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Best idea and this needs some explanation. I think we're going to extend out over six minutes today. We want to be short and brief, wrapped around your longer podcasts. Thank you for the response on YouTube podcast Apple podcasts. It's you know, we're looking at YouTube and building that out. I've taken my eye off the single best idea ball, but we'll talk about that in the Q four as well.
Michael Mobison is a giant on Wall Street. He is arguably the number one thinker about capital allocation, the development of profit and the distribution of free cash flow. This started at Credit Sweez years ago, and then a wonderful period at leg Mason and and to Morgan Stanley where he is today. He's got a huge piece coming out, he briefed me. I can't tell you about it, but he's got a major, major piece coming out in a number of weeks right now. His pieces on the concentration
on Wall Street. Michael Mobison now on active management.
This is the most challenging thing when you think about acting active management because let's say so, just to play back that you said, it's a handful of companies that generate most of the shayold of wealth over long periods of time. Let's say you're a portfolio manager and you're smart enough to have identified one of these and put in your portfolio. Let's say you bought Apple fifteen years ago. Awesome.
What happens is it becomes so big in your portfolio that you blow through all of your diversification requirements.
Will Danoffs has in this fidelity.
Will Dan I mean to anybody that's big like that. So it's a funny thing that on the one hand, you see the numbers and you know that, and on the other hand it's very difficult to actually take advantage of it. And by the way, for your own personal account, people can do this right, even Berkshire Hathaway. I know they sold at their Apple Steak, but a couple quarters ago it was fifty percent of their public equity portfolio.
You can't run a fund with fifty percent in the largest company in the world, mostly quid company in the world right on a viable business basis. So it's a very interesting contrast. But the point being, the fundamental point is this skewness. And by the way, it's not just the United States. You go around the world best and Binder especial around the world best, best and Bunden did a world in developed and developing markets best and bunder did his work with some colleagues around the world. Same
asx act pattern. And by the way, we don't know exactly again why this pattern exists, but that skewness shows up, that extreme skewness shows up over time everywhere.
Michael mos in there and he's speaking about Professor Bessembinder in Arizona State, a major shot. We always give credit across the industry to people doing good work. You know Robin Wigglesworth at the Ft and you know others, and of course here at Bloomberg, wonderful work John Author's was
and the other day was just brilliant. Harvey D. Shapiro it Barons I believe it will be in this weekend's Barons I may stand corrected on that, but Harvey D. Shapiro with an absolute tuorive force of what Mobison was talking about. There if the best in Binder research, that there's very few winners out there. We continued our discussion on active management the choices forward with Michael Mobison.
Active management is never going to go away, and nor can it go away because it does two things that are vital, and by the way, these are very important positive externalities for the world. Number one is liquidity. People forget about liquidity. It rears its head when we don't want to see it. And then second ist price discovery. So someone's got to make the trains run on time and deliver the mail, making price efficient. So indexers are free riders. Jack Bogel, by the way, God bless him,
would completely agree with us. They are all just free riders. And not everybody can be a free writer, obviously in some sort of a system. That's number one. Now number two, Just David, to your point why this has been so difficult is the average mutual fund manager who competes with the S and P five hundred as his or her benchmark, has an average size of their portfolio is smaller than the market cap or the S and P five hundred. Right,
So here's the logic. Is when large caps rip, which is what's happened last day, you've seen it, Yeah, active gets it really struggles, right because you're just not exposed. Now, when, by contrast, when small cap does well relative to large cap active does really well. So that would be another thing to bear in mind. If you say, well, I think this this contry, you think it's.
Gonna go away.
The small CAP's gonna do better. We're gonna get more balanced market. That's actually very good, as good at backdrop as conceivable for active management.
Michael Mobison there, he had a paper out I'm gonna guess nineteen ninety nine maybe two thousand, which was absolutely iconic. We did some physics. It's like Jim Carron over at Morgan Stanley. They only hire physicists at Morgan Stanley. I don't know what that's about, but we were talking about the mathematics of logarithms on the y axis in all also on the x axis, which is called a log
log chart. And Mobison wrote an essay in the Internet Boom that to this day stands as one of the four or five most focused pieces on what we have wrought, which is the mag seven Michael Mobison on the Internet era of a time ago.
It's funny I was with a client this is like two thousand and one, and the guy says, oh, he just lived through the dot com boom and bust. You know, do you think we've wizened up and that will never do this again. I was like zero.
Probability of that.
No, not maybe not zero, but basically close to zero. I mean, this is how it works. And so and by the way, as a fascinating sign note, scientists said, this is how our brains actually, how we develop our brains synaptic connections and our brains do the same thing from the time you're born in timey three you have the explosion of synaptic connections. Try and also, if you've ever been around a three year old, we all have been.
They're very inefficient little things, but they take in everything right, but then you prune away the stuff that doesn't matter and you keep the stuff.
It's good Michael Mobison there on my puny brain. It was nice of him to bring that early. Can't say enough about him. All the cat out of the bag. And this is the power of our team here at Bloomberg Surveyance led by Giuseppe's father, which is Friday scheduled. Now Nassing telib I go way back with a wonderful Nasim telib I want to talk to him about an anti fragile America. That'll be one of the themes we develop, but a special half hour today with Michael Mobison on
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