A Quant’s Take on Innovation

But first, I think regular listeners are probably wondering now who this week's mystery co host is, So Charlie Pellett taken away and tell them who this week's co host is. This week's mystery co host is Lisa Abramowitz. Lisa is the co host of Bloomberg Surveillance and a mother of two. And even though she has been friends with Mike Reagan for a decade, she's never laughed at one of his jokes. Not even once. Okay, Mike, that is just not true. Let's just set the record straight. I laugh at every

single one of your jokes. You could rely on me in the news room to be your joke laugher, So don't even start with that. You're calling Charlie Pellett a liar, Lisa, I'm calling him misinformed by the best out there. Okay, it's you know, it's it's a dangerous power to have to be able to ask Charlie Pellett to read some insult comedy for you. I I this could get this could get dangerous. But Lisa, for listeners who don't know,

Lisa and I go pretty far back, I guess. I don't want to say too far back, but back to the days of Bloomberg gad Fly for sure, where I think we were the original too god flies we were, we were, and now of course Lisa the co host of bloomberg Sperience. I need to confess though, in in the pandemic lockdown era, I don't watch it as much as I should, just because my WiFi. I've got a bunch of kids on WiFi and I don't have a TV. I know, excuses, excuses. Don't tell Tom Keened any of this. Please,

you don't have a TV. Your kids ate your television. That's why you can't watch for the survillains. That's cool, great, I'm glad. You know what. Keep telling us that it's the internet, it's the broadband save the kids. Now in my office, the kids are all watching their TikTok's the TVs in the TV room. I can't go in there. I'll have I'll just be too distracted. Well, my point is, Lisa, I want a download of your just quick download of your current thoughts of the market. I think of Lisa A.

Brahma Witz as what's the best word market sentiment? We'll say cautious? Is cautious? Fair? Well? I think if you lask my co host, they'll just say perme bear. I would say that it's not so much permea bear as it is trying to see around corners. That's my recent line to try to defend myself against all the people who try to slam me down. But the idea is,

what are we missing right? I Mean, there's a sort of idea that we're in this incredible melt up that can't be stopped because of the wall of money, whether it's from monetary stimulus or whether it's from fiscal stimulus. And here we are in a situation that seems too good to be true for some people, because if you buy what's been doing well, you will keep doing well.

And so there is a question what are we missing either about the economic recovery or about inflation, or about this idea that yield will remain contained for the longer term. And these are some of the conundrums that I think that I spend every day discussing. That is a quick overview. I I love it. You know. I've always been team of Brahma Witz and I gotta say as I've gotten older,

I've gotten more quote unquote cautious too. I'd like to say it's you getting older too, but you've been that way since you were much younger, that way, since I was a five year old. Al Right, great, that is the That's the kind of temperature check I needed from Lisa. I'm glad because we haven't talked so long. It's it's it's a shame. But anyway, enough about us. We've got a really fascinating guest this week, and I'm so excited

to have him on the show. He uh, it's the founder of a firm called gir Gersteine fisher Um, which he founded at the ripe old age of one just a few years ago. We'll say, we won't say the exact date. He's now gone on to start a new firm called Quent's Capital. His name is Greg Fisher. Greg, welcome to the show. Thank you so much. It's uh, it's really nice to be here with you, Mike and Lisa. And I was I was kind of prepared for this very serious interaction, and I'm having so much fun just

watching the two of you interact with one another. I think I'm now officially on team Abrama. It's two alright, alright, there's always there's always room for another on on team. It's a small ship. But Greg, I, I really I'm fascinated by the the approach you're taking at quent Capital Um. And let me describe it briefly the way I understand it. Correct me if I'm wrong, which is highly likely me

talking about quantz. It's kind of like a Norwegian guy explaining baseball, so to feel, you know, feel free to correct any of this. But what I think of sort of the methods of a quant um I think of sort of big data, you know, crunching through massive amounts of data trying to find I don't know, momentum or the factors of certain companies that historically have have outperformed. But your approach now applies sort of the quant method to finding finding innovative companies and what I think of

investing in innovators. Um, I think that's something sort of completely different, you know, not a lot of historical data to work with, sort of having to take some intuitive leaps about what trends are gonna be like in the future. You know, I'm basing a lot of this on kind of the public face of the quote unquote innovator investment space these days, which is obviously our investment in Cathy.

Would you know you can listen to Kathy talk about her strategy for a long time and not hear any ratios, not here, any numbers. So I'm just curious from your perspective, how do you sort of tie the two approaches together. That's a good question, and thanks so well. First, you know, Quent Capital my new firm. I started my original firm back and back then there was like one index fund that nobody used. There were no E T f s, no text messaging, no email, you know, barely an internet,

and uh the idea. I was twenty one. I sold the drum set my father bought me for nine bucks, bought a computer, hung up a shingle, opened up a phone, book and started calling people asking if they would allow me to manage their assets using this sort of like data driven investment strategy. It was sort of a funny thing. It kind of worked out and uh and and I was successful for my investors and myself too. I mean it was it was a great good time. I'm now fifty.

When I was forty six, I sold the company a few years ago, take a little break, work on this new thing. And I think, like the motivation when I think about quantitative investing, I think people's minds would immediately go to, you know, algorithms and complexities and high frequency

trading and all these jazz. But I think about it more as evidence based investing, where you have an idea and you can go back looking at data to sort of prove out that idea that at least you can show that this has worked in the past with a large sample of data, so that it's not completely judgment around your predictions of what will happen in the future. We never know what will happen in the future, but using evidence based investing is how I think about quantitative investing.

And if you don't have evidence around what you're doing, if there are things you're doing that you don't have evidence of You can't go back and look at them, there isn't data to try them well. Then, in fact, it's a little bit more of what I think people think of as more traditional active management, where you know it's your gut or your intuition or some prediction into the future. I came up with this term quent Capital, as our firm name blends together the word quant and entrepreneur.

In my career, I've been managing portfolios of growth stocks, largely globally, and what I found was that when you're trying to invest in growth stocks, it's very difficult to put a number in the numerator and a number in the denominator and compare things to one another. There's a lot more ambiguity of the valuation of these businesses, particularly

in the last ten years. So I use this term quent to show that you know, data can only take you so far um with these small, innovative, disruptive, entrepreneurial style businesses. You know you mentioned TikTok earlier. My kids are watching TikTok, and I noticed you didn't say Facebook. You sort of need to be like I think genuinely resident to the universe you're thinking about, um to really

understand it. And I do think that being an entrepreneur myself, my whole life, does make me a better investor in these entrepreneurial activities. Before we get into the idea of entrepreneurship at this moment, I want to talk about the nexus between high frequency trading and the quantitative strategies that you started up before the Internet was as adopted as it is even ten years ago. Did high frequency trading destroy the notion of quantitative investing as you knew it

me launched you from initially? It didn't. I mean, I think that to the extent that a lot of things that happened in the industry made costs lower and liquidity higher. Um I think to some degree that sort of helped me personally in my firm for my investors. As you know, costs continue to drive down. But UM, I guess there's always this argument that if you know, if there's some good idea, like let's just use the oldest one we

all know, like value investing a good idea, right. We'll probably get to that later, but anyway, so you know, price to book, it's you know, I could teach my nine year old how to do that, And I guess it took a while for people to realize that that was a powerful signal. And then all of a sudden, one day, everybody knows that this thing works, everybody starts doing it, doing it faster than everyone else does, the benefit of that style of investing go away. And I

guess there's arguments around all these things. That's an easy one to understand. They're the more complicated ones. I think the issue is just simply, you know, if the reason that this is happening is because of some behavioral factor, um, some flaw in the human system, and or risk, you know, the efficient market stories around these things, if it's one of those two things where you know, I always give an example. Uh, you know, if you're trying to lose weight,

and you like me and you like chocolate chip cookies. Um, I come home, there's a chocolate chip cookie on the table. I know if I eat it, I'm gonna gain weight, But I eat it anyway. UM, I just can't help myself. So there are a lot of things that we all know that are well documented that people could do faster than all of us, but they still work. Because they're happening for reasons that are not necessarily about market manipulation

or transaction costs or how fast you can trade. Hey, Greg, I want to rewind and and go back to something you said that I find completely fascinating, and that's that you sold a drum set for nine bucks in the nineties. I mean, it's not like a Neil Pert style piece drum set. I I'll tell you why. I I'm a sort of hack musician myself, and I recently bought a drum set off of Facebook marketplace from some high school kid who I think was driving his parents nuts for

a hundred and fifty bucks. So there must be deflation and drums going on there this set. Man, I would do anything to have it back. Um. When I sold my company, I there's not much that I really wanted, but I did do one thing. I built a music studio in my basement and bought two drum sets. But uh, and they were more expensive than when I was old. But it was a Slingerland like old school metallic red jazz set. And uh. I played this thing like every minute of my life, starting from when I was twelve

years old. I would do anything to have that thing back. I tried actually years ago, but I wasn't successful. But I am still a drummer, and so was my my son actually, but I uh yeah, I think uh, I think music actually and playing the drums was one of the reasons I got into math, just you know, always counting. You know, I hear that a lot from five A lot of smart finance people are are side musicians on

the side. It's an interesting phenomenon. But Greg, I wanted to ask you about that notion of the switch from sort of a more index factor based approach to actually more active stock picking. I make a joke that, um, every time we have an active manager on, he goes, you know, this is the year of the stock picker, and as it has been the case, I think in two thousand, two thousand and two that I could go on. But I really do think there's a case now, uh

that it seems like it's gonna be true. Active funds majority are once again outperforming their benchmark by a lot of metrics. But I'm curious how you made that lead because here's a guy, or if it really was a big lead, because here's a guy who's spen sort of looking more closely at indexes for decades and then to kind of make that jump into a more active approach. I wonder how is has passive investing, you know, sort of jumped the shark. Has it become a crowded trade

in a way. It's a great question. Boy, I can talk for hours about this, so I hope you'll edit this. But but at any rate, so a little a little bit of a background on this. So, um, yeah, I was. If you sort of look me up, you'll see that for the last thirty years, I've been basically telling the world you should build market based portfolios, keep turnover down, keep taxes down, keep an eye on your costs. You know, buy and hold. You know, these things still work. They'll

always work. Bill Sharp wrote that paper years back, the Arithmetic of active management. So this idea that there's certain market environments where you know, on the average, we can't be better than average in any market at any moment, at any time, right, he tells, he talks about this, of us will do better, of us will do worse. You add in costs, you knock out another. The math doesn't change. But what I experienced in all the years that I was, you know, sort of working within this

market based framework of investing. Um I had. I had actually trademarked the term multi factor in the use of mutual fund investing about twelve so years ago. I launched a bunch of funds. This was like the innovative way to index. It was evidence based investing your building market portfolios. But you have a little more of the things that have worked historically a little less of the things that hadn't.

Um So I was doing this stuff for a long time, but what I watched is indexing go from like zero to a lot all of a sudden. I mean, the whole idea of the efficient market idea hypothesis is that if everyone's out there searching for miss price security, spending billions of dollars and lots of energy, and we're all working so hard to find miss price securities, then it's

hard to find miss price securities. And you might as well just accept the price of the stocks and markets because on average, everyone is spending a lot of time doing it. Why waste your own time just by it accept everyone else's price. And that's that and and that's a beautiful thing. And it worked quite well for a

long time. But I think that when you get to a point like where we are now, where there's been this huge decline in analysts, where the there's this increase in indexing too, depending on who you ask, I think I've heard something like six of all the assets indexed now or something like that. If you have fewer people searching for missed priced securities and no incentive to go out and do it. My son is in school as

a finance major. I'm like, don't become an analyst. You know I'm an analyst, but like, there's no money in being an analyst. Um, nobody wants to pay analysts anymore. We just accept market prices. I was kind of kidding, but I wanted to see what his reaction was. Anyway, you get to this point where if everyone is just accepting market prices and fewer people are doing the work to determine if the prices right or wrong, Well, we still have this fifty fifty thing Bill Sharp described, but

the distribution around that average would be wider. If you get it right, you'll be more right. If you get it wrong, you'll be more wrong. So I I have this perspective, and I watched this happen, that there is an opportunity. It's still the fifty fifty thing. But if you're the person, if you're on the rights side to that, your ability to outperform by more I believe exists and less two, which is why I actually built a long

short strategy versus long only strategy. My last point on this, I published a paper with some co authors last summer was in the Journal of Indexing, and it talked about this. You know, the market environments. You know, we never know when when we're going to enter an environment where the correlation of securities is less positive, where the difference across securities is less positive. We never know when we're going

to enter that environment. But what we can know is when we're in those environments, the difference between winners and losers is greater. We've been in an environment for a while where things were just trending together. I had this hypothesis that sooner or later we'll enter an environment where that's not true. Didn't know COVID was going to happen, because as we know, I think last year something like half the securities and the Russell two thousand um had

negative returns or something like that. So if you're in an environment where lots of people are indexing, and there's fewer people paying attention to what the price should be. If you're in an environment where the difference between winners

and losers is greater. You know, it's my belief that at least for some portion of someone's portfolio, and probably not the majority of it, by the way, but for some portion of someone's portfolio, having a strategy that could take advantage of those themes and trends I think is important. So that's how I got here today. I'd still say that most investors should have like their portfolio in a

market based strategy of some capacity. But if there was ever a time to give this thing a shot, I think it's probably now, which is why I'm doing it. I'm hung up on what you said about the right price, and I'm struggling with it, because how do you analyze a stock when it's determined as much by what FED chair J. Powell says today or tomorrow as it does how much they're earning, or how much some people might think they are, or perhaps what somebody on Reddit says

about the stock price. In other words, how do you figure out the winners when the right price isn't being determined by fundamentals that are a stagnant concept. That's so so important, Lisa UM. I think Keene said it the best a hundred years ago. It wasn't important what I thought something was worth. It was more important for me to understand what you thought Mike thought, his sister or

brother thought it was worth. Like many of us, I've gotten, you know, fascinated with behavioral finance for my whole career.

I grew up in the tax business. My family started this tax business and park Slope in the nineteen seventies, and I watched people coming in with like a shoe box filled with their statements from all these different brokerage firms, with all the things they bought, and like the way people were making decisions some Another paper I wrote with another co author mine is titled um Past Performance is Indicative of future beliefs. What we did is we we

analyzed and we showed. Look, we know security prices are positively correlated like yesterday, security prices actually have memory. It's not this random walk where today has nothing to do with yesterday. We all make decisions today based on what we ate for breakfast, how we're feeling, what music we listened to whether the sun was shining, whether things went up or down yesterday. So Lisa, you're right read it today, you know, whatever it is like, we have to pay

attention to what people think. We can't only look at the fundamentals. But I think the mistake people are making these days is to not look at the fundamentals at all, um. And that's a whole different discussion. This point you make about looking around corners. What you pay for things still matters, it like actually matters, you know. Now the question is

what are we valuing. Like in the old days, we used to think sewing machines and buildings were worth something, And these days our greatest assets are the people who work for us, our brand, um, you know, our customer service scores. You know, there's a lot of things that are really hard to measure. We're all trying, but what you pay for things still matters. But this behavioral thing

you touched on is critical. You know, Lisa, my fourteen and year old and I we have this game where we try to scare each other, you know, you hide and jump out and and so I'm looking around corners a lot these days as well. I'm a very abrama with approach. But Greg, one thing I love when I talked to uh small cap fund managers is you guys have your heads wrapped around companies a lot of times

that I've never even heard of. Um, So if you could just kind of rapid fire through for us some of the stocks that have you excited, uh, sort of on the long end the short end. I mean one in particular, there's this company that we've invested in called

smart Eye. I would say, like, there'sn't any one company I would necessarily hone in on in this conversation, but just to use them as an example, it's it's a company in Sweden that basically has created technology that looks at your eyeballs while you're driving in your car and it helps to in advance determine if you're falling asleep or you might get in an accident. So like most a lot of the cars you buy today will have this technology in it. And uh, it's pretty fascinating, small

little company, most people have never heard of it. It's done quite well. It's volatile. They should they should apply that to traders too, you know, yeah, and that's right, Um, they probably do these days. Maybe just another one that I think most people probably would have heard of by now. A couple of years ago, they would not have was a fiver. It's become a big company pretty quickly. But

I find this shocking. I remember I was at a course at Harvard and there was someone teaching what he called at the time, the Future of Work, and I'm like, the future of work? What the heck is that? Now? This was like five years ago, you know, and like, now we all know what the future of work is.

We're in the future. But anyway, but back then, you know, it was, you know, a couple of people from you know, in a basement in Israel somewhere came up with this idea of being able to offer consulting services online for a very small fee relative to hiring like big consulting firms. Now I really could relate to this. When I was building my company, I spent millions of dollars on my brand. I had this logo which I loved. I don't own

it anymore, but it was a hummingbird. And uh but I remember, you know, paying a lot of money to come up with this idea, and you know, months and strategic analysis and brand strategy and stuff that I totally

value that is really important these days. But now you know, if you want to do that stuff, you go on fiber, you type in what you're looking for, and within minutes you'll get you know, retired McKinsey executives, PhD s from great schools and everybody else you could imagine bidding on this project and for like a thousand bucks instead of a hundred thousand bucks, you'll get some pretty good work. Um, And you can do that for virtually anything these days.

And that company just you know, coming out of nowhere and now taking market share away from huge consulting firms, the barriers to entry for these little businesses today to get into business. Even in my own business, I remember years ago, I bought one of these first voice over IP phone systems, Like that was so cool that I could have people working for me from home, taking maternity leave, working from other states, like it never mattered where they were.

You call their phone number and they were there. I think that was like several hundred thousand dollars of equipment, where you know, thousands of dollars a month of consulting contracts. Then I start my new business and for like twenty dollars per month. Ring Central does all the same stuff for me. Um, you know, I could turn it on turn it off like it's the most amazing thing. Well, the idea here also is how you find some of

these things. And by the way, as you talk about this, I'm thinking out a story today on the Bloomberg about how RBC's CEO is worrying about burnout. So his solution, in addition to say take some time off, is saying you can all download a meditation app on your phone. And I was just thinking, really, how successful will that be, you know, for forgetting in play satisfaction. They can download that meditation app they want going while the kids are

screaming in the other room. But I'm wondering there's a question here about how you find these companies because it's not as easy as sort of screening factors or you know, the same type of security selection, because where even are

those securities traded? How do you screen them out? I mean, what is the investigative process that you undergo to find a company that has the true entrepreneurship values that you're looking Well, I mean I could give a couple of examples that are I think things that are sort of easy to get your head around. The first and the most obvious is is the founder still there? I mean

that's like a zero in a one. You go on your Bloomberg machine and you look up founder yes, no, and maybe do a little more than that, but that's pretty much. So the question is there evidence and there is that companies that have their founders still there and engaged and and by the way, engaged and still there are two different things. But are there companies whose founders are still there? Do they? Is there something special about an entrepreneur being at a company to a certain size.

I mean I was an entrepreneur of a certain company. I think I added some value, but I also know when I got to like eighty employees, I was in over my head. You have to know where there's limits to that too. So there's times where it adds value in times where it might take away. But I think the question is the entrepreneur. The other thing is and one of my adviser's great friends, her name's Francis Fry.

She's a Harvard professor. You know, she always says like the best leaders are the ones whose organizations thrive in their absence. So when this founder does leave, do they leave behind the crumbs that keep the culture of that entrepreneur entrepreneurship still running through the company. And how do you go looking for those things? What are those things? Well, there are things like innovation, right, how do you measure innovation? How many H one B VISs file are filed? How

many patents are filed? Who filed them? Um, there's you know how much R and D do they spend? You can pull that right off their income statement. Lots of things you could do. Now, you're not going to find these things unless you know what you're looking for. So the information and you know, quant strategies in my mind has always been you know, we all have access to the same data, but it's all about what questions are

you asking? What are the intuitions? Um? So, I would just say things like that are examples of how you might go finding these companies globally. And there are a lot of them, and there are many of them that there are very few analysts following because you know, when you're looking at smaller companies. You know mentioned earlier that you know the whole of indexing concept, but in the

smaller company stocks there are even fewer people following them. Frequently. Greg, I've got to see great trick that will get Lisa really excited. You're ready watch her. We're on zoom. The listeners can't see your facial expression, but if you watch, you'll see you'll see a reaction, and that is to switch gears and talk about the macro outlook and the rising yields and everything like that. You can see Lisa's

She's getting excited already. But and the reason I want to ask you is because a lot of you know, a lot of uh equity managers that I talked will be like, well, sir, I'm not a macro guy. I don't give it much thought, but I know you are, and I'm curious just you know, a what kind of your your take on the current macro environment is inflation? Uh, you know, the rotation from cyclical to growth and back and forth every day. It's a different, you know, side

of the boat. And also kind of how important it is to your strategy. I want to I want to answer the question because I do have an opinion and thoughts around it, but just to take a step back, I think one important thing about this strategy or any strategy, that the idea around small cap stocks um. So probably

anyone listening to this has seen this data. If you go back a hundred years and you look at all the data we have in every country, and you do like rolling periods, you know, like rolling ten year periods or the whole hundred years, or however you look at it, the fact is that small company stocks have earned about two percentage points per year more than large companies over the long term and over most five, ten, fifteen year periods. Turns out, however, in the last ten years, the reverse

has been true. We saw this change a little bit in the last few months, but the reverse has been true that actually large companies have outperformed small companies by almost the same amount two percent a year for the prior decade. Is that is that the Bogel effect to some degree, the effect, you know, I don't know what

to blame it on. There are people who have blame it on macro issues, like the banks cut off small companies and stopped lending to them after the financial isis, or you know, the indexing concepts of big getting bigger because we're all just buying what we love and the most popular things get the highest prices, and the indexes are generally cap weighted. And I don't know, there's a lot of answers to this. I don't think any of us ever really know the answer as to why things happened.

But I think the one thing I would come back to is the idea that little, risky businesses earning a lower rate of return on the average than large, established institutional players. It's it's hard to get my head around that like this risk return thing should bear fruit over a long period. Before you go Macro, I actually want to push back a little bike because one of the things that I've noticed recently about the Macro outlook, Wait, push push back on Greg, not on me, though, right,

push back on you. I can't handle the Abromo pushback. I'm I'm on train Reagan. I just think that, you know, recently the Macro calls have gotten, you know, both really convergent when it comes to generally positive and really divergent

when it comes to inflation. The issue, though, that I want to pick up on Greg, that I think that you're talking about that I find fascinating is this idea of betting on smaller companies and how that restrains bigger investors because you cannot commit that much capital to those players efficiently while doing the work that you're talking about, how much is the small versus big argument also applicable to portfolio managers to this idea that smaller fund managers

actually will start out performing in a meaningful way in this current environment. Oh, that's such a great point, and I've obviously one that I love hearing. But yeah, there's there is evidence in the data, and it makes sense based on what you've said that you know, small fund buying small names should do better than a large fund buying small names because large cons can't really buy the small names and make it have and have it make

a material impact. Well. And I guess that the way that that folds into the macro is where we are in the economic cycle. There seems to be a turn under the markets. People have priced in very low rates that was a main driver of performance people have priced in a new economic cycle. I'll be at one that's very different given the hangover of debt. Is the only way to meaningfully outperformed now really have to do with names in a way that it just hasn't because of

where we are in the rate cycle. If nothing else, I do believe that there's some absolute truth to that, and that that will be a factor in the performance of managers going forward. I do want to also touch on coming back, So I would define this this idea of investors generally don't have much in the way of small companies to begin with, Like they're under allocated, and

you can see that in the data. Um, Like if you just look at the total market index, it's like ten eleven small cap and you know, large cap, and that's sort of a proxy for all of us on the average. Yet consultants tell everyone they should have like in small business. Now investors will uh, institutional investors will ratchet up small business by private equity verse public equity, and I have some thoughts on that too. But at the end of the day, small business investing people are

tend to be uh, sort of under allocated. Combine that with they've done poorly for the last ten years by a lot, you know, I mean bigger than ever. Um. I think there's a good environment for you know, taking a close look at what you have as an investor in small company stocks, and then combine that with doing the work being a small fund being able to outperform based on these trends. We see the other thing about

the macro and interest rates in inflation. Um, they say you've mentioned something a couple of times, and it makes me think of something. You know, I I think the ten year bond peaked at like six back, and the long term average is I think six percent. And uh, we just went from fifty basis points roughly in August to one point seven percent. Now I'm rounding, but that's close, like, and that surprised everyone. I don't think people were expecting that. Now.

It's shocking to me that we're all like worried about two when like we've seen sixteen almost and the average was six, like getting a three or four. To me, I'm not I'm not good at predicting the future, so I'm not saying we're gona have massive inflation, but I'm just like the idea that we could get to three or four, Like, I don't think that should be like a big shocker. I think it's possible that can happen.

And I think this point you made earlier about um, you know, as human beings, we all underweight the low probability event, and that's the one that we always have to worry about. Um, so paying a little bit of attention. So if I'm an investor, I'm saying, what percentage of my portfolio do I have invested in things that might do well if we see that happen at least something, you know, like the idea that there's a zero chance that could happen is probably a mistake. There is at

least some chance that that could happen. Now, as it relates to you know, investing inequities, I think we've all learned that rising discount rates are the enemy to the financial asset, you know, and a surprise rise in interest rates are like really bad. So if we all just expect rates to go up, and we know they're going to go up, and we're all anticipating they go up, then that's not that horrible. Like companies optimize around what they know and just deal with it, and over time

we're probably okay. But the thing that we're all afraid of is a shock of surprise something we weren't expecting. Like we woke up tomorrow and the ten year was at three percent, I think we'd all be like really scared, at least for the short term. Now you look at the NASDAC and interest rates over the last two months, and you've seen this negative correlation of rates go up growth stocks go down. After we all got comfortable at the one point seven and the prices sort of got

baked in. Now it looks like that relationship has broke down where it's not happening anymore. So it's a little bit about you know this, understanding what everybody's thinking again versus what actually happened. Greg. My my goal is a journalist is to find someone who bought that long bond you're talking about in the eighties and and held soul maturity. They whoever they are, is probably the world's biggest investing genius out there. But hey, guys, I think that's enough

of the serious stuff. Okay, It's time for the more important stuff, which is our tradition. Here the craziest thing we saw in markets this week, Lisa, I know I sent you like a thousand emails about this podcast, but hopefully you read the one about the crazy things. I have a lot of faith in your ability to bring some crazy market stories to us this week. Ghost cattle.

That's I'm just gonna say, ghost cattle. There were cattle, two hundred thousand cattle that seemed to disappear from Tyson and it turns out it was due to fraudulent future trading among other things. Uh, they never existed. There's two d cattle and uh. I could go in further to this story, but it's um. I will say that ghost cattle is the strangest thing that I read about. So someone was naked naked sure cattle? Well, it was Easterday Ranches submitted. I'm not as intimate with the story, but

there was there was some issue. There were some issues with the tickets around the particular cattle, and then there was an insolvency having to do with this particular ranch. But the idea of you know, ghost cattle, to me is a fantastic market. You know, I knew you would not disappoint on this, on this metric, and I you came prepared. I that is a strong, first crazy thing. That's cool. I don't I don't know that I'm going to have anything better than that. Alright, Greg, You're gonna pass.

You can pass. It's at least it's a tough act to follow. I I I have to follow her because this is my gimmick. But but let's hear what you got well. I guess this is not like new information anybody listening, because we're all following this stuff. But I do find it shocking. How like we watched this recent episode of this you know, dollar Money Manager get accepted by all these large institutional players that are just looking to make more money somehow, and watch this thing just

like wither away overnight. And the idea that in this society, like you would think we would have learned by now from all these experiences over the last twenty years, if not even the last hundred, Like, I just find it fastening. This keeps happening over and over again, and then the other thing connected to that and another firm that's out there, this idea that, like religious beliefs um are like driving

people's risk taking behavior. I mean, with all the science we have out there today, I find that kind of weird too, you know, like it's just hard for me to get my head around that. You know, you know, you raise a good point, And that's one of the crazy aspects of this story, the Archagas story is what you're talking about, twenty billion dollars to zero overnight. It is crazy, and yet it is so fundamental to human nature. So when somebody presents themselves with confidence and they're dealing

with a lot of money, everybody trusts them. And when greed outweighs fear. You know, this is how you get scenarios just like this. Yeah, and that's why I always liked the data and the science of investing, Like, you know, show me some proof. Yeah, just to talk to the house book here a little bit. There's a great story in this week's Business Week about the whole Archagoes drama, Lisa, Eric Shatzker, your colleague on TV with the bio in there. All right, both are excellent things. I I gotta hand

it to you. I think I'm only going to take the bronze this time in the craziest thing, first time ever that I haven't haven't meddled higher. But I will say mine's not necessarily the craziest, but perhaps the most interesting thing. And at least I I thought of you when I conjured this up, because I want to hear your take on it. And this is courtesy of Matt

Levine's excellent Money Stuff newsletter. Lisa, have you heard of this concept the green um, which is if you're selling a green bond, you can price it at a lower rate than a regular corporate bond because there's so much greg to your point about you know, religion influencing people's desire for sustainability and for diversity and for all the s D type of stuff is causing so much capital to to chase it that you can price a green

bond at a lower rate than a regular bond. And as you know, as I'm kind of a tree hugger at heart, so I I'm kind of happy to hear this, But as a market guy, I'm like, wait a minute, some something weird here. And the one that that Levin wrote about is actually a revolver loan that black Rock sold to a bunch of banks, and it's a one basis point incentive built into the rate depending on whether block Rock hits certain sustainability UH and diversity goals at

one basis point. So all the lawyers and paperwork that went into determine this for a one basis point move. But I guess the idea is that black Rock can can show this to other investors and kind of get the ball roll for this type more of this type of product out there. Curious what you both think of this whole whole notion that's the price of pr I think that that's essentially what this is. I mean, let's

just put it. Let's call it spade a spade. I mean, look, I think that there's some very real goals, and I would totally agree and applaud goals to try to make our world a little bit more sustainable so that we can avoid that two percentage point or that two increase in temperature, which is sort of the Nopeman no go kind of place. I think that whether some of these financial incentives achieve that talked about looking around corners, the skeptic in me always wonders how much is greenwashing and

how much is reality? That said, the more emphasis. I don't know. I'm not going to get into a political spiel, but what I will say is this said, I think that, you know, there is an incredible amount of money looking to make companies look better and look more responsible. That money will find a home. How much of it will get directed to the initiatives that actually need to get done, formates to be seen, But I applaud the sort of effort and the fact that there are more people who

care about it. How about that for a non answer the price of pr That's a good that's a good catch phrase. I actually, um, I'll sort of bring this back a little bit of something I've been thinking about. You know, obviously there's a lot of interest in E S. G investing in general, but I've been more interested in the S than the E and the G. And as

it relates to small companies. Something I've been doing some work on and speaking to some academics about, is, you know, can we link this idea that if you treat the employees who work for you well, that your company will outperform your competitors that don't. Now, the question for all of us is how do you measure whether employees are treated well or not? And can you go back long enough to prove that out? But ideally, if you could

prove that in a rigorous way. There's some kind of weakly ways of doing that now, but if you could prove that in a in a rigor this way, you know, maybe it would lower the cost of capital for these companies that are doing good things for their employees or something like that. It's sort of the same idea in bonds, except on equities. I don't know, you know, it's it's a tough one, and actually, if you ever have any ideas around how one could measure that using publicly available data,

give me a call. Greg, Greg. All I'll say is, as long as Bloomberg keeps providing free potato chips, I'm a happy loyal employee for for the duration. Mike, for the record, are they sending you shipments of them at home? I can't. I can't discuss that. I show up to the office every now and then and fill a backpack and then then head back. Hey uh, Greg and Lisa, thank you so much for your time. One of the

more fascinating conversations I've I've had in a while. Granted the rest have been with my my teenage daughters, so but I really appreciate your time. Hopefully we can have you both back on the show sometimes. Oh it's been a great time for me. Thank you. I enjoyed this very much. Thank you. Thank you both, have one of apter do what goes up. We'll be back next week. Until then, you can find us on the Bloomberg Terminal,

website and app where wherever you get your podcasts. We'd love it if you took the time to rate and review the show on Apple podcasts so more listeners can find us, and you can find us on Twitter, follow me at Reaganonymous. Lisa brama Witz is at Lisa brama Witz one. You can also follow Bloomberg Podcasts at at podcasts. Thank you to Charlie Pellette of Bloomberg Radio and the voice of the New York City Subway System. What Goes Up is produced by Laura Carlson. The head of Bloomberg

podcast is Francesco Levy. Thanks for listening, See you next time.