Peter Borish on Lessons From the 1987 Market Crash

This is Master's in Business with Barry Ridholds on Bloomberg Radio.

This week on the podcast, Oh, I have an extra special guest, Peter Borsch, founding partner number two at Tutor Investments, where he worked directly with Pull Tutor Jones, most famously helping him put on a very aggressive short position heading into the eighty seven crash and then covering not in the mayhem of that Monday, but pretty close to the bottom tick on Tuesday. Really just a fascinating career, a

Peter Borish, thank you so much. It just goes to show I can't hold a job.

That's right. That's right. You are constantly onto the next gig. So I'm familiar with your work, but I bet a lot of younger listeners may not know of your infamy and what took place at the eighty seven crash. We'll get to that. Let's start out with just your background. What got you interested in markets and trade?

Well, I guess it's sort of fortuitous.

So when I finished graduate school, I always begin at Michigan, because I'm a Michigan man. I went there for undergraduate and graduate school, and I finished graduate school in eighty two in what was really the real recession under President Reagan, and I was very fortunate to get a job at the Federal Reserve Bank of New York doing what so I was doing at that point. If you recall, it was the LDC right the Mexican crisis, and they were talking about, well, if Mexico increases a supply of oil,

Way of describing it. Littered with former FED people because the FED is a giant employer of economists and other technical researchers, and very often they leave the FED and go to big shops. You didn't go that way after you left the FED. Tell us about your next career move.

So it's nineteen eighty five. I've been there three years. It's about the time you start looking for a job. And I had some job offers from, you know, sort of white shoe Wall Street firms, and then through a acquaintance, I met this guy that was coming off the Cotton Exchange by the name of Paul Tudor Jones, and he asked me to help him out because he was chairman of the Financial Exchange, of the subsidiary of the New York Cotton Exchange, and they wanted to start trading some

So Tutor Investments launches eighty five.

Eighty all started in September of eighty four. I came on in the beginning of eighty.

So literally number two at the firm is is that what?

Well, there were people and support staff, but sort of I was the first real sort of research professional.

So tell us a little bit about what you guys were doing in eighty six eighty seven, what were you trading and what was he looking at?

So one of the geniuses of Paul, and really understanding futures markets in general is that most of the innovative risk management approaches came out of the futures markets because of the embedded leverage using margin.

There's no room for error. You can't just let's see if it comes back. It's not how you can trade futures.

No, not at all.

And so with the advent and the development and the starting of new financial futures markets, he was taking his technique, his approach, his discipline and applying that to the new futures markets and his commitment. And this I think people have to realize because what one can do today, right, I have the FRED app on my phone. I can download massive amounts of data in hundreds of a second. Right, You couldn't do that there. And he had a huge

So that's an interesting difference about pul Tudor Jones regarding his process. Very quantitative driven, very mathematical, But there's another side to his approach, which was way ahead of its time, very behavioral. Tell us a little bit about the psychological approaches that he brought to both looking at markets but also managing himself.

So the strength of Paul at that time and even today still is that because he had always traded on the floor and understood that most market moves come in extremes fairly quickly. Market spent a lot of time doing nothing and then they reprice. So you have to have that discipline, you have to have that patience, and if you think it's going to be an acceleration point, then you try to get larger, but you have to have

So people also should realize, for those of you who've never traded futures, It's not like options where essentially you could put up your losses in advance and all they could do is go to zero options. You're on the hook no matter where it goes. It's not like it's not like, well, we'll just see how this trades. If it keeps going against you, you're fully responsible, and hence the commitment to tightstop losses and a discipline approach to managing the downside.

Yes, and the thing about futures is you must maintain your discipline. One of the problems I think with rookie options traders is that because if you're buying them, all you can do is lose your premium. So if you have a belief in the market and you buy your premium and then it starts to go against you, you go, well, I still believe in it, and I still have premium left.

Yeah, no, it makes it makes a lot of sense. So you've said, and as long as we're talking about discipline and management of trades, one of your quotes that I really like is trading and risk management are inherently unnatural characteristics. Explain what that means with pleasure.

So, first of all, we always said discipline before vision, and by that it means we can talk and I can think, and we can gossip and the market's going here. You know, it's kind of like gossiping about sports. That's not really trading. It's a discipline, rigorous approach. And so when I say it's an unnatural feeling, is because we all, most of us I'm used to it by now, want to be liked, and so you want to be there going, oh you're long apple, I'm long apple. Oh we're all

I get stopped out.

You can always squeeze one more back in the subway car. But when it turns if I'm the only one there and they all come running out, that's why markets go down faster than they go up. So it has to be in a logical sense, the ability to take the other side of the trade. Now, that doesn't mean you should be contrarian for contrarian's sake. And that's the difference in all these different approaches. So there's the trend following,

The challenge is the crowd is right most of the time. If you want to be a contrayon, you have to capture that two three four percent where the whole crowd is wrong and get out before everybody heads for the doors.

Yes, you have to be very mindful of inflection points. And I go through this all the time. People are like, oh, you know, the market goes up over time and it's a straight line.

And that's the trading that's investing.

Yes, But even then, and I asked people, I said, well, you know, you think I look any older today than I did yesterday?

And they go no.

I go, well, you think I'm going to look any older tomorrow than I did today?

And they go no. I go great, two points a line.

I'm never going to get old, which is fantastic.

So let's talk a little bit about eighty seven. Market had a huge run from eighty two through the beginning of eighty seven. Tell us a little bit of how you guys were positions heading into that year.

Let's step back for a second, because nothing markets don't go up in a straight line, right they think about Yes, the low was in August of eighty two, but there was a serious correction in eighty four and then even in nineteen eighty six, there were some really harrowing corrections, particularly after July fourth, eighty six and the September expiration of eighty six. So it was really January of eighty seven when it started to take off. In that first part of the year.

Now upwards like a strong rally.

An incredibly strong rally. I think by the time we got to the high in August, right, it was up over thirty percent on the year. And again going back to what I just said earlier, Paul gave me the opportunity to take my sort of creative research imagination and spend it on some data. And we started being very early on collecting real time data and also modeling. And I mentioned that we hired people, so we took people.

It was very complicating it but well there.

Was You couldn't download it, and you had to check it, and of course when people are putting in a lot of numbers, there's typo, so you had to have charts just to see all those different things. And we started modeling and thinking given where we were with the new financial futures markets, and if you think about financial futures in general or new markets, we always sort of think about it as if you have a kid and they're five years six years old. You think you could talk

So before we get to Black Monday, around what time of the year did you start seeing cracks in the underlying market? At what point were you looking at this and saying, hey, we have you know, some time to go, but you could see the beginning of the end was coming.

Up when the market started to pull back in August and into September expiration. Remember back then there was only quarterly expirations, so there was a lot more activity around that and when we saw and part of research is

Well, let's roll back pre crap. So Friday before Black Monday, how were you positioned? How was Tutor Investment's position heading into that weekend?

So the analog really like, was you know, ringing a red red bell sort of on that Wednesday, right, there was a decline, you got to technical levels, you had a bounce and then and then you failed a.

Week bounce that just had no nothing behind it, right.

And then on that Friday, we felt that it was there and and we were short.

A little short, a lot short.

Well, I think.

People have to give perspective. Remember we at that time were not a particularly large firm, so for us.

We were large short. Uh.

And then over the weekend, with the news that was taking place and also the fact of the sentiment, there were still people that were very sort of bullish and people that felt that they could be protected. And this is where most of these models, right, assume consistency twenty four hour trading, you're gonna be okay, and you can even go to ninety eight right with long term capital where that was also part of their problem. But on weekends that's not the case. So you had a gap situation.

Monday morning market gaps down pretty substantially. There's no bids to be found. There, can't get people on the phone tell us what that day was like as an actual trader short a collapsing market.

So, you know, it's a very very interesting perspective because when you think about it, and it's also one of the advantages of why I say that it's so important to have all these different markets. When you're short something and it goes down, you're a natural buyer, right, So people think shorts are bad.

No, they're good throws buyers in any crisis.

Yes, yes.

And so then the question is, and as I like to say, here's my definition of a quandary. Do you stay out of a market and watch everyone else make money or get in and thereby cause it to immediately crash.

So but you were on the right side.

We were on the right side.

So there are a lot of people there that are in that quandary position because the market had been so strong and without discipline. The irony of markets as buyers are higher, sellers are lower, right, everybody loved bitcoin at sixty thousand, they all hate it at twenty.

You know, that's just that's human nature.

Yes, so in this case, they didn't know what to do, but then panic sets in and they were selling. So we learned from our experience.

Tell us about that, because I recall you saying that historically when you've looked at other crashes and the best opportunity to is not the day of the crash, but the next day, tell us that game.

That's correct, because when I mentioned earlier about nineteen eighty six and July, in September, we were short actually, and then we covered on that Monday, and the market continued to go down until midday Tuesday. It also did that in September. I think it was September thirteenth. It's a long time.

So, but generally speaking, the bad day and people the next day in the morning like just let me yes.

And that's changed a little bit now because of twenty four hour trading, and so sometimes the extreme you do close on the low and extreme and there isn't that much follow through the next day, but then there was definitely follow through.

So we waited and we were.

Patient, and we were one of the buyers on that Tuesday the twentieth, and so we performed a function. I think that exactly what you want in the marketplace, right shorts were covering, were being buyers. I'd like to think that knock on would that maybe you know, some of our buying helped.

Put in the low. But what we really did that it.

Wasn't just stock index futures. We felt and that the FED and undergreen Span was going to be massively cutting interest rates. Remember the tenure today is what three seventy three seventy just un before yep, and back then it was well over six. I think it was closer to seven, and that historically you know, by the way has thrown in the market today, I think the risk rewards we're going more likely to there then back down to where we are.

You're not buying it. We'll talk later about yes, everybody predicting lower rates, We'll circle back to that. But not only were you short equities, what was your income position.

We started buying a lot of fixed income futures all across the curve, and particularly at that point one of the most liquid markets was the year dollar futures, and we felt that the FED was going to provide liquidity, which they needed to do, and they did do. And the irony of that whole situation is it was after that crash that we started the Robin Hood Foundation, thinking that the you know, those who were less fortunate in New York were really going to be affected by the

So for those people who may not have seen it, there is a famous documentary I believe it's called The Trader that follows pull Tudor Jones around. If you haven't seen it, it's on YouTube and vimeo and elsewhere. How did he manage the chaos of eighty seven? What was his day like?

Well, it was a life changing day really for both of us. And you know, there are good people and there are great people, and Paul is one of the great people in my mind, not just as a trader but as an individual. And why you're so committed to New York City and philanthropy so there's always a little bit of sadness in the sense that when you are short something and it goes down and there are a lot of other people that may be getting hurt. So

A thirty year old and for those people who weren't actively trading in eighty seven, the irony is so not only is Black Monday down twenty two percent and change on the Dow, markets finished the year, you know, flat to up one percent. It wasn't a horrible year considering and eighty eight things just kind of took off again. Turns out we were early days of a long bull market. And you've talked that very often. You get that test

Well, there was one of the best divergences technical buys in nineteen eighty eight. I think maybe the S and P made new lows or the Dow or the Dow transports and it was unconfirmed, and sentiment was so negative. And this is where you have to be flexible as a trader, because you're like, Okay, the world is coming to an end. And then I think we realized early on that it's probably not coming to an end, or

You got to get rid of your own opinion.

Get you shake your head out of that you sort of intellectual fog that you're in, and say, here's what the markets are telling me. I need to listen to the markets. And that was nineteen eighty eight and when it really took off. And if you if you think about you know, cycles and period and going into ninety one with what happened in Iraq under Bush one and

You're talking about Bush two and the Iraq war in three one, So there was a deadline.

And right, and then they he went in and the markets took off after that.

You know, there's a lot of.

Good supportive you know, material fundamentally technically around that time, because you were still recovering from the eighty seven and people tend to remember the last thing that happened to them. So they're always afraid because they think that the market's going to go down, just as now they're afraid they're going to miss out because the market was up. And I'm not so sure that they should be afraid of missing out.

Let's stick with eighty seven. We'll circle back to today's market later, So post more TOM eighty seven you get tapped by the Treasury Department to serve on the US Presidential Task Force on Market Mechanisms head by Brady. It became them as a Brady Commission. What did you find? What was the process like of looking at what caused the eighty seven crash?

So, first of all, it was an honor, and of course I was the youngest person there, and I'm still friends with the number of the people that were staffers. But I can just tell you in summary that we Tutor were so far ahead of every other firm on Wall Street we didn't even know. But all the data in the report right there's a chapter on the market break. All that data came from us. None of the other firms had it, whether it was JP, Goldman, m Mess,

And the real conclusion.

Of that is where we are today, that all these markets are linked. You know, New York wanted to blame Chicago. There was the options markets and they all were sort of disconnected. And that's where the joint task force with the Treasury, the CFTC.

And the SEC.

And that was also where we put in the circuit breakers, you know, sort of price limits. There was no price limits in eighty seven, so that.

When stuff falls, hey, down twenty two percent, that's just the market. Now, what is it seven percent?

Yes, there's a three and a half. I think a seven and a fifteen. And the point is there's a timeout because we just mentioned a moment ago about emotion in markets, and you need to step back, and futures markets have always had price limits from.

The lost limit down, that's what.

We can do.

And by the way, sometimes in the short run, right that limit becomes a little bit of a magnet because if the limit and storybeans is thirty five cents and you're down thirty three, do you really want to take a long position home overnight?

So you might do it.

But now you sit back and you have in the case of the equities, it's just a timeout.

Let's get it together.

Let's see what's happening there, market makers. And it's been knock on wood effective right even in eight where you reach that.

Well, the flash crash in twenty ten and twenty eleven, we had those.

Yes, so we time out, we bounced, and now, of course I look at some of those things, and I look at the data as potential interesting technical indicators.

But that's for another day.

So let's stay with the concept of interrelated markets. I recall reading Tim Metz's book Black Monday, and he talked about how I think it was the New York Stock Exchange put the Chicago Futures Index up on the wall so traders could actually see what was going on in index futures, and it took a while before people realized all the specialists were lowering their bids because they were looking at the index futures. How interrelated are all of these markets.

They're completely interrelated because the key for liquidity is the ability to arbitrage. And you had risk managers, so this S and P five hundred stocks, or at that time you had a smaller index, which was about twenty eight of the Dow contract, and so you could buy all the underlying you could sell the futures or vice versa, or you could spin it any way you wanted. If you liked twenty seven of them, you could do that and sell the futures and be implicitly short the one instrument.

That's not there.

So this stuff is all linked and that is important because to have a successful market you need investors, You need speculators. Of course, you need natural buyers and hedgers, but you need market makers and arbitragers to tighten the market up so that there's plenty of liquidity on both sides of it.

So you mentioned a lot of the changes that were put in place post eighty seven. We're still enjoying that. What was the fallout from eight oh nine. Are we still dealing with the aftershocks of that event? I mean, obviously twenty twenty and twenty one and twenty two we're still in the midst of But is there still an echo of eight o nine today?

I don't know if I would say it's an echo. There's always a learning process when it comes to markets and liquidity events, and it's always in the short run. All markets moved because of supply and demand for money, and in eight there was issues, needless to say, but there was also some things which have been recently sprung up, for example, regulators saying, oh no, we shouldn't be allowed

Right.

It was incredibly smart, I guess on the part of the regulators doing it right before an expiration. So you had this massive covering of eliminating short positions, but then you got rid of the market maker. Some of these financial stocks had you know, ten year ranges in twenty four hours. That's going to eliminate a lot of liquidity, right, and then the market's going to find its own natural level, which at that point was a lot lower.

Right. You want people stepping in as buyers to cover those short positions. You don't want whisper campaigns mentioning companies are going out of business when they're not. So that not shorting financial institutions kind of brings us forward to what's been going on in the regional banks in twenty twenty three. How do you look at the first republics

Wow, So that's such an interesting question. So is it systemic? I don't think it's systemic. I think that it has a lot to do with the way that at the management of these companies we're running them. SVB was a particular case because you had this massive inflow of VC capital and the problem is those are always naturally getting taken out because you're investing. At the same time, they decided to go as a FED is embarking on a rate high campaign, not to have a risk manager, so you can.

But they did have hedges on in twenty twenty two. They just decided, hey, these are so profitable, we should ring the bell.

Well, yeah, that's always if you're hedging, you're hedging for a reason, and are you hedging to trade.

There's a difference, right.

Well, they're a bank, so one would assume they're hedging interest rate duration risk. They just saw the win and said, hey, let's everybody, right, but everybody's going to get a good bonus.

Right, But then they move from hedgeres to speculators, right, and if that's not your professional job, that becomes extraordinarily challenging.

As as we we learned.

And you know First Republic, which was a different type of institution, and you know they they were basically in think of that in the old days, right, they were giving away the toaster to try to get accounts, and then when rates started to go up. So think about this, right, the tenuere at its low and twenty was, you know, twenty basis points. Now we're at three seven, but historically

Let's talk a little bit about computerized trading, helping traders become better at their jobs and hiring traders. Let's start with that. What sort of traits should hedge funds be looking for if they want to hire a successful trader?

If you're referring to a discretionary trader, right, so that's one bucket versus sort of a model based quantitative trader where you're looking at at their track records.

Tell us about both.

Well, So I'm going to start first with the quantitative. It's a little easier. I've never had a quantitrative trader come to me with a bad simulated track.

Record, right, Models are always fens.

Right, I'm waiting for the guy to come in with a minus two sharp going height.

It can only get better.

But by the way, what back test ever is best?

Yes?

Yeah, well I'm super I can predict yesterday perfectly. I'm very good at that. I try to, you know, come on here, I'll tell you what happened, No problem.

Who has a better track record than heinz PS Capital, Yeah, they're the best.

Yeah, and it's the hedge fund is there. But it's why in seriousness that you know the first line of every disclosure document his past performance is non indicative of future results. But everybody looks at past performance. So on the quant side, you have to look at real time data and you also have to segment it to sort of the it's strategy relative to market. So if you look at last year, a lot of CTAs and trend followers did really well, and you'd have a great real time track record.

Because you had a defined move in a specific direction that was sustained.

Yes, So there's two things about that. One they'll come to me and to go, oh man, man, we just had the best year since Wait another year where there's a lot of dislocations, and I'm like, man, that's fantastic. Once every fifteen years, do me a favor come back in thirteen. I don't want to be late. But the reality is, if you want to dig deeper in that, then you start looking at, well, what markets did you trade, Why did you do that? Why did you exclude Coco? Well,

And the psychological.

And one of the things I always say is that every successful trader has a near death experience. I just hope they have it before we've allocated to them. And so it's not that they've had it, it's how you recover from it. And so it's one of these things that math works. And so sometimes there's a trader and he'll come into my office and I'll go Pete. I can't believe it. I just had my worst day ever. And I'm like, well, I've got good news and bad news for you, and he.

Goes, well, what's the good news?

I go, well, you're still within your risk parameters. You didn't violate any of our trading rules, so you still have a job. And they go, well, then what's the bad news? I go, If you're in business long enough, you're going to have a worse trade, because that's just the law of large numbers. Records are made to be broken.

If I told you.

Twenty years ago that someone was going to break Kareem scoring record in basketball, unbelievable. Are Lebron James did it this year? All the credit in the world for him. But it's a little bit like trading options. So if you continually buy premium thinking a record's going to be broken, you probably run out of money before it does. And if you continually sell premium thinking the records are never going to be broken, you go broke when it is broken.

To say the very least. Let's talk about a quote of yours that I havepen to really like fundamentals aren't wrong, you are. Explain what that means.

It means that the market is the scoreboard, and if you think you're right and you think the fundamentals are wrong, you're going to take a small loss and turn it into a large loss. Trading works best when the fundamentals and the technicals intersect. Too often, one just looks at either one or the other. So we could say today, well, we think the fundamentals are deteriorating. There's no way the

Right, the number of fifty two glows is falling. The breath is pretty good, and when you look, especially outside of the US, a lot of positive up trends. People have a tendency to ignore that and they're just focused at what's going on. Look at the Russell small cap in the US. It's doing terrible. We're due to crash.

That's correct.

So what you do for me in that case, I'm looking for if you want to look to sell it and pick a level, then you look for the Russell to start doing better. And reaching key technical levels and then you can probe and you look for divergences all the time. So you look at the transports which have been lagging for today. But these are all signs. They're not things in which you should be taking action. You

That's the great Warren Buffett quote. Unlike baseball, there are no Colt strikes and markets. You could sit there with a bat on your shoulder and just wait for your pitch.

That's correct.

So let's talk a lot.

A lot of people are into business because they love the action and sitting.

Oh well, we're all junkies. We're all looking for you that dopamine.

So sitting with your bat on your shoulder is really tough for somebody.

Yeah, yeah, absolutely. If I'm always surprised at traders who are also gamblers, like to go to Vegas, like to play play blackjack. It's like, don't you get enough excitement traders.

I don't gamble at all. I don't bet on I'm a fan, right, So I'm a Michigan fan. I'm a nick fan. God, I'm a Jets fan. I'm a Mets fan.

So we can you you are a glutton for punishment.

Yes, we can have a whole psychological well.

At least at least Michigan has been doing. Football has been doing better.

Yes, and they had a good run in basketball. But I'm a fan. I enjoy I never bet on sports.

Let's talk about betting on natural gas. We have had a kind of wild market and energy over the past couple of years, not just the Russian invasion of Ukraine, but all the things that have been happening in both oil and gasoline and natural gas. You're a natural gas trader, how do you look at what's going on in that market and tell us where the price of energy is going to be in a couple of weeks or months.

So for everybody that's listening, whatever I do, do the opposite and you may have a chance of success. So natural gas, in terms of how it's behaved, it's had a round trip. So where the prices today is close to where oil was when it was zero in April of twenty just to give you a sense.

So natural gas.

Also round trip, and gasoline is almost a round trip, right.

But not nearly to the extent. So this again becomes listen to the markets, don't listen to the gossip. And so where we are right now, in my mind in natural gas, which is different than crude, is a little bit counter cyclical. Because we've had warmer than normal weather, we had extra storage and that put downward pressure in winter. Now it looks like that's going to reverse and we're going to have a sort of really hot summer. And you can ascribe that to climate change.

Or al Nino and stuff.

You know, you can decide whatever you want to call it, but the facts are the facts. Right, If it's hot, and we're going to be burning and you're going to need to be cooling at the same time. A lot of this thought that, you know, natural gas and the economy was going to weaken, and in general, we were taught to try to buy low and sell high. We just talked earlier how most times in the markets, buyers

So we're recording this at the end of May twenty twenty three. How do you look at macro events? The Russian invasion of Ukraine just being one example, Does that affect the way you look at what the market is telling you? Or is that just gossip? By the time it's in the newspaper, it's already in the price.

No, you have to.

Look at all these things, and I think there's an important lesson here. When there's tremendous amount of market uncertainty, you need to trade smaller, right, because that's what kills you. You know, periods of low volatility, which we're in now, then tend to be followed by higher volatility. A lot of models are predicated on looking backwards over recent volatility,

But if you.

Survive, you win, so you should really probably at these periods of uncertainty, So is there going to be a Ukrainian offensive? What is that going to do? And how is that going to affect the situation with Russia?

Are they going to be threatening?

They are a nuclear power? Is that just a threat to try to keep them or God forbid, something worse happens. I have no idea. I don't think anybody can have that idea because you can't get into the head of the leaders of Russia decide how they're going to act, But from a trading perspective, I think that you need to trade smaller.

Now.

One of the things that I find really interesting right now this time of year is that because if there is climate change and you have grain prices that are pre pandemic levels, it could be really fascinating and exciting to have sort of a summer rally in soybeans and corn, and the risk reward of buying them right here is fantastic because you've had a wet period of time. If you get dry and you don't have good growing conditions

So I've never quite heard that sentence before, nothing more fun than a bull market in the summer in grains. You've pointed out the psychology and self discipline. How can you teach traders to manage their emotions and to not allow their either their enthusiasm or despair to affect their trading behavior.

The best teacher, unfortunately, is failure and how you deal with that failure. So many times people would come into my office after a really bad day. They sit down, they put their hands on their head, and they go, oh, why the hell am I in this business? Now what you can do and we've all done this. If you get out of all your positions, you emotionally cleanse yourself. But are you able to get back in the game.

Success? Okay, most people enjoy success, but it doesn't teach you anything correct.

In the trading business. It's how you deal. What did you do? And you have to really be self aware. Did I hold on to the position too long? Was I too big? Was I gossiping with other people? And I lost my discipline? You really have to break it down. And it all comes back to the fact that you have to admit that it's my fault as the trader. I'm the one that's grewed up.

Well, you mean it's not the fed's faults. Because I've spent the past decade listening to managers and economists and traders tell me, well, my P and L would be much better. But this QE and the FED doing this, how can anybody trade in that environment?

Yeah, I've as the years have gone on, I've gotten a lot better at taking credit for success and blaming others for my failure. And yeah, it's a good way to go. But you're living in Lola Land if that's how you think you are, what your track record is. And it's the sports scenario. If you're playing baseball and the team gives you a shot and you're batting one fifty and they take you out of the lineup, it's not the manager's fault, it's.

The umpire, the umpires calling those outside pitches strikes. How can anybody get a fair shot at the plate with that?

That's true, But if he is, just like in the markets, you got to you have to adjust, Yes, you have to adjust.

To That's exactly right. So let's talk a little bit about robin Hood. It could be one of the more famous Wall Street based philanthropies in New York, especially giving its longevity. How did the idea come about? How big a factor was the eighty seven crash in the creation of Robinhood.

So it's probably of all the things something I'm most proud about being associated with that since the beginning, and again really kudos to Paul for his leadership in doing that.

So, as I said.

Earlier, we really thought that there could be some economic struggles following eighty seven. And one of the things about trickle down, and I need to fully disclose, yeah, I'm a Democrat that believes in markets, is that when things go bad, it's those at the bottom that get hurt first. And we've seen that repeatedly. And so when we thought about helping New York. Now you have to realize nineteen eighty eight we gave away sixty five thousand.

Dollars, not exactly a huge amount of money.

No, last year we gave away one hundred and thirty million.

That's a chunk of change. Yes, and you guys have been doing this every year for thirty five years.

Yes, And the model was different. And why did we start it because Paul's an entrepreneur and the one thing and we're market people, and we said, you know what, if we do a good job, we'll be able to raise the money. And I don't want people to give us money in us not spend it.

So we have two rules.

One is if you give us a dollar, we're going to put it out the door in the next twelve months.

And two we're paying.

For the overhead the board. So if you give us a dollar, it's getting paid.

It's not being one.

Hundred cents on the dollar goes out from donated cash.

That's correct.

And who are the donors to the robin Hood Foundation. Besides you and Pull Tutor Jones and that original.

Crew, there's literally thousands and after nine to eleven and Sandy and during the pandemic, tens of thousands of donors from all different sizes. Now we're sitting here in Bloomberg and Mayor Mike through the Bloomberg Philanthropies is one of the largest donor and supporters of New York. Now Robinhood focuses on sort of the overriding goal is mobility from.

Poverty, meaning economic motibility, the ability to pull yourself up from a bad condition.

That's correct.

And within that, you know, we're we were the first funders of charter schools in New York City. We're the largest funders of food pantries. You have to have a holistic approach, and if you walk around New York and if you love New York City. What are the four issues right you see them. There's homelessness, there's mental health,

How do you measure success for a charity? As a trader, you get a P and L. You know exactly whether you're right or wrong. How can you tell the impact of your dollars whether or not they're successful or not.

So that's a really outstanding question, and that's something that Robinhood has been particularly innovative in in trying to measure metrics. So if it's a job training program, it's not just a number of people that are in there. For example, how once they graduate, where's their starting salary relative.

To where they were beforehand?

Do they still have that job a year later? Are they making more money? Are they at some percentage above the poverty level? If you're funding charter schools, where are they are the kids graduating? Are they going to college? Are you tracking them? Are they getting employment? So it's

It's the quality of the staff.

And we have committed, innovative staff that has really pushed robin Hood along the way, and that started you know, with our leaders and president, from David Saltzman to Wes Moore who's now the governor of Maryland, to our newest one rich Bury, and so we're really fortunate to have excellent team.

You mentioned charter schools. Tell us a little bit about the Kip charter school in the Bronx and why Robinhood has been so active in promoting and developing charter schools in some of the poorer neighborhoods in New York City.

Well, we're markets people, so we think that competition is a good thing. We know that charter schools aren't going to be a replacement for all public schools. But if you think about technology in general, right, it's innovation and change. And if you think about the KITP model, it's really like a parent. So if you have a child and they're not doing well, what do you do? You give them extra resources, You give them extra homework, and so

So these schools do that and meaning extended hours tutors exactly.

They're providing the resources and the opportunities for those students who they wouldn't normally have in a traditional public school model.

Let's talk about what you guys do at Robinhood for Public Schools. Tell us about Math for America that seeks to improve math education in US public schools.

So Robinhood Foundation of Math for America. Those are the two non for profit boards that I sit on. And I've been blessed really because Math for America was started by Jim Simons, and we all know what a legend Jim science is in the hedgephone world. In the education space, that model was predicated in how do we keep better math and science teachers in public schools? The assumption being which isn't rocket scientists even though he had more, well, yes.

Given for the students resources.

If you have really good teachers, you're likely to have better outcomes. So how do you keep really good teachers in schools when there's a lot of competition for them? So we've done two things at Math for America. We've established a community of master math science teachers where they can come together and learn and teach. And also we provide them a stipend, so there's an incentive for them

Before we get to our favorite questions, let me throw a curveball at you, which I find intriguing. You like to quote Captain E. J. Smith who famously said quote when anyone asked me how I can best describe my experience in nearly forty years at sea, I merely say uneventful. Why is that quote so intriguing to you?

Well, not only did he say that, but he said it sort of just before the launching of the Titanic. And I think if you've listened at all time, and he was the captain of yes, he was the captain of the titan If you listen to anything or taking anything out of this podcast, is that complacency in anything, but particularly in the markets, is extraordinarily dangerous, and one should take away from that that bad things can and

Let's jump to our favorite questions that we ask all of our guests, starting with tell us what you've been entertaining yourself with. What are you listening to or watching, be it Netflix or podcasts or whatever.

Ah well, so we have a sort of group consideration at home. Of course, we're finishing succession right, there's two upright and at the same time, Barry and Ted Lasso. So those post Memorial Day, I think we're gonna have to find some new things.

I'll make a recommendation to you. It's only eight episodes and I'm only halfway through it. But the Diplomat, Yes, that's next, that's next. On our really well done, really fascinating characters. I'm really I'm really enjoying it.

And when I'm sitting around and trying to clear the head and reading, I try. I like historical novels.

Well, we're gonna come up to books in a moment, so put a pin in that. Tell us about your early mentors who helped shape your career.

Well, I was very very fortunate, as I said, being at at the FED and UH and the research people there, and of course there's Paul, who was a mentor, and because we're together on the border of the Robin Hood Foundation, is still a mentor because I think you can always learn different things and and believe it or not, a lot of the mentors now are are people I read

But I try.

It doesn't matter who it is across the board, and it can be from uh, you know, a ted Lasso, It could be from a book, It could be from a politician, It could be from anybody.

Let's talk about books. What are some of your favorites and what are you reading right now.

So, as I mentioned, I read a lot of history oracle novels, and there's an author by the name of David Liss who writes about England and coffee trading and those type of markets in the eighteen hundreds, and that's kind of what I'm reading right and now, because the psychological aspect even then applies to today.

What else have you read recently that you enjoyed.

I'm going to read Michael Lewis's new book of course.

I'm excited Sam coming out in September October something like that. Yes, yeah, that's gonna be that's gonna be great. So our final two questions, what sort of advice would you give to a recent college grad who was interested in a career in either trading or running a fund.

So I think all college grads, all all young people. You have to be willing to pay your dues. But the trading aspect the hedge fund asked, It's a lot like sports. The chances of being.

A pro.

Is a low probability, So you should try and then if you have a chance of success, continue, but if not, then you need to pivot because what you don't want to be doing is, you know, saying, Okay, I'm going to be a lifetime player in the Triple Ace and so you know, as in the minor leagues. But if you want to pursue it, you have to pursue it.

And our final question, what do you know about the world of trading and investing today? You wish you knew fifty years or so ago when you were first getting started fifty or forty forty year.

Yeah, let's let's say forty.

Yeah, I just put a decade on you. So forty years ago when you graduated in the eighties, What do you wish you knew then that you know now?

I think it's always the same. I wish we didn't go through our own near death experiences. We had that, As I said, every successful traders, we had big volatility and eighty six a Tutor that I mentioned earlier, I wish I knew how difficult it would be running my own CTA. So when I left Tutor, they seated me. I bought the team of research. It was sort of the first quant trading on the street and the whole

My colleague Ben Carlson calls that organizational alpha, and I love that phrase.

It is a great phrase.

Right. Thank you, Peter for being so generous with your time. We have been speaking with Peter Borsch, founding trustee at robin Hood and formally director of research at Tutor Investments. If you enjoy this conversation, well check out any of the previous five hundred or so we've done over the past eight and a half years. You can find those at iTunes, Spotify, YouTube, wherever you find your favorite podcasts.