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Should we talk about the fact that we're recording a mail.
Bag, recording a mail bag?
Mail bag not too tired to sing?
Yeah, we're going to release this sometimes Ny eight. Yeah, it's the end of April now, but it's going to be it's gonna be all timeless wisdom from the Money Stuff Podcast today, so we can release it at anytime.
That's true. On May eighth, I'll have just gotten back from the Milkan Conference in Los Angeles, So if.
You're listening to this, Katy has returned from Milkin. But yeah, hasn't had time to podcast this week, So we're diving into the wall for some timeless wisdom.
Yeah, we've got some good ones lined up.
Should we do the thing where I say hello and welcome to the Money Stuff Podcast.
I love doing that, So, yeah.
Hello and welcome to the Money Stuff Podcast. I'm Matt Levin and I heard the Money Stuff Calm Opinion.
And I'm Katie Greifeld, a reporter for Bloomberg News and an anchor for Bloomberg Television.
All right, let's get into the mail bag.
Yeah, mail bag mailbag.
Pierre started us off strong. You've put this disclosure in newsletters before or specifically one your disclosure read through a financial advisor. I have a small amount of money in a blue alphund though I am not sure which one. Pierre wants to know why does Matt have a financial advisor and does he read money stuff?
So first of all, I want to address the fact that I do own a little bit of bluel credit Incomcorp is private BDC that once not yet tender before, but he said today he's thinking about tendering for it.
Are you panicking, No, I'm not panicking.
So when I started this financial advisor, he's I got this great thing for you called b read the Blacks on real estate like non treated to real estate Investment trust. And I was like, no, I don't think I can do that because I've written about them like four times and I don't want to own something I write about.
Yeah, that's fair.
And he was like, okay, what about the Star War one? I was like no, no, no, still counts. And then he's like, what about just like a little little scooch of private credit. I was like a little scooch of private credits.
I'll never write about that.
I don't know what. I don't know what I was thinking, but obviously now I own a little bit of this private credit fund, and I don't want to own it. Not because I'm panicking about software companies or whatever. It's really like a tiny portion of my net worth. But I don't want to own it up because I'm panicking about liquidity or software companies or whatever, but because I don't want to have to say every time I write about it, I own a little bit of this one.
So I'd love to be out of it. But unfortunately getting out of it is like the thing that is the news story. So if I were tendering, then I would be a good more of the story. So I just have to hold it and or it. So I'm not. Well, he didn't bid for that one, but he's going to. If he bids for that one, I might have to sell to him so that he can come back on the podcast. How are you enjoying my shows?
And it would be a very fun science experience. I wouldn't though I'd enjoy it.
I would enjoy it. Yeah, I would get sixty five cents on the dollar it's worth anyway. I have no investment advice. I have no opinions on the Blue Prior Credit Fund. I have no complaints about their management of the fund, but I also wish I had known it for purely journalistic re since way about my financial advisor that does.
He read money stuff? Does he listen to this podcast? So see a man.
Most of most importantly, I hope he does not listen to this podcast. I feel bad talking about him. He definitely did not know who I was when I sort of came in the door. Yeah, this is like a few years ago. I was like talking to a fancy friend of ours in the newsroom and she was like talking about her financial advisor giving her like tax advice. And I was like, I've always been like a bang guy.
I don't want a financial advisor to tell me what stocks to buy, yeah, what credit funds to buy, But you know, I want like some professional to hold my hand a little bit on like how much should I be putting in college funds? How much should I be like what's my target number for retirement? What tax stuff should I do to make my taxes lower? All the sort of not investing advice stuff that financial advisors do.
And our fancy newsroom friend was talking up the benefit so I came in the door and had a moment of like nervousness but also arrogance that like that like this guy like ooh, the money stuff guy. But in fact he was like okay, whatever. We really did not know who I was. But now I believe he is at least aware of the newsletter because when I moved talked to him most recently, he was like, yeah, I sometimes skim him the newsletter and you probably don't want
to be in this blue al fund anymore. Like yeah, but you know what can you do? So yeah, I have a financial advisor for like tax and other advising stuff.
That's what you're supposed to do.
Yeah. I feel conflicted about it because I'm definitely like I am sophisticated enough that I probably could just use index funds and like figure stuff out on my own. But like it's nice to like talk to a professional and be like this is how much I was thinking of saving for college and and being like, yeah, that sounds good, right, It's just like confirmatory. Yeah, eventually I
just do that with like chat JPT. It's true, but no, it's it's helpful to have someone whose job it is to do this, even though my job is not unrelated to this.
Yeah, I mean I feel like that's the pitch of financial advisors.
Right, It's not really like we will buy this stocks that will go up, right. Yeah, that's not the pitch to me. Although if I had like bit at b Read, he might have had like a lot more spicy stuff to put into my portfolio. Like there's a certain amount of him being like what about this, and maybe like, nah's index one? Yeah, what about you?
I have a financial advisor.
For the comment.
No, I'm in all index funds and it's just you know the other stuff. Yeah, I'm also I mean, we're journalists. We're not supposed to like do too much.
No one private credit fund.
Justin has a question. Justin says, I just recently finished reading and loved When Genius Failed, along with the Jamie Diamond biography. Last man standing, what are some of your favorite books about finance? That's fun. I don't have any favorite fund.
Any favorite finance books, I don't think so.
I like fiction. I feel like we've talked about it a bit on this podcast. I like sci fi and fantasy, and I really.
I mean, I'm going to send you some.
They have to be really good finance sci fi books that would be great.
A genre that is not high on my list, but a genre that I read because sometimes people will be like, Hi, I work in finance and read it wrote a finance sci fi book.
And I'll be like, well, that would be absolutely I have like four of those. Yeah. I feel bad saying that because I actually really love finance and markets and like the world that I exist in in a professional capacity. But when I get out of this building, I like to read fiction. But you definitely have a library.
Yeah, I have some of that. Like I definitely try not to spend all of my time reading business books, but no, I do have a long list of fair finance books. Yeah, and I'm going to go to town on that. Now.
Yeah, you can name five?
Really five?
Well, how many do you have?
Seven? Like Pinnacle is Liar's Poker and by Brands at the Gate, everyone knows that it's boring.
I can talk about I have started Liar's Poker.
I do enjoy like the whole language of wallstre continues to be derived from jokes on that book. But so I want to talk about a few others that I love and just tell an anecdote from each one. Yeah, I get prepared unusually. So one that I recommend all the time is a book called Diary of a Very Bad Year, which is from N plus one, the literary magazine. It's like Keith Kessen is an N plus one editor
interviewing an anonymous hedgehund manager. It's like a PM at a multispreat firm, and it's like he sort of like does periodic interviews throughout like the two thousand and eight financial crisis, and this guy gives a window into how he's thinking about the financial crisis and how he's trading markets, and it's really good.
That's awesome.
One thing that I love. He's like a credit he's like an emerging markets manager, and he says, every time you do a private investment, you're writing a call option
on your own time. In a sense, you're writing more call options against your time than you have time, on the assumption that the correlation is not one hundred percent, And in a crisis, correlations go to one hundred percent, and so you just run out of time because you're dealing with all of these like fires on all all of your investments, and you sort of figured these investments won't all catch fire at once, but they do, and so you have no time and so it's not just
like about your portfolio, it's about your time management. Another favorite book is in a different vein. Auntie Ilmanon of a AQR wrote a book called Expected Returns, which I think is the best book about investing. When people ask me, like, actually think about investing, I'm like, the question is like, why are you getting paid? Why should you expect to
get money for this investment? Yeah, And this book is like an attempt to sort of answer that question comprehensively about all sorts of investments, and it has all these like little stylized facts that I love. One that I think about sometimes is that carry basically works if you have two investments and one pays ten percent a year and the other pays like eight percent a year. Right, Like financial theory would say that the one that pays ten percent a year has like a higher expected loss.
And so really like they're like risk of tusted returns are the same. But in fact, like over time, things that pay more tend to pay more than things that pay less. So it's like the very intuitive, like simple thing that you just sort of eyeball turns out to
work a lot of the time. This is famous in foreign exchange, where economic theory says that currency is that pay higher interest rates you're expected to depreciate, but like that never works at all, and it's like always the case that you can like make money in the character and not not investing in this. Okay, our friend Mary Childs wrote a book.
Called The Bottom King that I did read.
Okay, Okay, there's one favorite finance book.
I had to read it.
Are you saying it's not your favorite?
I mean, I guess it has to be the one finance.
Book you've ever read. I love The Bond King. One thing I love is I read all the time everything is seating charts, and in The Bond King, like you know, it's like sort of the story of how Bill Gross pilt pimcos and investing firm and then got defenestrated from PIMCO, And like why did he get kicked out? I like to say that he got kicked at because like he was like having tension with like the other senior managers at PIMCO, and he called a meeting and in the meeting,
he didn't put his enemies at the front table. He put them in the audience facing the front table instead of at the front table where the big people sat. And so they got so mad that they went back to their offices afterwards, like he has to go and they fired him. That's not quite true. That's like a little true. Yeah, And you know sheple making millions and millions of dollars a year. All they care about is where they sit.
At the big Mom, We're all a human at the end of the day.
One I could go on for I have like.
I can tell Yeah, I'm looking at a long list, strapping in here for a long time.
Katie is literally falling asleep. Okay. Donald McKenzie, he was on oddlines recently. He's like a Scottish sociologist. He wrote a book called Trading at the Speed of Light, which is about like how high frequency trading rooms live their
lives and think about things. And it has so many great antingtudes, including that when the CME, the Chicago Meercandolics Change moved its technology from writing trade tickets in pencil to writing them in pen it took eight months of fighting to change from pencil to pen It's like a great story of technological progress. On the seventy eighties. But also it's a lot about like microwave links from Chicago
to New York. And apparently in the twenty tens of rain created liquidity because when it rained, the microwave link went down and it was like slower to get information from Chicago to New York. And so what that meant was that basically like predatory high fergency traders were slowed down enough that market makers could quote tighter spreads because they weren't getting picked off by predatory market by predatory HFTs.
And then like later in the decade, that factory reversed because I guess the market makers couldn't get the information past enough. But anyway, so rain created liquidity.
That's amazing. Justin, that was the most fun that matters.
Justin, will have a beer at Morgan's. I'll give you some of my other voices.
Great question, Justin. Okay, Chris has a question. Though Chris works at a private equity firm. Like many firms, we advertise our ESG credentials to our institutional LPs parentheses. I mean less so now than two years ago. But you get the idea.
Among the we get this question a while, like a few weeks ago, and it's probably like they've really scrubbed it entirely from the web pitch.
But yeah, Anyway, among the ESG initiatives we tout is how well we treat our employees, things like health and wellness initiatives, but also nice corporate retreats does sound nice. My question is this our employee benefits for private equity employees, good ESG or bad ESG.
Someone once told me that ESG is really E and S and then G is just there to make the numbers work. So one pitch for ESG environmental, social and governments investing is that it's good for returns, Like if you buy things with good if you buy companies with good ESG scores, you'll get a higher return. And the theory that I've heard is that the G is there
because that's what gives you the higher returns. And like that theory is very simple, which is that G governance basically means doing shareholder friendly stuff basically means like supervising management and trying to get good returns for shareholders and being aligned with shareholders rather than doing whatever management wants. E and S. Environmental and social stuff are about other stakeholders. Environmental is about like doing good stuff for the environment
even have cost shareholders. Social is about doing good stuff for employees or communities, even if it costs shaholders money. But G is about doing stuff for shareholders even who it costs the CEO money, And so G doesn't really fit with with like ESG like the other things are about like having a broader set of stakeholders, and G is just about trying to MAXI my Chareolter returns in
that vein. Being nice to your employees is good social, and if they're very senior management employees, then it's kind of bad governance, right. It's like if you give the CEO one hundred million dollars at the expensive shaholders, that's like, yeah, not ideal governance. Right. So I think that there's no like real answer to this question. But I think there's some like seniority dividing line where like giving your CEO nice perks is bad governance and giving your cashiers is
good social. I think that like, probably the employees of portfolio companies are good social, and probably the like actual employees of the private equity funder a little more don't advertise the parks that give them that's fine.
Cool. Well, thanks for the question, Chris, I hope things are going yeah, okay. This comes from Ron asking about IPOs. Ron asks, after a company has gone public and has received the infusion of cash from the IPO, what role does the share price actually play in the operation of the company. Do most companies continue to hold a percentage of shares that they buy slash sell to generate cash at later dates or is this mainly for employee stock compensation slash options.
You know, I used to be a capital markets banker, and it is always straighting to me how much people believe in like the concept of treasury stock. Like people believe that companies have stock and there's a pot and they can sell that stock, and then they run out. They run out, And that's not how it works in the US. It is how it works in some of
the places. But in the US there's no such thing as like you can pretty much always print new stock whenever you want, so it's not like they're holding stock to sell. And most companies don't sell stock after they go public. Maybe that's not true and exaggeration, but like classically, the big successful companies tend not to sell a lot of stock. I have written that at this point the public stock market is for returning capital to shareholders rather
than raising capital from shareholders. And even a lot of IPOs companies don't need the money. They're just going public so they can so their early investors can cash up, although that is very much changing with the big AI IPOs where people need all the money they can raise. But so why does the stock price matter? I mean
A big part of the answer is executive and employee pay. Right, If you're paying people in stock, you're motivating them with the stock, and if the stock goes up, then they're more motivated, and so it is good for the stock to go up for compensation reasons. There's also like M and A, if your stock is valuable, you can buy companies with your stock. Yes, big successful public companies don't like to sell stock, but they do like to sell debt, and the more the stock is worth, like all things
being equal, it's easier to raise debt financing. Probably the stock price is a market signal about whether your company is creating value, about whether you're like a good thing to allocate capital to. And so a lot of CEOs like are sort of raised in like the church of capital allocation discipline, and if their stock is going up,
then they think we are doing good stuff. We should do more projects and build more factories and launch new products and generally invest more in this company that has succeeded. And if their stock is going down, they're like, we should do stock buybacks, right, which essentially means the stuff we're doing isn't working, so we should just give money back to shaholders and they can find something else to do with it, which is kind of the signals by
a stock bybick. Yeah, well, kind of the signal that the stock prize going down sends you and then you do the stock bibike. So I think that like it's just the stock price is a signal of like where to allocate capital, both to like the market and to the to the executives.
Yeah, and it's like a real time report.
And then people believe in that. Executives are motivated by that. Executives try to allocate capital to things that are good. The stock price sends them a signal. There's also like the market for corporate control, which is a fancy way of saying, if your stock price gets too low, then like Carli Kin, is going to try to buy the company or something. You know, you try to keep the stock price high to fend off activists and hostile takeovers and whatnot. So yeah, I think that's the answer. I've
enjoyed writing about memestacks over the last three years. Memestacks like break a lot of this, right, Like you're not getting the right capital allocation signals when you're stuck goes up a thousand percent for no reason.
Yeah, you're getting other signals more.
But more about you know, right, and you're sometimes like allocating more capital to your company, right, I mean, like we I wrote about like when Gameslop was like way up, they were like hiring executives from Amazon and you know, launching all these new projects. It's the same, you know, it's the if your sty price is up, that means
you're a good allocator of capital. And so you start like doing new stuff and hiring new executives and making acquisitions and doing all the stuff that a big growing company does because the market is telling you you're a big growing company that like has you know, high returns on your projects. And if you don't in fact have high returns on your projects, then like that signal gets messed up.
I talk to a lot of CEOs on on the television, and about half of them, maybe more than that, will tell you that they don't pay attention to cotor. But that's so crazy. You know that they're lying. If I had a real time report card of how my company and my job performance was being viewed, I'm not like that. No, I can't watch it move in real time. Yeah, right, Like I'd be glued to the screen.
It's not just like people's opinions about you, it's also like your bank account. People like a lot of their networks and their company's stock, right absolutely. If I had all of my networth in one company of stock, I would pay a lot of attention to.
That for sure. Nice question, Ron, Paul has a question. Paul was saying that he was reading your segment about the whole business securitization and how business loans get paid off. It was interesting to Paul that the normal way that they get paid off is in interest only payments followed by a balloon payment at the end of the term.
The only high dollar amount loan most people are familiar with from personal experience as a mortgage where you pay down the principle along the way, and usually the final payment is the same size as all the others. Why are these two so different to busines? This is just need slash warrant more flexibility. Why don't they pay down some principle early to reduce interest costs?
Okay, okay, Actually there's like several kinds of answers here. One is that companies and humans have different life cycles. Like a human is born and make no money, and then as a career where they start out making a little bit of money and then they make more and more money, and then towards the end of the career they stop making money, right, And so you have financial
products to sort of smooth that out. And so if you take out a mortgage, it's like typically you take out a mortgage and you don't have very much money, but you have a lot of earning power, and you pay down the mortgage during your earnings here your earning years, and then when you stop having earning power, you stop having a mortgage. It's pretty convenient. It's not perfect, but like that kind of works out that way. Companies ideally grow,
they're earning power every year. Ideally a right countries too, So like corporate and sovereign borrowers have more and more earnings power every year, and so ideally and so they have more and more ability to pay down debt every year. And so if you take out a corporate loan, it's like, you need the money now, but in ten years you'll easily be able to pay back the money because you
keep growing your earnings. But also, mortgage is amortized. Because if you're a person and you like go around for thirty years making the interest payment on your mortgage, and then at the end of the term, it's like, we need a million dollars, please, you might not have the million dollars lying around like a company. One they might right, their earnings power might keep crying. Two they can refinance
the debt. And in fact, companies do not generally borrow money and then pay it back and then say, whoow, we've cleared that debt. Companies like target a certain amount of a capital structure with a certain amount of debt because to a company, interest expense is cheaper than equity, right Like, if they have debt, then that increases their return on equity, and they think of their equity as
being more expensive than debt. They think we need to earn a twenty percent return for shareolders, whereas we can pay our creditors, you know, six percent or whatever. So companies typically like to have debt, and as they grow, they tend to borrow more money, and so they don't need to amortize their debt. They want to keep a certain amount of debt outstanding, and advertising would make that more complicated because they'd have to like incur more debt
as they paid down their earlier debt. Also, like from a market perspective, like the non advertizing bond or bullet loan is a better product for an investor because if you're an investor, you have a fund and you want to invest it, and then you get some of the money back every year, like I have to go invest this again. So having a non adverortizing product is better for a lot of investors.
Those are all the questions.
I think we didn't have any any real questions for you.
Should I ask you a question?
I try to you to talk about your financial advisor or your favorite finance books, but you did not take the what's your favorite science fiction book?
I have recency buys here, which is just probably okay, interesting I read that.
I ever read this.
It was fun.
Yeah, but did you learn anything about I just say the sunders in the space. I don't know what it's about.
Did you not see the movie?
I don't see movies.
Oh, I went with my parents. So nice, something you have to look forward to and a few decades.
Yeah, yeah, I've gone to the movies with my children.
But I have to imagine that's still chore. It's not like.
I've gone to Frozen too. Okay, just sure.
Yeah, projects you'll marry might be a little intense for them.
So for gotten there, Gotten there. And that was The Money Stuff Podcast.
I'm Matt Levine and I'm Katie Greifeld.
You can find my work why subscribing to The Money Stuff New Letter on Bloomberg dot.
Com, and you can find me on Bloomberg TV every day on the Cloe between three and five pm Eastern.
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The Money Stuff podcast is produced by Anamasarakis, Moses Onam and Alexis HoTT Our.
Theme music was composed by Blake Maples.
Amy Keen is our executive producer. Thanks for listening to The Money Stuff Podcast. We'll be back next week with more stuff