SBF's Love of Risk

the craziest thing any of us saw this year. And of course it will take many months, maybe years, to sort out exactly what caused this mess. But we're going to talk to one chief investment officer who has taken a sort of philosophical look at spfs tolerance for risk and how unusually high it was. But first, vil Donna, it's almost years. Do you have any resolutions? I didn't until you just asked me. I guess, And now you're

coming up with the best resolutions yet. Well, we know that I belong to a lot of book clubs that I'm not inviting you too, So my girlfriend next year will read more books and join more book clubs that I will not invite me to Yeah, that's really just targeted. Want to be part of them? Targeted? You would probably say no anyway, And then I don't know what books are you reading right now? I'm reading a crime book. I like crime books. Yeah, it's called Lush Life. Lush Life. Yeah,

it's very good. Actually I think maybe the guy had something to do with the wire. So a lot of the dialogue is like very lingo, like Richard, Alright, what's yours? Oh, I resolve. I'm going to ask all of our guests, um much more complicated questions like fifty part questions. Questions are you starting like I've I've been letting them off easy with just the twelve part questions? Are you starting with today's guests? We'll see, we'll see. Bring him. Who

are we talking today? It's Victor Hagani. He's the founder and chief investment officer of ELM Wealth, which is an index wealth manager. Thank you so much for coming back on the podcast. Great to be back again, and I hope you're ready for Mike's Mike's multipart question. Let's do my best. So I know you so you actually joined us on the podcast earlier this year, so thank you for coming back, but maybe just as a little recap, you can just tell us a bit about ELM and

what you guys do. Sure. My story is that I started off working in at Solomon Brothers in research in eventually was a founding partner of l T c M. And after the collapse of l T c M, I stayed around for a little while to help with the unwinding of positions and and help my partners get a

new venture started. And then I took a long sabbatical of ten years starting from my late thirties and UM and I emerged from that sort of with a back to basics idea of how I wanted to invest for my own family, and that led to the creation of a wealth management wealth advisory firm that would share a low cost, globally diversified, dynamic index investing type of approach with anybody that that wanted to get involved. And so

I've been UM running ELM Wealth for eleven years. Will have a partner who's become the CEO, James White and uh and we do the My favorite part of the whole thing, besides helping our investors, is doing research and having a platform to write about different things going on and I guess one of our our articles caught your attentions, and hence I'm here all of your articles cut thanks

the ten Uere sabbatical cat. Actually, how do I sign up? Well, kind of you've got to uh, don't don't want to do it the way that I did it, But it was one of the best things in my life for sure, and especially my my kids were all young and I was young, and it was just a great thing that that I did. But I don't think I would have done it had LTCM not UM failed. So you want to go there, you have it, kept working those eighty hour weeks and grinding it out. Well, let's talk about

that piece you wrote. Vildon and I were both talking about it is because it's I love it when people take this sort of more philosophical, sort of thirty thou view of stories like this rather than you know, picking apart the weeds, because I think there's a lot to be learned from that sort of approach. And and this, this one's called a missing piece of the SPF puzzle. And you talk about UM what you call the classic

theory of choice under uncertainty. Talk to us about what that means and how it plays out in real life and investing. Sure, so you know, and I mean some people think that the that the start of financial decision making was around three hundred years ago when Daniel Bernoulli uh and and some of his family and friends were debating the St. Petersburg Paradox. It's a game where the

expected value of the game is infinite. But anybody that takes a look at it would would uh, you know, would say, well, okay, it has an infinite expected value, but I don't think i'd pay more than you know, ten dollars to play it. And the way that the game would work is or works, is that you flip a coin and you your payoff is the number of heads that you get in a row is well two to the number of heads that you get in a row.

So if you flip one head and then the next one is tail, that's one head in a row and you get paid two dollars. And then if you've flipped you know, three heads in a row, that would be uh you know, eight eight dollars that you would get And so you could see that the probability of that occurrence is the reciprocal of the payoff, and so the expected value is infinite, but you're not going to get a hundred heads in a row that would give you

a massive payoff. And people realize that and they say, well, okay, you know that I'll play this game, but I wouldn't pay an infinite amount for it. And so bernow Lli thought about, well, how can we reconcile that? It seems like you know what's going on here, and he realized and put forward the idea that the marginal benefit that we get from more and more wealth goes down with each additional unit of wealth, this idea of the decreasing marginal utility of wealth, and he modeled that in a

very simple way. He said, well, what if my you the utility that I get from wealth is equal to the natural log of wealth. That's just one function which goes up, but it goes up at a decreasing pace. Then you get a solution to the St. Petersburg valuation, you know, which is I'd pay a tiny bit of

of my wealth to play it. But it really took off again in the nineteen forties when uh John von Neumann, the polymath, and the economist Oscar Morgenstern came together and wrote a book that put forward a logically reasoned proposition that if we maximize our expected utility, that that tells us the right decisions to make under uncertainty. And that's

really the beginning of this classic theory of choice. You know, I think most people feel that way, and economists have it developed that and brought it up to now and and basically, we don't need a fancy theory to know that when we're faced with some coin flips that we don't want to bet, even if the odds are in our favor, that we don't want to bet all of our wealth on heads coming up each time, even if heads has a sixty percent chance of coming up. It's

like some biased coin thought experiment. And so, you know, what's what's really interesting in this whole SPF case is that he was sort of on record on a number of occasions of saying that that his conclusion was that he should make decisions as if as though he had no risk aversion basically maximizing the expected value of his choices, you know, making a choice that would maximize the expected value of his wealth, which he intended to give away.

He said, rather than trying to maximize this this expected utility. Have you ever encountered anyone I mean, maybe if your goal is to make a lot of money and give it away, is the only only chance you have that kind of risk color and says, have you ever encountered

anyone with that sort of blinders onto risk? Like he is sort of hinted at no, Although I I have heard some people say that their approach to making decisions under uncertainty is to take a certain amount of their money and put it aside and treasury bills, and that's safe and if they lost everything else, they would be really happy that they had that, and then to be really aggressive with risk with that discretionary amount that they

had above what they put away. But when you but but when I've met a few of these people in conversations, we've talked about it that when I really analyzed decisions that they were making with that discretionary capital, they were nowhere near risk neutral. It was just their way of of, uh, sort of thinking about things. But they still were sort of had a normal level of risk aversion. And it's interesting, I mean that in practice people have not used this

expected utility theory very much. It's not used much in the financial planning industry, for instance. Uh and and one of the criticisms is, oh, it's really hard for people

to calibrate or to express their utility function. But actually, what we've found is that when we talk to people about risk taking and you know, expected compensation for taking risk, that people fall into a reasonable kind of range of risk aversion that most people seem to be and you know, we don't really see this incredibly high risk aversion where people don't want to take any risk in the face of nice opportunities, or even more rare than high risk

aversion is this super low risk aversion where it's like just let me, you know, I think, although you know, I guess that a gambling addiction in some ways, right is you know, I'm not really talking about pathological conditions. I mean, if you have a gambling addiction, you know,

that's a different story, I guess. And you know, maybe those people are characterized by having a risk seeking they don't generally rise to the level of you know, owner and CEO of a major financial for billion dollars or something. So had you been thinking about this all along? Because he has been very media friendly, not just recently obviously after the fallout, but all along he had been sort of out and about talking to people about you know, him wanting to give away his wealth and his very

low risk conversion a little bit um. So actually the place where I came across expected value being used in a way that I thought wasn't quite right was was

actually in some of this effective altruism literature. There's this one discussion that I read about three or four years ago where there was an argument that that we should all vote, not because we have a civic duty to do so, but actually that if you think that your vote has this tiny, tiny chance of making a difference in the outcome of the election, that if you think that the election of the people in the policies that you support would make hundreds of billions or trillions of

dollars of difference to the world, then you should just vote based on that small probability. Because the expected value of your vote, the small probability times as big outcome is a really is a big positive number, and you should that should motivate you to get out of bed and go vote. And so that's using expected value for a lottery like payout. I think that analysis is not

quite correct. You know, I think that that huge payout that you would get, which you would automatically be giving to charity because it wouldn't actually come to you, uh, needs to be discounted by the fact that you have a marginal decreasing utility of of of wealth even when

you're giving it away, you know. And I think that's kind of really an interesting part of the SPF case right now, Victory, I wonder if you think back to uh the long term capital management days, and boy, I guess it's almost twenty five years now since uh, since all that happened, um, you know, And if you were to make a Venn diagram of F t X and l t c M, is there are there any overlaps there? And one thing I'm thinking of is I would guess and correct me if I'm wrong, But I would guess.

If you asked everyone involved at l T c M back then are you taking too much risk? The answer would beat no, we're not. You know, we're not taking on too much risk. It's just our positions got so big, right, and and that was really what led to the trouble. And at FT actually have this scenario where they have this massive position in this coin they invented themselves the f t T token, where they're also the big whale

in in that position of that asset. But I don't know, is are there any sort of overlaps of the two that spring come on from from your experience at l T c M And you're, uh, what you've been able to observe with f t X. Well, first, you know, as you said earlier, we don't really know exactly what happened at f t X. I mean, one thing that seems to be the case is that Alameda had bad trading results at some point and lost seems to have

lost a lot of money. The one thing that we know is that that SPF was out there saying that he was you know, that he was in favor of making decisions with a very low or no risk aversion at all. So you know, at LTCM, we we were risk averse. We were uh, we were not thinking too we were not looking to maximize expected value, but we were looking to maximize risk adjusted return. And so that's

that's a difference. But you know what I what I would say is that you know, investing involves two types of decisions, right, one of them is find the good investments. Find the things that are that you think are gonna give a good return, a good risk adjusted return, and uh, and try to buy those things and find the other things things if if you're running along short find things that aren't good and sell those or go short those

or whatever. So that's the part of the process that's identifying and evaluating different assets and different investments, and and that's really where almost all of the attention of people goes and uh. And but there's this other decision that we have to make, which is how big. Once we've figured out the the what are the good and bad things, then we need to figure out how much of those trades do I want to put on? And especially if

we can use leverage or options or derivatives. Uh. You know, we have quite a lot of flexibility in terms of how much of them we can buy and sell. We may not be constrained by just how much capital we have to invest, but we could own more, go short or whatever. And that sizing decision doesn't get as much attention, doesn't get a lot of treatment in universities and finance

programs and so on. And yet that's the one that's more critical because if you even if you can find the right investments, but you do them and too large a size, that can end in failure. Whereas actually, if you find the wrong investments but you size them correctly, it's not a happy outcome for you, but it's survivable and you go on and you have enough capital to

spend or to support yourself or whatever. So, you know, I think that it seems likely that Alameda took too much risk that guided by this principle of maximizing expected value coming from the top or the the owner. Um. However, he came to that decision which we'll talk about more um, and he took too much risk, and the result was that they lost money. I think at LTCM, you know, inadvertently we wound up with positions that were too big that that they wound up getting themselves sort of related

to each other just by the fact that we own them. Right, So when as soon as we got into trouble and artificial correlation almost just from yeah, I mean, there were there were some you know, deeper, deeper reasons for them to be correlated in some cases, but in many cases, you know, they would have been going in the opposite direction, and they got correlated because we own them. And but anyway, it was it was too much risk. You know, I

don't think there's any disputing that. So I think that's, you know, a parallel, but I would say mostly that it's you know, I don't that that. I think that mostly they're sort of separate circles. And you know, in particular this, you know, our approach was, you know, to be very aware of risk and you know sometimes you you you don't get it right, and uh, you know, as opposed to a policy of maximizing expected value, which you know, which I think is what was going on there.

So let's talk a little bit more about how SPF al Amida f t X all of this actually happened. Because in your note you have this amazing sentence it says, when spfs stated preferences encountered the real world, it results in almost surely going bust at some point, and pretty quickly for someone who knows their way around financial markets. Yeah, so I think a great example to just just to

work through a little bit. As you know. At one point, SPF has a Twitter thread where he says, if I were faced with an opportunity that had a ten percent chance of a big payoff and a nine chance of going to zero. Well, he said, I wouldn't invest a hundred percent of my capital in that one trade, because um, you know, I'd like to be able to do it again afterwards, find another one like that afterwards. Uh, but I would put like fifty of my capital into that.

And that's very very risk tolerant. That's not quite going all the way to his stated preference of being risk neutral and trying to maximize expected value, but that's really being you know, extremely risk tolerant. And so from that you could sort of say, well, what if he found

five of these to do in a row. Well, you know, if he did five of them in a row, his probability of of losing five times in a row, you know, fifty percent of his money five times in a row, which would leave him without in a five percent loss, you know, would be probably over fifty you know, close to in that ballpark, right, you know, ten percent chance of that happening every time. So you can kind of see how it. You know, even in a world where you could find some amazing you know, which I don't

think exists. I've never seen an investment opportunity that has a ten percent chance of making a thousand times my wealth or something like that. I've never come across that, never seen it. But even if you could find those things, if you bet in that way, you have a very very high probability of of losing you know, all of

your money. Um, you know, Victor, I'm smiling here because I'm thinking of the clients of partners out there listening to this and going on, bullie, Victor, what has he got my go what's he got me into crypto and coin flips and talking about losing all my money once? But so let's pivot it to to what's really in your wheelhouse here, and that's that's those boring old regular markets. And you know, we talked about how uh, sort of having no limit for your risk colorance can cause these

spectacular blow ups. I do feel like for the average Joe investor, whether it's a four O one care and I R or or you know, your your your basic nest egg investor, that maybe having too much fear of risk is a bigger issue and and not sort of uh, you know, being willing to take on risk. And I'm thinking this, especially after the year that we've had in

the stock market and the bond market for that matter. Um, you know, the year is not over yet, but I think it's a safe bet to say that we're going to close on a you know, a down year in the in the equity market, it's pretty rare to have two down years in a row. I think the dot com collapse was one, Uh, nineteen seventies, I think was the last time before that. Is that too simplistic of a view of the equity market right now to assume

that you can't have two down years in a row? Um, we're you know, is that is that an enticing entry point to you? And what you know, what would you call what we saw a client who called you up and was asking you what to do here on January one?

When it's time to think about the next year. So the way that we like to look at it is the way that we like to look at investing is really thinking that the main risky asset that investors have access to is diversified portfolios of global equities, US equities and non US equities and the low risk things that they want to come that we should compare those expected

returns to our government bonds. You know, I would say, in particular, for long term investors, it would be tips inflation protected bonds giving a long term real yield in excess of inflation or below inflation of their yielding Yeah, back to positive thankfully, you know, or treasury bills or government bonds whatever. But you know, that's sort of your

your low risk alternative. So we need to look at equities relative to the low risk alternative because it's an either or thing that either we have more equities or we have more safe assets. And so when we look at that today, let's say we look at tips today, So long term tips are yielding about one point two percent in that ballpark, uh, much higher than they were a year ago when the negatives the real yield, So they would so if you bought them, they would give

you uh. And also pre tax they would give you one point two percent above whatever inflation turned out to be. So in this past year, when CPI inflation ran at eight percent, they actually were giving you they would give you a nine point two percent return if we got another eight percent of inflation ahead of us. And then we need to think about, well what do equities offer. So we could look at US equities and using the

cyclically adjusted earnings yield. So if we buy equities, were getting a certain amount of expected earnings from them, and you know, if we try to just guess at what earnings are likely to be by looking over the past ten years and averaging that together, you know, I think that US equities have an earnings yield right now of around around four percent or a little bit lower than that.

You know, it's gone up as the equity markets come down, and so you know, we're getting around a three percent expected extra return from or maybe it's two point five to three percent extra return from owning US equities rather than owning tips. And then we say, well, is that how how attractive is that? It's okay, I mean, you know, it's two and a half three percent extra return. It's nice, but it's not so nice that we'd want to have

a lot of it. So from with that starting point, we are underweight US equities for our clients because we don't think that that two and a half to three percent is great. And then we also want to think about the risk of US equities and uh, you know, we could look at their volatility or we you know, we prefer to look at their momentum as a proxy for risk and momentum in US equities is still negative,

even though it's getting closer to neutral. So between those two things, we would be underweight US equities, and applying those same ideas to non US equities, we would be overweight them, even though risk and momentum is negative, causing us to want less of non US equities, their earnings

yields are quite high. US non US equities have done really poorly over the last ten years and are offering quite high, you know, earnings relative to the price you pay for them, So we would be we're a little bit overweight, just slightly overweight non US equities and underweight

US equities, and all together underweight equities. So we have about in our typical client portfolios, we have between fifty to sixty percent of the portfolios are in low risk assets right now, whereas back in the middle of two thousand and twenty one, we were probably like of the client portfolios were invested in risky assets and only ten percent and low risk assets. So I don't think it's a great time for equities perspectively relative to safe assets.

And I don't and I think that, yeah, I mean, we could definitely have two years in a row of negative returns. A lot of that will probably hinge on what the Fed does and what happens to long term interest rates. And I'm gonna go out on a limb and guess that all you're listening to, Uh, Sam Bankman Freed podcast did not make you more bullish on crypto

to talcate allocate anything crypto. Just gonna go out on a limb and guess that, Victor, how did play out in Obviously we have the benefit of hindsight, but how did it turn out in terms of what you had been expecting? Our approach to investing was was pretty good for our clients. Our clients, Uh, I don't know client returns until now are I don't know exactly the right number under ten percent of losses on average over the over the year, which is better than a sixty portfolio.

It's it's much better than if they just had a static portfolio based on our baseline. But I am surprised by how sort of goldilocks things seem to be right now that the interest rates. You know that if we went back, you know, over a year ago, nobody saw four hundred basis points of four percent increases and interest rates coming we got that. Wow, that was a big surprise. And sure interest rates, long term interest rates are higher,

but they're not so much higher. And people are expecting that the Fed is going to raise rates a bit more and then dramatically bring rates down by a couple of percent starting in the middle of next year and bringing them all the way back down because inflation is going to get under control and in all of this, we're not going to have a massive recession and companies, corporate earnings are gonna be okay. And uh so you

know it. You know, I think that if I knew, if all that you told me was that, uh, you know, inflation picked up dramatically as it has done, and that economic growth had been strong, and that the FED raised rates by four percent, I would not have guessed that markets would look the way that they do right now. So it's been a surprise in that sense, and I suppose it almost always is, but yeah, it's quite surprising. They passed a loss somewhere Victor where we have to

ask every guest about their their outlook for inflation. Uh, it's it's a new law. You don't strike me as the type of guy who's going to you know, try to predict where it's going, but rather react and and sort of play the cards on the table. Is that right? Or do you have an inflation uh forecast in mind? Well? Yeah, so I guess that, Um that that's you're you're right. I mean my starting point is to look at the

break even inflation rate between tips and nomenal bonds. Is to you know, think about some of these surveys that come out where and that the break even show a normalization. They do. I mean, long term break evens are where they're they're under three percent. I mean we have what thirty you know, thirty year tips are around just over one percent, and thirty year nominal bonds are just below four percent. Right, So yeah, so we're you know, in

the in the mid to high twos. But also there should be sort of a risk premium and all of that, right because to take inflation, you know, it's not really whatever that number is, it should be a bit of an overestimate of what people are really expecting for inflation. But that's you know, sort of mid twos. And then you know, these inflation surveys are coming out sort of

mid twos as well. So I guess I wouldn't want to go too far out on a limb, but you know, I think that those are underestimates of what's going what we're going to see in terms of inflation, I think that the forces that gave us uh so much um low inflation or the deflationary forces of the last couple of decades have slowed a lot or have reversed in some global Yeah yeah, and uh so, you know, and I think that there are these lags, you know, like by the time that my barber actually I don't go

to a barber, I just buzzed my own and if I did go into a barber, I know that for the barbers that I do know that you know, there's just a lot of uh businesses that haven't raised that haven't gotten around to raising prices yet. And uh you know, so I think there's still a lot a lot more that we'll see, at least in the nearer term, before it really pans out. Uh you know. I mean, things like oil are a big wild card in the whole thing.

I mean, if oil comes down to thirty dollars a barrel, then yeah, you know, we're gonna see some some big changes some you know, a big downward move in in the headline inflation anyway. But assuming you know that things stay where they are, I think that I'd be a little bit more bearish on inflation than what the markets

are telling us. Well, with that, Victor, the good news and maybe bad news for you, is that we can't let you go until you participate in our gimmick or tradition, not a gimmick tradition, both of the craziest thing we saw markets this we can it's it's you know, New Year's so it can be the craziest thing you saw in the past year. I'd say, so my craziest thing,

it's probably not that crazy. And I've and when I've pointed this crazy thing out to people, I find that I get kind of like a bit of a negative reaction from them, even though I'm telling them some good news. And so maybe that's the really crazy part of what I'm going to say. But two thousand and twenty two has been a tough year for investors that you know, we've that you know, even if you're doing well, your

portfolio is probably down ten to fifteen percent. Uh, you know, bonds are down close to fifteen percent, Equities are down close to fifteen percent. It's been hard to avoid being down ten to fifteen percent. And if you were really concentrated in some bad thing, the things that did poorly, then um, you would even be worse. But let's say

you're down, you know, ten to fifteen percent on your portfolio. Well, then you say, gosh, you know, it's actually much worse than that, because uh, in real terms, UM down another eight percent because prices of everything are higher. Assuming that cp I is relevant rather than some other index that could be worse, although the haircut index would be better, and so uh. So you know, the the typical investor and myself, for instance, among them, Uh, you know I'm down.

Uh let's say just over twenty on a real basis, that the real purchasing power of my wealth is down in two thousand and twenty two roughly. Well that sounds terrible, you know, that really is bad. But the crazy thing about it is that what we really care about is the real, the inflation adjusted real income stream, long term income stream that we can generate from our wealth. So our wealth is down in real terms, does that mean that we're gonna be able to spend less over the

next thirty years. Well, actually, the surprise or the crazy thing is that because interest rates have gone up so much from a year ago from minus one percent to just over one percent today, and I'm talking again about real interest rates, that actually the long term income stream that we could generate from our wealth is probably ten percent higher than it was twelve months ago, which I think is just a crazy thing because everybody's sort of,

you know, moping around like this sucks. You know, I'm down and then I'm down more because of inflation. But actually, uh and and and this result that the whole outlook for the pension industries is turned around because of this. Right. Oh, that's a great point. That's a really great way to see it, Right, is that pensions are less underfunded because their liabilities. That's a great point, which I kind of was, I forgot to bring that up, but that's a really

great perspective to think about it. That for pension funds, they're better off in general because their liabilities have gone have been reduced by more than their assets. And and we're like little pension funds ourselves with our savings. So

I think that's crazy. Who knew the s to the pension crisis was you know what the worst bear markets and stocks, and well, well if the you know, it doesn't have to be that way, if equities had gone down a lot more, if we were down in our portfolios, then we wouldn't be able to say that, you know that it's just that we're only down, you know, fifteen in real terms. It allows that to be the case. But I do think that the really weird part about

it is what people's reactions are. It's like, leave me alone. I just want to be can't you just let me be miserable? I know I'm down. I don't believe you. This is ridiculous. You know, there's something wrong with your analysis, or maybe there's a tax effect that you're not talking about. But you know, I think that's kind of the funniest part about it is that it just it does not seem to It does not seem to make anybody happier.

But I thought i'd share that. There's definitely a lot of other crazy things going on, and god knows what an options markets and and all of that, but this is the one that I feel sort of the most interesting and all and allows a year on a high note for sure. Well, let's hear Vildona. Have you ever had a pet rock? I am of the age where yes I did have. In fact, I think we made them. You have a collection fifth grade, uh, fifth grade art class or something. Uh. But I think I know where

you're going with this one, and it's good. It's not it's not of the past year, but it's more representative of like the big stories of the past year. So Jamie Diamond from JP Morgan, he said, Crypto is like pet rocks, and I just love it because when you think of pet rocks, they're so they're cute, right, Yeah, and people, and I wanted to ask you if you had a pet rock? Of course I did. Yeah, there, he said, why do we allow this stuff to take place?

The big things in the eighties were the parachute pants. I don't know what that is that they're like these vinyl I don't know what that like. Pants made out of parachute. No, my parents wouldn't wouldn't let me get any, so I didn't have been very hot. But now they're they're way past my time. But I've heard Crypto compared to the beanie I think the Beanie Babies is a better because there was an active market for beanie babies, and there was manipulated prices, you know, people trying to

corner the market and all that. I don't know if pet rocks ever, what do people do with their pet rocks? I think he just sat it on your desk and then eventually making into the garden. Yeah, exactly right. I think there was a secondary market for Jamie. Jamie Diamond knows better than me. He maybe he's securitized. He's been hating on crypto for a long time, and he kind of warmed up a little bit there, but then he

reverted back. He said great or something. He was he was right all along, probably, but all right, I like that one. That's pretty good. Alright, Well, don I'm gonna start mine with a tribute question. Do you know you know who Hugh Hefner is? Was Hugh Hefner a member of the two thousand Los Angeles Lakers. No, I was

taking you that he was, like, probably he was. But he was the owner of a championship ring from the two thousand Los Angeles Lakers that was gifted to him by their owner at the time, what's the owner's name, Jerry Buss gave him there two thousand championship ring l A Lakers. I'll shave you a picture of it. It's the ugliest ring I've ever seen. This picture is perfect for the podcast. Cannot see it, we can describe it a little bit. It's like it's got all these diamonds,

says World Champs. It's golden diamonds. Looks like something Mr. T would where you'd think just the intrinsic value of the raw materials in it. I think you know where we're going with this. Where we're going. I know where we're going. Victor probably doesn't. We're going to the prices precise. The price is precise. You have just traded it's it's up for auction, so we don't The price discovery on it is not perfect early bidding. Four days left in

the bidding and mind you went. And this is where we're recording in the middle of December here, so uh keep that in mind. With Victors numbers about how down far down the market is this year, we could redouble that by the end of the year. Victor's gonna lookay, well, I can't let you see it, Victor, because you gotta get two bids in what do you suppose the prevailing bid is for Hugh Hefner's l a Lakers Championship ring. Remember this is that this is a heartbreaking team for me.

That shack Kobe and they went on the dismant on my seventy six ers a few years later. This is the first of three three championships in a row for this team. Wow, and Hugh Heffner got a ring. I don't know. I'm going with one point seven five million. One point seven five million, okay, and remember playing prices precise, so if you go over, I win. Okay, all right, you just jumped out there right, all right. I was going to give a little more details that. Oh sorry,

go ahead. Two bids in four days left in the auction. The auction house is SCP Victor. What do you think you can take? Just that was not a lot of extra good details SCP Southeby's or somebody else. I don't you know, that's a good question. I don't think so. I think it's some some um collectibles focused. Oh my gosh,

this is such a tough one. I mean, I guess you've got the You know that that having Hugh Hefner's ring could be good or bad, you know, depending on and then but I you know, I'm just gonna have to go, I'm gonna say one more thing. Remember they won three more they won three championships. A lot of guys on the team, if even he was getting so it's not that rare, right, I was gonna say that there's a lot. Well I did say I was gonna

go low. So I but I'm not gonna go I'm not gonna be obnoxious and just you know, undertake you, because that wouldn't be No. No, I'm gonna I'm going to go with what I was sort of thinking, because I think that's the honest thing to do. Like we probably should have written our things down. So I was like, I was gonna go something, you know, in the two fifty thousand range for it, you know, and and even

thinking that's a little bit high. So that's where I would you always go for every time she hears the other bid, she wants to re point six millions. Okay, where is it? I will tell you something to remember in future episodes of The Prices Precise. Sometimes the crazy thing is that it's not as high as you think. Oh, come on, bucks, so far as just raw materials alone, that's gotta be uh, twenty grand worth of diamonds alone. I don't know. Yeah, you could get that ring and

turn it into two nice earrings or something. So maybe to your point, Q is not you think I think in fairness though maybe you know that in a later podcast you'll say what it sold for and then then Bill Donna will be vindicated. It'll be it'll likely be higher that we can take all of our big podcast money and go, yeah, all this crazy money where sure,

So there you go, that's my craziest thing. But can I say, because you always have auctions for craziest thing, and I would no, for sure, but I would think that the craziness there would have gone down since last year, and some of them have been obnoxiously crazy. You're right, You're right. They the froth is still there in the crazy market for some reason, and you know, maybe it's

always there. I mean maybe some of these things, Uh, you're you're dealing with a different stratosphere of wealth and investors so that there's only so many to start with him.

But the froth does seem to be coming down. In fact, a cousin of mine who lives in Los Angeles will be really happy if I mentioned he's been following classic car auctions and he's been noting that so many of the cars much more than in the past, or not getting to the reserve price, which you know is indicative of a market where the sellers are like, well, come on, this is a great car and should be at least

worth this much. You know, and and and you know, we know that the auctioneers are trying to push them to make deals happen, but you know, we're we're in some sort of an adjustment period for sure. That's interesting. Yeah, it's funny the different lenses to look at the sentiment and market evaluation fascinating. Victor Haghani from ELM Partners so great to catch up with you and hear your thoughts. It's always very educational. Thank you so much for having

me on the show. I really appreciate it. What goes up, We'll be back next week and so then you can find us on the Bloomberg Terminal website and app or wherever you get your podcasts. We love it if you took the time to rate and review the show on Apple Podcasts. Some more listeners can find us, and you can find us on Twitter, follow me, at Rea Anonymous. Well. Donna Hirach is at Bildanna Hirach. You can also follow Bloomberg Podcasts at podcasts. What Kind Is Up is produced

by Stacy Wang. Thanks for listening. To see you next time than