:13

very hard. What Mac and

32:15

James Gorman did to rescue

32:18

Morgan Stanley, and literally they

32:20

talk about it as an

32:22

overnight rescue where half the

32:24

employees were packing the boxes

32:26

just like everybody else, and

32:29

the other half were on

32:31

the phone with colleagues in

32:33

Japan. And as you may

32:35

recall, what saved Morgan Stanley

32:38

was a huge equity infusion

32:40

from MUFG, from Mitsubishi

32:42

Financial Group. that is

32:44

not only was it

32:46

premised on a fantastic,

32:48

you know, partnership, but it

32:50

was an arms-length partnership that

32:53

allowed the business to be

32:55

rescued but not devoured. And

32:58

I think that for some

33:00

of our competitors who were

33:02

suddenly during the great financial

33:05

crisis inside, you know, systematically

33:07

important banks, their needs, right?

33:10

just by sheer dent of

33:12

size got squashed a little

33:14

bit because the bank obviously

33:17

had, you know, the CEOs

33:19

of city, the CEO of Chase, the

33:21

CEO. at Wells, the CEO at B

33:23

of A, you know, they're sitting there

33:26

with the Fed and SEC every five

33:28

minutes. Now I'm not saying Morgan Stanley

33:30

wasn't at those meetings, but the stakes

33:33

were different because we weren't a commercial

33:35

bank with a balance sheet the size

33:37

that those guys have. But even

33:39

more importantly is you're at

33:41

Alliance Bernstein, Bernstein gives up

33:44

control in the merger. Merrill

33:46

Merrill gives up control in

33:48

the merger. Merrill Merrill gives

33:50

up control in the merger.

33:52

Mitsubishi had a substantial stake,

33:54

but they didn't take a

33:56

controlling stake and the local

33:59

U.S.-based management. Hey,

36:52

Toyota, let's go places. People endure

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38:14

the new North American

38:16

tariff seemed to be... taking

38:18

place. Tell us why do

38:20

we give up our long-term

38:22

perspectives once the market starts

38:24

heading south? So there's

38:26

the emotions and then there's

38:29

the math, right? So what

38:31

I always say is that

38:33

you know what the Nobel

38:35

Prize winners in behavioral economics

38:38

will tell you is that

38:40

emotionally losses hurt four to

38:42

five times more than gains

38:45

satisfy. And that's actually intuitively

38:47

intuitively appropriate because

38:49

typically our wealth we

38:51

feel has taken blood

38:53

sweat and tears to

38:55

acquire or accumulate and

38:57

when we experience a

38:59

loss right a 50%

39:01

loss can happen right in

39:03

a very short period of time

39:06

but to round-trip and recover our

39:08

high watermark we've got to be

39:10

up a hundred percent right right

39:12

which may take us twice the

39:14

three times as long and so

39:17

the math is asymmetric the emotions

39:19

are asymmetric and fear as we

39:21

know just the same way when

39:23

things are running hard and you

39:25

feel like you've got the foam-o

39:28

and the missing out it's greed

39:30

when you know there's a lot

39:32

of red on the screen people

39:34

are you know your stomach's you know

39:36

totally seizing up and it's about fear

39:39

I don't want to experience loss I

39:41

don't want to have to make a

39:43

decision of what do I do here

39:46

yeah the asymmetry is really fascinating I

39:48

am not a fan of Vegas or

39:50

casinos but I go there as a

39:52

sociologist and I always find an amusing

39:55

that right off the casino floor is

39:57

a big beautiful jewelry store filled

39:59

with lots of expensive watches and

40:02

because those gains it's house

40:04

money it's ephemeral but losses

40:06

are an existential threat it

40:08

really feels like the world

40:10

is coming to an end

40:12

forget down fifty percent right

40:14

we're recording this five six

40:16

seven percent off the highs

40:18

and people are talking like

40:20

it's the end of the

40:22

world let's talk about another

40:24

one of your quotes that

40:26

kind of caught my eye

40:28

which was discussing the great

40:30

normalization. What is the great

40:32

normalization? So, you know, we've

40:35

been trying to remind clients

40:37

how extraordinary in financial history

40:39

the past 15 years have

40:41

been. Since the great financial

40:43

crisis, we've had an unprecedented

40:45

level of federal reserve involvement.

40:47

We've had markets that have

40:49

been buttressed by the federal

40:51

reserve balance sheet. that have

40:53

been buttressed by a disproportionate

40:55

amount of time, having financial

40:57

repression or low rates, rates

40:59

being held down. We've had

41:01

gone through the COVID crisis,

41:03

which stimulated unprecedented fiscal stimulus

41:05

as a share of GDP,

41:08

and performance, what clients have

41:10

actually experienced. If you go

41:12

back to March of 2009,

41:14

right, and you and I

41:16

remember March of 2009, the

41:18

bottom, we were probably looking

41:20

at an S&P 500 that

41:22

was trading in the mid

41:24

six hundred. Six six six.

41:26

I remember the devil's bottom.

41:28

The devil's bottom. And look

41:30

at where we are now,

41:32

even though we're off, we're

41:34

still up during that nine

41:36

X. Nine X. over 15

41:38

years. So I tell people,

41:41

let's put this in perspective,

41:43

what that kind of mathematically

41:45

translates to is we've for

41:47

15 years, we've compounded it

41:49

at about 15% per year.

41:51

So that's two times normal.

41:53

For a business cycle, let's

41:55

call it a, you know,

41:57

where we had two very

41:59

short recessions, two back-to-back, very

42:01

long business cycles, not normal.

42:03

What was also not normal

42:05

is during that time, the

42:07

degree to which U.S. exceptionalism

42:09

and the U.S. outperformed the

42:11

rest of the world. I

42:14

mean, we were out performing

42:16

every year, year in year

42:18

out by 600, 700 basis

42:20

points per year. And so

42:22

when we, you know, kind

42:24

of came into January of

42:26

2025, we were starting to

42:28

talk to folks about look

42:30

at where the dollar is.

42:32

versus virtually every other currency.

42:34

Super strong. Look at the

42:36

share of US equities versus

42:38

the rest of the world.

42:40

We're 10% of the world's

42:42

population, we're 25% of the

42:44

world's GDP, we're 33% of

42:46

global corporate profits, but we

42:49

were 67% of all stock

42:51

market cap. Just extreme. And

42:53

so what we were starting

42:55

to talk to clients about

42:57

is, look, this is an

42:59

extraordinary amount of large ass.

43:01

And a lot of it

43:03

has come from Fed accommodation,

43:05

from stimulus. Now we're on

43:07

the other side of that.

43:09

We have a very robust

43:11

economy. We've re-levered the economy,

43:13

if you will, where the

43:15

leverage of the private sector,

43:17

the household sector, the corporate

43:19

sector that got us into

43:22

the great financial crisis, that's

43:24

been healed, right? We have

43:26

households that can still carry,

43:28

for the most part, their

43:30

interest burdens. debt, it's the

43:32

debt relative to discretionary income.

43:34

Exactly, exactly. Corporations that still

43:36

have an extraordinarily relative low,

43:38

locked in, cost to capital.

43:40

And what's become re-levered is

43:42

the federal balance sheet and

43:44

the government balance sheet. And

43:46

now here we are. every

43:48

couple of decades, we have

43:50

to go through these periods

43:52

where there's heat. in the

43:55

economy. And inflation is one

43:57

manifestation of the heat. Real

43:59

growth and investment is another

44:01

manifestation of the heat. But

44:03

the other manifestation is you

44:05

probably have overdone it on

44:07

the stimulus, and you got

44:09

to pull it back, and

44:11

there's going to be some

44:13

pain. So when we talk

44:15

about normalization, we say, look,

44:17

we're not going back to

44:19

2% interest rates. Normal cost

44:21

of capital in an economy

44:23

like America's that has real

44:25

fundamental growth of 2% and

44:28

real inflation or experienced inflation

44:30

of two and a half

44:32

to three, which is what

44:34

we've had for the last

44:36

80 years, right? Not 2%

44:38

target that the Fed says,

44:40

right? What that tells you

44:42

is that long-term rates used

44:44

to be. normal at 5

44:46

to 6 percent, right? That's

44:48

not crazy. And yet, the

44:50

market continued to sell it

44:52

a 22 times forward multiple.

44:54

So what we've been saying

44:56

is part of the great

44:58

normalization is over the next

45:01

couple of years, we think

45:03

long rates start to move

45:05

towards 5 to 6 percent

45:07

like they were in the

45:09

aughts in the 2000s and

45:11

in the 90s, right? And

45:13

multiples start... mean reverting a

45:15

little bit to 17. And

45:17

that's the great normalization. Your

45:19

earnings actually start growing into

45:21

those multiples. You mentioned the

45:23

2% target of the Federal

45:25

Reserve. Did you work with

45:27

Roger Ferguson when he was

45:29

at Merrill? No, I did

45:31

not. But he eventually became

45:34

vice chairman of the Federal

45:36

Reserve and put out this

45:38

delightful research piece that said

45:40

the 2% inflation target comes

45:42

from a New Zealand television

45:44

show in the 1980s and

45:46

it has nothing whatsoever to

45:48

do with the modern economy.

45:50

I'm to this day delighted

45:52

by that and I don't

45:54

understand why the Federal Reserve

45:56

continues to be so locked

45:58

in on and 2% which

46:00

we had in the 2010s when

46:02

deflation was at risk. Now that

46:05

we've moved from a monetary regime

46:07

to a fiscal regime, 3% seems

46:09

to make more sense and we're

46:12

there. We're there. I don't know

46:14

why they're stuck on that. I

46:16

think they're just afraid of making

46:19

mistake. Again, part of the

46:21

normalization that, hey, the Fed's

46:23

a little behind the curve with

46:26

what's going on. in the rest of

46:28

the economy. No, exactly. And I

46:30

think one of the things

46:32

that has the market having

46:34

to adjust is this idea

46:37

of a data-driven Fed. Right?

46:39

In a world where the

46:41

Fed's the only headline and

46:43

the Fed is giving forward

46:45

guidance, it's really easy to

46:47

have low vol and for

46:49

everyone to just ride momentum.

46:51

But in a normal world

46:53

where the Fed... has to

46:55

respond to economic data, you

46:57

and I know economic data

46:59

is a manifestation of human

47:01

behavior. It's volatile, right? So the

47:04

Fed is going to be more

47:06

volatile. Policy is going to be

47:08

more volatile. It means your... interest

47:10

rate curve, your yield curve needs

47:13

to have some term premium in

47:15

it. Remember that? And that's part

47:17

of the great normalization. I, you

47:19

know, I do the math when

47:21

I do some of my chats

47:24

with the younger folks on the

47:26

team and I say, okay, real

47:28

growth, inflation, term premium. You see

47:30

this thing? It's been zero or

47:32

negative for the last 15 years.

47:35

That's not normal. So wait, you're

47:37

saying the 30-year bond should pay

47:39

a higher yield than the 10-year

47:41

bond? Higher than the two-year? Yes.

47:43

I'm not familiar with. It's been

47:46

the opposite for so long. It's

47:48

so hard. So another quote of

47:50

yours. which I assume is related to

47:52

this is the era of set it

47:54

and forget it is over yes is

47:57

that what we're saying here yes

47:59

exactly so you know, what comes

48:01

out of this idea of

48:03

the great normalization is it's

48:05

also an error where we

48:07

can't just passively close our

48:09

eyes by the S&P 500

48:11

market cap weighted index and

48:13

go to bed. It was

48:15

a great 15-year run, but

48:17

our view is that as

48:19

cost of capital readjust, as

48:21

it's actually a positive number,

48:23

this is where the skill

48:26

of corporate management starts to

48:28

differentiate when and losers and

48:30

losers and we move back

48:32

to a world right and

48:34

you and I grew up

48:36

in this world that that

48:38

that fun world where you're

48:40

actually stock picking where the

48:42

research that individual fundamental analysts

48:44

were doing mattered and you

48:46

had to say hey these

48:48

guys are going to win

48:50

because these management teams are

48:52

taking strategies that can work

48:54

and these management teams are

48:56

dropping the ball. Really, really

48:58

super interesting. Given all of

49:00

these changes that were witnessing,

49:02

and again, this is something

49:04

else you've written about, how

49:07

do you separate the signal

49:09

from the noise? What's your

49:11

process for filtering out? What's

49:13

just noisy data that's within

49:15

the margin of error or

49:17

just slightly beyond? and genuine

49:19

important market information. So this

49:21

is the art, right? This

49:23

is the art of all

49:25

of it as separating the

49:27

noise in the signal. For

49:29

us, the signal is always

49:31

operates ultimately on just two

49:33

axes, is what's really going

49:35

on in terms of the

49:37

rate of change of inflation,

49:39

because the rate of change

49:41

of inflation is going to

49:43

give you an indication of

49:45

policy bias. of rate bias.

49:47

And if you can focus

49:50

on those two things and

49:52

every single piece of data

49:54

you get you say what

49:56

does this mean for inflation

49:58

you can you can try

50:00

to keep yourself sane at

50:02

night. So I'm curious as

50:04

February was a tough month.

50:06

We've seen volatility spike now

50:08

up to 23 or so.

50:10

I haven't even looked at

50:12

it today with markets off

50:14

a couple of percent. The

50:16

questions you're getting from clients,

50:18

what are you hearing? What

50:20

are you hearing about tariffs?

50:22

About the post-election regime change

50:24

about what's going on in

50:26

geopolitics? What's lighting your phone

50:28

up? And what are you

50:31

telling these folks? Obviously, we

50:33

would love to spend the

50:35

bulk of our time talking

50:37

about asset allocation as it

50:39

corresponds to growth and inflation.

50:41

Unfortunately, exactly to your point,

50:43

Barry, we're spending a disproportionate

50:45

amount of time out of

50:47

our comfort zone, being asked

50:49

to respond to our understanding

50:51

and our expectations for the

50:53

economic impacts of policy. And

50:55

what has complicated things, as

50:57

you know, is that this

50:59

administration has chosen to implement.

51:01

policy fast and furious and

51:03

in many cases quote unquote

51:05

in parallel right I think

51:07

that you know coming off

51:09

of the election coming off

51:12

of the campaign season a

51:14

lot of us were trying

51:16

you know to build models

51:18

based on well they're gonna

51:20

sequence things right they're gonna

51:22

you know deliver some of

51:24

the bad news early and

51:26

then you know the candy

51:28

will come at the end

51:30

I think what we're experiencing,

51:32

especially after the last 15

51:34

years, of this kind of

51:36

one or two-note market, right,

51:38

where it's been, what is

51:40

the Fed saying, oh, generative

51:42

AI, looks like good headlines,

51:44

to 17 headlines a day.

51:46

of policy. Flood the zone.

51:48

Flood the zone. So clients

51:50

are asking for certainty. They're

51:52

asking for clarity and it's

51:55

hard. I'm going to be

51:57

honest with you. So look,

51:59

we're in the camp and

52:01

this is a pure economic

52:03

view. hope I'm not going

52:05

to be accused of being

52:07

political. Pure economist will tell

52:09

you that tariffs particularly if

52:11

implemented over long periods of

52:13

time and to the extent

52:15

that they cause trade war

52:17

or reciprocity tend to be

52:19

destructive to total global trade

52:21

in aggregate, tend to be

52:23

a one-time inflationary. problem and

52:25

tend, you know, to really,

52:27

you know, kind of hurt

52:29

the efficiency of markets. And

52:31

so I think we're seeing

52:33

some of that. I think

52:36

it's very hard for CEOs

52:38

and CFOs today to be

52:40

making decisions, not knowing what

52:42

the policy duration is going

52:44

to be. It's one thing

52:46

to have a policy and

52:48

say, okay, we're deregulating X

52:50

or here's the new tax

52:52

policy for the next four

52:54

years. I can work with

52:56

that. When you tell me

52:58

we're having 25% tariffs on

53:00

lumber, well, how long? How

53:02

much? Where? Where? As a

53:04

goin. I think that's the

53:06

big question is, is the

53:08

inconsistency of it and the

53:10

questions of, is this a

53:12

negotiating tactic? What are we

53:14

negotiating for? How do I

53:16

model it? That kind of

53:19

thing. And you know it's

53:21

really hard to get a

53:23

handle on this because let's

53:25

just use Canada and Mexico.

53:27

The first tariff was floated

53:29

and then it was quickly

53:31

resolved and it felt, oh

53:33

this is just a negotiating

53:35

tactic. The effect of the

53:37

second 25% tariffs on Mexico

53:39

and Canada and 10% tariffs

53:41

on China and it's not

53:43

only surprising that it was

53:45

done. It's kind of perplexing,

53:47

what are we getting out

53:49

of the tariffs with Canada?

53:51

When you look at some

53:53

of the supposed bases for

53:55

this, the fentanyl that comes

53:57

into the United States is...

54:00

mostly brought in by

54:02

US citizens and smugglers.

54:04

It's not coming in

54:06

from either Canadian lumber

54:08

or oil or televisions

54:10

that are being built in

54:13

Mexico and sent over the

54:15

border. It's, you know, it's

54:17

kind of odd, especially given

54:19

the North American free

54:22

trade agreement that

54:24

was negotiated to replace

54:26

NAFTA, was Trump's Treaty

54:29

so the whole thing is kind

54:31

of you know clients don't like

54:33

to hear you say I have

54:35

no idea what's going on And

54:37

be wary of people who say

54:39

they do, but it really feels

54:41

like this is sort of arbitrary

54:43

and capricious and we don't really

54:46

know how this resolves it's sort

54:48

of grit your teeth and write

54:50

it out is is brace yourself

54:52

Martha that's what it feels like

54:54

just hold on and and the way

54:56

I always frame things as I say

54:58

to people look what kind of

55:00

risk premiums are there in the markets

55:03

when stocks are very expensive as

55:05

they have been for a while

55:07

here it tells you risk premiums

55:10

are tight right? Things are quote

55:12

unquote price for perfection. When credit

55:14

spreads are tight, it tells you

55:17

people are not requiring a premium

55:19

for fear or default or uncertainty,

55:21

right? When there are no term

55:23

premiums in the in the United

55:26

States Treasury curve, it's telling you

55:28

the same thing. So look, if

55:30

this were all happening against

55:33

a backdrop where stocks were selling

55:35

it 15 times, where, you know,

55:37

we had 800, you know, basis

55:39

points. spreads and high yield, all

55:41

this kind of stuff, you and

55:43

I might be saying, hey, guys,

55:45

yes, there's uncertainty, but this is

55:47

a buying opportunity. Look, you know,

55:49

things are selling off of a

55:51

15 multiple. Where do you think

55:54

they're going to land? 13, we're

55:56

going to buy here. But we're

55:58

not there. Markets hate uncertainty. and

56:00

they really hate uncertainty when

56:02

things are priced for perfection.

56:04

Doesn't give you a lot

56:07

of room for error. So

56:09

let's talk about something more

56:11

positive. AI has been the

56:13

big story for the past

56:15

couple of years. Let's talk

56:18

a little bit about that

56:20

and other emerging technologies or

56:22

innovations you think might impact

56:24

the investing landscape. over the

56:27

next decade. What are you

56:29

looking at? Yeah, so we're

56:31

looking at a lot of

56:33

things, but look, clearly generative

56:36

AI is transformative. There's no

56:38

doubt about it. I think

56:40

the conundrum for investors is

56:42

how do you stay ahead

56:45

of the revolution itself? And

56:47

what I mean by that

56:49

is that, you know, technology...

56:51

innovation tends to follow very

56:53

clear scripts over history. And

56:56

by that I mean you

56:58

tend to get the big

57:00

infrastructure build, then you get

57:02

the software applications, and then

57:05

you get mass... economy-wide deployment.

57:07

And in that sequence, you

57:09

get new killer apps and

57:11

the quote unquote the winners

57:14

of that era. I'm not

57:16

entirely sure that all the

57:18

winners have been identified with

57:20

regard to generative AI. And

57:23

while the magnificent seven are

57:25

magnificent on many, many, many...

57:27

financial attributes on many innovation

57:29

attributes. You know, I think

57:31

the market is telling you

57:34

that maybe they are not

57:36

the only winners here and

57:38

that maybe the growth in

57:40

the infrastructure build doesn't go

57:43

on forever. And certainly our

57:45

experience with the internet validates

57:47

that. So, you know, what

57:49

are we super excited about

57:52

right now? We're super excited

57:54

about some of these AI

57:56

adopters. We're looking at areas,

57:58

whether it's document recognition, voice.

58:01

recognition, all these various applications,

58:03

the agents, you know, how

58:05

we're going to deploy AI

58:07

into learning agents to help

58:09

human beings do things, almost

58:12

become the white collar robot,

58:14

if you will. I think,

58:16

you know, that's all very

58:18

interesting. But where AI is

58:21

likely to have some of

58:23

its most profound impacts is

58:25

in health care. and the

58:27

extent to which we're going

58:30

to be able to use

58:32

large language models just to

58:34

process data and personalize medicine

58:36

and personalized diagnostic and solutions

58:39

treatment plans so much faster.

58:41

I saw a fascinating video

58:43

the other day about AI

58:45

being used. So when you

58:48

look at the history of

58:50

health care, it really started

58:52

out as a little bit

58:54

of chemistry and then it

58:56

became biology and then it

58:59

became genomics and one of

59:01

the challenges is trying to

59:03

figure out how protein folds

59:05

and how different molecules interact

59:08

with the body's receptors and

59:10

immune system. And it turned

59:12

out that like for the

59:14

prior 50 years, we've identified

59:17

a few thousand different... combinations

59:19

of molecules and protein folding,

59:21

which is key to figuring

59:23

out what the genetic code

59:26

operates in actual life. And

59:28

so they went from like

59:30

the library of 2,500. protein-folding

59:32

protocols to using AI identifying

59:34

like 400,000. Like it's an

59:37

insane order of magnitude and

59:39

we've only begun figuring out

59:41

how do these different proteins

59:43

work on different parts of

59:46

the body in response to

59:48

different diseases, infections, virus, it's

59:50

like it's shocking that these

59:52

aren't headlines yet. They're just

59:55

academic research, but it seems

59:57

like when people are talking

59:59

about... longevity, it's not

1:00:01

the cold plunge that's going to

1:00:04

it. It's going to be all

1:00:06

of these half a million new

1:00:08

protein designs. Tell us a little

1:00:11

bit about... the investment opportunities that

1:00:13

exist in the health care space.

1:00:15

So right now, you know, health

1:00:18

care is one of the sectors

1:00:20

that we have moved overweight. You

1:00:22

know, clearly the health care sector

1:00:24

over the last, you know, decade

1:00:26

and much of this bull market

1:00:29

in large parts been left behind

1:00:31

and valuations have been, you know,

1:00:33

with the exception of some of

1:00:35

the obesity drugs. The pharmaceutical industry

1:00:37

has been squashed by worries about

1:00:39

worries about Squash by the power

1:00:42

of the insurance companies, you know,

1:00:44

squash by a patent expiry, you

1:00:46

know, squash by a lot of

1:00:48

things. But we think that that

1:00:50

valuations are there. We think that

1:00:53

that's a great place to invest

1:00:55

and you can do it obviously

1:00:57

through venture and in the public

1:00:59

markets. Other themes that we're super

1:01:02

super excited about are defense and

1:01:04

space and the and the conjoint

1:01:06

between those two. You know, this

1:01:08

idea that ultimately... the way we

1:01:11

think about weaponry the way we

1:01:13

think about defense will be humanless,

1:01:15

not unlike, you know, some

1:01:17

of what you see in

1:01:19

the sci-fi movies in the

1:01:21

Star Wars, unmanned vehicles doing

1:01:24

the very surgical games of

1:01:26

war, if you will. So

1:01:28

I think, you know, that's

1:01:30

something. We're super excited about

1:01:32

some of the innovations in

1:01:34

the energy space, not so

1:01:36

much purely around clean tech

1:01:38

or powering data center, but

1:01:40

really thinking about how do

1:01:42

we more creatively use and

1:01:44

reduce dependency on some of

1:01:47

these rare earth materials to

1:01:49

create battery, autonomous vehicles, another

1:01:51

one. So all of these

1:01:53

areas, it's a very very

1:01:55

fascinating time to be an

1:01:58

investor in New Tech. Yeah,

1:02:00

you mentioned Autonomous and Defense.

1:02:02

This giant New York Times

1:02:04

article came out about the

1:02:06

war in Ukraine and the

1:02:08

transition from World War I

1:02:10

and II type trench warfare,

1:02:13

armored vehicles, tanks, and 70%

1:02:15

of the casualties inflicted in

1:02:17

the war as of recently.

1:02:19

are being driven by drones.

1:02:21

It's absolutely futuristic sci-fi. When

1:02:23

warfare changes that rapidly it

1:02:25

has to make you raise

1:02:27

the question how do the

1:02:29

geopolitical alignments change? How do

1:02:31

the... Here we are Barry.

1:02:33

How do the big defense

1:02:35

companies? Yep. Like there's a

1:02:38

reason Palantir has been super

1:02:40

hot and not necessarily Lockheed

1:02:42

Martin or Boeing. Correct. It's

1:02:44

really quite fascinating. I have...

1:02:46

Two personal questions to ask

1:02:48

you before we get to

1:02:50

our favorite questions. All right.

1:02:52

Starting with, you wake up

1:02:54

every morning at 5.07. So

1:02:56

first... Why 507? It's such

1:02:58

a specific number as opposed

1:03:00

to just setting the alarm

1:03:03

for 5 or 530. And

1:03:05

then if you're up at

1:03:07

507, give us a day

1:03:09

in the life of Morgan

1:03:11

Stanley's chief investment. Oh, geez.

1:03:13

So I'm extraordinarily superstitious about

1:03:15

odd numbers. Really? Yes. And...

1:03:17

Wait, you're applied mathematics undergraduate.

1:03:19

Yep. That doesn't... It's just,

1:03:21

it's, it's, it's, I guess,

1:03:23

I guess it's part of

1:03:25

my lived experience is that,

1:03:28

you know, I always say

1:03:30

to people, hey, it's an

1:03:32

odd number year, we're good,

1:03:34

you know. Really? Oh my

1:03:36

God, I'm very, I'm very,

1:03:38

so. I'm trying to remember

1:03:40

the Nobel Laureate in physics,

1:03:42

I'm drawing a blank on

1:03:44

his name, who a grad

1:03:46

student visited, you know. don't

1:03:48

believe in lucky charms and

1:03:50

things like that. And the

1:03:53

response was, maybe it was

1:03:55

plank, I'm not sure, but

1:03:57

the response was. I'm told

1:03:59

it works whether you believe

1:04:01

in it or not. Which

1:04:03

is pretty charming. So, so,

1:04:05

but I believe in it.

1:04:07

Odd numbers, 507 is really

1:04:09

specific. So it's an odd

1:04:11

number. So, so look, it

1:04:13

was something, you know, back

1:04:15

in the day, one of

1:04:18

my jobs was I was

1:04:20

a director of research and

1:04:22

so I always had to

1:04:24

be at my desk right

1:04:26

at 630. So I got

1:04:28

into the routine of, you

1:04:30

know, up 507, you know,

1:04:32

do the quick 20 minutes

1:04:34

on the treadmill, grab the

1:04:36

coffee shower, And so that's

1:04:38

you know still still me

1:04:40

you know old dogs new

1:04:43

tricks. It's been it's been

1:04:45

really hard And how different

1:04:47

is every day as CIO

1:04:49

is like I like to

1:04:51

sometimes ask what's a day

1:04:53

in the life like but

1:04:55

I suspect No two days

1:04:57

are the same but but

1:04:59

Barry let me just tell

1:05:01

you I wake up At

1:05:03

5.07 every day and the

1:05:05

very first thing I say

1:05:08

is I am blessed that

1:05:10

I have the career that

1:05:12

I have that I have

1:05:14

at this point in my

1:05:16

life Because I am learning

1:05:18

every day No two days

1:05:20

are the same I get

1:05:22

to hang out with the

1:05:24

most amazing people like you

1:05:26

You know like my colleagues

1:05:28

at Morgan Stanley like my

1:05:31

clients all of whom are

1:05:33

you know, so so interesting

1:05:35

and successful and different going

1:05:37

to meetings where you get

1:05:39

to hear Scott Vassant speak

1:05:41

at the New York Economics

1:05:43

Club and you know you're

1:05:45

just really feel alive you

1:05:47

feel plugged into the world

1:05:49

and what's going on. So

1:05:51

I feel blessed every day

1:05:53

and no two days are

1:05:56

the same. So last last

1:05:58

career question. You've been watching

1:06:00

the state of the economy,

1:06:02

the markets, just what's going

1:06:04

on in the world for

1:06:06

just about 25, 30 years.

1:06:08

What's been the most... significant

1:06:10

shift you've observed in wealth

1:06:12

management over that period? Wow,

1:06:14

that's a fantastic question. Look,

1:06:16

I think if there was

1:06:18

one theme that I would

1:06:21

say over my 30-year career

1:06:23

that has characterized everything, it

1:06:25

has been the democratization of

1:06:27

reasonably sophisticated... product, right? So

1:06:29

whether, you know, you talk

1:06:31

about, you know, first coming

1:06:33

into the business and the

1:06:35

advent of, you know, first

1:06:37

mutual funds was about democratization

1:06:39

of, you know, diversified stock

1:06:41

investing, and then, you know,

1:06:43

passive investing as a way

1:06:46

to get access to an

1:06:48

index in a, you know,

1:06:50

more technology efficient way, you

1:06:52

talk about the original rollout

1:06:54

of, quote unquote liquid. alternatives

1:06:56

or evergreen type products. And

1:06:58

now we're at the point

1:07:00

where, you know, we're talking

1:07:02

about very sophisticated private equity,

1:07:04

private credit products being contemplated

1:07:06

for 401k plans and being

1:07:08

packaged in these structures to

1:07:11

give folks periodic liquidity. So

1:07:13

democratization of, you know, sophisticated

1:07:15

alpha and beta that once

1:07:17

upon a time, I think,

1:07:19

you know, you know started

1:07:21

in the industry people would

1:07:23

say well there's the market

1:07:25

and then there's the extra

1:07:27

stuff and that then you

1:07:29

got to figure it out

1:07:31

and if you don't like

1:07:33

that own some bonds I

1:07:36

think now it's it's the

1:07:38

the democratization of very sophisticated

1:07:40

access of access to sophisticated

1:07:42

products so so let's jump

1:07:44

to my favorite questions that

1:07:46

I ask all of my

1:07:48

guests starting with what are

1:07:50

you streaming these days what

1:07:52

are you watching to relax

1:07:54

or on the treadmill or

1:07:56

just to keep you entertained

1:07:58

love streaming the most recent

1:08:01

thing I finished was something

1:08:03

called shrinking. So good. Yeah, so so

1:08:05

yeah, so good. I've been

1:08:07

watching Prime Targets. What are

1:08:09

Prime Targets? So Prime Target

1:08:12

is a show about

1:08:14

a mathematician who's working

1:08:16

in Oxford who is

1:08:18

working on a thesis

1:08:20

to generate prime number

1:08:22

combinations and permutations, that

1:08:24

supposedly if he's able

1:08:26

to develop this algorithm

1:08:28

as part of his

1:08:30

PhD thesis, would unlock

1:08:32

or give folks the

1:08:35

ability to hack almost

1:08:37

any. system. And so

1:08:39

of course it becomes a

1:08:41

scenario where you know there's the

1:08:43

bad guys are chasing him to

1:08:45

try to get his his thing

1:08:47

and of course you know the

1:08:50

national security agencies are chasing him

1:08:52

and it's kind of a spy

1:08:54

versus spy kind of thing and

1:08:56

it's a poor innocent nerd guy

1:08:58

in the middle. And what is

1:09:01

surface or surfacing? So surface is

1:09:03

a... is a show also on

1:09:05

Apple TV. It's in its second

1:09:07

season. It's about a woman who

1:09:09

kind of fakes her death as

1:09:12

a way of leaving behind her

1:09:14

life and going back to England.

1:09:16

She'd been living in the United

1:09:18

States. She was married in a

1:09:20

marriage that wasn't great. And she

1:09:23

fakes her death to go back

1:09:25

to England to investigate what she

1:09:27

thinks was her mother's murder. And

1:09:29

she was a kid. Really interesting.

1:09:32

Let's talk about your early

1:09:34

mentors who helped shape your

1:09:36

career. Sure, you know, Bernstein

1:09:38

was that seminal place. So

1:09:41

the two I would I

1:09:43

would speak to, one, Lu

1:09:45

Sanders. Lu Sanders was the

1:09:47

CEO at Sanford Bernstein, in

1:09:49

my humble opinion, one of

1:09:52

the greatest value investors, certainly

1:09:54

that I ever met in

1:09:56

my career. Just brilliant numbers,

1:09:58

a numbers person. and very,

1:10:00

very high integrity, taught me

1:10:02

how to be objective to

1:10:04

get the emotions out of

1:10:06

it, to build the model

1:10:08

and have the discipline to

1:10:10

build the model. Sally Krotchak,

1:10:12

we talked about one of

1:10:14

my best friends in the

1:10:16

business, you know, someone that

1:10:18

I care a lot about,

1:10:20

someone who showed me had

1:10:22

a lead. Although we were

1:10:25

peers, she has a natural

1:10:27

charisma and natural instinct for

1:10:29

leading people. She and I

1:10:31

kind of worked side by

1:10:33

side through the 9-11 crisis.

1:10:35

I learned a lot from

1:10:37

her in terms of what

1:10:39

people need from leaders when

1:10:41

things are tough. They look

1:10:43

to leaders to say the

1:10:45

right things and do the

1:10:47

right things and be strong

1:10:49

people and not get... you

1:10:51

know, bogged into headlines or

1:10:53

theories, but just to say,

1:10:55

remember what we're here to

1:10:57

do. Let's talk about books.

1:10:59

What are some of your

1:11:01

favorites? What are you reading?

1:11:03

What am I reading? So,

1:11:05

uh... Now this is going

1:11:07

to reveal my politics. The

1:11:09

last book I finished was

1:11:11

a book called Prequel by

1:11:13

Rachel Maddow. And it's a

1:11:15

very- My wife is in

1:11:17

the middle of reading that.

1:11:19

It's fantastic. It's captivating and

1:11:21

it's fantastic, and it's captivating

1:11:23

and fantastic, not for good

1:11:25

reasons, but it lays out

1:11:27

some of the dynamics of

1:11:29

American history and American political

1:11:31

dynamics between- the wars between

1:11:33

World War I and World

1:11:35

War II and the first

1:11:37

America First movement in the

1:11:39

United States that was very

1:11:41

much against America ever getting

1:11:43

into World War II. Very

1:11:45

isolationist, very anti-European. Yes, and

1:11:47

it was in a way

1:11:49

that's similar to our current

1:11:51

political dynamic, it ended up

1:11:53

bringing in some very different

1:11:56

factions. where you had interestingly

1:11:58

coalitions of people who ended

1:12:00

up being a political block

1:12:02

who came at things from

1:12:04

very different points of view.

1:12:06

So you had kind of

1:12:08

the Father Coglin part of

1:12:10

the movement, Father Coglin for

1:12:12

those who know was a

1:12:14

very very famous. Sunday radio

1:12:16

show, Catholic preacher, and pacifist,

1:12:18

correct? Yeah, but very isolationist.

1:12:20

That was one dimension of

1:12:22

it, and then you had,

1:12:24

you know, kind of the

1:12:26

anti-communist and the anti-immigrant sides

1:12:28

of the party and some

1:12:30

other dimensions to it. But

1:12:32

it's a fascinating book. Prequel,

1:12:34

Rachel Matto, really recommend it.

1:12:36

Our final two questions. What

1:12:38

sort of advice would you

1:12:40

give to a recent college

1:12:42

grad interested in a career

1:12:44

in either wealth management or

1:12:46

finance or anything related to

1:12:48

your work? Yeah, so, and

1:12:50

people hate when I say

1:12:52

this, because it belies the

1:12:54

path that I took. But

1:12:56

I'm a big believer in

1:12:58

liberal arts education. I don't

1:13:00

think that to work on

1:13:02

Wall Street to be a

1:13:04

great. portfolio manager to be

1:13:06

a great, you know, economist,

1:13:08

to be a great strategist,

1:13:10

that you have to study

1:13:12

finance or business administration or

1:13:14

go to the Wharton School

1:13:16

of Business. I do not

1:13:18

believe that. I believe we

1:13:20

live in a world where

1:13:22

if you know how to

1:13:24

read books, if you know

1:13:27

how to teach yourself things,

1:13:29

if you know how to

1:13:31

learn how to learn, you

1:13:33

can have a phenomenal career

1:13:35

and it's exactly to your

1:13:37

point, Barry, that you and

1:13:39

I, you know, entered the

1:13:41

business. 25, 30 years ago,

1:13:43

nothing's the same. It's all

1:13:45

about adapting. And so I

1:13:47

tell folks, study what you

1:13:49

love, study what you're passionate

1:13:51

about, learn how to learn,

1:13:53

and never lose that hunger

1:13:55

for knowledge. Become an autodidact.

1:13:57

Learn how to learn. Learn,

1:13:59

learn out what's going on.

1:14:01

Our final question, what do

1:14:03

you know about the world

1:14:05

of investing today that you wish

1:14:07

you knew 30 years ago when you

1:14:09

were first getting started? And I don't

1:14:11

mean by Amazon at 2 and Apple

1:14:14

at 1, I mean what broad principle

1:14:16

did you learn along the way that

1:14:18

would have been useful to have

1:14:20

found out much earlier? That being

1:14:22

right is not what matters. You're

1:14:24

going to have to expound on

1:14:26

that. Being right is not

1:14:29

what matters. What matters

1:14:31

in the long run

1:14:33

is what Einstein said

1:14:35

decades ago. Remember the

1:14:37

power of compounding. If

1:14:39

you save, if you're

1:14:41

disciplined, if you just

1:14:43

have a consistent plan,

1:14:45

you will highly likely

1:14:47

compound your wealth. at

1:14:49

least seven and a

1:14:52

half to eight percent

1:14:54

per year, which means

1:14:56

you will double your wealth

1:14:58

every decade, double your savings,

1:15:00

whatever that is. For most

1:15:02

of us, if we're lucky

1:15:04

enough, we have, you know,

1:15:06

three, four doubleings in us.

1:15:08

Just do that. And it's

1:15:10

not to say that what

1:15:12

I do all day doesn't

1:15:14

matter, it's just at the

1:15:16

end of the day. We're trying

1:15:18

to guide people, but as I say

1:15:20

to my team, I know the

1:15:23

likelihood I'm going to be right

1:15:25

on any given decision is at

1:15:27

best 50-50. What matters is do

1:15:29

we have a good plan and

1:15:32

are we being disciplined and consistent

1:15:34

about it because compounding is your

1:15:36

friend? Really fascinating stuff. Lisa, thank

1:15:38

you for being so generous with

1:15:41

your time. We have been speaking

1:15:43

with Lisa Shallett. She is chief

1:15:45

investment officer at Morgan Stanley Wealth

1:15:47

Management. If you enjoy this conversation,

1:15:50

check out any of the 500

1:15:52

previous discussions we've had over the

1:15:54

past 10 years. You can find

1:15:57

those at iTunes, Spotify, YouTube, wherever

1:15:59

you find your... favorite podcast. Be

1:16:01

sure and check out my

1:16:03

new book, How Not To

1:16:05

Invest, the ideas, numbers, and

1:16:08

behaviors that destroy wealth, out

1:16:10

everywhere March 18th. I would

1:16:12

be remiss if I did

1:16:14

not thank the crack team

1:16:16

that helps put these conversations

1:16:18

together. Each week Andrew Gavin

1:16:20

is my audio engineer, Anna

1:16:23

Luke is my producer, Sage

1:16:25

Balman is the head of

1:16:27

podcasts here at Bloomberg. Sean

1:16:29

Russo is my researcher. I'm

1:16:31

Barry Prittles. You've been listening

1:16:33

to Masters in business on

1:16:35

Bloomberg Radio. You

1:16:55

still thinking job change in the

1:16:57

new year? Yeah, I need something

1:16:59

that's in high demand and more

1:17:01

stable in this economy. IT? Yeah,

1:17:03

cyber security, maybe even AI. That's

1:17:05

what I did. Really? How? Went

1:17:07

to my computer career. You don't

1:17:10

need any prior experience and you

1:17:12

could start your new career in

1:17:14

a matter of months. A lot

1:17:16

of IT pros go to school

1:17:18

there too to level up. Sweet.

1:17:20

Are classes online or on campus?

1:17:22

Both. Wow, I'll check it out.

1:17:24

Thanks. Make this your year. Take

1:17:26

the free career evaluation now at

1:17:29

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the answers to these questions?

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If so play pointed

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at bloomberg.com/pointed. It's the

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news quiz for risk

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takers.