This is Bloomberg Business Week with Carol Messer and Jason Kelly on Bloomberg Radio. That three times that, three six and then no sound. There evidently are three core principles. That's why there is a three Things song joining us here in our interactive broker studios. Vinny Catalano, chief investment officer at Red Mount Capital Partners, also co founder and member of Adriatic Capital Partners. So, Vinny, what are these three core principles that we need to pay Okay, you
start with the three core principles. Number one, professional investors are the markets. So it's best to know if you're going to swim with the sharks shark behavior, Okay, and so that's core principle number one. Principal Number two is that professional investors actions must be justified. They cannot go rogue. Even going rogue and being successful can be problematic for
a essional investor. Why because there's a defined methodology and if they don't follow that defined methodology, management, asset managers, management will have a problem with them doing whatever they want to do, even if they are successful. And then the third core principle is that you as an investor want to exploit this behavior as best that you can.
The expression the quote I like to refer to us from enemy of the state, and and that quote is if they're big and you're small, then you're a mobile and they're slow. You're hidden and they're exposed. So this is good for an individual investor if he or she knows how to play the game and to exploit the system. Those are the three core principles for starters. So what's an individual investors really focus on? There's so much information out there, and if they're sitting in front of a
Bloomberg terminal, tremendous amounts of information at their fingertips. Should they be focusing on earnings, company management's macro stuff, trade? What should they be focusing on? They should be focusing on what professional investors focus on, which is going to be the inputs into the evaluation models. What are those
inputs them? Mainly earnings, interest rates, and a degree of risk, and risk tends to be somewhat subjective, so that's a little bit problematic in that regard, But those are the three principles. So when you're looking at, for example, twelve months from now, what are earnings look like in the third quarter of next year, not bad. They look like a growth over So I guess that a key question
recently has been what your timing is right? And as an investor, as an individual investor, it's one thing to do day trading. It's the other thing to have a six month horizon. It's another thing to do long term. How do you sort of advise all of the above, I mean, do you have clients that are trying to trade on a day to day basis. I have one client who does trade on a day to day basis, only one, And what he does is he focuses in
on momentum. Now, if you are a short term trader, momentum is king okay because it will give you good indications of when you want to flow in and out with the money flow. But that really is more technical analysis, moving averages, things of that sort. And there are services that are out there that do that. But you can develop it yourself too, if you if you have the tools available. So many there are. There is so much
noise out there, so much information. What investors actually ignore. Well, number one on the list of ignoring is going to be hard to quantify highly subjective type of UH metrics. For example, valuation that sounds like I'm doing double talking because I've referenced before what a professional investors and what do you want to concentrate on what they're looking at, which is the inputs into the valuation model of Okay, but what you need to be aware of is that
valuation is highly subjective. It's like a rubber band. It can stretch and stretch and stretch. To John Maynard Kaine's quote, being irrational logan, and you can remain solvent those kinds of things, are you know, problematic valuation being one? Another one that's highly subjective is going to be investor sentiment. And this on my LinkedIn post generated a lot of interest and a lot of consternation a number of investors.
What do you mean, you know, look at this tool, but there's a low probability of it of it being a decent climbing tool. You know, he was just looking at some SMP data showing the active managers have consistently underperformed the broader indexes. What a surprise. So, I mean, what's your the sort of sarcasm that is that is
dripping all over your words? I mean, is your takeaway that investors should just steer clear of active strategies, not really, because you can plug in those active strategies into whatever your long time time arison is, whatever your risk tolerance is, whatever your goals and objectives are, and then you can plug in various different types of active strategies as long as if it's within the parameters of your goals and
your expectations. Understanding of course, that if you have an active manager and that active manager is trying to quote beat the market or beat their bogies, so to speak, uh, don't be surprised if they don't. And that's, by the way, a big part of the reason why ETFs have been so successful over the years, because a lot of individual investors have gotten tired of the underperformance by active managers
and they've gone to E t F route. In fact, now passive strategies in equities outpace the amount of money asked the management. In passive equity strategies now outpaces that in active strategies. Vinny Cadalina, thank you so much for being here with us. An Catlano's chief investment officer at Red Mound Capital Partners, also co founder and member of Adriatic Capital Partners. Joining us here in our Bloomberg Interactive brokers, studios to lives to reality, virtual reality impacting lots of
businesses across the spectrum. I'm not sure people really understand some of the applications for virtual reality and how certain businesses and companies and services are are using virtual reality. To try and a little learn a little bit more, we welcome our next guest, Abbie Altberg, chief executive officer of Linden Lab, joining us on our Bloomberg nine sixties studio in San Francisco. Abbie, thanks so much for joining us. I wonder if you could just give us a little
background on what your company, linden Lab, is all about. Hey, great to be here. Yeah, linden Lab makes it easier for people to create the world's they want. Um. We build the platforms and tools and ecosystems and financial systems to make it possible for people to create worlds in vite people into their worlds and have all kinds of entertainment or business activities, uh, and make money doing it. So. The company linden Lab was founded in lots changed since then.
I mean, what are what sort of the latest thing in virtual reality? Yeah, I mean we've Second Life, our first product has not been in the market for over sixteen years and it's still going strong. Is this sort of the most you know, uh interesting virtual world ever created? UM, And the subject matter in there is extremely diverse, from healthcare to education, to entertainment and businesses of all kinds.
And with this new wave of new technologies like virtual reality headsets and a lot of investments from bigger players entering UM, it's it's advancing rather quickly, although it's still feels slow, but it's it's uh. The immersion you can have by doing it in virtual reality versus just looking at it on a screen is tremendously powerful and will ultimately impact almost everything human beings do. It'll just take a while, but we can see the signs, so be uh.
I know you've done some brand partnerships with companies including Levi's, Virgin Records, Spinning Records, and so on. Just give us an example of kind of what that looks like. It's like a practical example of kind of how you interact with certain brands. Yeah, I mean, we help some of these brands build entire worlds that are in the spirit of their brand, and it gives them a really interesting way of engaging with their audiences and their fans or
their customers. And for some brands, it's about merchandise, and we help them sell virtual goods through our marketplace, UH and so they can display uh Levi's UH gears. I can go by Levi's T shirts with maybe Hello Kitty UH branding on it. Um so. And for other partners, it's it's music brands where their artists can perform in
very large stadiums in front of thousands and thousands of people. Um. And ultimately, you'll see more of the activities we take for granted happening in physical space also happening in virtual space. People still want to look good, still want to be entertained, still want to do business, and so all of the things human beings do will more and more actively being done in virtual space as well. So let's talk about the business aspect of this. I imagine that there is
a lot of competition right now. UM, what is the competitive landscape like for you? Well, it's still early. Um, there's not that many companies that are really enabling people to create their own virtual worlds. There's a lot of games out there, but enabling people to create their own worlds and where they own the content they create and and can make a business out of it um without
having to be a sophisticated engineering company. H is something that we're helping create basically democratized ability to express yourself in this medium and share it with the world and profit from that well. And how do you make money? You can create content, so assets that you know, avatars and clothing for avatars and or world assets. Like you you want to have trees in your garden and you
want to buy them from the tree guy. So in Second Life we have a GDP that's close to half a billion dollar US So there's a lot of economic activity for products and services within the virtual world. So looking forward, what do you think is going to be sort of the next big thing in terms of virtuality? I mean, one of the fantastic things about your role is you get to sort of have a bird's eye view of all the different ways that people are developing
these worlds. Where do you think it's going. Well, there, it's going to continue to advance at a rapid rate, both with vertical applications that are very specific to specific industries or specific use cases, as well as horizontal platforms that lower the bar of entry for more people to participate in this kind of a medium. Um, you know the number of companies today, it's not that hard to
get a website up and running. By creating a virtual world, it's been quite hard for to do and it's been sort of in the hands of the experts and specialists. And we're lowering the bar for who can participate in this new way of creating content and have social interaction in the world. Maybe, Alberg, thank you so much for spending time with us. Alburg, chief executive officer of Lynden Lab, joining us from our Bloomberg nine sixties studio in San Francisco.
And I have to think, uh that the idea of virtual reality is changing so dramatically in terms of how different UH industries are looking at it. In terms of I remember once I was speaking with one entrepreneur who is trying to create a robot the virtual reality to help seniors who lived alone feel like they were part of a community, basically a mobile you know, mobile individuals. So many cool applications. Yeah, you go to the Consumer Electronics Show in January and Las Vegas and there is
virtual reality applications all over the place. So that the technology is really advancing quickly. Yeah, and the key is how do you democratize it? How do you sort of make it bleed into the mainstream in a way, uh that is palatable for the individual.