If you were located in 49 of the 50 countries in the world God bless you you put 2third of your money in US Stocks International investing has been a screamer and once a metric becomes a measure once you begin tracking it or attempting to use it that it no longer becomes an efficient metric I think most investors these days are actually pretty well behaved I think the empirical evidence supports the idea that you can Learn almost nothing about the future growth of a company by looking at its historic financial statements I think getting your feet
W wet and learning through failing when it comes to investing is perfectly okay I believe that we spend far too much time as historians and not nearly enough time as futurists auctions are not a deru they are the underlying I don't believe Alpha exists over the long term you really don't need a catalyst what you need is To get the valuation right and to get the governance right so Matt today we're getting controversial let's get controversial I'm ready to you know break a few Gregs and make an omelette you're you're going to be shocked by
this but when when I had my raisin brand this morning I had the raisin brand with the extra raisins so I'm like in a completely wild mood I've been out of control I've been living off Of Irish soda bread and massive quantities of butter so in a future episode when I weigh 300 pounds you'll know what happened we'll see how what that will mean for your commentary as as we move forward here I very much look forward to those comments so we have we have a standard CL closing question we have a new one we
ask at the end of every excess returns episode which is what is one thing you believe about investing that the majority of your Peers would disagree with and so what we're going to do today is we're going to take all the answers we have you know we have 10 or 15 answers we're going to go through them and we're going to quickly tell people what we think we're going to play the clips and then we're going to tell people what we think maybe the key insights from them are so we we've got a lot to
go through and just before I get started I do want to give credit to me Faber because we basically Blatantly stole this from him um you know he had a tweet about this same exact thing um which was really really good and I would recommend people go follow him but we saw the tweet and we're like this is a great question to ask people because it's a question they never get asked so so thank you Meb we we're AP we apologize for stealing it it to make up for we've actually included you twice in this
episode unlike everybody else who's in here once Meb we We'll lead it off and he'll finish things up at the end this is the only way to do it we will atone for our sins and hey antie up Meb you come steal whatever you want so uh so we'll start off by letting the dividend people go after Meb because they're they're one of the most aggressive uh groups on Twitter so here's me talking about why Dividends are overrated so you know we wrote a book at decade ago called shareholder yield a better approach to Dividend
Investing and that's a pretty ballsy subtitle right um because Morningstar did a recent report where they outlined they're looking at dividend funds and there's over 300 of them managing over a trillion dollars right so you're kind of coming at one of the most beloved Brands and narratives of the past 100 years right and uh so we're updating this book listeners so hopefully it'll be out before year end but you can download the the last version free online um but in The beginning we demonstrate we say hey look you know um here's your return if you
only had price return of US stocks for the past 100 years then here it is if you reinvested the dividends now the key phrase in all of this is reinvested dividends and I've been combing through a lot of the acade academic literature and and the consensus seems to be that most people don't reinvest their dividend at least in the same proportion of what they invested in you know and if And and the fantasy I think most people have is of the the dream laying in bed you're like oh I just can't wait till I get
to Hawaii sitting on the beach drinking P coladas letting that sweet sweet passive income roll in right and so uh there's nothing wrong with dividends they are very much a part of the investing stream but if you live in a high tax state like I do in California the last thing in the world you want is Dividends and high dividends and so do dividends outperform historically meaning High dividend yield yes they do now that factor as we all call them tends to put you in a little bit junkier companies right but it gives you this
value tilt which in my opinion is really what you're looking to get right you want to be uh have that value tilt but if you're going to do value my opinion is always just do value don't do a cousin of value dividend yield and so uh There is a million in different ways you could do this offshoot where um you know we wrote probably our least downloaded a red paper uh was one that was targeting no yielding stocks and we said hey if you did a value tilt and and targeted no yielding or low yielding
stocks you ended up with a higher after tax return in a taxable count than if you invested in high dividend yield or the broad Market you know so there's all sorts of different Ways you can go this but uh the whole key being that I think you know the analogy we we use in and the book update that's an old blog post is we liken it to the old Coke Pepsi taste test you guys remember that so for the young for the young listeners on here don't know what this is you know um everyone prefers
coke uh and if you do a blind taste test most people prefer Pepsi and uh but then you reveal it most people go back to Coke and a lot of this has to do With branding I don't know commercials marketing what your parents maybe you just like Warren Buffett big uh big Coca-Cola Drinker anyway um I think it's the same thing was true with dividends they have a great narrative a great story don't even get me started on BuyBacks because that's the next 50 minutes of this uh of this discussion I'm trying to keep these
short because we got 20 of these but uh it's if you do the whole column list of things that are Horrific terrible no good very bad ideas and the other list is things that are probably totally fine look div investing is totally fine it's not the worst thing in the world but uh if you if you get me into the is this optimal question and why why is why are there better choices there's there's certainly uh I think better choices and better ways to do it so I mean he's right about this I'm from what
he said and from the perspective of the data I mean dividend basically is a Subpar value metric people love you know they think they're getting magical money they think they're getting you know free money all those things but at the end of the day there's better ways to run a value strategy than dividends and there's better ways to create a dividend than necessarily having to get it paid to you why do you want to pay taxes don't you want to just drink Pina claas on the beach or whatever story is if you're gonna realize basically
yeah if You're gonna if you're taxes in P coladas it's like it's the way to go there you go Puerto Rico all the way I'm sure that's all he's doing all day every day is drinking Pina clades but seriously like if you want income then you accept the tax tax penalty of doing that when you're taking the income not tax penalty except the reality of taxes of this but if you don't need the income then like why why are you emphasizing this I I couldn't agree more with with Meb on this take so this next
one is Mike Green and we actually kind of unfairly penalized Mike Green because the answer to this question for Mike Green should be that passive investing is influenced the market because he's basically the one that came up with this but it's it's become so part of you know common knowledge now that he couldn't say this one so he had to come up with another one so here's what Mike said it's a lot harder today right because if You'd asked me eight years ago this is the same question that I was asked by Peter teal in
which I introduced the concept of how passive was changing the behavior of markets um I I I honestly think most in investing now would actually acknowledge many of the points that I have emphasized and made around that um on the on the investment front I guess what I would really highlight is um an Element of uh good heart's law which is once a measure becomes a once a metric becomes a measure once you begin tracking it or attempting to use it that it no longer becomes an efficient metric you've actually changed it by its participation
and again I highlighted this in my substack you know I think Austrian economics is largely bump right I just want to be very clear I think there's a deep misunderstanding of what money is In Austrian economics but there is a really important Concept in Austrian economics which is that we are all acting individuals we are not passive participants in our lives or in the universe that exists around us we tend to look at Cycles from an anthropic principle which is to say the world exists right and these Cycles have played out through history and therefore
they will play out in my lifetime the reality is those Cycles were actually Created by the actions of individuals who either resisted the Cycles Amplified the Cycles tried to turn the Cycles Etc we've become so passive as a society that were terrified of any attempt at action and as a result we passively sitting by and saying well the Cycle's going to play out no if you don't act the Cycle's going to be different and it's probably going to be worse and so I would just emphasize that like we should all be stopping and thinking at
every Stage in every action that we do is an intentional act to make the world a better place and I don't think markets tell you that I think the participants in the markets tell you that I love this idea that once a measure becomes a metric it doesn't work as well and like this this applies where I operate too in the world of value investing like if you think about the price to book ratio like once a lot of people start using a specific thing the value of it goes down I always think about this
and from a musical perspective once you call something a movement you've basically killed the movement so very famously like in the 90s all a lot of the stuff that I loved turned into roughly around the year 2000 uh VI or the source does this EP this issue on the soulquarians and they get all the musicians I love that are all collaborating with each other making all this amazing music they get them together for a cover shoot and What happens after they do the cover shoot they all stop collaborating like once you label it you kill
it and I think that's what's Mike's saying here too it's it's funny because Matt's always ahead of these musical Trends and I'm probably the one who's jumping on at the end so like once I like it Matt's probably done with it and he's like this is exactly what you're talking about no this is the problem with this is like I still listen to those albums from like The late 90s early 2000s when they were in that that Prime of all the Dylan D'Angelo and wonderful wonderful stuff and I hold on to it like a from
my cold dead hands you'll take those like 10 years of Records away from me so sometimes when we ask this question people slip in too and Jim Paulson did that so here's what Jim Paulson said I I talked about talked about one of them um earlier just that I think that uh the policy Fics uh monitor fiscal policy officials maybe are nearly as important as we think that other other important driver should work mainly just the you know independent uh decisions being made by you know L far if you will and I think that's that's
what people Miss has spent part to much time wondering whether the fed's going to cut or not or what tax policy is going to pass and I think while they're doing that a lot of economic policy is Being implemented every day every hour every week and that's probably more for uh in driving things a little bit um I think the other thing I talked about was valuation losing its import uh which I think most people think on nuts on the do there uh with that and then i' also maybe just say too that in many
ways I think Main Street sentiment cultural sentiment what I call it is far more important for investors than Wall Street Center we have a lot of Bulb beir indicators and that kind of stuff but I think what what what the the real potential or risk of a stock Mar Market a lot more often has to do with culture s than I am these two strong ones um you know monetary and fiscal policy officials aren't as nearly as important as you think and valuation is less important than you know many people think as well I'll take
the second one I think that's true um I think first of all I think people think think Evaluation is something different than what it actually is which is that it tells you something about the short terms that's always been true but but I also think you know in Mike Green's passive work is is definitely something that forms us around this I think the market maybe is a little less concerned about valuation than it used to be business is doing business like that's that's the fundamental thing that you got to remember here valuation is just a
Snapshot who the FED official is who the treasury official is like those are just people holding a temporary role businesses who figure out how to do business stay in business and grow their business over time that's kind of the whole story at the end of the day and it's it's a really grounding principle but I really really love the way Jim frames this up so this next one I'm going to throw to you right away once I play it but uh this is Ben Carlson Talking about investor beh I think most investors these days are
actually pretty well behaved and I think a lot of people look at like and pop and Retail investors than think oh they're the idiots right they're the ones making all the mistakes and those those people do exist but I think investors are far more well behaved these days than they've ever been at any time in in history of investing because I think we have all these different Avenues we have Automatic investing in 401ks and IRAs and tax lost harvesting and Robo advisors and Target date funds and all these things and index funds and I think
the general investing public is is much has gotten better at investing than they were in the past now I think a lot of Pros actually believe that so this actually is a pretty controversial take mat uh the fact that a lot of people think you know with Twitter and you know all the other craziness going on and Robin Hood the people are actually a lot worse behaved than they were historically Ben thinks they're better behaved I think the thing that Ben has going for him in this argument is not so much just in the investor
Behavior but so yes we have like Robin Hood with confetti and whatever I think they stopped doing and a lot of like the dgen subreddit you know zero DTE option shenanigans are going on it's a very small portion of the overall population That's in that's getting into this type of behavior most people are have access to professionals who at in record numbers operate under a fiduciary standard or something where they're not just Hawking BS product at them all day and I would like to think that a lot of people have just access to better tools
better information and better quality of advice than ever before in at least American history here so I do kind of side with on this I think some people do Crazy stuff but I think it's I think it's actually the minority I believe in I hadn't thought about it that way but because people have access to people like you and people like Ben you know maybe people themselves left to their own devices would not be behaving any better but maybe they are because of that I think about it from like like older clients or people that
I've worked with for like almost 20 years at this point in some cases I think about the Beginning of our relationship when it was they're buying these awful closed in funds and ashare mutual funds and just things that we look at and we're like the fee bloat the the quote unquote active manager charging him some astronomical thing with a sales commission on top of it like all that stuff was horrible and they survived 30 years of doing it before like they got it converted and now they're 80 years old doing something else and really Focused
on what matters and more lowcost options and everything else it's it's like changing your diet over time and I think we have seen a giant shift in that for the average American investor and I I do think Ben's right about this I really do so Dan rasmon is the key the king of these types of takes um and I thought he would have gone private Equity here but he did not go private Equity so here's what Dan said I think it comes back to something I talked about at the very beginning which is sort of
core to my worldview which is the the predictability of growth um and I think that most investors implicitly or explicitly believe that historic revenue or ibah growth is predictive of future revenue or profit growth um and I do not think it is and I think the empirical evidence supports the idea that you can learn almost nothing about the future growth of a company by looking at its historic Financial statement um and I think that is the most controversial thing um and I think the implications of it are so massive um that I I'd say that
that's my my my greatest point and I think the most important take is this idea that you can use past growth rates to predict the future because I think most people think you know and understand that growth rates cool down over time but what he's saying here really is past growth rates Have nothing to do with what happens in the future and that is a controversial take I think about this one as past fund does not e equal future fun like just because you had fun before you know sure you and your friends were hanging
out a little bit too late drinking too much coffee at Perkins and then pushing each other in you know shopping carts through your random mall parking lots like that's a good time when you're 16 years old that's not such a great idea when You're in your 40s I might still have to try it might be a good time but the idea is like your past fund doesn't equal your future fund cuz just stuff changes over time you can't index it the same way we look at these companies who have experienced exponential growth are huge things
you got to ask questions about where they are extra asth damager on in this stuff too where are they in the life cycle how do we expect that type of fun to show up again at this phase of Their life Dan's raising a ton of great questions with this comment yeah if you were think about if if you were ever to go out one night and have a few too many drinks the past fund does not equal future fund would apply to the next morning I believe yeah you and I are both probably at the
phase two where it's like I could have the the mocktail and I have a worse headache the next day from the frakin sugar and the drink I do from if I drank the bottle of whiskey I'm like a Max two drinks guy these days anything more than that and I'm like yeah I'm like useless the next day yeah all right Le Lessons Learned thanks Dan so this next one is from an interview you just did with Lindsey Bell and Shannon S COA uh so here's what they said to the question I think it is it
kind of relates also to the individual investor and I think it's you and I kind of talked about this what I would say is that most people fail into investing so They don't read the book and they don't learn to do it the right way that all of us are here to help educate people to do they don't hire an advisor they just put money in the crypto coin that their neighbors are talking about you know they buy the meme stock or maybe can buy a good stock and then they learn along the way and
usually it's through failing that you realize oh I have to learn how to do this the right way and but but you got to get your feet wet right and so I Think getting your feet wet wet and learning through failing when it comes to investing is perfectly okay I love only if you're doing it in small amounts though you can't just put it don't fail too big but failure is actually maybe one of the most important ways to learn investing I love that all right Shannon this is this is you what's one thing you
believe about investing that the majority of your peers would disagree with uh so I will preface this as saying That I um I went to school and I got degrees in history and economics so so um but I believe that we spend far too much time as historians and not nearly enough time as futurists as investors so I I think anchoring to these periods um having experienced them you know there are so many things that have happened in history that were point in time that if you put the actual context around you realize that they
may be not at all applicable to what you're experiencing Today and so I think in order to actually be a successful investor you you know you have to think about what might be instead of what's happened in the past I like both of these I'll take the first one uh this idea of failing into investing is okay like I I love this idea um because so many people think it it's important to prevent like all the mistakes earlier in in in your investing career and I think the reality is when you have less money it's
Probably great to make the mistakes because then you end up not making the mistakes when you have more in the future and I love what Shannon says here about uh investors should be futurists instead of hisor like she she's got the economics and the history degree she studied this stuff but she knows if you're just hung up on this and I hope she's not just beating up on you as a Quant maybe that's all you wanted me to take the second part of this but it's Like if all you do is Look Backwards you're going
to fail to start to imagine what that future could be like and as investors that's a real huge part of our job to think about what does this future look like and how do these pieces of my portfolio fit into it yeah it was it was a little painful as a Quant to hear that so so this next one is from Jim C and neither neither you nor I is going to have an insightful take on this but uh I think it's really interesting and it's Important because options have been rising a lot in terms
of how they're how much they're used so here's what Jem said options are not a derium they are the underlying um when people refer to uh options and all the volume increases and wow the the the the phrase that everybody uses it's wow the tail is starting to Wag the Dog I'm here to tell you that options are the dog um uh what do I mean by that well pretty Simple if you look at a stock or a bond or any asset right people it's two Dimensions either goes up or down what if I gave
you two stocks white label no name on it same market cap same industry same everything you would say well those are the same stock what if I peel back that option train and show you that one is incredibly right distributed with a left tail uh the time at which that distribution is completely different and the growth uh trajectories Are different whereas on the other one it's the exact opposite you know very much a value stock uh maybe maybe left distributed right fat tail in case they come up with a solution completely different stocks the actual
option they're giving you nodes and probability across the full distribution of what this thing looks like at the end of the day that asset whether it's a stock or bond has a full three-dimensional picture of its characteristics of what The asset is the asset itself is the thing not the stock price not the asset value the asset value is just a a summary of that full distribution by Arbitrage every node on that that distribution uh that represents this asset is summarized by one price which is the asset price the stock value the fond value everybody
started in that asset diet that very simple two-dimensional world and Derivatives are new so we call them derivatives cuz they're derived from this thing but the reality is they not a derivation it's a better technology it's a better way to full we're going from two dimensional sheet through you know a hologram you're seeing the whole thing in its full Essence and the reason it hasn't been used more until more recently but again we've seen secular growth since I've been in the business for 25 years and it's been exponential But the reason is is because of
network effects much like a technology even if it's a better idea you need to build infrastr structure for and you need more volume and you need more participants for it to be an active it to become the core thing that people everybody uses what have we had in the last 25 years since I started the business we we went when I started in 1998 we had uh one uh one quarterly exploration in the S&P 500 and options were were priced at every uh 3 to 5% in the market that's it now we have every day
we and by the way the multipliers were 250 uh we have every day expiration we have every five points in the S&P uh we have an OP we have options for every single major equity and every single asset across the world um we have more education we have access through uh brokerage and and and regulation has has thinned out to allow much more access not to mention we've gone from 250 multiplier to 100 to 50 to 10 to one to now 0.1 it is incredibly available now and people are beginning to to get educated understand
but the reality is we're still at the tip of the iceberg it is a superior way to position based on information that you have on any asset you can express any point without the say taking the full risk of the whole asset at at any point in time or moneyness on that asset and that is just a superior way to express information so my view is that the world Is going to options and that options will be the primary way to uh to invest um in the future and whereas even though notionally there's more trading
volume and realistically it's still 1% uh of total investment that happens in the market uh and and my belief is that if you look forward in 20 years uh 40 years even uh we will be in a completely different world where options sit at the core of invest I don't have a great take on this I do agree with him I mean Options offer the ability for people who know what they're doing to express different views in more of a three-dimensional World versus a two-dimensional world so I've never traded an option I don't know if
you have have you traded an option I have traded options mostly on behalf of clients and some for myself but not like not crazy traded options like I've never done it on behalf of anyone uh but but nonetheless I think it Is important like all for all of us to keep in mind like as options rise in importance as more and more people use them and and as more ETF products come out that use options like this this is part of our Lives now this this option stuff and so it's important just to think about
what they are how they work and how they influence what we see on a day-to-day basis I I do relate to the stocks in this scenario I have two dogs they have a mind of their own when I Take them for walks like they have ideas and plans for the walk that we are about to go on so even though I'm in charge even though I'm in charge of feeding them and taking care of them and picking up their poop and all the other important you know dog parenting obligations we get to an end of
the block and if my dog Otis looks up at me and he'll like he'll just walk into the middle of the road dragging me by the leash he just like like no no no we're Not going down that street this time and if that's what options are doing right now According to Jim Carson I I'm sympathetic to that view sorry stocks I'm right there with you so this next one is definitely true the question is whether it's controversial so we'll get into that that after but here's Andrew beer talking why about why simple is better
than complex simple usually works better yeah I mean I think it's I think I think people think that hedge Funds um I think people think hedge funds gravitate to complexity because it's necessary better the very best hedge fund managers that and investors that I know it comes out of simple bets and it's and and the Geniuses are the ones who can see through all of the noise to what the fundamental underlying bet is and and you know as it relates to our business um uh we we made a simple bet you know we made a
simple bet that we could Accurately figure out the big exposures in such an efficient way that we would have a structural Alpha Advantage um by cutting out what we saw were a lot of fees and expenses we wouldn't be right all the time but we would be but we would have but going back to that model of being right often enough and if that works simply why would you change it but but that's disappointing to investors a lot of allocators because they're so used They're so conditioned to hearing and you know and I end up
always asking the question like you know what if quants are so good if Quant models are so good how can some many the Quant products are so bad right if if complicated products are so good why don't they generate better returns in the S&P um and uh so I think I think you know that's he mentioned this quote about Renaissance who you know the so the the the Quant investing Gods this was this great quote From one of the early statisticians who said you know that their their superpower in a sense was just doing these
simp regression models but they were pulling people who were doing field Theory at you know String Theory at Harvard to do because it's about asking the right questions and getting it right and resisting the temptation as you say to keep because you know with models people love to keep changing them um it's very very hard and there's pressure To change them because investors want to see that um and so you know for years when we were talking about it it was the fact that we weren't change changing it was viewed as being you know we're
being lazy we're not paying attention or this that and it's it's it's it's hard it actually ended up being a very contrarian bet but I think people are coming around to it that so I do think actually this is probably a Controversial take because so many people do think like adding complication to your investment strategy makes it better adding complexity to your strategy makes it better and and it almost never does so I think he's probably right about this there's an expression I like to use with clients don't get cute get cautious and not cautious
in the sense of going and hiding but like instead of trying to get C about your expression of some idea or Whatever else what's the simplest most cautious way you could uh you could put the beted on so it might be you want to put on some crazy like crypto whatever thing but you can go like all right is there some other way I can reverse engineer this and express this in a more simple view that doesn't require me to get 16 types of you know weird digital wallets to like implement this thing what other
way can I come up with this that's an a simplified version of the Crazy idea I had I think I think he's to something with this and also client like this you know I was talking to to some advisers the other day and they were talking about like we had an ET a strategy that had like five ETFs and they were saying well five ETFs is not enough for a client because a client wants to see like more going on or you've seen these single ETFs that do the asset allocation and like no advisers can
actually use them because Their clients look in there and they want to see some sort of complexity they don't want to see this easy simple solution yeah and that's look the reality is if somebody else is building it for you you want it to have like oh here's how the watch is constructed with all these mystical things you can never imagine but like if you order the thing from Ikea you better be able to figure out how to put it together for itself or When the table the lamp that's on the floor behind me that
I need to set up later today the lamp that I ordered from Amazon if that doesn't go together in like three steps I'm going to be really mad when somebody else is doing it for you or like oh complicated you built a NASA rocket ship but when it comes down to doing yourself like a lot of times just make it clean make it easy just get the lamp turning the light on already it's all you're really need it for so if You want to get a series of deep insights in a very short answer to
a question like this you probably need to ask Jason buck and so that's what we did what just hit me I think why I sound different is the if we just use the word believe and that's what I think the problem is I think in our industry people believe a lot of things that aren't true and it's based on like insecurity right like we we're so desperate to manage our client's wealth That we're looking at these historical representations and drawing inferences of them and then that provides a belief system that then we think through so
I think about like things there's so many things I don't even know how to pick one is like I don't believe Alpha exists over the long term I believe you can combine interesting betas obviously I'm actually with Meb too like I think the FED does a decent job I don't know anybody else I think that argues like The fed's doing a terrible job I know I know two things one if they're a hedge fund manager it means their p&l is down and I'm like you know you could trade with whichever direction you think they're going
even if you think they're wrong and then I also think rates don't matter um it's just a hurdle rate and everybody like entrepreneurs are going to be be entrepreneurs no matter what the rates are they can't help themselves um trying to think trying to give you a Broad sample but what it boils down to is essentially I think it's really difficult what we do and I think that if we're truly honest Nobody Knows the future nobody has a crystal ball and so I just think if I can hold most of the world's asset classes and
rebalance I should muddle along okay and that's what I think the biggest lack of belief I think it's more of a lack of belief that I have versus I I'm always shocked by The things that people say in our industry because I'm like how do you believe that what what's how are you determined it that what what's the base truth in what you're saying and if you find if you if you I feel like I'm a I'm a six-year-old sometimes at some of these conferences I'm if you ask why three times you know they tend
to fall apart and and it's very interesting that you know the emperor has no clothes and you know what It's it's a really weird thing that like you know the ultra wealthy and the and the the Aged just love to think they have a crystal ball to predict the future and it's always kind of shocking to me and I just find myself out out of kilter in that way so now I don't even know where to go with this I'm probably just going to throw it over to you like Alpha doesn't exist is is a
good one um he's talking about like nobody knows the future there's a lot of things he's Talking about in here and they're they're all very insightful so I'll let you go where you want to go with this the poet Jason Buck I think he's basically just trying to point out that like everything we think we know about the past is just an artifact of the story that we've put together so anytime we're going to go forward you know we we tell the story of the past by picking up all these dots and then go oh
look at the neat pattern they made when we look Back in hindsight it's really hard to say if not impossible as he would argue to say that like looking forward we're going to have any idea what any of those narratives look like because it's infinite possibility in front of us and behind us we just get to cherry-pick the stuff out so as always buck is just giving us a you know world religions and philosophy answer inside of something that was supposed to be a basic question but Iceberg Buck that's what we get from Him you
know what else is a you know hallucination that book it's on the Shelf I should have got it don't break the book out again we had so many comments about the book The book's not real the book doesn't actually exist people looking link to Amazon to buy the book I'm like please no more with the book Iceberg Buck you're not an artifact of my mind you are real so Ian Castle had two lessons actually he had he had a lesson for his peers although it wasn't You know he he he said he didn't have much
of a lesson for them and then he had a lesson More for average investors I don't like if it was pure peers for micro cap they're also micro cap investors I don't think there too many I don't think there's anything that my peers who are also experience micer cappers would generally disagree with me on agree with them on I think that it would be just like a lot of things with investing I think Alpha's generated in a Lot of small ways where we're we we agree but it's just um executed slightly differently and I think
that's how it would answer that question if I was directed towards other experienced micro cap investors for peers that are investors in general but Micro cap investors I would say probably and we hit on this already I think just the belief that low turnover is good and high turnover is bad you know I think that's where I Would disagree with a lot of folks you know in generally on finan it yeah I think this this second one is really really good because everybody thinks low turnover is good and low turnover is Good from the perspective
less transaction cost and all that stuff but it's a case by case thing so like as a factor investor I can say this cuz momentum requires more turnover than value so in that case in the case of momentum higher turnover actually is Good and so it's more important that you look at the facts in terms of what you're seeing for your specific investment strategy rather than just saying low turnover is good I'll shorten it to this point make sure the good decisions you're making compound and if that's strategies a lot of decisions are very few
decisions all that matters is that they're good decisions and that they're positive outcomes compound You figure that out just don't screw it up from there so this next one is is a great one for Value investors because many value investors will say all right I see this cheap stock staying cheap I need a catalyst like I'm finally going to get my you know multiple expansion when I finally get this Catalyst and I'm gonna make my money here's Scott McBride talking about why that's wrong it really is that I just hear so much what is your
Catalyst you know what is gonna unlock Value and for us you just you really don't need a catalyst what you need is to get the valuation right and to get the governance right and uh you know as long as the company's going to give you that cash back you're happy we're happy to have a low low valuation we're fine to sit at a low PE for a long time if the management team does the right thing that means we get a big dividend yield and they can buy back a of their shares and grow earnings
really fast by doing It so um that's the number one thing I see um people talk a lot about where I why I don't agree with it yeah this is this is very relevant in the world of Mike Green's research in the world of what David Einhorn has said because we're not getting that multiple expansion anymore but as a value investor there's other ways I can get paid I can get paid through dividends I can get paid through BuyBacks there's a lot of ways I can make money even Without that Catalyst and value investors have
had to focus on those types of things because we haven't get been getting even when we've been getting the good news we haven't been getting the multiple expansion we got in the past I love this because this is just let the luck come to you have your process have what you're going to do back to that uh don't get cute get cautious idea get cautious find the right business find the thing that you Want to own and then let the luck come to you you don't need the Catalyst in the sense that you don't need
to predict the Catalyst if you built at enough of that margin of safety eventually you're going to get it you just got to make sure that you got the right governance management team whatever else running the operation really great Point yeah I would have guess when we asked Larry Sedro this question he would have done something around Factor investing and That's what he did so here's Larry talking about low volatility this was a tough one for me to come up with one uh but in my book on Factor investing we limited the equities to five
factors that we thought people should consider uh beta of course value size investment and profitability or quality qual profitability is just a subcategory now actually I put more money on the size and value and beta premiums because they are risk spased at least to some degree There is at least a risk there is no logical risk-based story I think for Quality Andor momentum momentum we know is under overreaction quality to me the argument is simple if a company is lower volatility of earnings lower debt ratios you know is a state for company how can you
argue that you should get a risk Freeman for but the data is so powerful that I don't ignore it okay an investment is the same logic right so the one I didn't put in there But came close to was on low volatility a lot of advisors emphasize this low volatility strategy and it fails the test for me for one reason first of all it's purely has to be a behavioral story right cuz if something is less volatile that's certainly one measure but not the only measure risk okay it's less volatile it's less risky and therefore
should have a negative risk PR so why do we have a Prem in it's a Behavioral story investors like to bet on these Lottery stocks they're higher beta stocks as well that beta High beta stocks have God awful returns how Okay so but the data is strong so why don't I recommend it it's because vol volatility as low Val is only had a premium when it's been in the value regime so I think you're better off owning value stocks that screen out the junk low profitability focus on value that's more profitable not high Investment and
stuff so you don't get the other side of that behavioral trade I think what you're doing is lowering your beta and you shouldn't expect a premium so low V is good when it's cheap low V is not good when it's expensive this is a case in my opinion when I last looked at I haven't looked at it in quite a while but when I last looked at it all the money flowing into Lal had put it into the growth category and guess what Lal has done Poorly that would be the one where maybe there's disagreement
so Matt I'm going to try to provide some commentary on this cuz the next two after this like I got nothing on so I'm going to be throwing those to you so this actually is very interesting though because I'm not a big fan of using low volatility on its own either um I think low volatility works really well when it's coupled with other factors and pin Von V's work has shown that like I think it's it works Well momentum it works well value Larry talked about the idea that low volatility works if you look at
its excess returns historically they they pretty much come when it was cheap in addition to the stocks being not that volatile so I'm a big fan of this I'm a big fan of multiactor investing in general but with specifically with low volatility I think it's a factor that works really well with other factors yeah pair it with other factors because Like you said low volatility you know works when it's in that value Camp so if you understand when something that you think is interesting is in your sweet spot or Works in a complimentary way that's
when you want to put it on but there's lots of examples of stuff like this where if it drifts into another category it's almost like out of your domain of of understanding I'll always think back on the low Val stuff to when one of the lowall or minval indices I Can't remember which one you can correct me if you remember was like all utility and a couple of financials or something and it was like clearly if you're buying this you're buying this as a weird expression of something that you know you're probably not getting what
you're paying for and you got to be aware of that stuff you got to ask the questions like he's pointing out here so this next one comes from one of my favorite interviews We've done because it was so outside I learned a lot from it and it's so outside of what I do so here's Chris cidal answering the question yeah so I actually think that this is a really really good question so uh trading psyche in our opinion is extremely important but a lot of guys in the VA space are are like Quant based and
they tend to on that quite a bit um and I I don't understand why because I think if you go back and you Look at some of the great Traders uh that have come across you know all these years guys like Paul tud Jones ated Dorp um drun and Mill all those guys talk about like how important your trading psyche needs to be um so it's probably a controversial take with like the the nerds in the space but probably an uncontroversial take with the people who actually have done well so Chris runs tail risk strategy
so you know when you keep it in that context you can Understand what he's talking about here like I don't do any trading so I don't really understand much about trading psyche but he's talking about why trading psyche is so important and so I'm just going to throw it right to you and you're going to tell me what you think about it well what I think about is like are we tra what's the difference between like trading psyche and like trading psychos and there's there's probably a big difference I would bet H There's probably a
big difference I'm gonna have to get Chris you know nailed down on this conversation if there's such a thing as trading psychos but I kind of think about it as like I want the the Michael Myers I want the serial killer I want the person who's just G to like execute at all cost like on this thing with a complete horse blinders up to understand what they're doing and that's like a different level of nerdom that is uh does it exist yeah it Probably does but it it doesn't exist in the ways that we paint
some of these historical analoges when we tell these tales about what great trading psyche actually is Chris is a really really interesting guy on these topics yeah and I think what he's alluding to is is really important too because he he uses discretion in his process and some quantitative metrics and and what he's getting at is that's very important like you can't a lot of people are Quantitative Traders and they just you know they just run the data and they do what they do and that can work really well for the Renaissance of the world
but for what he does like this idea of managing your psyche actually is really important yeah yeah and again like managing the psyche almost to like a ridiculous level where you're willing to break that model sometimes where you're willing to have discretion sometimes with the thoughtful process behind it And not to equate him to Michael Myers directly but you get you get what I'm saying here you got to bring that level of passion to it yeah and to be able to trade when the world is melting down around you which is what torist people do
is is I can imagine a very difficult thing yeah especially when you've been waiting for returns and you're finally getting some of them how you have to know what to stick out versus when to get out that's why I'm not doing it and Probably why you're not doing it too so we had Kai W on we talked about Ai and so he he played into AI in his in his answer to the question yeah so we can kind of continue on this AI theme because why not um so um you know a lot of folks
are pretty like um concerned about AI taking our jobs not just in finance but you know at Le in our industry you know portfolio managers Financial analysts so I actually wrote a paper on this actually Wrot a few papers on this topic um you know of of how will AI LMS impact our industry in our drops right and I think you know the first thing that note is what I just told you guys you know just now which is that you know I think that trying to use large language models to replace the kind of
capital allocation component of investing so in other words hey here's factors you of a thousand factors find the best ones based on historical um correlation with returns Is non-starter I think that's actually not the way to do it um and I've written you know papers on this on why not um I think that the killer use case um of AI and this is the 2020 paper I wrote on um where I said you don't want to do the first thing but what you do want to do is to use large language models as a way
of structuring unstructured data you know I specifically called out this technology and said that this is the killer use case and I think you know Over the past five or so years since that paper came out it's basically become like common knowledge right most people will agree that what large language models are doing is you know working with unstructured data so now to take us to the my point is you know in my last paper on AI Financial analysts um what one thing I did where they said let's look at the job of a financial
inness orpm and you can decompose it into say 20 or 30 different tasks um These are individual things like you know creating PowerPoints or mapping qips whatever right um and um it turns out that you can then ask the Alm or figure out which of these individual tasks are most or better accomplished using a LGE language model and which are better accomplished using a human and the results are intuitive right talking to clients building your business that's human um using creativity to help you with new investment strategies that's Human um uh creating PowerPoints that's better
by machines right proofing right um and so it turns out that about half of the tasks um of an analyst today are better with large language models and half are with humans um and so you think what our jobs are they're just bundles of tasks where I don't see us kind of like net necessarily losing jobs I just see like a repackaging of those jobs right you almost think of like a new AI enters the workforce they take up the Things that they're better at and left with the things that you're better at um which
you know I think I'm pretty optimistic in general I think that's actually a good thing right I don't want to say if you're map infuses I don't want to say if you're building security Masters again I don't want to sit here proof reading a PowerPoint I want to sit here like you you exercising high level of thought and you know utilizing empathy and and social skills to do with Other humans so I think in many ways it's a positive development and you know you think about the history of like the labor markets you know over
the past 200 years there's been massive technological change who went for being 90% agrarian to what 2% now um and despite that the employment rate has basically been the same right like there's all these new jobs that have been created because of Technology Pilots right flight attendants um you know uh prompt Engineers and um and throughout this period right we've seen just a massive increase in the wealth of the of society so I think like you know yes the jobs will be different moving forward but like you know we'll all be PR better off for
AI and you know at least for those of us who are you know thoughtful about compartive advantage thoughtful exercising you know development and trading our ability in areas that AI are less competitive um I think you know We're actually you know going to have a better time you know doing kind of more meaningful work than than in the P yeah so another one I'm going to throw to you but I've thought about this a lot in terms of what AI means and we talked to Colin Ro in our latest episode about this like what AI
means for jobs and what AI does well relative to people and you know Kai's much more optimistic about the future in terms of a lot of people are like AI is going to take all Our jobs and it's going to be a disaster like Kai's really more optimistic about the idea that AI is going to allow humans to do what humans do well and AI is going to do what it does well and it's it's really going to work out a lot better than many people think I'm with Kai on this having talked to him
about this Eric maritz is another person who's thought really well I think about this and it doesn't feel all Doomer and I am definitely also in the camp where it's Like will AI take some jobs yes will it take all jobs no so if you understand what are the sum jobs that it might take or what are the things that can do well if you're a human who knows how to play with this stuff probably going to help you with your career on your track whatever else I think back too like we've got a million
examples of this the most recent one was just the Advent of of internet and the technology that we've seen come around today I think About Kevin Weir talking about being the first guy who like wasn't a computer nerd it was enough of a computer nerd on the desk that he didn't have the compi degree but he could like build the index AR models into a spreadsheet and then program the trading in python or whatever the the the platform was that he was able to program the stuff into he he's like I was just there in
a sweet spot in time where four years before it was impossible but four years after Computer science Majors took it over AI I think we're probably in a similar spot today if you know how to do it you can probably avoid losing your job and maybe even turbocharge some of your productivity efficiency and everything else and on the other side of it all humans are just going to be using this in some way shape or form or another so picking up on AI another question is what's the impact it's going to have on the asset
management industry so Doug Clinton had a controversial take around that the bet that we' been making at intelligent Alpha is that if we fast forward to clock a decade from now that the AI powered Asset Management industry will be a multi- trillion dollar AUM industry so just like we've seen this boom in in ETFs and indexing over the past 20 30 years I think you will see a similar boom in AI powered investing some of that will look active some of that might look a little more passive um Some of that might look even a
little more exotic but I think we're here chatting in uh 2035 I think Cliff Asus just did a prediction piece 2035 my prediction would be that we'll see a few trillion dollars being managed by yeah this is interesting and I to be honest I don't have a huge opinion on this I mean he's saying that AI will manage trillions of dollars and you know he's he's probably right eventually um I don't know exactly how that's going to Manifest itself and how it's going to work out and he's obviously making a big bet on that with
the the funds he's launched but I would think I mean AI is going to be able to do everything a human could do or many of the things a human can do and so I don't see any reason why there wouldn't be very large AI driven strategies eventually um what do you think or are the AI driven strategies just like the future of Vanguard and black rock or we're going To take those management fees down to negative Zer we're going to start paying people back to own these things because a robot is running them and
they're not actually making any active investment decisions they're just implementing the thing that's completely by the book to begin with I I don't know I feel like there's all sorts of Science Fiction and some dystopian some utopian versions of this but there's no way that the next trillion dollars of managers in the Future aren't going to be using AI to help them with their strategies let alone turn the keys over in full yeah Vanguard has taken everything from the active investors like me so they might as well take AI as well exactly this just just
let them have everything so uh so as we said at the beginning we're GNA wrap up here with uh with me Faber as well so here here was me's take on International invest you can look at a lot of Industries and and the top companies not in the US and if you look historically Stocks by decade it's super fun you can find other decades where the list is dominated by other countries the favorite example course is Japan in the 80s right top 10 market cap was mostly Japanese companies at that point biggest stock market in
the world in the 1980s um but look I I I was joking on Twitter the other day I say I'm so bullish on US Stocks I'm going to put double the Amount of any other stock market around the world I say screw that you know what I'm so bullish on US stocks I'm going to put five times as much as in US Stocks as any other country in the world I said actually you know what forget it I just been watching CNBC AI special I'm going to put 10 times as much in the US as
any other country in the world I go wait congrats you've just gotten to the market cap weight all right so like right there 2/3 in the US 1/3 and four That's the market cap weight that's the starting point right you have 10 times as much in the US as any other country and you know my example all my friends talking about tech and whatnot I mean I was seeing looking at it OIC and and noo and all these other countries I said I don't know why you would assume that big AI developments are guaranteed to
be us companies you know to me it seems like uh you know that these discoveries if if you said this is coming out of China or India or Singapore or Brazil Argentina Africa who knows um anyway uh but people would love to give me crap and say this proves last 15 years proves International investing doesn't work I said it absolutely proves International investing does work because if you were located in 49 of the 50 countries in the world God bless you you put two-thirds of your money in US Stocks International investing has been a screamer
there's only been one country that International Diversification didn't help and so I'll take that uh hit rate 49 out of 50 to me seems like a pretty good uh batting average so International investing has worked particular particularly good uh the past 15 years I think this is one of the most unique takes and probably the best take I've heard on International investing and I never heard it before he said it which is this idea that for everyone but people in the United States international investing has been a Massive success and so when you when you
look at it that way you have it's hard to make an argument that I don't believe in international diversification when it's worked literally everywhere but in the United States this is such a perfect inversion of the question where it's just like you don't want International diversification here but if you were anywhere else in the world you would want it and just acknowledge that reality for just a minute you know and Just say hey this is a fantastic thing and not unlike the way that I really really want a Mexican Coke this afternoon and I sitting
here in America uh I mean I'm sure the grocery store I hope the I don't know if tariffs have taken away Mexican Cokes yet but like I can probably just go to the grocery store and get one but like I don't know how many people in Mexico are chomping at the bit for that synthetic sugar sweetness inside of a regular American Coke I don't think it carries the same weight I could be wrong but I feel like there's a flip here probably doesn't I think they are still there I think I saw one the other
day so you you can rest uh you can rest easy on that it's been a couple of weeks since I've had one but you know in this in these trying times Jack a man needs a soda well thank you every for joining us and thanks thank you again to me Faber for coming up with this question which We blatantly stole uh and we'll see you next time thanks so much for tuning into to this episode if you found this discussion interesting and valuable please subscribe on YouTube or your favorite podcast platform or leave a review
view or a comment we appreciate it no information on this podcast should be construed as investment advice Securities discussed in the podcast may be Holdings of the participants or their clients
