Evercore ISI Ed Hyman: Masters in Business (Audio)

of top strategists, analysts, economists. It's a run that that literally is voted on by people who are putting money UH to work, big big pension funds, big institutions, big neustrel funds. And these are the people they say are the most helpful, the the top ranked folks UH in the world of Wall Street research. And it's a great honor to be I I ranked number one in any given year. Our our guest today, Ed Hyman, has been I I ranked number one for thirty five consecutive years.

That that's just a number that that is impossible. You know. I'm a big New York Knicks fan and and during the UM Patrick Ewing, Charles Oakley, UH, Anthony Mason John Starks era. It was always Michael Jordan's in the way, and and for six of let's call it ten years, Jordan's bulls, along with Scottie Pippen and the rest of the cast, prevented the New York Knicks from getting either to the finals or or winning the finals. And they

came close to a couple of times. Uh Charles Smith fingerroll once um uh did a season for them, a bad finger role. But Michael Jordan's the greatest basketball player of all times, you know, won six championships and and and I think it was uh six championship um m v p s and maybe eight total uh nbah m v p s. Ed Himan for thirty five consecutive years has been I I ranked as the institutional world's top economists. That's just a streak that is unimaginable. I can't not

only can I not conceptualize it. I can't ever imagine anyone finding themselves in a position to to top this this streak. And and think about how frustrating it must have been for all of the Looking around Wall Street, there are some really really good economists, some really savvy people who have a fantastic um handle uh on on the world of of economics and what's actually happening in the economy. They have perennially been you know, number two

or worse to to Ed Hyman's UH top rank. It's an astonishing um feet you'll find this conversation really quite quite fascinating, quite interesting. Ed's a guy who doesn't do a lot of media, he said, he you know, went for about fifteen years where he did no media whatsoever. Um. This is something I'm I'm nothing if not tenacious and relentless, And eventually he succumbed to my charms and agreed to

do our podcast. And I think you'll find his approach to looking at the world uh fascinating, not just from an economic perspective, not just how he views the world of of economics, but how he built a business which eventually was sold for north of four million dollars to have a corps with with the upside potential it's worth even more than that. But there's so much insight and so much wisdom uh in his experience and his perspective. I found it to be an absolutely fascinating conversation and

I think you will also so. With no further Ado. Here's my conversation with ever Cores I ses Ed Hyman. This is Masters in Business with Barry Ridholts on Bloomberg Radio. My special guest today is Ed Hyman. He is the founder of I s I now the chairman of I s I ever Core. Mr Hyman has the unique distinction of being the number one rated economist on Wall Street by Institutional Investor. It's their poll of of big investors for the past thirty five consecutive years running, an absolutely

astonishing feat. You may not have heard of him. Most of his clients are big institutions, hedge funds, pension funds, etcetera. But Ed is really well known on Wall Street, very influential. Let me just give a short version of your curriculum, Vita. You graduate with a bachelors and engineering from the University

of Texas in nineteen sixty seven. Then you go on to get your m b a from uh the Massachusetts Institute of Technology in nineteen sixty nine, and finally you ended up forming I s I. In is that more or less correct? Left left the middle part out, but it's perfect. A couple of years in the middle, we'll get to well, welcome to Bloomberg. Thank you. So Ed and I have been talking about him doing the show for some time, and I'm really thrilled to have him here.

Most people don't know who you are because you're not really all that public facing you. You you and your office face the institutional universe, right, So I don't. Our clients are all institutional investors, and so we don't really have a retail face, and so we have a very low profile. I also noticed that most of our clients have a low profile as well. So any event, uh, maybe I'm just not famous either, But well, you're famous.

You're famous amongst people who manage billions and billions of dollars, So that's a very influential sort of fame. Let's let's talk a little bit about how you ended up on Wall Street. So you get an engineering degree. You didn't go the usual route. Most people in your role end up having a bachelor's in economics and neither get a PhD in economics or something comparable. You took a very different route. How do you go from a bachelors and engineering and an m b a To essentially creating the

world of econometric modeling. So because I was an engineer. I knew I was mathematical, and M I t s Business School is one of two or three of the

business schools that have a quantitative vent. So that's what I wanted to And when I got there, Uh, I had a research assistance job working with Ed Ku, who was a fairly well known economist and working on econometric models just by chance, and at M I T. They had developed the first time sharing computer where the data is often in one central place and you could access that data from off site spaces with a with a

time shared computer. And so I spent uh really those two years at M I T immersed in doing econometric modeling, and then I did my master's thesis for a guy named Paul Kutner who's a fairly well known Both of Ku and Kutner have passed away working on forecasting commodity prices with with econometric models, and then later on I

ran a commodity fund using econometric models to forecast pork prices. Basically. So, so these issues that you approach, do you look at these as engineering problems to be solved or are they really pure economics? Uh? I think they're they're economics. But in this case there market economics and and business cycle economics,

and that's really what I think I do. At M I T. They had this first time sharing computer, and then uh Otto Eckstein, who was a professor at Harvard started a company called Data Resources, which did econometric modeling with time sharing computer, and I was lucky enough to go to work there, and that's really how I got into this. So that sequence of events is how I got where I am today. So your training, and we're talking M I T was sixty nine University of Texas

Engineering with sixty seven. These were really the early days of this quantitative analysis, wasn't it. Well, this was this time sharing computer, was the first use of time sharing computer. They also had developed the Saber of airline ticketing system, which still exists, and that was still exists. It's a company down in Texas and that is still the sort of birthplace of time sharing computing, which is now every everywhere. That's where I got started doing uh time series analysis

studying economic data. So it was fairly natural for you to then take because you were really one of the first people on Wall Street to say, hey, let's take this massive computing power that we're developing and apply it to modeling business cycles, modeling economics, modeling forecasting. This was

not any great aha moment. It was just obvious, Hey, this is what these tools are here for, right And so I, Um, I was at Data Resources and Cyrus J. Lawrence was a client, and so I went to work for Cyrus J. Lawrence doing the economic forecasting but also building models the forecast industries like kept goods, autos, retail. And that's really how I got launched in the direction

that I'm launched in now. So in the last minute, UM, we have one of the things you're sort of infamous for on Wall Street is despite all this computing power and despite the use of technology, you have a tendency to take a bunch of charts, mark them up with a sharpie, mark him up by hands, and then fax that out or today scan it and send it out as a PDF. Where did the idea for hand marking

up charts and tables ever come from? So we had a morning meeting at Cyrus J. Lawrence and I would come in and mark us some charts and pass out to the sales guys, and they started singing out to the clients and the clients liked it, so we all have a thinked when you see something, if it's been marked on by hand, your eye goes right to it absolutely, and so that's where it came from, and it's still a good technique. I'm very ridult. You're listening to Masters

in Business on Bloomberg Radio. My special guest today is Ed Hyman. He is the chairman of Evercres. I s I UM, and I just wanna I love this quote from Peter Lynch, he's the fame manager of Fidelities Magellan Funds, and he described you as much more practical than most economists, more interested in examining railroad card deliveries than Laugher curves. That was in his book One Up on Wall Street. So really the question is do you consider yourself an economist?

Are you a strategist? How do you describe yourself? Well, first, I'm a practitioner, but you know, from my early days I was really going off in the economics area at M I T Than Data Resources and then at C at C. J. Lawrence. But I view myself really as a business side goal expert and a market cycle effects sinado. So that's really what I'm trying to apply the logics

of economics too. Makes makes perfect sense to me. So let's let's get into that in a little detail, because over the past couple of years, especially during the financial crisis, the economics profession has come in for some some criticism. Um, so let's talk a little bit about the data you look at. You early in your career created a survey that went out to four hundred different companies in trucking, retailing,

home building, manufacturing. How how did that come about? How did the idea for this regular survey of people in the real economy come about? So probably probably thirty years ago or more. Uh, there was a survey of retailers that came out once a week and very widely followed. And I saw that, and I thought, why don't we do that for many industries, not just retailing. So we started a retail survey, which we still have, and then we branched out and now we survey about thirty different

areas and have really gone very wide feel. So, for example, as you mentioned, we survey trucking companies and asked them, how are your sales this week compared to what you expected? Same question every week to the same person. If the person is not there, Typically the the CFO. If they're not there, we used last week's reading, so there's no change in the survey due to somebody changing the answer.

And so we've been doing that UH for a long time, and now we cover almost every single nook and cranny of the US economy. We also survey companies that do business in China and ask them how their sales are. So what do all these surveys ultimately end up informing you about? So I have UH, if you follow the surveys, you have an almost perfect knowledge of the US economy today. They're not the least bit predicted. We're not asking what do you think sales will be next week, next quarter?

But you know what's happening right now in real time, in real time. The surveys are for revenue. So like our trucking survey got very strong, and part of that with price increases, they were getting rate increases. UH. So we catch capture both the miles driven and the and the rates. Our airline survey was very strong, UH, and now it's come off in part because fares have been under pressure. So it's a it's a it's a nominal measure.

Each each of the surveys. So one of the issues that we always run into, at least with investor surveys, is whether or not people are actually telling the truth. You have an issue with that. Are CFOs pretty honest with you about what they're doing or do you run into a little wishful thinking here and again the I think we're getting the straight shot of the companies that do it, that participate with this UH do it for two reasons. One, they get to see the survey result.

So if you're running a trucking company and somebody will tell you every week how twelve other truckers put together a consensus, you can tell if you're gaining or losing UH market share. Here's how you're doing relative to the rest of your You know what your answer was, you don't know, and you know what the overall is. You can you can get a feel for it. The second is we give them our economic research and so there we've gotten about three companies to work with us on

a on a weekly basis. That that's really fascinating and that answers the question how did you get people to agree to do these You've you've given them an insensive and so because of that. Uh. I really don't think there's any incentive for them to game the system. We also do a survey, for example, of hedge funds, and we're trying to determine whether they're really extended or are defensive.

Occasionally I worried that one of the participants might put in of a real fake number, fake number to try and make it look like people are really enthusiastic, are really pessimistic, and then trade against that. So he wants to influence the survey and then take the other side of the trade. I think about that occasionally. But so this really is in how traditional economics has been done in the past. Usually there's official government data and people

take that and crunch numbers. You're really looking at the economy with the rubber meets the road, so to speak. Yes, but as as a constant job to look at what our surveys are saying and then compare it to what the government stats are saying, whether it's retail sales or GDP or housing starts. So you're always going back and forth to try and triangulate the best picture is their lead. Is there a lag? Do they often coincide? Uh? The

surveys are definitely coincident. Sometimes the government data can be lagging, and it's and it's always lagging just because it comes out a month late or two weeks late. Uh So we're always working real time, and the gunment data is always with some sort of lag, could be a week for employment or two or three weeks for retail sales. That that has to be tremendously valuable to your clients. It's it's valuable to our clients. It's very valuable to me. It's I think it forms my sort of whole vision

of what is happening on a current basis. So that leads me to my next question, how do you assemble your economic perspectives. One of the things that you did earlier in your career, when most of Wall Street was making monthly forecasts, you said, we get data weekly, let's do this on a weekly basis. What goes into into that process, So it's a little bit has followed the Internet the frequency you had first you had mailed, then you had facts, then you had email, and as that happened,

you could go faster and faster. And also data is coming out faster, and so it's changed dramatically in the forty years I've been doing this, and so we went uh too, weekly, and then we went to daily, and so now every day is a complete immersion and you know what's happened, what the markets are doing, and we put out a piece every every morning. Uh and I

can feel it. It's gonna go it's gonna go virtual or they'll be constantly continuous, not that far off in the distance, not that far from distance, and it almost is now. But it is more or less a daily phenomenon. I'm Barry Ridhalt. You're listening to Masters in Business on Bloomberg Radio. My special guest today is Ed Hyman. He is the founder of I s I and the chairman of ever Corps r s I, which is a very large research and asset management firm located here in Manhattan

and offices pretty much all over. Let's talk a little bit about the institutional investor rankings. What what you've accomplished with that is is really unprecedented. Thirty five consecutive years from one to two thousand and fifteen and counting, you were the number one rated economist according to a poll of institutional investors. That that's Michael Jordan's plus Tiger Woods plus Derek Jeter rolled into one nobody has ever had at Look. Bill Miller's streak was what fifteen years, that's

kids stuff. This is thirty five years. It's unprecedented. How on earth do you explain this? They? Well, first, I think Barry, I've been really lucky. Never it never hurts. So the space that I got into has been a space that has not been that competitive in terms of other people, you know, other economists in the in the space. So I've been I've been a little bit lucky. I've been very lucky in the places I've worked, uh, like C. J. Lawrences,

which is really where it happened for me. Uh. And my mission always and our mission at ever Chorus I s I is to help our clients. That's that's what I want us to do. And that comes across clearly in the work that you get. And so everything I do is aimed at trying to help our clients, and that's what they respond to. So for example, if you have an idea, it doesn't help if they don't understand it.

And so I spend a lot of time thinking about communicating the idea as well as conceiving the idea, and then we have forty salespeople, uh that or my megaphone and megaphone for our other analyst, and so that combination gives us a very loud signal in the in the community. Do you spend a lot of time making sure those salespeople really understand your thoughts, your thought process, and and

what you're trying to communicate to the clients. So we have a terrific group of salespeople and they are my forty biggest accounts, each one of them. And so every morning at seven o'clock, seven fifteen, I start meeting with them and our other forty research teams to try and tell them what I'm thinking. And other analysts do as well,

And so that's what you have. If you cannot get your salesman to understand what you're saying, what you're thinking, what you're trying to get at, then the clients aren't either. And so that's that's your first line. And we do that every single morning, every day. Seven How long does that that morning conference last at last till till eight?

So you're you're I'm up on goodly early. You have to also be up at a ridiculous a right, right, So we start, uh my team comes in at around six fifteen and I start really at around five, um, watching Bloomberg and getting up on the news and what's happening. Then I read a dozen newspapers and by I meet with our team to launch. We have very similar schedules. UM, only I'm not doing the meeting at seven fifteen. That that's uh, that's really significant. So beside yourself, who are

some of your favorite economists? Who who do you like to look at their economic work? So they Um, the person that probably had the most influence on me was Milton Freeman. And he's not putting out economic work now, but he I I was at a presentation he gave an M I T. When I was twenty three, and he had a debate with Paul Samuelson and I just fell in love with Freeman two Giants to Giants and uh.

So he had a big influence on me. Uh. And then Otto Eckstein, who I mentioned of, hired me right out of M I T. And he had a huge influence on me. He was very clear thinker, very hard working, very good communicator. Uh and and he really influenced a lot of what I think now. So those are two of the legends of economics, and what about the next generation of strategists and economists coming up? Anybody you look at in the let's call it the under forty set.

They so this sort of a drought right there. So there was a time when there were all these fabulous strategists, uh, like Byron Ween and Barton Biggs, Steve Galberth, Henry McVeigh and Uh, now there's some great strategists France Wat Trahan. Uh is you worked with us and now has another firm. Uh. And we're we have in our shop Dennis de Buscher, who I have great hopes for. He's He's my up and comer strategist. I'm Barry Ritults. You're listening to Masters

in Business on Bloomberg Radio. My special guest today is Ed Hyman. He is the number one ranked economist in the Institutional Investor Survey of Large Institutions and currently the chairman of ever Corps. I s I. Let's talk about what it was like building I S I. But before we start, I have to read a quote here and it reflects directly to what you said in the earlier segment. So while we were looking up a lot of the

details on your background. There was a blog post by a client of yours and this is a couple of years old, and this person writes they are a long term research client of Ed Himan. I s I and here's why he is consistently the number one ranked economic researcher on Wall Street. He sticks to his core mission of providing high quality and independent research. He helps portfolio man ers makes sense of the world. He sorts through the reams of economic data and government surveys to provide

a real time analysis of what's happening. He provides a very high level of client service. He is independent and unconflicted. He never pushes a product discuss. So, as I mentioned, I view my career as being a continuum, starting with my work at M I T. Then I had the good fortune working with Data Resources c J. Lawrence, and all these were really high quality experiences for me. And

then CJ. Lawrence was brought by Dorge Bank, and that was a discontinuity and what I was trying to do, And so a group of us left and started ies I. But it was really a continuation of what I had been doing. Same core team, same core team, except at that point we were just Macro just economics. At CJ. Lawrence, we did everything we did, you know, stock research in the street work as well as economic and strategy work. So we developed the idea that we wanted to be

the best at whatever we were doing. And at that point, it was not really possible to be the best at stock research because that was being done in the Moulst bracket firms with banking, and you couldn't afford to hire the analysts, and they were doing it at a very high level. And so when UH they separated banking and research, UH, that gave us at an ability to hire the best analysts.

The economics worked then, and then you had the financial crisis and the banks have been under siege, and so now we definitely have UH thirty of the best fundamental of fundamental analysts on the street. So that's that's really allowed you to stay focused and every segment you go into, there's no dilly delling. It's all in or not at all, right. And so I grew up in an environment where I was working with analyst, and I thought that gave me a bottoms up advantage, and that's where I am now.

So we have this group of analysts I meet with every morning, whether it's industrials or banks or retail China. And so I feel that that collaborative approach gives me a better chance at helping our clients and hopefully our analysts benefit from working with our economics team. So this is an area where a lot of people have tried to build businesses and have failed. You guys have managed to succeed in the space where competitors have dropped off

time and time again. What do you attribute this consistent success level when lots and lots of people who are in the same space just aren't making it well, There really aren't many people doing what we've done. Um, So we we've grown UH from a group of macro products, you know, policy, economics, techno, goal strategy, and now we have those plus UH authority fundamental teams and so there's

really no one has gone quite this path. And the reason we were able to do it was because we had a lot of momentum, and then we took advantage of the split between banking and research, freeing up analysts to work in an environment like ours, which is very research focused, very research friendly. UH Bernstein is the main firm UH maybe Jeffreys that has the same sort of footprint that we have, and and they're quite a bit

larger than than we are. So we're moving ahead and now with our ever core connection, it just makes us stronger. So Bernstein was brought by UM, was it Alliance or Alliance? And UM Jeffrey is still independent. Jefferies is independent, but they have a Lucadia connection. UM. So you keep talking about your various teams. Tell us about some of your teams, who they are, how did you pull them together? How do you manage so many disparate groups. We'll have a

strong management group. Uh and the our first analyst was Dave Rosso and industrials and virtually all of our analysts are number one ranked. We have uh in the II magazine ranking. Our firm last year was number five. It's the first time a non bulge bracket firm, a non big bank firm has been in the top five since UH two thousand and that was d L j uh So. I'm very proud of of our guys and every single I'll mention some sectors, but please every single sector we do.

We're the best in uh SO Banks Glenn Shore, he's the best, number one ranked. I he's not number one ranked, but he will be. But he also because I know the industry, he is very highly regarded. Steve Sokkua does Riets Rules of Space, Greg Malick does Retail number one in two Spaces, or Marsad does Luxury number one, and those goes on and on. Our healthcare team is the killer team. Uh so we've I'm very proud of the of the guys that I have a chance to work

with jury team. So what's the secret to pulling together these top guys? How do you manage to you know? Because look, you look at we just watched um the basketball finals. Hey, some teams have a Lebron James, but not everybody has the seven Yankees, where everybody in the lineup couldn't hit a you know, a crushing home run.

So again, you know, we we had a momentum. Uh then you had the separation of banking and research, which so you think you're saying the regulatory shift created an opportunity, and and then the then the financial crisis has been really tough on the on the bulish bracket firms. And and we are a research place. That's what we do, that's our passion. So it's not one of a hundred

different things. This is your only focus and possible. Research started out in the seventies with smaller firms like Morgan, Stanley, Dale, J Goldman, Sachs, C. J. Lawrence where I worked Mitchell, Hutchins, Baker Weeks on and on of Alex Brown, and they all disappeared or were absorbed into another organization bigger, and that's the way it was. I have a feeling that research UH is happier in a smaller unit where it is the focus of the unit, not part of a

hundred thousand or two thousand UH employee firm. What once research becomes part of a bigger event, it's it's no longer independent. The whole energy changes. So I don't know, it's just the size might make a difference in our business. UH. We make money because we have to, that's our only business. In the bulsh bracket firms, they often view research at a cost as opposed to something profit. Gotcha, so you

mentioned you you began in the nineteen seventies. I would be remiss if I didn't mention or ask you what was it like to start work in the early seventies. You began, you said seventy two right before the huge crash in nine seventy three. What was that decade like that had to be a really tough period for both investors and researchers. As as hard as it is to believe, I really don't think the industry has changed that much since nineteen seventy two. Really the biggest change is the

frequency of information and the hedge fund participation industry. Uh, there are a lot more players now. It was a much simpler business. I think it's much much more difficult for investors to provide alpha, to provide a leg up on other people. But what the cell side does today is trying to help the clients is pretty much what it did back then. And the our clients investors seem to be totally uh uh formatted to working with sell

side firms. So our clients don't need Mark Schaanbaum, who is our health care analyst, They don't need him to work for them necessarily, but they definitely want to be able to pick his brain. And and so you have at at many firms, you have these experts like myself or Mark Shawmbomb or Steve Sakua who does reats, who are used by our clients to try and improve their mosaic of information and come up with a better investment results. So so you're saying that that basic approach unchanged over

the past. It's called it forty years. Uh. The only thing has changed has gotten more competitive because there's so many more players, and it's much more difficult, I think than saying when Peter Lynch was was king of the roost. Uh, it's it's much more difficult. Top. So, so in the last couple of minutes we have I have a vague recollection in the nineteen seventies, I was still in school,

but I remember that being a really tough economy. The market had gone nowhere, interest rates had spiked, inflation was tough. You're saying that wasn't a more challenging environment than what people are dealing with today, Well, it's for a researcher, right, Well I would say that, Uh, when people look at how challenging it is today, I tell him go back to the seventies. That was also very challenging, and so

they were both the same. But uh, I would when I've thought about it, the seventies was tougher than it is today. And that's a very big statement because the day is also very difficult with Europe and China, the banks under siege here quantitative easing. It's a it's a very complicated, but I'm not sure it's much more difficult. Halt then it was was then very interesting. We've been

speaking with Ed Hyman. He's the chairman of Evercore I s I. If you enjoy this conversation, be sure and check out our podcast extras where we continue chatting, letting the tape roll. Be sure and check out all of our other conversations. You can find them at Bloomberg dot com, Apple iTunes and SoundCloud. See my daily column on Bloomberg View dot com, or follow me on Twitter at Rit Halts. I'm Barry Richlts. You're listening to Masters in Business. I'm

Bloomberg Radio. Welcome to the podcast Extras. I'm Barry Rihlts, and my special guest this week is Ed Hyman. He is the founder of I s I and currently chairman of Evercore I s I. Ed, thank you so much for doing this. I really appreciate my pleasure. Thank you. Um. I know you don't do a lot of media. You've done enough in your day, but it's something that you don't really do uh a whole lot of lately. So I um, I went through maybe the teen years. I didn't do any fifteen years really and at lest it

really hurt your business. So early on, uh I was I was on Wall Street Week more than anybody else with Lewis we had earlier this year we had Anthony Scaramucci who just bought the rights. I started up to Wall Street Week, which was really kind of interesting, and Liz and Saunders who occasionally guest hosted for So what was it like doing uh that show back in the day when there wasn't daily too? It wasn't you know,

the media landscape was so different. There was none, and so Wall Street Week was so good because it was the only show and uh Lou rook As there was a real professional uh terrific uh interviewer and see her uh great intellect. And so that show was what everybody. Everybody watched it and everybody wanted to be on it.

And I was on it because I started so young and I would do twenty three right out of school something like well maybe, but so I just by stand up time, I was on it a lot of it, and that ran from I want to say, gies was somewhere two thousand and some he passed away about a decade. It's really really quite is it? That? Is it longer than that? That? Wow, that's amazing. So um one of the things I didn't get to ask about. So in the early days of I s I, you were both

managing assets in a separate entity and doing research. How do you juggle both of those? So I had a very strong partner who led the asset management business, uh, and we've just sold that that business didn't fit into the ever Core is SI. Who was a partner and who end up selling it? Al Metta, It was familiar who is fick fixed income guy and is a firm out of South South Africa that we sold it to.

And you also sold I s I. Bloomberg reported last year that I s I was sold to ever Core for a number of theoretically worth north of four million dollars. Is that a real number or is that a just a you know, a rough estimate. So, uh, Ralph Schlosstein is the business operator. He is the person that is driving ever Core and and he is the visionary for putting this together. And so we have a five year UH program with Evercore where our shares in I s I vest into evercre uh in years one to three,

four and five, depending on performance metrics. And if we meet all of our performance metrics, UH, it'll be over dollars uh. And it's a terrific example of capitalism. Everybody's incentivize, everybody's incentives are lined up perfectly to make the thing work. Every corps wants it to work. You wanted to work. I wanted to work. Everybody I I wants it to work. Uh. And so we essentially have gone public. So now I'm

part of a publicly traded company. That that has to be deeply satisfying after so many I mean this was decades and suddenly for someone to say, look, clearly, you have received accolades professionally for years and years. But at a certain point when someone puts a dollar figure on it and says, hey, what ED and team have built is so valuable, here's what we want to pay them, that has to be like, Wow, I guess we really

did this the right way. And what I've take the deepest pride in is that the employees on half the company and so this is a great experience for all of us. UH. And because we now are vesting into every course stock. Uh I really want ever course stock to go up. So if it was a double uh, it's theoretically more half the employ half of the company. I s I stock was owned by employees. How typical is that? Uh? Well, the whole thing is very is

very unique. You don't hear fifty. There's a disproportionate share usually at the top, and then a little bit of a stock plan. But that that's a huge I guess everybody is aligned at that point. So by everybody. We have fifty partners that on that and we have total employees of about to fifty. But our keep after something like this. The main problem is retention. And so you speak to Google, you speak to athletes, speak to Facebook or micro. In a previous generation, Microsoft and in Te

Francisco they had the same issue. At a certain point, people start to have so much money they might why do I have to work anymore? So uh so we have a five or five year investing plan. So I have have I guess almost at four and a half years now in front of me. Okay, well, let's let's hope you keep on to hold onto all your key, all your key people, so you had mentioned some of your early mentors. Who else were key mentors to you? So, um, these these guys at M I T were really started

to change my life. At COUP and Paul Kotner or two professors there, and then Otto Wegstein, who's such a fabulous guy and I was so lucky to work for him. And then I went to work for Jim Moltz at C. J. Lawrence and he's just been a fabulous mentor for me, you know, all all through this this time. And so those were the guys that really formed my my my career. Let me digress about mentoring because this has been something

I've thought about in the past. There was earlier in the history of Wall Street a fairly robust mentoring sort of mindset, and one of the things I've noticed is that seems to have slipped away. You know, do do you see that same sort of mentoring approach today on the street that might have existed let's call it twenty

or thirty years ago. So, as I mentioned, it's possible that research thrives best uh in a smaller, medium sized environment, not a hundred thousand or two hundred thousand people who are mentoring becomes more difficult just by nature size. Uh. We've been uh growing so rapidly for the past twenty something years. I don't think we've done a good job of mentoring. Really, we've because we've just been pushing and

we've been hiring the best analysts in each space. Uh, everyone who don't necessarily need a lot of mentoring at that point, they don't need mentoring that at that point, they've already been mentored. Uh. Ralph Schlastein at ever Cores is really passionate about mentoring and growing talent from from within. And so we've and they have had a much stronger program than we've had. And so we are now launching a career development Committee and a program specifically aimed at

mentoring people to give people a path forward. Well, well, if you can't find anybody in to mentor, you can always mentor me. I'm happy to assume those responsibilities. So let's talk a little bit about UM. The investors who influenced you. We mentioned Peter Lynch earlier on UM. What other invents investors have you found to be influential to your thought process? How you look at market cycles, how

you look at business cycles. So UM, Jim Maltz ran C. J. Lawrence and is a great investor and strategist, and so he influenced me a great deal. We also had a strategist there name Stan Salixon who's unfortunately passed away, but he was uh sort of nova on the scene while he was with us, and then he went on to Merrill Lynch to become their strategist and then an investor. Uh Stan Drucket Miller has influenced me more than anybody else. And um Drugon Mill is really an interesting, um gentleman.

Some of the work he's doing currently is quite uh quite fascinating. And so that that group of of players who I've been fortunate enough to work with have influenced me a great deal. Louis Bacon is another one. Stevie Cohen is another one. Paul Tutor Jones this this is

like the Hall of Fame. You're you're listing here. Well, I've been lucky enough to spend some time with them and study how they operate, and I've learned a lot from them and try and uh put some of the ideas that they used to work in my own work. Bob Ferrell was a technician at Meryll Farrell's famous ten Laws of of Markets. Yeah, I'll send you a copy

of it. Our mutual friend Dave Rosenberg had put out a piece with the first time eversord printed ten Rules of Bob Farrell and um, I ended up posting on the internet because it was not publicly available anywhere. He still puts out regularly. Agreed him every single week, and so he uh, I have a pretty strong technical uh window, and he helped me form that. People like Lee Cooperman is a real role model for me and met mentor. So Lee Cooperman was the best strategist on the street

when he was the Goldman Sachs. He was a sales side before he before he launched Omega. Right, we have him coming up next month, So he's uh, he's been a legendary. Your list is really well, I've been lucky. That's an amazing And I don't run mentors. I don't just say I've learned a lot from from Bill Bill Miller has I've always enjoyed his thought, his thought process, His streak is he his streak is second only to yours.

He beat the SNPI fifteen consecutive years. Nobody's come remotely close to it, although I don't know who the hell is ever gonna beat a thirty five years accounting. No one wants to. Well, you'd be surprised. I bet people would be thrilled, thrilled to do it. Um, let me ask you about some of the other interests you have. There's a run of different committees and things are on. Tell us about the China Institute. What do you do

with them? So when when we started I s I the name is International International Strategy and Investments and so, UH, you know that the world is becoming much more international, much more globalized, and so that we had that focus. And I think the emerging economies are going to play a major role in the next decade two decades in the way the world economy develops, and China is simply the biggest, strongest one of them. So we have a

China research team. Don Strassheim heads that up, and UH, I have a deep interest in China and some on the board of the China Institute, and that gives me a little extra window into into what's going on there. Not too long ago I spoke to you and you were either going to China or coming back from How often do you, um, on that side of the world. Uh, once once once a year. And and what do you do when you are in country in China? Uh? Either

visit investors there or visit companies there. Quite fascinating. Do you find anything that you witness when you have boots on the ground. Is that different than just looking at charts and looking at data? Changes the perspective, right, I'm um. I'm definitely a hands on observer of the condition, and so I really like traveling to places and seeing from my own through my own eyes what's going on, talking to people who are there. Uh. And I enjoyed talking

to investors. I think I learned from talking to investors about what's happening. But I definitely love I travel. Uh, not a huge amount of travel, about sixty six sixty five days a year, which it's more than two months. That's but for people, people will travel two months months, right, exactly. So, but I feel like I'm learning uh on those trips.

I got into a debate with someone not too long ago who was insisting the US is still in a recession really bearished negative long gold short equities, and I asked him, when was the last time you left your trading tarret. Well, I got too much stuff going on and go. Have you been to Seattle? Have you been to Dallas? Have you been to San Francisco, Silicon Valley?

You can't. You can't go through Nebraska, o Iowa, or South Dakota and tell me we're in a recession still you if you get out from behind your desk and look at what's going on in the real world, parts of the country are just booming now. It's not evenly distributed. I don't have to tell you. Lots of stuff are still below par. But the folks who never seem to leave their desk, I think they get. We call it a fluorescent view of the world. And it's not very accurate,

is it. Yeah, Well, I'm very in tune with you on that. First, I have our company surveys, which are uh, you're asking somebody who is running a company, how's your business? And people have if they have to look it up, I'm not talking to the right person. They know it. Uh. And that is better than anything in ten. It's not quite as good as oh five and oh six, but it's pretty good. But when I travel around the US, UH, almost every place I go, when I talk to locals.

They say, it is booming, it's amazing, And I say, places like New Orleans or Minneapolis or Nashville that you wouldn't think of right off the bat. Uh as having that response are pretty strong. So I think the main message here is that the the odds that the US economy is in recession are very very low. What about falling into recession in the next few quarters or year? So um, and I know we're not we don't want to talk about forecasts. I said, Hey, we really don't

do forecasts. But in context of people who have missed this bullmarket and are waiting for the next collapse, what do you say to folks like that? So this isn't uh, this isn't so much a forecast as though. It's an observation about where we are in the business cycle. And so this is something you can study and uh, in terms of where we are, we're still early in the business cycle. Say, for example, housing starts are barely over a million, the FED hasn't started to tighten yet, wages

haven't started to accelerate yet. So these are all conditions that suggests the next recession is maybe five years out. Really, Uh, every single one of these conditions and wages fed tightening housing all suggests that the recession is way out. So, uh, that's my starting point, and you change that if conditions changed. The biggest thing that could change would be if inflation were to really come on strong. And at the moment, I think it's picking up on the wage side, but

that's about it so far. So I think we're still you know, if you had to have a scientific answer about when the next recession is five years out, is the best guess. The yield curve is NOE near inverted. And when we look at most of the metrics, they're continuing to creep up, They're continuing to improve. Like I'm always scratching my head trying to figure out is it just confirmation bias and people who are positioned wrong are

rooting for something? Or I'm amazed when I talk to people who have been, you know, just so much on the wrong side of the trade. I think that I think it's hard to overestimate the impact of O eight oh nine psychology. Uh. And then you know, there are a lot of negatives, like you know, Greece is an uncertainty uh and China is an uncertainty and profit margins are very high, and the way that quantitative easing plays

out these are unknowable. But I think investors are sort of positioned for negative outcomes on those and if they were to be positive outcomes like or even neutral or neutral, then then the market is probably okay. But on on the economy, which someone different than the market. But on the economy, I'm sure it's okay today. And the destabilizers are inflation, which we don't have now, UH, FED FED tightening, which we don't have now, although we could see that.

The theory is that that starts later this year fighting I mean by aggressive FED tightening, um, and that's way off. Yeah, they're gonna start, but they'll go from ultra easy too extremely easy. We have to work our way up two merely easy, is what you're saying. And um, so we we. I asked you about the China Institute. Tell me what you do with the New York Public Libraries financial services?

So that just participating in a speaker's program, it's they have about twitter people at each UH sessions a breakfast session, and they get some great speakers in and I interesting to go and I pick a group of clients, uh and it's a nice venue for seeing people that you wouldn't ordinarily see in another setting. So Warren Buffett, Bill Clinton have been speakers and it's a nice way to see uh some ideas that you wouldn't otherwise get very interesting.

And I know you do something similar in your own office where you have people come in and present in your in your morning meetings as well. Um, the leadership forum, what what do you do with that? Uh, that's not much of a what is the leadership forum? I have no idea. I'm sorry, that is the it's the leadership forum? Is the public library? All right? Son? That into a second. So it's a leadership forum at the New York Public Libraries Financial Services Advisory Committee. I can't read my own

typing about the the Economic Club of New York. So it's a it's a very different thing than the than the library program. But uh, they've been going since the eighteen hundreds and um they get speakers like hundred forty six speakers so far, and it's a great forum for

New York to have people come in. The last speaker was was Jack was Jack Ma Ali Baba's founders Ali Baba's Finder And it's it's just they have a great roster, you know, the chairman, the fit comes on a regular basis, and so it's just a it's a place that it's a large form. There's a thousand people and so it's but it's a big room. It's a big room. Very interesting. Um, let me keep working through my list. By the way, these last half dozen or so questions I'm saving are

are the same questions I ask everybody. Let me go through some of the questions that, um wow, you answered two of them. You answered where we are in the economic cycle? You answered that you're really a hybrid between a strategists and an economist, and uh what, there was no eureka moment. You basically just started just kept on almight, Tya, and kept going, Um, so you you hinted about quee and the Federal Reserve, So let's explore that a little bit.

So what makes QUI so unique? What makes the unwind of QUEI so unique? And can't the Fed just hold this um fixed income paper until maturity? I think the average uration is seven years. Do they have to actually unwind QI or can they just let it run off naturally? So they they can and will I think let it run off naturally over the next five or six years. The paper is something like a six year duration, so

it should mature over time. The the Federal Reserve has become much more important because we have so limited we've limited maneuvering room on fiscal pile. Right the Congress is basically just grid locked and doing nothing, and the budget deficit. It barely gets back to a balance and then we go back into deficit. So we we don't have many degrees of freedom when it comes to fiscal policy. So as a result, we've had to operate more and more

on monetary policy. And and that's why the FED has become a much more prominent institution UH in our country, with you know, giving speeches all the time, different members and sort of like rock stars in the system. They always used to give speeches, nobody paid attention to, nobody covered it. It It was just really inside baseball sort and they didn't give as many speeches. There are much more and more today in a bigger forum each time they give it. UH. In terms of qwe UH the UH.

The overarching problem first is that it's not only QUI here is QUI and the ECB in Europe and KWI in Japan. Uh. So we're gonna end up with something like twelve trillion dollars uh and que in a year or year year and a half round between all three all three, and so then the question is, you know, how can we unwind our que? I think that when the Fed tightens, uh, there'll be a moment of silence

to see if we're still alive. And if we are, people are going to relax some that we got the shot, it didn't kill us uh, and then they'll start to think about, well, the next tightening, the tightening act of that, and whether they'll let the fifth balance sheet run off and whether that creates a problem in and of itself. Uh. So we're gonna go from tightening and as soon as one is under a belt, people are gonna start looking forward at the at the next tightening, and it'll be

it's gonna to the next, to the next. It's gonna be constant discussion. The FIT is indicated very strongly that they will have a more uh responsive function to tightening as opposed to every meeting twenty five basis points and so uh if that's what happens, there'll be much discussion before every meeting or they're gonna pass this meeting or tighten this meeting because they go fifty. And then when you get down the road, ifn FED funds are two, there might even be a notion they might even cut

rates at the next meeting. So that's going to be I think that having Stan Fisher the Vice Chairman of the Fed UH there UH will be a great addition to yelling and Dudley uh in giving the world some vision about how the US might unwind its balance sheet. And then if we can do it, UH, they'll give a big leg up for Europe and Japan to think about whether they can unwind their balance sheets. But those are,

you know, three or four or five years out. So two is really fairly accommodat if we take it, take FED funds rates up to two, that's still relatively low rates historically. Can the economy absorb a two percent funds right? Well, first, we don't have to answer that question today. We'll we'll see day by day. Still data dependent, data dependent, and

it seems as though it should be able to. There's one point I'd like to raise here is that we talk about the one or two percent funds rate and we also have a four train dollar balance sheet, or maybe it goes to three trillion, But we have a huge balance sheet, and there's the New York Fed in particular has done work, uh that having that big a balance sheet means that the funds rate isn't zero, that

it's negative. So when I walked over here, I was thinking, I'm in a funds rate that's minus three percent, not zero, and so how do you get to minus? The New York Fed said that relative it's real terms, not nominal terms. Is that just in norminal terms, that bion is the equivalent to cutting the funds rate fifty basis points? So it's easy to fifty basis points. But at zero you can't cut a fifty basis points. But we've we've now done three trillion in in quantity of easing. Obviously that's

six six and that's three basis points. So well that's even close. I do think that there's uh that the funds rate might be in negative territory, uh in a sense. And so when they start to tighten, if they get to say two, and the balance sheet is you know, has been shrunk by a trillion dollars, the funds rate could still be one and a half or something, and that's before we start talking. Hey, we're a one inflation environment, so zero adjusted for one inflation is also a negative

a negative number. So the next the next big event in this space, UH is where they're not wages. Wages are accelerating, and it looks as though they are. So it's been it's been very public that we've seen some of the minimum wages go up. We've had the McDonald's announcement, we've had the Walmart announcement. UH. San Francisco, Seattle, Los Angeles all raised their minimum wage. And but depending on whose data use, it's not an insubstantial number of people

earning the minimum wage. But the bulk of Americans, the bulk of middle middle class America UM, don't earn the minimum wage. There they're the median income is about fifty three thousand dollars or so a year. When does middle America start to see real wage gains? Now? Now? So in the past, wages have accelerated when unemployment has come below five and a half. So we're we're there, and these wage increases you mentioned would seem to be the smoke that would occur when you're starting to get a

tighter labor market. There's an employment cost index, the gunment measure that's moved from one eight to two six, and then average generally earnings, another measure has moved from two to two point three. And this morning the UK wages came out and they're up to two point nine and their uneployment rate also is five and a half. So I think when we look back at this time five years from now, we'll say this was about when US

wages started to accelerate. And that's a big deal because I think a lot of the feeling we talked about earlier about the economy not doing well, it's because people are not getting pay increases. If the average pay is up two, then a lot of people didn't get a pay increase. They're flat with inflation or they got one, and their costs relative to increase health care and increased education expenses, what Middle America is paying for feels like you all these things are going up and I'm staying

the same. It's also psychology. You know, if you go home and say, hey, I got a one pay increase, it doesn't make you feel like you're a star. And so I think if if wages pick up. It'll make the economy feel better in addition to just making retail sales better. So how does that was the next question is how do how does the beginning of rising wages impact the overall economy? Is it just retail sales? Can we get a virtuous cycle where people start spending more,

companies higher and do more capex and good things. Well, this is in my view, we have been in an evolutionary mode for six years now. You know where things change a little bit over time. Uh, the places and I mentioned like a Seattle, their economy gets better, and then you can see it's getting better and employment is now up, uh, well above his prior peak. I've been watching lately employment of young people thirty four and that's

gotten strong. It's up three and a half sent now. Uh, and it's well above it's up three three million, or about ten percent from the low point five years ago. And so these are these are hard to overlook improvements. And that was a segment that was lagging the moment. In that group, recent college graduates. Bad did not feel right. Bad is okay, that's no sugarcoating it. They really felt

that they were living with their parents. They weren't forming households, they weren't getting married, they weren't moving out of their parents house. Is that another part of the cycle that that's ahead of us. That's that's what we're looking at. So that's this five year notion. Really, there are a lot of things that are ticking up here that make that a very plausible decision. It's not just a random number. You're looking at all these other metrics that all have

a lot of runway ahead of them. The main the main metrics that give you the five years. Uh, we haven't had wages inflation yet, we haven't had fit tightening yet we have, and it had housing starts well over a million yet. And after those things happen, is when you start the clock for five years, and then you say, well, what's going to drive it for five years? And the employment and in the millennials could drive it. Household formation

could drive it. Technology, you could drive it. Uh. So those are the things that could make it go for five years. And those to me, I feel like they're they're starting to fall in place. And wages also will be a driver, uh if they start to accelerate. So let's take the look at the other side. Of it.

And I'm on the same side of the street as you are in terms of being very negative during the last bubble during seven oh eight and just seeing everything starts to fall apart, and I'm seeing all the things you're seeing. I see a lot of positives, but that always makes me nervous. What should we be looking at if we want to start to hedge our bets or start to get an early warning if things don't work out. What sort of data points would you suggest people pay

attention to. Well, first, as I mentioned, you know, there are a lot of of significant negatives now, like Europe might not work and I don't want The odds are one in a hundred or one in a million, or one in ten, but it's a non zero now, it's a non zero. And if I tell you the chance of me getting run over by a bus when I walk back to my office is one in a hundred.

If I told you that, I just stay here. Uh. And so you know there's a there's a risk there, and that will probably get resolved in the next year. As to where not you know, the Greek exit occurs or not, China is a is a concern they're going through three different problems at once, and whether they can pull that off is a concern. So let me guess what the three problems in China are so aside from

demographics unless you can insider that problem. Um. One, their economy has been slowing, although slowing to seven or eight percent isn't but down from that's a issue. Second, whether you talk to Jim Chanos or any number of different people, it certainly looks like their stock market is, if not in a bubble, well price and and extended relative to everybody else's uh stock market. And I can't even guess

with the third one, So um my three problems. I also think Jim Chanos is is a very bright guy, and I've learned a lot from him about China, uh, very early on identifying problems there before anybody else or so in my view, the three problems are First, they have corruption, and that's trying to grout that out, and that's endemic, systemic corruption throughout the whole country, not just pockets here are there. Second, they have the environmental issues,

which are well the water, the air shure. They had to shut the factories for eight months before the Olympics. I don't even you kind of forget about that, but that you're looking at that as a really substantial problem with and oncology is a growth business and one they have to fix. I mean, this is not I was at the at the Olympics and every day the sky was blue bird right because they shut it down. Uh,

they set all the factories down, trucks didn't run. But it's it's that's not the way it is now when it's when everything is running just smog and is it that really that bad? Yes, And there's water, you've seen the lakes and and the and the third is, as Jim Channels correctly points out, uh, you've never had investment over of the GDP and not have a major contraction the economy. So they have capital China now China stock market, no capital spending, and that they've had this investment boom

and so investment got over GDP. So they're trying to rebalance the economy, fight corruption, and fight environmental issues all at once. Uh that sounds like as a challenge. And so those are some of the issues. But then you're asking, uh, you know what, Uh those are more uh deep seated issues. Then you're saying, well, what could happen that would make it happen, make a negative outcome quickly. And the one that I'm most interested in right now is a discontinuity

in the bond market. Uh. There's a constant discussion about the reduced liquidity in the fixed income markets that dealers UH have maybe a fifth or a tenth of the inventory of bonds they had six or seven years ago. The market is very thin, and that's liquidly crisis that people have been talking about now for months. Yes, and when the German bond yield went from something like fifty basis points to a hundred basis points, you half a percent to one percent in three days, people are going,

oh my gosh, this is this could be yet. And so that's that's a risk that I watched every every morning. I checked the German bond yield out to see if it's starting to have a discontinuity. That that's an important factor to look at the German bond yield spread in order to give a sense of what liquidity issues there are and influence our our bond yield trades tick for tick every day off of their bond bond yield. Really yeah, so I fires are if there's is up three basis points,

ours will be up three basis points. So yet there's is so much lower than ours. Why is the German bonds yielding so much less than it's strictly a function of the volume of US bonds, or how do we trade so much higher yield than than there? So this gets back to a business cycle um observation. So bond yields should in the long term be roughly equal to nominal GDP growth. So in the US, nominal GDP growth is probably three two percent real GDP maybe one percent,

inflation three maybe four that neighborhood. And in Europe, uh, real GDP has been about one and inflation has been about zero, so nominal GDP growth has been about one. So we see Switzerland essentially zero. That means that their growth is also uh, their nominal growth is about zero. Same with Japan. Yes, it doesn't have to work or doesn't work you know on daily or weekly, quarterly basis period.

That's but that's what you're tracking toward. And so nomal GDP and Japan has been close to zero for twenty five years and their bond yields have been close to zero for twenty years. So basically the spread between the German yield uh at say one percent and our yields at two And it can be largely explained by that first difference that our economy grows fast and there's a little bit faster than there. That's that's really amazing. Um let's talk a little bit about books, right. I assume

that you're a bit of a reader. When I walked into your office, you had bookshelves and and what what are some of your favorite books? Both finance and nine non fans related. Well, uh, almost everything I read is related to what I do for work. So I shouldn't feel bad about that because my wife is like, why don't you have a pick up a fiction book? Fast? Yeah, this is this is good. So I wrote on some

books that I've enjoyed recently. So there was one uh Coming Apart by Charles Murray and and uh so this is a description about the way the US was in the sixties and the way it is today and uh more socially focused. It's a social commentary and uh the way the country is coming apart and uh that I spent a lot of time thinking about that were recently. Uh Andy McAfee, who's a professor at m. I. T. Has done a lot of work on robotics and uh.

He and his colleague wrote a book called The Second Machine Age, and they uh so I spent time working with them and and thinking about uh. And their view is that this time is different, that robots are a destroy jobs and so they have a provocative of your angle. You're starting to see it happened already in a number of different areas. Um, they're no longer a pertinent to jobs. They're now replacing jobs. Well, I don't I don't agree

with them on that. You don't know, but that's uh, we'll find out in the next three or four years, not that that's happening. Um. There's a a doctor who's written two books I've loved, UH named Gowandhi. I knew you were gouldn't go there. The checklist was that the most recent one? Yes, do you know that one? Um, because it's on my on my bookshelf. It's like number

four in my queue waiting to be read. The book he did before that, Yes, Better Medicine was really got fantastic reviews, and um, it was one of those things that all right, I'll get around to that. But the checklist looks like it has well. His first one I think is better than the check List. See the checklist looks like it's applicable to everything it is, and better medicine would look like a very specific sector discussion. But

he's a great writer. And then I've really enjoyed the book by by Talib called Anti Fragile and Uh, I think he's a brilliant guy. And I've I haven't quite finished that one, but he's He's so fooled. Button Randomness was a really interesting read by him, but it's not a fast read. You have to kind of pick it up, read a couple of chapters, put it down, and think about the same thing with the Black Swan. It's it's

it's not. You know. I love Michael Lewis's stuff. I could pick up a book of his cloth through it in an afternoon. Talib not not really requires some digestion. Well, I think on his books you can go either way. You can just get the gist of it and move on, or you can go through you know, each page in each chapter, which have some real nugget as you go through it. Uh. And then I do find money, money Ball and the Big Short by Michael Lewis to be books I think back on frequently. Moneyball was one of

the most interesting books I've ever read. If you like Michael Lewis, I'm going to tell you a book I read that I don't think a lot of people read, and one that I'm waiting to read. So I have so money Ball was about football, was about baseball, but he did a football book called The blind Side. I have not read that. My cue waiting to be read. Not as not as good as money Ball, well, not as quantitative, not as applicable to every aspect of life.

So in and our business at EVERCREI s I uh, you see many many examples of where you can apply Moneyball. That's what made it so fascinating. It was so universal. The other book of so I've read everything of his except The Blindside. The book of his that I really liked that I don't know a lot of people have read was the book called The New New Thing. And you know everybody's read you know, Liars Poker, everybody's read

The Big Short. I really enjoyed Flashboys. I thought Flashboys was despite the criticism, despite the pushback, I thought that was really interesting. But The New New Thing was one of his books that sort of slipped in under the radar, and it's also really fascinating. So all these things, Uh, you know, the world is changing very rapidly. I'm not sure we uh we discussed it enough or think about it.

But say in the area of economics, Uh, it's just changing because there's so much more data now all the time for people to study and say, like in investments, Uh, there are many, many more people doing investments now, which makes it more difficult. Chanos said that there are, um, there are ten thousand hedge funds today. Back when he started, there were a hundred and fifty hedge funds, but all the office still being created by those same hundred and

fifty hedge funds. I don't know how true that is, but it certainly means that there's more competition for employees, there's more competition for capital, there's more competition for for everything now, and it's it's still more difficult when you have that many more people playing. I would I would imagine at the very least, it's the challenges of managing that have to be increasing. Right, So let's let's keep blowing through. Any other books on the list, any classic

books that you. Uh so everything you've mentioned is relatively new any of the old classics really? Uh? Well, you know I liked I liked I like the stuff that John Maynard Kein's has written, and I find him as an economist, I find him very fascinating. But because he operated in so many different spheres, you know, he was an accomplished investor, very successful investor, people don't realize how good of an investor he was. And obviously, you know, a complete thought leader in his field and had a

big political role in life. And he should really get him on the show. Um, good luck. Um. You know what I'm embarrassed to admit I've never read. It's literally on my night table. What's the next book in my queue is? Where Are the Customer's Yachts? That's been something that I've been waiting to read for forever and I foundly once I finished the I'm reading Failer's Misbehaving The Founding of Behavioral Economics. Once I'm done with that, Customers

Yachts are are next? What else do you have queued up to read? What else are you looking forward to reading. I'm looking forward to finishing Anti Fragile and the same with the the check checklist. Oh so you will you read multiple books at a time. Yes, that's one of my worst habits because I have different ten books I'm working on. But there's a book, if you haven't read it, called Reminiscences of a stock Operator Edward lafarv yes on

on the I read that many years ago, fascinating. It's it's as good today if you pick it up and read a couple of pages. So there's a new there's a new book that's a bio of um Esse live More called Um the Boy Plunger, and it's it's basically a it's not written with the same sort of style that that Reminiscence was, But that just arrived in the mail the of the day. I don't know when I'll get to that. But I read Reminiscences a while ago and just thought it was really that I started on

a trading desk. That might have been one of the first five books I read. Good for you, Market Wizards was the first book the head head trader said, here go read this that that was my training. Here, take a look at this. So any anything else that you have tied up that you want to uh, you want to read anytime soon. I just read constantly. That is not um. That is not such a rare thing amongst people who are regarded as excellent investors, excellent strategists, excellent economists.

You read what Charlie Munger and Warren Buffett say. They say they spend their time reading that. That's just amazing to think about. You're so used to people with technology and Twitter and everything else, being so hyperactive four four out of five hours during the day. These guys are sitting around reading books. It's amazing. So I read the Jeff Bezos book UM that came out a couple of years ago and uh, which is great, a great read.

And in the end it had a page on the books that he had read and they're all these books like good to great and etcetera. Well, are they all business books? These are all business books. Charlie Munger also has about a forty page speech he gave right on behavioral psychology and the way it plays into the market. I've seen that, which is where it's it's really excellent. The speech may actually be on YouTube. I'm gonna have to dig that up. Another book sitting on my bookshelf,

not even on the night table. Is port Charlie's Almanac that I'm waiting to pack. It's this thick and it's basically a collection of a lot of his thoughts, a lot of his speeches, and it's one of these things that you could get lost in for three months. So it's it's waiting. I just haven't. Maybe that's a winter project this year. So let me keep more thinking through some of my favorite um questions. You mentioned how the pace of changes accelerating. Everything is happening more data faster.

What what other major shifts do you see coming up for research and economics? So I thought about that, and I don't. I thought about the question. Nothing comes to mind. It just seems as though it slowly is getting faster and faster as electronic information becomes more and more available and consumable by people. Oddly enough, trading volumes have gotten slower and slower. Uh, so there's more news. But in the in the equity markets, it's it's gotten. People have

been trading less. What what explains that? That's really an interesting The first first is muscle memory, you know people, And second active management has been doing poorly, and so people haven't been winning by making moves. So they less, they do less and uh, and then money has been flowing from active to passive, which generates less trading in that space. Dango just passed three that's that's an amazing number. And there are two thirds passive. So that's just a tremendous,

tremendous heart of fathom number. And so it really is a staggering development. Trading volume was ten billion shares a day h five years ago and now it's six billion. You started mentioning ets. Does that having an impact? That's less less less trading? So so you could one transaction, you're buying the whole SMP. You don't need to to purchase the individual stocks and the odds. Are you going to sit with that over time time and not jump in and out so that you know, I don't I

don't want that's a permanent condition or uh. And we've gone through it's been stable now for about two three years. What does that mean in terms of money flowing to research dollars because it has to be used to be research was paid for with trading commissions that they still that's exactly our business trading. So so how do you structure that to you? Is there a minimum amount is it hard dollar or is it all soft dollar commissions? So it's it's not all soft dollar commissions, but it's

virtually all soft collar commissions. Uh. And so it just made it a much more difficult environment for everybody in the business. So that turn it into a little bit of a winner take all. You have a handful of firms if the volume is dropping that much, but there's x amount of research people are looking to buy. That means any firm that's on the fringe or on the edge is not going to capture those those trading dollars. Uh. It hasn't quite worked out that way because you have UH.

So we were on the edge and we were doing fine because we were taking commissions from the the guys in the middle. And now we're not in the middle, but we're in the inner circle. But we're still you know, gaining market share. But it's a very difficult business. But it's uniform across the industry. So it's not like, you know, it's sunny in some spaces and reigning and others. It's

just it's tough. It's tough everywhere. So it doesn't it doesn't put us at a competitive disadvantage or advantage either, I don't think so. You said something interesting earlier. I want to come back and revisit. You said much of the industry has not changed since the nineties seventies. You alluded to that, how is that possible? Given technology and

given everything all that's all that's changed. But the basic players uh, or you have people in my space, you have people doing research and they interface with investors at the at the big institutional accounts. That is pretty similar

to what it was, except they're more investors. Uh. There's also UH, keep in mind, there's a ton of money that didn't exist in the seventies, so there's although the the vibes are down, there's still a lot of trading going on, but they're that basic interface, Uh is pretty much the same as it as it was. The industry started to grow as pools of money began to accumulate. UH. When you say pools, you mean big pension funds, foundations

that sort of stuff, or just assets. The size of the stock exchanges, the size of the equity markets in the US, so the size of those are feeding off of what you mentioned the first the pension funds, mute mutual ones you mentioned like Vanguard and so as those moneys came together, Uh, it really gave birth to institutional research and starting pretty much with Donaldson, Lufkin and Jenrette in the late fifties early sixties. How did that How did that have such an impact on on the world

of research. As as pools of money developed, you had professional investors now able to shepherd that money. So you had research people at City Bank, and so they started to need some research from the street and the whole dance began. And it's pretty much the same today. It's just gotten bigger, fascinating. UM. So the next question was is this a good or a bad thing? But you're really saying it's neither. It's just the size is increasing.

The main the main problem is that active management has not done well for I don't know how many years. But why do you think that is? Because there's so many players. It's very difficult. It's UM. Charlie Ellis said that when you have this many smart, competitive people out there, and he was the chairman of the Yelle Endowment for a long time, UM and a board member of Vanguard, when there's so many really smart people out there, they

all just end up canceling each other. Out and that's how you have a period where nobody's generating alpha because everybody is trying to and it's just you know, it's like stepping out into the field with the New York giants. You're you're not very well out there, and so that's uh, we'll see how that plays out. Uh. Usually that's somewhat

cyclical though, and so we'll see. There has been one aspect that's not been discussed much, is that of people have been more successful doing asset allocation, which doesn't show up in generating alpha or not. You're always looking at a portfolio stocks and are you outperforming the SMP or

something like that. But in terms of you know, can you put together a a portfolio of private equity and equities and bonds, uh, real estate that outperforms and uh, I think there's been a number of people that have done an excellent job of that. Any anyone in particular you want to mention or is it just just just the shift. I mean you have to look at Vanguard

as a beneficiary of that. They have huge beneficiary right because if you want an instant, low cost exposure to a region, a sector of this or that that they offer enough funds and at eleven basis points and things like that. You get exposure to any of those things instantaneously. It's really, it's really quite amazing. Um what what are some of your favorite miss on Wall Street that refused to die? I looked at that one very I don't. I don't see any myths that refused it. I thought

about it, the Super Bowl Indicator, any of that stuff. Well, you don't. You just don't pay attention to. Um So, last two questions. Let me ask you to a millennial or someone just coming out of college. Now, what sort of career advice would you give them if they were interested in in finance or investment? So? Um So, First, I would say, go fast? What does that mean? Go fast? Just whatever you want to do, do it, you know,

try and uh. It's hard to know what to do. Uh. And there are good arguments that you should, you know, take your time. You're gonna live a long time compared to why people lived a hundred years ago. Uh, And I think there's truth in that. But I think you should still try and go fast. Let's say you go fast by reading a lot of books all of a sudden, right, But as I can tell you are you're going fast at reading and so whatever you do, go at it. It would be one idea that comes to my mind.

This way you could discover if you like it or you don't like it, you move on to the next. What what's the thinking behind go fast? Just go fast? So do you you get as much you have a good time to get a much experience as possible. Um, maybe go fastest to you know, go and live in Thailand for five five years just to see what it's like. But you're doing it. It's experience, so you're what you realize. What I'm really hearing from you is be decisive, do something.

Just don't sit around and wait for the world to come to you. Right, Okay? That the things that I've when I look at the people that do well in this business, the first one that comes up is the most trite, which is is work hard. And everybody that I see the succeeds. They simply outwork other players. I think Michael Bloomberg is a great example of that, where he's he's just full of life and is a concredible worker. Well, let's see if we can get him on the show.

Keep asking, he keeps turning me down. Um, work hard, clearly go fast. The goal go fast is sort of a general condition that work hard. UH. And then I think you have to be competitive. You have to whatever. Different people are competitive in different ways. Some are overtly competitive and some are quietly competitive. But that whatever that instinct is to win UH in this business is definitely necessary in the investi business and as frankly true in

most businesses. I take a look at UH. And then the third one I think is critical is to be flexible, to say this isn't working something, I'm going fast not the right direction. And particularly for fund managers, those three characteristics are the ones that I find every time. They're very competitive, hard working, and they're oddly flexible. You know, when they have a bad idea, they're able to get

rid of it moving. In my office we call that strong opinions weekly health, so that you can really have a strong belief in it. But as soon as you see proof you're wrong, you gotta It's okay to be wrong, it's not okay to stay wrong, is what I learned on a trading desk. I heard that early on, but that's the same concept, is to be flexible. And now we're up to our last question, what do you wish you knew about investing today? What do you wish when

when you began? Rephrase it, then, when you began, what do you know today you wish you knew when you started out? So, man, I very I got your list of questions. I looked at that one and it just has me stumped. I thought about coming over here, and nothing just wells up that that there's something that you figured out today that would have been of assistance right out of school. Nothing came to mind. You know, someone said, gave me an answer to that once, and the answer

what have you gotten the path? See? For me? So the answer that I found intriguing was, gee, what I know today? I had to take a certain path to learn? And if I knew that when I started, well, then where's the path? Where's the the accumulation of wisdom? That the journey is itself the value? Sort of a Zen philosophy. I don't remember who answered it that way, but I found that sort of Maybe it was Bobby Flight. I thought it was kind of an intriguing Okay, that's very philosophically.

I've been I'm have you life as a as a journey not a destination, as they put it, and and I have. I've been extremely lucky and that my journey has been pretty much in a straight line um as we've talked about today. So I don't there's nothing, there's no So the journey was that. That's a similar answer to what somebody else said, which was the journey was what they learned and is you have to kind of live it. You can't go back to square one with Okay,

here's everything I've learned. I would have done it differently, right, It's it's how to you how to take that process to get what you You couldn't be here today if you didn't take that route. So, ED, thank you so much for being so generous with your time and spending my place so much time with us. I really for for listeners. You should realize ED doesn't do a lot of media, and I really kind of hunted you down for for a while trying to cajole you into doing this,

and I really appreciate it. So thank you. Um you've been listening to Masters and in Business on Bloomberg Radio. If you want to hear more conversations like this, just look up or down an inch or so on your um iTunes or Bloomberg dot com. UM. I want to thank Charlie Vohmer, our producer and Matt our engineer, and Mike bat Nick, the head of research, who helps us put together all these questions. Uh, be sure and check out my daily column on Bloomberg View and follow me

on Twitter at rid Halts. You've been listening to Masters in Business on Bloomberg Radio.