Interview With Gina Martin Adams: Masters in Business (Audio)

senior woman in the position of equity strategy. You don't you know, for for most of the past few centuries that has very much been a male dominated position, and it's interesting to see somebody who is so smart and and experienced and articulate about how she approaches the business of dealing with institutional clients who are um looking to deploy their capital a way that makes sense relative to

the amount of risk they want to assume. I found her to be quite fascinating and quite knowledgeable, and if you're at all interested in equity investing institutional trading, this is a person that you should probably listen to. So, with no further ado, here is my conversation with Gina Martin Adams. This is Masters in Business with Barry Ridholts on Bloomberg Radio. My guest today is Gina Martin Adams.

She is the head of equity strategy for Wells Fargo Security, which is headquartered here in New York, at least the securities half of it. A little background about Gina. She is both a Chartered Financial Analyst and a Chartered market Technician. Not a lot of c f A slash c MT s around uh. She UH is also a member of the Financial Woman's Association and the Association of Professional Technical Analysts and a member of the Institutional Investors all amor

A research team. Gina, welcome to Bloomberg. Thank you, thank you for having me, my pleasure. Um. So, you're kind of a unique analyst in the world. Um not only because of the path your your career took in the various places you've worked. But the only other person I know of who's both the cf A and a CMT is Jeff de Graf. Okay, they're I think they're about a hundred of us in the world now, maybe getting closer to and how many are there? Of thousands? Thousands

and thousands. So let's jump right into this. Tell us a little bit about your background. How did you work your way into the financial services in Okay? So, I actually joined the company known as First Union right out of college. I went to the University of Florida. I thought I was going to be a marketing major, took my first finance course and literally fell in love. Added that to my UM to my docket. First Union, Now that wasn't isn't Tennessee, is it? No, it was in Charlotte,

North Carol Charlotte. Yeah, it was in Charlotte, North Carolina. So they did a big recruiting down at the university. I ended up in a program called the Capital Management Groups Training Program. So where the securities business the investment banks all have their two year training program for bringing analysts into the investment bank. We had one for capital management investment management, and I joined that, rotated around UM, got to know the various divisions of capital management, and

ended up on the in the Investments group. Yeah. Very interesting. So you mentioned First Union. I know of them through Wheat First Union, and that eventually down the road got taken over by Wacovia. I don't remember how many steps that were in between, and then many many steps there was, so there were a number of different things. Ultimately, UM, during the Great Recession, Wells Fargo took over. I think that turned out to be a pretty uh a pretty good fit. Yes, So what is a day in the

life like for a strategist at at Will's Fargo. I don't think there is any day, to be honest with you, So it's different from day to day. Every day is different. Um, you know, the basics are you break my job into research, so coming up with an idea, researching those ideas, then writing those ideas into a report, and then communicating those ideas to the world. So you think of it in sort of three parts. Researching an idea, writing an idea,

and communicating that idea. Getting that idea out is really what we're I'm focused on. So some days are very research intensive, some days are very communications intensive. It sort of depends, but what what sort of clients do you typically work with? So I'm dedicated to the institutional clients, So the portfolio managers of the world, the hedge fund managers of the world, the pension funds of the world

as well. Um, professional investors are my audience. And there's been a lot of changes going on in the changes, yes, which must make your work pretty interesting. It does. It's you know, it's not interesting just because of the content, which I think is always interesting. You know, where is the equity market headed and how do we take advantage of different trends um in the macro economy in stocks.

But it's also interesting in the client base and the struggles that they've gone through and the changes in the client base have been pretty phenomenal. I've been doing equity strategy now for nine years and my product has changed a lot, but also the client has changed a lot over the last nine years. So so let's work backwards nine years would put us at two thousand and seven. Yes, so you moved into equity strategy did just before just

a small crash, small change in the charts. So what was it like starting this new position just as the world was going to help? So in two thousand and seven it was great. I actually worked as an economist for John Sylvia ar chief economist for several years before two thousand seven, and then moved in two thousand seven from Charlotte to New York to start this equity strategy product. Our entire equity trading businesses in New York, so it made a lot of sense for me to be here.

So the move to New York was fantastic. You know, a lot of big changes we got. We had about six months to design a product and start putting it out. We were putting it out in two thousand seven to early two thousand and eight when things started to get a bit rocky, and then the summer of two thousand eight hit and we had really just gotten comfortable with getting the product out there, understanding the client base, and

then it just went bananas. So what was it like at Wells Fargo when everything was just going or at the time when everything was going crazy? What what was that like? It was tough. You know. I can remember many days, especially over that summer after bear Um, many days of a lot of question marks is to where we were headed. There was one weekends you may recall, when it was who's going to buy Yes, who's going

to buy wa Covia or take over Wacovia. Will it be City Bank or Wells Fargo, And it's kind of ironic that City Bank actually thought they could take anybody. They were on the verge of their own billot. It's yeah. In fact, it was a wild time period if memory serves. There was negotiation with the fd i C sort of managing it talking to City and when Wells Fargo stepped up, it was like Hey, thanks for coming by, but now

a real buyers. Yeah, I mean I'm not overstating that, am I. Uh, you know, I don't know all the details of everything that happened. I can say internally there was a lot of rooting for Wells Fargo. Because Wells Fargo didn't have an investment bank, there would have been instant department, better capital, all sorts of better adjustments in

terms of it was just easier on us. So from a personal perspective, you know, and for my colleagues as well, there weren't any competitors internally within Wells Fargo, so there was a chance that we could survive as opposed to going to somebody. They had. City had Solomon Brothers, they had all these other things. That sounds very big equity business at City. I'm Barry Ridhults. You're listening to Masters in Business on Bloomberg Radio. My special guest today is

Gina Martin Adams. She is the equity strategist at Wells Fargo, and let's talk a little bit about what it's like to be a woman working in the world of finance. We've had other women's strategists like Liz Anne Saunders, Kelly Coffee is the head of the private banquet at JP Morgan. But something that Michelle Meyer said, she's one of the economists at Meryl Lynch, really really stayed with me, which was, and this is a quote, the lack of women at the top of the industry serves as a real challenge

for women in finance. Do you agree with that? What do you think about that? Uh? You know, the way that I see it is being a woman on Wall Street is both a blessing and a curse. I mean, I think that there are a lot of blessings that come come along with being a woman on Wall Street. You are immediately recognizable right there are off with a white shirt and red tar, right, So you know, on on that hand, it's a blessing. It's a curse because

you don't fit in still. But I think, you know, I have to admit there have been remarkable changes just in my career, and I meet a lot more women doing what I do, and a lot more women that sit across the table as clients today than I did even nine years ago when I started any strategy, and certainly more than I did twenty years ago when I started this business. So I started on a trading desk, and I remember the days of the boom boom rooms and the sexism on Wall Street was it was pretty

much a frat house. That seems to have really matured dramatically, absolutely, and I had. I didn't see that in my career because I was on the buy side for the first several years of my career, and then I was an economist. So you know, I've only been in the equity business specifically for the last ten and I didn't see that in and certainly don't see that today. Well, it's completely different,

it's completely change. What other changes have you seen that have taken place, whether it's on the equity side, I don't just mean as a woman, but what have you seen change over the course of your career. The most dramatic change, I think is the regulatory environment. It's post Dodd Frank, post financial crisis, post financial crisis, but also

post tech bubble bursting. You know, I go back to the late nineties, and I did have a few years of experience in the nineties in the absolute boom years, you know, in the years when the investment bank was not entirely separate from the research division. While I was on the BI side and only peripherally noting these things. The changes from two thousand two to two thousand and four, I think we're very profound for the investment banking industry.

And now the changes post financial crisis have been very profound for the banking industry at large. So you had to cris post crisis periods of regulatory change, and that's I think been the most profound change the citial services business.

Then the analysts um the crisis that we saw on the the end ron Jack Grubman that that whole run of stuff was really those were enormous changes that took place because at one point in time, I think the retail investor thought the analyst community worked for them, and it was kind of a wake up call when they realized, no, it's part of investment banking. They're here to generate m and A and underwriting, not actually tell you what to buy and sell. I think that was a huge shock

to people, very very big change. And so tell us about what you've observed firsthand post financial crisis, mostly due to the Dodd Frank changes. Well, you know, the first thing you observe is that the fastest growing divisions of banks are the regulatory and compliance departments. Really that's fascinating, but it's very account budget. Absolutely. Just keeping up with

these compliance regulations is a tremendous allane. You also have a level of conservatism, and Wells Fargo has always been a very conservative organization, so I think, you know, there you were certainly unique in that in that aspect, but there's a level of conservatism across banks, and especially in investment banks that maybe didn't exist. The risk taking is

not as extreme. Um, you know, there's always risk taking it is an investment bank, but I think the decision process is a little bit different considering the regulatory angle. I mean, obviously that there's been a shift in even the capacity to trade in these divisions is pretty much gone. So I think, you know, there have been a lot of changes, but a lot of them are related to regulatory pressures. The other big change that I see is,

you know, there are really two. One is technological advancement is obviously changing the way in which we do business, and that's changed from when I started in this business. To make a trade in a mutual fund, you had to call a company, right, I mean, it wasn't It was very different. End of day trading at four oh one exactly, megaphone callet. Sometimes you wouldn't get a price till four or fifteen exactly. It took a while while we're waiting for some subtly accounts every night. I mean,

just a totally different business model. Um. And I was fortunate enough in my rotational training program that we referenced earlier in the program, I was fortunate enough to sit on a desk where we designed the automated trading in mutual funds on the investment side of the business. Yeah, so that was in the late nineties. Um. The technology has been there for a long time. Yes, just building

it and implementing right exactly. Think about there was no BlackBerry also right in the late nineties, nobody carried around a BlackBerry until right around two thousands your cell phone was voice exactly, a very big change. You could barely SMS that barely existed short messaging not at all, not at all. So that's just an example of how different

it is so technology. And then what was the other thing I think is investor appetite for risk And this sort of speaks to what the retail investor is doing with their capital. You go all the way back to two thousand. That was pretty much the peak of household ownership of equity, right, and we have yet to recover

from the two thousand and two thousand bubble. And then on top of that the two thousand two nine crash, and you you have the housing collapse in the middle of that, and then after that you have the commodities call. So that's four major booms that that the individual investor has lived through. And the investors today think very differently

than the generation of investors prior to that. If you think about how the baby boomer generation sort of came up um in the workforce, they went through the two thousand biggest bull market, right, it was just incredible environment where obviously you owned stocks for the long haul, and obviously you put money to work in stocks, and you know your pension was clearly going to be there for you. Because the equity market was constantly rising, bonds were in

a bull market at the same time. And then in two thousand, really starting in two thousand, those assumptions started to break um. And I think that that's a huge change for the industry at large, is what does the investor want out of us? What do they command out of us, and what is their perception of assets in general and their willingness to tolerate the risk that comes along with ownership. I'm Barry rid Halts. You're listening to Masters in Business on Bloomberg Radio. My special guest today

is Gina Martin Adams. She is the head of Equity Strategy for Wills Fargo Security, which is located here in uh New York. In addition to being a member of the Institutional Investors All America Research team, she is both a chartered financial analyst and a chartered market technician, which is a unique and interesting combination. And prior to working at Wells Fargo, she was at Wacovia in the economics department,

which was acquired by Will's RGO. During the financial collapse, Let's talk a little bit about that summer, which was a fun period of Wall Street history. Um, even though there was so much um, in hindsight, it's a fascinating era. At the time, it was pretty frightening. People were genuinely afraid that the system itself was going to break the entire financial system. Yeah, it was. It was brutal, to

say the least. I mean, what was amazing about that summer is if you look back at what the market did between the Bear Stearns collapse, which was let's call that March spring, the spring of sometime, and then the big moment for us, obviously was the acquisition of Wacovia by Wells Fargo in September from the city. All Right, the markets were actually remarkably stable during that period. They were bouncing up and down, they were bouncing up and down,

but they were range bound. And then September happened and it was an absolute crash. But I distinctly recall sitting in my office during that summer and thinking, why is the market so ridiculously stable? What does the market know that I don't know? And you think back to that period and there were a lot of people saying Bear was the big moment, for the big moment, and that was going to be it. And then suddenly you had this just wave of trouble that occurred in the in

the fall. So even though that summer we think of it as you know, that was when everything happened, it was really the fall when everything happened, because the summer was a quiet period. It was, oh, you know, things really don't seem stable, but the market seems somewhat stable. What's going on here? And then it just absolutely fell, um, you know, through the floor. People forget if if you're if you're not looking at the charts, if you're not

looking at the timeline housing prices. I want to say, housing volumes peaked in OH five, and then prices peaked in and then when housing began to roll over and everything associated with mortgages. So first you have the banks, and then you have the securities firm, and then you have the home builders. As home prices fell, that started a cascade. I've argued that Lehman was just the first trailer to get taken out by the tornado. It didn't

cause everything. As home prices were falling, that storm was going to take everything in its path. So so you're at withall Covia. What is it like when when you you're hearing internally, hey we might get brought by city. Here's what's going on? What? What? What did that feel like? Uh? It was pretty awful. I mean, I don't want to say it was debilitating. We still were producing research and kind of wondering what the point was. But nonetheless, week

I was in New York. I was in New York and had just for a year been doing equity strategy at that point, So it was it was tricky because you kind of wondered, you know, where are we going to end up? What are the On a daily basis, your color, my colleagues and I would discuss what are

what are What's going to happen to us? Right? It was as much as we wanted to do business as usual, so much of your day was dedicated to following what's happening in the financial news, what's happening in the financial stocks? You know who's crashing today? Um, you know where where's the next crisis? And how are we going to survive this? Uh? So it was it was really tough. Is the best the best word that I can can use to describe it, because it was in a lot of ways, because somewhat

indescribable because it was such a unique experience. And I recall having conversations with people walking down the streets of Manhattan and saying, you can feel the tension in the as It wasn't just me projecting. There was a genuine angst throughout the entire city, and I imagined throughout any other financial center in the world, right, And so when did you guys find out? Oh, by the way, Wills Fargo was our white night, everything is fantastic. Well, it

was a weekend. It happened over a weekend, as all great news does. I remember it was a weekend, and I remember the exact day, but I remember it was a weekend. We knew that Wells Fargo had bought us, but there was still a big question mark in our minds, and that was Wells Fargo historically had not, you know, been interested in taking the risk of having an investment bank.

It's a very dedicated, very conservative, large bank, but having an investment bank was not something they historically had been interested in. So in the investment bank, we wondered, you know, are they actually going to be interested in the investment bank. And as much as they told us yes, everything's fine, I don't think anyone felt fine with it really until the end of two thousand eight, early two thousand nine, when we've got much more communication about you know, this

is happening, you really are part of this bank. So there was a period of time where, you know, the markets were imploding, and that implosion itself made you question how much risk this giant institution was willing to take on with its investment bank. Um, but I think we really, we all started to feel a lot better late two thousand early two thousand nine that at the very least, what Covia in its former self would survive as a you know what Covia's investment bank would survive as a

portion of Wells Fargo. I'm Barry Ridholts. You're listening to Masters in Business on Bloomberg Radio. My special guest today is Gina Martin Adams. She is the head equity strategist at Wells Fargo Securities located here in New York. And let's talk a little bit about your unusual background. Both a Chartered market technician meaning you look at charts, your technician, and a cf A meaning you can do the full

fundamental analysis. UM, we had Jeff degraph On. He is really the only other person I know of personally who's both a A, a c MT and a c f A. I think you mentioned there there are a hundred or so of you folks. What motivated you to to go that route and get both designations? Yeah, it's it's a

great question. I actually started as a fundamental analyst. UM. I think every university in the country in the if you were taking taking finance courses, you were taught a fundamental way to look at the market right and and ultimately you have to take the three part exam in investment management. It was very promoted, you know, going to do the c f A. It's it's your next step. So I definitely did that and found it very valuable.

But when I was working as an economist, UM, we really struggled to explain things like oil prices and where oil prices were going at the time. Remember between two thousand one and two thousand eight, oil prices just soared. We we struggled to explain oil prices where went pretty went out of control, right. And we also really struggled and I think most shops have struggled with forecasting the

tenure treasury bund the famous Greenspan's famous conundrum. Why is the tenure treasury staying low despite short rates moving higher? And what's happening here? So I started to develop a lot more respect for what, you know, what the market was actually telling me what and wanted to look at the charts and wanted to explore other options because sometimes the price trend goes beyond the fundament what fundamentals can justify.

And so I started looking into the technicians designation. UM went through that process and I didn't take a course. I did it all on my own. Really. Yeah, it's very similar to the CFA where you read, you know, I don't know, eight different textbooks and you get a test at three different tests to pass the test. And so I didn't exactly do a course, but I will say there were some figures that really there's some um, you know, practitioners of technical analysis that really made a

big impression on me. And one is John Murphy did a lot of work on inner market analysis, which you know, I think it really speaks to fundamental investors in a lot of way. You know, we all know that there's an economic cycle. It's a very fundamental tenant. But here is a technician talking about how to describe that economic cycle and charts and relative sector performance and the like. UM, here's the technician talking about bonds versus stocks, versus commodities

and different cycles that occur through time. There thing, it's a lot of crossover, I think between fundamentals and technicals UM. In some of Mercy's Murphy's work, and I really appreciated that. And then you know, I think on the technicals, there's no better explanation for market sentiment than the price itself. Right, and say that again, there's no better explanation for sentiment than meaning people are affected by whether their portfolios are

going up or down exactly. Well, just price is representative of sentiment, right, It's what stocks are doing is in and of itself sentiment. If stocks are rising, you've got buyers willing to bid up prices. If stocks are falling, you've got sellers willing to take less. Right. So there's there's a psychological component that is completely and totally described through price that I absolutely appreciate. So so let's talk about that because I sense a bit of a chicken

and egg conundrum. Are buyers bullish and are driving prices higher? Or do buyers having just bought feel bullish, because now that represents I think there's a little bit of both. I think there's a little bit of both, And again it's sentiments, so it's a fuzzy measure, but I do think there's a little bit of both. And what we've done, some of our work is has focused along even describing valuation,

which is a fundamental concept in technical terms. So if you look over a long period of history and you look at the market valuation and how it moves. A lot of people look at valuation and they say, okay, relative to a mean, whereas valuation, assuming the valuation is always mean, revert. And that may be true over long periods of time. But if you really look at the chart of the market pe it actually trends. Valuations go through periods of time where they're rising, and they go

through periods of time where they're falling. I could not possibly agree more. I've argued that people misunderstand what a bull market is. A bull market isn't just a rise in price. A bull market is an increasing willingness by buyers to pay more for the same share of stock, absolutely, and that's represented in valuations, which ultimately drive prices high. Right, And you see valuations peak at the end of a bull market and bottom at the end of a bear market,

more or less. So there's there's a great chart. I'll fold it to you. I'm trying to remember who put it out that literally breaks bull and bear markets into the top half of the charters. Price the bottom half of the charters valuation, and if you look at it, it's pretty clear they trend together and not not a big surprise. So so given that which is more significant for your market calls. Is it the valuation or is

it the charts um? It's completely dependent on time period, Okay, right, so we use we use technicals a lot more in describing short term trends in the market right where we're talking about you, where is the market likely to go over the next three to six months? We oftentimes will reference things like what's breath doing, is breath expanding or contracting? What's momentum doing? Is it confirming or diverging from price? And what does that mean for the short term outlook

for stocks? I'll use technicals for long term trends. When major crossovers occur in moving averages, then you get a better sense of whether you're in your entering a longer term bear or or exiting a longer term bowl or vice versa. Um. When we look at sort of valuing the market, it's a fundamental concept, right what is a fair value for stocks right now is a completely fundamental concept. And when we look at sort of forward twelve month

ideas for where should stocks trade. It's a fundamental concept, but I don't think that they're completely I don't. I don't think you should detach fundamentals from technicals. I think that technicals describe the market and can be incredibly additive to a fundamental process us as well. I mean, there are a lot of fundamental analysts who I call closet technicians. There are a lot of that's for sure, fundamental analysts who don't they they'll tell you they don't believe in technicals.

But what fundamental analysts doesn't look at a price chart? You know? Ralph what technicals are? Ralph Akampora, who um pretty much created the Market Technicians Association way back when used to say fundamentals tell you what to buy and technicals tell you when to buy. And I think that's significant for people who are wondering why we talk about charts versus listeners who, maybe hearing well, don't the fundamentals.

Isn't that what matters? Yes, but sometimes the stock has already run up and you want to know about that before before you put money to work. So so um, between the two of them, which is the more significant when it comes to making a buy or cell decision. Again, I use technicals more for timing and fundamentals more for long term. But if you look at my model, for instance, for sector selection, which is what we spend the vast majority of our time on his sector and industry selection

allocation recommendations, Um, it's equal parts technicals and fundamentals. It's equal parts price momentum, learning through vision momentum as the more technical concepts, and valuation and learning's estimate achievability, which are the more fundamental concepts. So I literally use them in equal parts for the vast majority of my work. So I'm going to ask you the same question, but I asked the inverse of it, between technicals and fundamentals.

Which impact of those forces do you get more grief about from from customers? Meaning when you make a technical call and and customers push, what generates more pushback? The technical calls are the fundamental technical real zero on the fund Well, the fundamental side is a narrative, and people can wrap their head around that the technicals are well, this is what the chart says in some people obviously

have a hard time. Yeah, well, and somebody very much more brilliant than me, stated Um, you put this idea in my head years ago that one of the sort of you know, more disappointing aspects of our community of investment investment professionals is we have this tendency to water our weeds and pull our flowers, right instead of watering our flowers and pulling our weeds, and technicals help you

not to do that. They help you to continue to write a price trend that's still moving higher, even if valuations are getting a bit stretched and every fundamental part of your body is saying, maybe I don't necessarily want to continue to own this stock. The technicals helped help you to stay in that trade. On the other on the other end, if the fundamentals are still great but the price trend is turned, the technicals tell you to

get out of that idea. Right. But on in this business, we have this tendency to want to ignore the technicals and really focus on what we truly believe, which is our sort of fundamental basis for why I bought that stock or why I'm selling that stock. And sometimes the technicals tell you that you're wrong, and we need to

respect that. The narrative is very reassuring. Look, everybody, whoever started on a trading desk in this business as I did, or pretty much any other part of the of the financial industry is always told uh, cut your losers short and let you winners run. Understanding that and actually doing it are two completely different things. So for listeners who might want to find any of your research or writing, where's the best place for them to go? Well, it's

pretty restricted, actually. The I am the institutionally designated equity strategies, so my work is as I send it out on a distribution list, so they can contact me at Gina dot Martin Adams at Wells Fargo dot com and I can get them on the distribution. But generally, if you want to get access to my research, you have to be able to get through to our website, which means

you have to be an institutional investor. If you have enjoyed this conversation, be sure and check out our podcast AFTRAS, where we keep the tape rolling and continue chatting about all things equity. Be sure and check out my daily column on Bloomberg View dot com or follow me on Twitter at Rid Halts. We love your comments, feedbacks and suggestions. Be sure and right to us at m IB podcast at Bloomberg dot net. I'm Barry Ridlts. You've been listening

to Masters in Business on Bloomberg Radio. Welcome to the podcast. I'm here with Gina Martin Adams, who I keep saying her name faster and faster, and that's why I stopped during the broadcast to say Gina Martin Adams, because Sunday became Gina Martin Adams. UM. So you were talking during the broadcast portion about um the change that technology has wrought to the industry. So I have just it happened today is the only reason why the story is so

fresh in my mind. So as is often it's ilk the long On Railroad had had the whole system is closed this morning, not actually not for anything they did wrong. Somebody was struck by a train and anytime there's a you know, one of those events, everything freezes. I don't know, it's it's terrible and I want to go into the details.

But so a bunch of people at my train station we all jump in a cab and we head over to Manhasset, which is the adjacent train line, which is unaffected by this because it's where the accident was is bypassed one of the gentlemen um isn't. One of the people in the in the cab is an older gentleman. And we were all talking about, you know, what we were doing, and and he was going in for a

board meeting. And he worked in the industry years ago, and he was telling the story that in the nineties, sixties and seventies, clients would come into their office not only with stock certificates, but with cash. And he had to get a carry permit for a handgun because he was the manager of the office. And he had a walk around the block often carrying hundreds of thousands of dollars worth of certificates Bearraman's cash. I'm like, what, what

sort of a caveman industry? So I said, so let me And he's been sort of out of the business for a few years. He's on some boards. He's in the city, I guess once a month or something like that. Let me tell you how the technology has changed. We have a scanner for our local bank account, and we have a scanner for our custodian And when checks come in, we don't even take them to the bank. They get scanned, a photo copy gets uploaded to I shouldn't even call

it a photo copy. A scan of of the of the check gets uploaded to our cloud, and after we get the confirm thirty seconds later that the deposit has accepted, the check gets shredded. It's not like you even have to walk around the corner to the bank to make a deposit. And this guy's telling stories about having to carry a handgun because New York was not the safest place, and so you you were telling the story about how

technology has changed stuff. All I can think of is this poor guy literally is packing heat because he has bonds and sirs, and he said he goes he occasionally would get a big pile of cash, but just for the certificates. And you know, you take a bear of bonds, that's as good as cash if you could take if you're sophisticated enough thief back in the nineteen seventies. So that's how much technology. Imagine you're working in a brokerage from and you have to get a gun so you

could deposit client assets. Just just insane. So you talked about technology. One of the things we didn't get to is there's been a bit of a shift. It's it's not everybody but there's a big shift away from active to passive. How does that impact what you do? What do you what do you see from from your perch looking at institutional trading. Um, So it's definitely impacted my client base. I'd say that's the biggest impact is in the client base. How money has managed and the products

that they offered at customers are very different. So you know, it doesn't impact my work as much because I'm still making sector and industry allocations, recommendations that's still ultimately is relevant for if I'm going to buy, for instance, if I'm going to go along a healthcare et F or a technology e t F, It's still relevant there. But for clients it's it's changed a lot. Our clients are the institutional investors. What are the products that they're their

clients are asking them for. It's passive products in a lot of ways. So you know, my client may want something very different than they would have wanted in the past, and we've all had to adjust as a result of that. So let me double down with the same question that we're doubled down as uh political season is in my head, Um, how does the rise of past of and indexes in etfe. How does that impact the way you do market analysis?

Or does it not matter if money is flowing into equities, if it flows into passive indexes, or if it flows into individual stocks or mutual funds. Does that actually have an impact? The reason I ask is there are people who are insisting all this money flowing a passive is bubble. I've heard that phrase, which seems a little curious, and then I've had other people say all this passive investing is impacting my ability to figure out what's going on

in the market. I don't think it necessarily has impacted our ability to figure out what's going on in the market. I mean, you know, prices are prices, Earnings are earnings, regardless of who's buying stocks. Somebody's buying stocks at most

points in time. What has impacted us in the sort of shift to passive versus active um Part of it is a measurement issue, right, because when you look at mutual fund flows through this cycle and you look at what's gone into the US equity market, we're still actually sitting on net negative inflows to the US equity market from two thousand nine to date. If you look at the official now that's a fascinating data point because the

market has done nothing but go up and mine. So how significant our outflows if the market drugs it off and just keeps going, It's hard to imagine. It's hard to tell. So that's what's important. That's what's tricky is maybe something's gone awry in the measurement because the measurement is based on the idea that you have these sort of actively managed funds and they're easily measured, they report their assets right. There's clearly something going on with passive investment.

That's where all the dollars have gone so far this cycle, and maybe we're under measuring what's going into the equity market. So if you were basing a methodology and methodology at all on flows, and we dropped sector flows from our methodology years ago because we were not able to prove a relationship between flows into sector based funds and sector per formants. There was a firm trip Tabs years ago that used to track that stuff, and it seems dark pools and and all sorts of other things kind of

blinded that flow analysis. I don't know if that's really what what caused it, but the ability to track where money was going seems to have been a little obscure. Yeah, I think it's very very difficult. It also moves so quickly with a high frequency trading and whatnot, So I think it's it's difficult to capture flows to the extent that we used to feel. And maybe part of that is active. Maybe it's maybe I'm just maybe part of that as active versus passive, maybe just finding a scapegoat

because it's so difficult now. I don't know, UM, but I think it's it's definitely changed the way that investors approach markets. So the other the other thing I think is that it's done is made access to non domestic stocks, emerging markets, Developed X, North America much easier to do. It's just easier to access and opportunities outside of the US. It used to be if you wanted to invest overseas, you can invest in a mutual fund, but they were

very pricy. Yes, they've become very reasonable. Change the dynamic, no, no doubt about that. So you mentioned something during the broadcast portion about um the two thousand dot com crash, the financial crisis, and I brought up housing and commodities crashing. So how important is that psyche psychologically to the shift towards passive. Have people just thrown up their hands and say, you know what, I give up, I'm just gonna index and not even think twice about it. I think that's

part of it. I think more importantly it's been investors have just shunned the equity market altogether. And if you look at household ownership of equities, and this comes from this FED survey of consumer finances, which they do every three years, you go back to the financial crisis in two thousand and eight to the most recent survey, which was as believe and three years. Yeah, that's quarterly. But

this is uh that does detail. This survey of consumer finances shows that all segments of consumer income classes have actually seen their holdings in equity markets shrink over that even as the market has gone up. Yeah, except for the top five percent. Only the top five percent of income earners are actually still actively investing in the equity market,

whether it be active or passive. They're putting money to work in stocks, and the rest of the income groups at least yeah, and I'm gonna guess that's half, maybe even more, of the total equity ownership at least Yeah, so it's always been skewed, but now we're saying it's even more skews. Yeah. So the bottom of income earning households have largely not participated at all in this massive bull run that we've had from percent. So that's the

bigger impact. I do think that there is something to be said for you know, investors also moving into passive because and this goes back to the two thousand crisis, like going back there, because I think that's when all of this really shifted. The two thousand eight exacerbated the trouble, But in two thousand and two thousand two there was

definitely a shift in investor sentiment towards equities. And a lot of that is all the accounting scandals that came up, the research and banking scandals that were uncovered, um and it investors, yes, exactly lost a lot of faith in the institution of investment itself and the financial markets themselves. UM and I think that started back in the two

thousand and two thousand two periods. So you reference price as a key driver of sentiment, let me let me share a little price data with you that confirms what you're saying. Um. When we look at the democrazation of investing. Someone in the eighties put a lot in the nineties, if you look at where the drumbeat of financial television

and press was, it was all technology. Yes, I think if you look at the average portfolio, and I've looked at a ton of portfolios over the years of vigial investors, you like, I was at one point I could look at a portfolio two oh three, oh four and say, oh, American line dell, I go through the list. I know, oh, this is a Merrill Lynch portfolio, and this is a Morgan Stanley portfolio, and this is so it's a whole

run of different things. Not that they were bad portfolios, but it was a lot of the same names, a lot. And if you think about the technology sector, she'll lacked almost from peak to trough. Hey, if you're holdings are concentrating the technology and that sector gets whacked, that might change. You might take your bowl and go home. You might not be as inclined to play in that same space again.

So your comment that price drive sentiment. It might have driven sentiment to the point where people said, okay, I give up. Well, and we saw that, right, I mean you saw technology relative performance really from two thousand into the two thousand seven peak was pretty terrible. I mean, nobody was doing more money to work and tech stocks after that blow up. And it's been the same with financials.

I mean, I think financials A lot of what's happened with the financial sector relative performance in the SMP five foundered over this cycle is legacy. What happened in two thou amazing parallel. If you look at the two thousand peak, you broach that peak and the SMP in the TAO two thousand seven or so something like that, you didn't do it back until you know, until you got back over, which is that that's it was even. That was a long long time to wait to get back to break even.

Not a whole lot of dividends in that space either. So now the financials, how parallel is the financial sector a key lubricant of economic growth? How how parallel are the financials to technology? Well, the one big difference is the financial stocks never achieved the excessive valuation in this extraordinarily positive market sentiment in the bubble status that tected

financials as a share of the economy got very big. Housing, specifically as a share of the economy was double its historical average share by its peak in two thousand six, So it was that again double its historical average share of the economy. Yeah, so some people have called that the financialization of the economy. Other people have used the phrase fire, financial insurance, and real estate yet as real estate obviously so mortgage driven. How much have we normalized

finance as an overall part of the economy. It's back to actually just below its historical So is that going to keep going? And I know I never asked for forecast on the show. Is it going to keep getting lower? What is the trend? Is the trend that it's a small increasingly small portion of the overall economy or are

we starting to see a bottoming out process. We've started to see a bottoming out process really starting in and how exceller it again, we started to see a bottoming process and now it's growing as a share of the economy again. But we still see the big bank stocks, the big brokerage firms not exactly lighting the world on fire. How much of that is they're still carrying a lot of bit debt and bed paper or is it just people are a little skittish of the entire sector, and

it's a sentiment. Then I think a very little of it is bad debt, at least for the US banks. I mean it next to nothing is bad debt. There have been some scares, and this year's scare was the energy complex, and what does that really mean for bank balance sheets? But when you look at energy as a share of the debt on the assets on bank balance sheets, it's tiny. So it's funny you bring that up, because first we heard, oh look they did it again, it's

the energy sector. Here comes into the crisis. After that we heard sub primortal, this is the new subprime mortgage, and somewhere in the middle of it is student loans. That's the next thing that's going to destroy us all. But meanwhile, none of these things have turned out to be remotely like subprimary. And that's the big psychological difference

between today versus two thousand five to two thousand seven. Right, two thousand five to two thousand seven, you did have some people suggesting subprime is a problem, and everyone was a massively denying this as an underlying issue. Today, anything is a massive problem for the banks. So I think a lot of what's holding financials back is this psychological impediment. It's when's the next crisis coming? You know? Is it going to generate out of Europe? Is it going to

come out of China? Is it the energy complex, is its student loan debt. You can name a gazillion things that are going to quote unquote bring the banks under the next So unlikely, but the psychology is set up to expect that. It's classic recency effect. Every general is finding the last war, every investor is thinking about, here comes the next credit crisis. It's never what just happened.

It's always something different, which is probably why post tech bubble, when you looked at the home builders, when you looked at banks, when you looked at brokerage firms, there were reason we priced oh five or six o seven, as each of them also had their collapse. Good rule of thumb a sector outside of leather belts and steam engines that drops typically a good a good bye signal. All right, so I know I only have you for another ten fifteen minutes. Let me get to some of my favorite questions,

the standard questions I asked all my guests. You told us about your background, tell us a little bit about some of your early mentors. Who are the people who were deeply influential to you? Wow? Um Well, I had a number of really really great colleagues in the first Union Wells Fargo or Wacovia. Early Wells Fargo days, I worked for John Sylvia, who's our chief economy time. He's

a fishing boat with mine. He was very influential. Um I worked with By the way, before you move off of John Sylvia, is there like a nicer person on the world now. He's fantastic And he when I was in my late twenties, you know, threw me out into things that I never thought I could do. So he was really sort of pushed me forward to try new things and and really stretch my boundaries. And I will

always appreciate that. And he's still a mentor today. And John, if you're listening, you know, we have to get you in here at one of these so we will. He's not in New York, He's in uh, he's in Charlotte. Um So, in the earlier on in my career, I worked with John Lynch, who is a market strategist for Wells Fargo as well, but he's on the buy side of the firm. He had a number of years in New York working with d l J. He's got a lot of you know, great historical understanding of markets and

really sorted forming my interest in strategy as a function. Um. Great technicians out there. Charlie Kirkpatrick is a current fantastic mentor of mine. Charlie does a lot of amazing work on price and momentum um and has written a number of books. Uh, and he's he's a fantastic mentor as well. Give his book. Oh it's very technically oriented, so I'll have to look it up for you, but you just

search on Charlie Kirkpatrick. He writes with the Julie Daalquist out of Texas um on price and momentum signals and and there I think very very useful and very helpful. Um. He's helped me bring an understanding of sort of back testing and optimization that I didn't really have, you know, five years ago. So you mentioned books. What are some of your favorite books, be they investing books, fiction or nonfiction? Oh? Yeah, so I talked a lot about investing books already with

Kirkpatrick and John Murphy. So in terms of you know, personal more fiction oriented books, I'm a huge Steinbeck fan. I don't know where this came from. If it's because we went, yes exactly, which is it sounds so boring, but I think when we went they become classics. It's not just let's randomly pick a Daniel Steele novel. The Steinbeck survives for great lessons as to what a real depression looks like, right, I mean it helps those Does it make you crazy when people say, you know, this

isn't a recession, this is a depression. Well not if you look at the data. If you understand what it's like when one in five houses going to foreclosure and the unemployment rate is that's there is no real technical

definition of a depression. This was a bad recession. It's kind of hard to say it's it's pretty crazy when you look at our standard of living and you know, I understand that there are still a lot of households that are struggling to make ends meet, But you look at our broad standard of living and you compare that to what happened in the depression, and there's nobody better at doing that than Steinbeck. The look the bottom half of the country is certainly not seeing income gains. The

bottom of incomes, but the standard of living. You know, people are not going through what they went through, right, I mean there when you actually look at the data, the Great DEPRESSI is horrifying. Yeah, I mean it's not genus is inconvenient. It's people died. It led to wars, it led to civil unrest. It was really horrific. Yeah. I think I think a lot of people don't realize how bad things got in the late twenties and early thirties. Um. So what other on the nonfiction side, I actually love

Milton Friedman's work. I mean I've I've devoured those books over time. Now he's kind of fallen, from which surprised. But if you look at some of his work. He did the Monetary History of the United States, which have all the way back in time, and I've referenced to that piece um on a number of occasions, looking at what banks did, for example, and the Great Depression versus what they're doing today. You can look at some of his work and it shows it has great historical perspective.

You can find little nuggets of information and that's so very useful. That ultimately led to Ben Bernanke saying to him, Hey, we messed up last time and we won't do it again. That was pretty Uh, that was pretty interesting. Yeah. Um, have a one nonfiction that's not that's not finance related or not almost impossible. Everything I read in a nonfiction universe is either finance or economics, economics but finance. What what have you read that you like that's that's not

finance but economy, no other way around. That's not economics but is just finance. Probably Moneyball, Okay, Yeah, Michael Lewis is pretty fun. He has a book coming out. I think it's December on a kaniment in Travarsity, and I'm sure that's going to be spectum definitely. I'm going away in February and I already have that book tied up. Yeah, it's ready to go. Yeah. For it's not even published yet,

and I know I'm reading that on a beach somewhere. Um. All right, so let me get to my um last few questions before I have to send you or have to let you go on your way. Um. So, if you had some millennial or a recent college graduate come to you and say I'm thinking about finance as a career, what sort of advice would you give them? Go for it. I mean, you know, just like that. Yeah, if you

love finance, there is a home for you. Um. I think that this generation is very different than past generations in that they have sort of a different standard for what they want out of a work life balance. You know, when I got out of school, the goal was to work a hundred and twenty hours a week for two years so that you could be in an investment bank. Right, So this is a little bit different. But I think that there are a lot of opportunities in finance, within,

within and without you do. I think, you know, if you have a passion for this business, you will find a home. But you have to have the passion. And my final question, what is it that you know about investing in equity markets today that you wish you knew when you began twenty years ago? Oh my gosh, I should have looked at this question more carefully. I've warned you. I said, look at sex five. It requires a little Um.

What do I know? The price trend matters? Absolutely? When I started out, I was fully fundamentally biased, you know, I had my I had my fundamental hat on and I held to it and I've held to it too. Strongly on a number of occasions. I mean the times that I regret most in my career and in my investing life for the times when I ignored what the market was telling me. Everybody says that, everybody says, you know, I had a story, the price told me something else,

ignored the price that listened to story. To my do not get caught in the the idea that you know better than the millions of investors out there that make a market. Gina, thank you so much for for doing this. This has been absolutely fascinating. UH. For those of you listening at home, if you enjoy this conversation, be sure and take a look on Apple iTunes and you could look up an Intra Down an Inch and see any of the other I want to say hundred and three

or so episodes that we've done in the past. You can check out my daily column on Bloomberg View dot com and follow me on Twitter at rid Alts. We love your comments, suggestions and feedback. Our email address is am i B, which stands for Masters in Business m I B Podcast at Bloomberg dot net. I would be remiss if I did not thank Michael bat Nick, my head of research Cholie Ulmar a producer, and Tail Riggs are booker. You've been listening to Masters in Business on Bloomberg Radio.