The Case for Custom Indexing

A lot of people know him. He's got one of the most popular podcasts called invest like the Best, highly recommended, very interesting, great interviewer. I was on at once and my Twitter follower account jumped by like five immediately, which was like at the time ten percent pop. I had never appeared on anything where I got that immediate hit on Twitter. So just to give you some idea of how the Riachi has now, that's his side gig. His main gig is O'Shaughnessy U Asset Management, which is a

asset manager that it's interesting. I met Patrick behind backstage at et f i Q, which is the TV show I do, and he had just filed for an e t F but then over time decided not to launch it and go into direct indexing instead. This is a little bit what Morgan Stanley did. A couple issuers started to prepare direct indexing platforms. Now for people out there,

I'll just break it down like this. You know you can get music in vinyl, compact discs, cassette tapes, streaming, right, there's many ways to get your Bob Dylan's song right, same with investing. Right, you've got mutual funds, e t f s, and I would say direct indexing, or Patrick calls it custom indexing, is sort of one of the newer waves, although it's actually an older wave because it's it's a separately managed to count where you just own all the stocks yourself. And that used to be hard

for retail because and so institutions did it. But now with trading getting cheaper, it's now more available to retail, so it's been democratized and it's been that is a sort of a wave of the future, and so I think it's important to go over this because it is an avenue investors have availed to the available to them, and it's also a topic we debate on our team

a lot. How big will this get? And it's a it's like E S G in my opinion in terms of one of those uh things that isn't No one's totally on the same page about some people very bullish, some people less so. So I think we should dig into the pros and cons and sort of the future of this area. Alright, I think you did a pretty good uh summary there. We'll see if Patrick takes issue

with that. So again Patrick O'Shaughnessy, CEO of OSAM, which is part of Franklin Templeton, this time on trillions invest Like Patrick O'Shaughnessy, Patrick, welcome joints, Joel and Eric. Thanks so much for having me. Okay, Patrick, um, I want to ask you first and foremost about direct indexing, which you call customer indexing. Why why does the world need that? Well, I think it's important to define the difference between direct and custom indexing. Direct indexing, as Eric points out, as

is quite old. It's been around for decades. I think it is a very simple, uh product. You take whatever exposure you want, let's say it's the SP five. You own all or most of the stocks directly in a separate account for each investor, and you trade those stocks to generate tax losses, which become an asset to the investor, which is possible because of the separate accounts. So the

separate account is the key sort of vehicle. But the strategy is really deliver the SMP five returns effectively, but give me this extra asset of tax losses that I can use to offset gains elsewhere. You might call this tax alpha. There's a lot of different terms for it, and that's the strategy. That's it, And you're not trying to do anything else, and you're not trying to outperform the index. You're not trying to do anything customer specialized. Uh,

you just are getting exposure plus this tax boost. Custom indexing is something that I think has only been made possible and we were the first to do it. We came up with that term custom indexing in the last three or four years because of software and technology. So what custom indexing brings to the table is a million other considerations that each investor might have, preferences, circumstances, attack situation that's different than than others, which can be accommodated

in the strategy itself. So whereas direct indexing is very much one size fits all, custom indexing is one size fits one, which is enabled by technology. And obviously we can go into it to see how people use this because we've got the data. We've got you know, nearly two thousand accounts that have been open a bit north of three billion dollars managed to the platform today, so we can tell you, you you know, how people use this

to customize. But I do think that, like anything interesting, it's something enabled by relatively new technology and allows things to be much more tailored to the individual versus you know, just give me the SMP. Okay, so you're like a civilo tailor, but with with better scissors, uh for a

terrible comparison technology, enhanced scissors maybe. UM. But I'm curious in part because we talked to a lot of people who are in the E t F world and look at E t F S as like a great technology, and you basically kind of like looked in the headlights of the E t S and we're like, I'm gonna do something different than that. Why and how do you feel about E t F. So I guess there's there's

there's two angles on this, both of which matter. H One is the business angle from our perspective, and two is the investing angle from the customer's perspective, So I'll touch on both. When we filed for that e t F, it was because we wanted to do something more accessible than what we had done in the past, and e t f s were obviously big and growing and remain big and growing. But when we stared at this from a business competition standpoint, it kind of looked like the

worst possible scenario you could imagine in business. There was effectively unlimited competition. You felt like we were entering a pure commodity game. You're entering a pure price war where you're just there's no there is no pricing power, you're a price taker. There's insane competition for mind share and pre exist sting, you know, guerrillas. It just sort of felt like, this is the worst This is actually the

worst idea we've ever had. Um and hold Joel, Joel, that is exactly why I call it the terror Dome. It is brutal. It really is. Uh he just described it. I can I can understand that that take takes a tardom that feels like buying lottery tickets like some some payoff right. There are some et F franchises that come from nowhere, you know, ARC is the prime example, and become huge and great businesses. But the number of dead

uh in that battlefield is insane. And so as we as I, as we and I got deeper into that consideration, we just thought, this is just a terrible idea, uh, but we still want to apply. We were technology experts. We had built all this technology for our own purposes as quantitative factor investors for years, for for a decade, and we started to ask the question, how could we take what we've built for our own purposes and effectively turn it over to others. Very inspired by the Amazon

Web Services story. In fact, I spent a lot of personal time with executives. They're understanding how they did that, taking something they had built for the retail business and repurposing it as a general technology. And we came up with this idea of custom indexing, which was to say, take the tools we've built to build our own strategies

and do whatever you want with them. You know, blend passive and active factor exposure in whatever ratios you want, add custom filters, add add overweights to certain things that you care more about. Incorporate you know, something like a low basis concentrated stock position into your portfolio and let us work around it in a tax advantaged way. Um. We found very quickly people care a lot about taxes, and they care about more than just tax alpha earned

through loss harvesting. They care about managing their taxes overall with the use of their portfolio. And we saw all these use cases people just sort of clawing them out of us. UM. So really early on. I have this theory now that uh, in business, for a new product, something that's gonna work tends to work really fast. You tend to see a pool of demand that was unmet

that people are ravenous for. And our early experiences with Canvas the platform was that basically everybody said yes like our our our hit rate on a demo of software was basically everyone buying it more or less on the spot. And most of those early partners have scaled, you know, tremendously with us with tons of assets on the platform.

And so I think I think this latent demand for customization, especially around really two things deep customization of taxes beyond loss harvesting and back to your question of why people need this and UH, customization of the blend between passive and active factor exposures so that you don't have to choose the E t F that has you know, whatever values have any five percent passive you can you can build your own. UH. And we see tremendous variation on

those two dimensions across the platform. UM, let's explore the tax ALFHA I think for people out there, we've said that word and tax less harvesting. Just explain this right, so UM I would I'll talk about how the mutual fund and et F works, and then you can do the custom indexing in a mutual fund. Unfortunately, you get a tax bill even if you're just sitting there. It's probably the worst case scenario of all the structures because the manager has to sell stocks to meet people leaving

the fund. That generates a taxable event that people sitting there now have a capital gains distribution. The E t F kind of solved for that. You don't get those tax distributions. You you pay taxes when you sell it. UH, and that really is a big deal for taxable accounts. That's i'd say a top three advantage of the E t F custom index, saying tries to take this even further, and I'll I'll let Patrick describe it, but explain how that tax alpha works relative to maybe the E T

F or selling. I think it's important to highlight limitations of this approach to which is you need fairly low turnover strategies for tax alpha to be a thing and to work. Like you're never if you want a momentum factor exposure, which is a strategy that turns out over a lot like you should just buy any TF like that, There's no way that turnover strategy is ever going to have a tax alpha advantage on top of the ALP

the potential for excess return advantage from the factor. So what that crossover point is probably like annual turnover something like that. So we're really talking about low turnover strategies here when we're talking about the potential tax advantage of pure loss harvesting. I think there are other tax advantages we can talk about that are independent of turnover, but the famous one loss harvesting. You know, you need a low turnover strategy. So that's that's the first, I think

key important point. But the concept itself is honestly pretty straightforward. Let's just imagine a you know, a pair of you know, all the car companies. Let's say they're all owned in the sp they have similar characteristics. They tend to have decently high correlation with one another. UM. One thing you

can do is monitor of the portfolio. We do it on a daily basis and basically say, okay, what positions that we've bought for this investor are trading at some sort of loss where we can do a trade book that loss, which is a taxable loss, and reinvest the proceeds in a basket of securities which have conceptually similar profiles as the one that we sold, so that our overall exposure to the SMP five remains very constant. The technical term for this would be tracking er. So we

have a tracking your budget. We can't get too different than the underlying benchmark as we do this. If the tracking your budget was really large, which is one of the things that we allow on the platform because sometimes people don't. Sometimes people say I have a huge gain, I want to offset it generate as much loss as humanly possible. I don't give a crap if I track the SMP five hundred this year. That's something that traditional

direct indextors don't allow for but we see it happen. Um, if you tracking your budget was five, which is huge, we can generate a lot more losses. If it's one, which is sort of the standard tracking our budget of one, you're you're highly constrained. You can't do too much of it because you start to stray from the underlying index itself.

So UM, that's the concept is you sell stuff that's had a lost reinvested in similar stuff so that your overall exposure remains fairly constant, and you you track pretty tightly with the with the underlying index that you've chosen, but you've generated this loss along the way. Um, And look,

there are drawbacks to this. I think as you mature a single account, Let's say you know, you invest in million dollars into an s m A and do this loss harvesting over time, as markets tend to go up, your opportunity for lost harvesting is very dependent on the market environment that you're in. So markets straight up into the right this isn't going to be as good as a strategy. And one of the things that we found when we launched was that, frankly, we thought the benefits

of tax less harvesting were somewhat overstated. You'd see, you know, benefits like two d basis points of excess return, which we just could We actually had a crisis of confidence. We couldn't replicate this. We thought we were going we were driving ourselves crazy, and then we when you dig into the methodology of others, you realize, oh, they picked like the absolute best ten year period. They haven't done

a bunch of that. Um They've made the best possible assumptions on the tax law and what's usable and how much offsetting gain you'll have to to actually be able to capture that benefit. Um So, we saw very rosy

assumptions behind that number. But even with our we think more conservative assumptions, we saw like seventy eight basis points of annual pick up over just the what we call the e t F equivalent, so buying s p y, holding it, selling it, paying the tax at the end versus doing it along the way as as you do in in custom indexing. UM. So, we just think there's

a huge obvious long term benefit. It is is that seven year eighty basis points like an annualized number over ten years, or just how how much does it vary its annualized over ten year holding periods, and uh, it is the average of lots of vintages, So there's lots of senior periods in history that we can study this on. Like I said, most of the other studies pick one that starts in like oh nine or oh eight or oh seven when you have obvious, like huge upfront losses

that you can be booking. So it looks really good. The range is pretty wide, Like there's ten year periods where there's effectively zero net benefit to doing this. UM, there's negative We didn't observe a negative one, so uh, zero was sort of the lower bound, and like two something was like the upper bound. So obviously we don't know we we don't control the market, so we don't know which of the which we're in that range it will fall. Seven year eighty was sort of the average UM.

But we think that's a pretty darn good trade, especially when you layer on all the other customization benefits that basically everyone uses. So I mean, I'm curious, you're now part of Franklin Templeton and that merger happened almost a year ago, right, so yeah, so how did that? How did that come together and why did you decide to link up with someone? Ye, so uh to rewind time, this was called April of two thousand and twenty one of last year, we got a call from Franklin. We

weren't trying to sell the business. We weren't running any sort of process or anything. We got a really memorable call I did from a guy named Roger Paradiso at Franklin Templeton who is now the executive chairman and sort of the person responsible for OSAM at Franklin Templeton's he's osam's executive chairman now. And UH, Roger basically said, we have been doing research on these platforms like yours for a long time. We think that the one you've built is the best, and we want to we want to

partner with you. And he he actually knew more about Canvas on that first call, having never talked to us than probably anyone that I had ever talked to about the platform outside of our firm um. So it was clear they had done their homework and understood what we think of as this huge market opportunity and for a new category that we had created. And UH, it moved

very quickly from there. I actually was in California. I flew back, I completely cut my trip off, flew back the next day, hiked with Roger for hours in the local woods, which is something I like to do, and got to know each other very quickly, and it unfolded from there. We didn't, you know, we run like a process like it just it was clear that they wanted us for very good reasons and that they brought to

the table effectively all the things that we didn't have. So, you know, we we had been a relatively small boutique firm um for twelve years or so at that time, and uh, we had a two and a half person sales team, which is not big. And while while those two and a half, you know, I think we're the equivalent of like seven or ten normal sales people, they were incredible. There's only so much hours in the day.

And we had hit upon this new thing that that you know, we had never been a big sales organization. We frankly didn't know how to scale a sales organization. And Franklin, with a trillion and a half of assets under management or whatever it is, had one of the you know, most scaled up distribution forces with relationships everywhere in our entire industry, and that to us felt like

sort of a match made in heaven um. And indeed, that's you know, what we've seen so far is that they bring a bazooka to the knife fight that we were fighting. And we're only peter or nine months into this, so it's it's still fresh and new. But that's the story behind the partnership. I was at Franklin Templeton about three months ago. I took a trip to sand France,

so a bunch of clients went went out there. Did you wasn't it interesting how they share a campus with roadblocks, So you've got these sort of like this asset manager guys walking around and then you've got these like roadblocks employees like mixed together. I thought it was interesting. It's a great obviously get the best weather out there as well, but it's I was I didn't realize. I'm a student of asset management as a as an industry and as

a business. I find it sort of endlessly fascinating. It's where I spent my whole career, so both in the public and now for me on the private side too with a venture capital firm that I run. But but the the technology interest and actions of the big asset managers has always intrigued me. And what we saw with

Franklin was a clear commitment. And it's a family owned and run firm in many ways, right the Johnson family is the controlling shareholder still frankly, even though it's a publicly traded stock with sort of a rich history of

long term decision making. And I think good long term decision making often comes back to investments in technology, and and we felt that on the receiving end of that, really the attention and the focus, let's say, in the due diligence process, uh, Franklin onto Us was was crazy deep dives into what we had built, which we loved because we've been building it for twelve years. Real, I mean, Canvas in many ways is like a new layer on top of technology we've been working on for a long

long time. We'd always had much bigger headcounts and technology than than our peers, and uh, I think the best firms are committed to that sort of thing. And so the headquarters being you know, on the same campus or right next to road Blocks and and many other firms lic ROA Blocks. I think it's fascinating and more than I could say for a lot of the more East

Coast mindset set managers. One thing that's important to note here there has been a total trend of big asset managers buying direct indexing and customer indexing platforms, namely Morgan Stanley with Parametric. Just curious if your take on that deal or I believe black Rock bought on perio UM. I mean, I'm assuming you're out there kind of selling

against those other shops. I mean, do you have any you know, comment on the other compos I think the most of the deals that you've seen that are huge, that are very big, Parametric and Imperio being big deals, big M and A deals in in that world. Those firms are excellent firms. They've been around a long time. They do more traditional direct indexing UM. Maybe with some templated customization you can pick a few colors, not just black and you know the model t joke. But more

or less they're direct indexing firms. Uh. The interface between customer and firm is not a soft web based software a layer, and I'm sure that those firms will trend in that direction. UM. But it's one thing to build from scratch with that is your intention, and it's another to lay one on top of a you know, very mechanical turkey operations heavy business, which is I think I

don't want to speak out of turn. I don't know those businesses intimately well, but I think the M and A you've seen there, and then you've also seen some of the younger technology companies that really didn't get distribution but built interesting technology have been brought up to by these asset managers. And I think the trend is kind of obvious, which is platform shifts matter. If you missed E T f S as a big asset management firm, you lost. I mean you could. You cannot miss major

platform shifts as a big incumbent. Go study Facebook transition to mobile. That's kind of the best example of this, Like they ultimately got it right, but initially it was kind of a kind of a crap show, and it's just critical. You cannot miss a major change. And so if if s M a chassis custom and direct indexing

is the next, you know, major winds changing category. I think all the big firms recognized this, and even if they're wrong, to be fair, they still have to make the bat they've got to have a player in the hunt. So I think that's what's driving it. Here's where I debate my team others in the industry on custom indexing and direct indexing. I agree. I know, especially advisors tell me some of their clients hate taxes and this really everyone held some tax run and I can see and

everyone does. Yeah, ultra high net worth types. Um, you know, I get the use case. I see this more as not a game changer, but a sort of new pass option for people not like so it was positioned sometimes as the E T F killer, and I the reason I am slightly I'm not bearished embarrassed versus the hype that like that kind of hype. And here's why. And I want to get your take on this. Over the past twenty years thirty even, we've seen a trend towards

three things, cheap, passive, and simple. This does kind of try to reverse all three of those, and I think that's why. Unless you're really into the tax part of it, or really a hardcore E s G person, I can see that use case. It doesn't seem like it's going to be able to dislodge a lot of the cheap beta E t f s and index funds that we've seen in the core of portfolios over the past thirty years. Um,

am I wrong? Or do you see it like completely being coming the next thing and getting fifty market share of the funds? So maybe let's talk about cheap, passive and simple. The first thing is the beauty of technology is is cost savings that get usually passed on to the end uh the end user. If you take into account of taxes, which in my mind is just it's probably the biggest single costs that comes with investing right period.

Like if you just do the math, the tax fee that you pay is the one you should care the most about, right especially because everything so I mean all beta is so cheap right now, Like you know, five versus four basis points is not going to matter. But a big difference in tax bill that compounds over time matters enormously. So I think you have to look at all that matters is after tax money in the investor's pocket at the end of whatever investing cycle it is

we're talking about. So taxes matter a great deal. So when you talk about cheaper, that's seventy eight basis points that you're picking up relative to the spy equivalent you know et F strategy is ten x the you know your fee that you're paying annually for R S p Y E t F. So I think on the cheaper side.

The reason that we're seeing this grow so quickly on our platform is mostly that right it's people are convinced that taxes are one of the costs and this is a great way to reduce those costs and cost compound over time. UM Passive is the second thing I think I have. I don't want the exact staff, but it's something like in the six low sixties, maybe mid sixties, per cent of the assets on the plot form are passive. So when we launched Canvas, you can do it. You

can build whatever strategy you want on canvas. We don't We don't tell you what to do. So we were very curious to know, like, what would people do. The answer is that two thirds of their portfolio is passive and about you know, the remaining thirty or so is is active factor exposures. When you blend those together, the management fee is relatively low. It's not sp y low,

but it's relatively low. Uh. The if factor in the next effective effective taxes you could argue it's even lower than sp y. Um it is fairly passive, like it's dominated by passive assets, and then simple is the last one. There's no doubt that buying spy and never doing anything is simpler than like, you know, pushing and pulling levers and customizing things. There's also no doubt that the people that benefit the most from this uh in an absolute sense,

have more complicated portfolios. They've got these you know, concentrated stock positions, They've got other tax considerations that care about you know, individual issues that they want to through an E s G lens governed in the portfolio. It's it's a minority, but it's a very vocal minority for those that care, they care a lot. It's like of the assets that would that would be true for the E s G thing. So you're right, it is. It is more complicated in a general sense, but that doesn't mean

there's not a massive pool of demands. So I don't think you're wrong. I don't think that E T S will be displaced as a huge, maybe even primary vehicle. But when you start to factor some of these things

in and things will only get simpler. Providers will get simpler and simpler over time, Like it'll be a couple of clicks, it'll be a couple of things if the s m A and operations technology allow this to be as cheap as an s P Y E t F and everyone can get one with you know, ten thousand dollars or something are minimums two and fifty thou which probably will be that for a while, but that number will come down because of technology over time, because of

fractional share trading over time, etcetera. So I guess I would challenge the the better passive I'm sorry, cheaper passive simple by saying this is kind of a lot of those same things. Actually, uh, and it will only get better over time. Okay, So, Patrick, another backstory question that I wanted to ask you about was your dad, who you inherited the firm from, and and I'm curious what you learned from him. Yeah, so, uh, the literal sequences

he started. He was one of the pioneering quant researchers in the nineties actually late eighties, just when he started doing that research. So like some of the early dogs of the DOWD research that was empirical. A lot of the early factor research around quality and value and momentum. Uh he was doing that with you know, Cliff Assness and Joseph Connor Shock and some of the very famous

kind of mid nineties quant researchers. He started the firm called Shaughnessy Capital Management in n that became part of bear Stearns in two thousand and one. Uh we then spun out of bear Sterns in two thousand seven, which is right when I graduated college. Like literally the like month or week that I graduated college was when OSAM was starting. So technically I was o Sam's first employee.

I didn't know anything about finance or investing. I don't think I knew what an equity was, and I had studied philosophy in school, and uh so you know, I got a very unfair lucky you know, sliding into home head started my career because of timing, and I sort of fell in love with the quant research part of all this. But uh, you know, my my dad, my parents, I should say, they were very lazy, fair Like they didn't tell us what to do. They didn't tell us

what to like or learn or study. And so I actually hadn't even read my dad's books until you know, fairly late in life, and it's always kind of been that way, you know. I guess the big thing my dad taught me is like, figure everything out for yourself. Don't come to me with questions. Like you figure it out. That's what That's what I did. That's what people I respect to. So, you know, there's a library card, here's a bunch of books in the living room, Like, you

figure it out. You come up with your own solutions. And so well we've been you know, fun collaborators and and obviously deep partners for a long long time. His method was to, uh really hand off responsibility. So when I took the business over as CEO in two thousand and eighteen, at the start of two and eighteen, it wasn't here's the business, like, this is what you should do with it. It was here's the business, you tell

me or we're going to do with it. And uh, you know, it took a year of searching before we alighted on canvas. So Canvas was literally on a whiteboard in my office at the end of prototype was ready in three months, and then we went to market with it November. So it happened fast. Uh, but I guess the thing I learned is like you have to figure things out for yourself. Like you cannot tell people what to do. You can support them in a lot of ways.

You can give them a lot of space, you can give them a safety net, you can give them um peace of mind. But for anyone to figure anything really interesting out, they have to do with themselves. And uh, I think that's a pretty pretty good singular lesson. Did the philosophy Uh did help you at all in this role? Uh? Have you brought it? And who's your favorite philosopher? Uh?

My favorite philosopher is a guy named Arthur Schopenhauer, who's a lesser, lesser known, you know, continental europe philosopher, kind of obscure, kind of a curmudgeon. But the reason I like him so much is that he was the person that introduced the West to a lot of the Eastern philosophy. So Eastern philosophy is popular or common now in the West. Before Chopinauer don't even knew it existed, And so he

was my He was also an incredibly clear writer. I mean, there's a lot of these philosophersy read and it's like, I have no idea, what the hell these guys are saying it is all this lingo and terminology. It just feels like a ridiculous argument for insiders that is inaccessible. Whereas Chopinauer wrote very clean, simple language, talked about very basic, simple things in life health, wrote a lot about health. A lot of philosophers didn't write about health. Um, Schopenauer did.

But but more than anything, he introduced me to the Eastern philosophers, which uh, I would say are my like operating system or way of thinking about life and work in the world and everything else. So yeah, it directly continues to I still read that stuff constantly. It influences my behavior every day. Um, there's even individual passages I can point to that that form a lot of my worldview. What cooler pursuit than trying to figure out, you know,

what the hell is going on in life? Uh? I just think it's a really interesting exercise for anybody, and Chopinhum made it accessible. So he's probably my favorite. Love that your podcast invest like the best. What's your your number one takeaway or lesson that you've learned from someone and applied to your life to benefit from? Well, uh, to tie it to this conversation, I would say, almost

all of Canvas. Everything we did with Canvas was us stealing outright lessons, specific lessons you could even I think almost as like business spells um that I learned from others. The way that we launched and built the product was wholesale taken from a guy named Chathan Putugunta. I'll never forget. I flew out there and showed Chathan, who's a partner at Benchmark Capital kind of one of probably the most famous VC firm with Sequoia, and uh said, look, here's

here's the product that we've built. We think it's it's great. Uh, it's built on all this proprietary technology. Blah blah blah, um, what would you do with this? And he told me, And what he told me was was kind of the opposite of my own instinct. I think of him as the sort of you know, Obi Wan of of enterprise software. And so we just listened, like we just did what he said and it worked ridiculously well, uh and much better than the plan that I had for distributing Canvas.

And it was counterintuitive. And and so I think the number one lesson I have is just like, there is so much to learn from so many people from literally every person across so many disciplines that can then be applied back to your thing. Um, I actually think you should spend more time spent away from your own industry

when you're studying business or whatever. Study around it, like to study adjacencies, study other strategies and see if they apply to what what you can do, because I do think in many ways, like our story would not have been nearly as interesting had we not borrowed these ideas from lots of other different fields. And uh, I guess the second lesson is just like if you expose what you're learning as you go, it is a magical process.

Like you you attract people that like the same stuff, that have similar motivations, that want to work on the same projects. Recruiting becomes easier, sales becomes easier, you get more ideas, you build a distribution channel yourself. You know, we reach millions of people a month with our podcasts, Like it's it's a it's a big platform, and it's all because of me talking to people asking them questions

like that. That sounds so weird to me, and when I started it, I didn't intend any of this, but it's really a smart idea to chase curiosity and learn in public a bit. And uh, yeah, it's it's it's it's the reason for a lot of things I treasure most. I love. This audio is a weird platform. Uh there's this crazy idea called the Guttenberg parentheses, which is this notion that we may look back in time. I don't

know if I agree, but it's an interesting idea. We may look back in time from the printing invention of the printing press to the dawn of the internet as like the era when the written word was dominant by far you know of any communication exchange or medium, and that the parentheses might be that this is the only period in history where the written word is is the

dominant form of communication. And the reason that is at least interesting to consider, I think is, Uh, audio is way easier to create and it's way easier to consume than the written word. It doesn't need to be as perfect. You get a lot more there's a lot more room

for error. The audience penetration is some orders of magnitude bigger, Like you know, I wrote a book and in the first you know, ten minutes of the release of a new episode of a podcast, like ten times as many people listen to a new podcast episode every single week has read the book that took me a year to write. I just think that's kind of staggering when you think

about the leverage it represents. So if it's ten times easier to create, ten times easier to listen to, I just think you can do a lot more with audio. That's interesting. And if you look at our you know, corpus, it's like we've we've written hundreds of books. Uh, if you add up, the word counts. So I think audio is like a sneaky, interesting communication method. It's also the oldest, you know, like that that's this is how stuff was communicated down through most of history. Um. So I'm very

intrigued by audio as a medium. And everyone always asked about write another book, and it's like, I guess I could. But in the time it would take to write one of those, I could do like a hundred of these. So uh, maybe I'll just do that. I agree with all that. I would make two comments. One The good thing about books, like you know, like your dad, you didn't care for twenty years, and then when you did,

it was right there for you. Like books have a way, they have a way of lasting, like they're they're a little bit more permanent. I think, um, that would be my case for writing a book, because I agree with you, it's a it's a pain in the ass, and unless you like get real lucky you write the best book, you're probably gonna not, you know, sell a ton of copies. But at least it's always out there. I don't, I don't, I don't agree. You know. I look yesterday, Uh, I

just had the numbers here. There's an episode we released a couple of years ago with John Collinson, who's the one of the co founders of Stripe, obviously a big, you know, very popular technology company, who was listening to thousands of times yesterday. Yesterday. It's two years old, and we don't even know, like this stuff has not been around for twenty years to know if there's going to be I would suspect that the very best episodes will live effectively forever just as long as a book would.

And they're more accessible. They're easier. I can I can get one of my phone in seven seconds versus a book that I have to like seek out and go after. No, I'm not saying one's better than the other. I just think I think it's on the same level. And we see that in the data that very old episodes get crazy amounts of new listeners despite being years old. Yeah, you might be right. Um. Also would add the other comment I had was video I get I'm just blown

away by the numbers TikTok puts up. And I find that younger people are just so into that, And I'm wondering because as analysts and pundits that which is what I am, we're constantly sort of trying to make sure we're not missing anything because, as you say, like writing a research note, can it starts to get feel a little old timey and a lot of information is now put out through audio now videos. Um. A lot of other pundits in different industries use video a lot, short videos,

short form and polished videos. Um, what's your take on that kind of way of communicating to this sort of newer TikTok general on, my take is that you know, we should probably do it, but I don't care. I hate it. I don't want to be on video. I want long form discussions. I want to I want the lower pressure. I think I think video creates a sort of weird pressure on people, both on me and on the guest. Uh. I just don't like it, um and and life is too short to just optimize for the

you know, the greatest reach, the greatest downloads, whatever. And maybe I'll change my tune on this, but I have said note to video a lot, and I don't really care if it means the audience is smaller. I think we reached the audience that we want to reach with pretty high penetration and saturation. And we're having these minor hour and a half long conversations in crazy detail about like esoteric business and investing topics. This is not people trying to get like a dopamine hit on TikTok um.

I think TikTok could be a fantastic distribution strategy for us. I think we put the effort in, it would be worth it in a dollars and cents and you know, spock like way. Um. But it's just it's just not for me. I just hate it. Like when I think of communicating, when I look at TikTok it just doesn't match my brain wiring. Whereas Twitter, it's natural, it's Twitter feels native to me. Uh, you know, conversing with people, putting out charts, short form writing. Um TikTok feels totally

undeath every time every time I've tried it. It feels like I'm like manufacturing something. And and to be clear, like I'm an investor. I'm interested in investing. I'm interested in taking capital and owning really good businesses with that capital, owning American the size of American business making. You know, I do a lot of early stage private investing, Like that is what interests me. I just happened to have this other thing that I use as a learning vehicle

that creates a virtuous circle. Like I almost cringe at the word part whenever I hear the word podcast. I'm like, um, it's just I'm not like the media side for its own sake, it's just not that interesting to me. Like I'm interested in the content of it. And that's why I do it every week, and I have been for six years now, and we'll probably do it for you know, if I'm lucky to live another sixty years. And uh so, you know, I think it's I think I'm wrong, but

I don't care. Okay, to bring it back to the E T F s at the end of this podcast, I want to ask you what your favorite E t F ticker is s p Y. Come on, man, I mean look, I think it's the answer. Uh. Well, you have mentioned SPY a lot in this interview. That seems to be your Is that your bogey? Is that your

what you're selling against? Effective? I just think back to your point in simplicity, Uh, sp Y has beaten a staggering percentage of investors of every stripe of you know, pick your asset class, pick your uh, you know, public, private, credit, equity, US global. I don't care how you slice it. It's just shocking. It's the first question I ask in every context,

like why not Spy? Like even if I'm making a personal early stage investment, like okay, I'm gonna put X dollars into this, why am I not putting that X dollars in Spy? To me? That is and maybe the perfect thing is v T I or whatever. The total market is not just the SPI. That's that's probably better, But the SMP has this amazing you know, mental availability

and brand um and it's pretty close close enough. So to me, it is the opportunity cost, right, it's everyone's opportunity costs as an investor and should be taken very, very seriously. So that's probably why it's my favorite as a ticker. Maybe it's not the best. Eric's the master of clever tickers. I don't know them. I spent very little time like a d t f S, but the

I don't I actually don't own ets. But the extent to which I would or uh would change to that strategy or recommend that someone else changed that strategy hard to beat. Spy Patrick was Johnesty. Thanks so much for joining us on trially. It's thanks guys, Thanks for listening to Trillions until next time. You can find us on the Bloomberg terminals, Bloomberg dot com, Apple Podcast, Spotify, and wherever else you like to listen. We'd love to hear

from you. We're on Twitter. I'm at Joel Webber Show, He's at Eric Faltinus. This episode of Trillions was produced by Stacy Wongs bite O