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Enterprising Investor
Peter Lazaroff, CFA: The Mindset and Strategies of a Long-Term Investor
00:47:04
Join us for a special crossover episode of Enterprising Investor, where host Mike Wallberg, CFA, sits down with The Long Term Investor podcast’s Peter Lazaroff, CFA, for a lively and thought-provoking conversation. Together, they dive into the...
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- [00:00]
Mike Wahlberg
Fintool is ChatGPT for SEC filings and earnings calls. Are you still doing keyword searches and going to the individual filing and using control? F. That's the old way of doing things before AI. With Fintool, you can ask any question and it's going to automatically generate the best answer. So they may pull from a portion of an earnings call or a 10k, whatever it may be, and then answer your question. The best part, every portion of the answer is cited with the source document. Now, if you've tried to do any of this in ChatGPT, you may know that the answers are often wrong or full of hallucinations. The way Fintool is able to outperform ChatGPT is their focus on the SEC filings. If you're an analyst or a portfolio manager at a hedge fund, check them out@finTool.com hello and welcome to the Enterprising Investor, the flagship investment podcast for CFA Institute. I'm Mike Wahlberg and I'm excited that today we have a bit of a different episode for you. I'm joined by the host of another show, Peter Lazaroff of the very excellent Long Term Investor podcast. So instead of me pointing the microphone at Peter, we're going to have a bit more of a conversation today. I'm looking forward to hearing about the people and ideas who've impacted Peter's investing and personal worldview over the years and maybe sharing some of my own as well. So we'll post this episode to both podcast streams. Peter, it's great to have you on the show.
- [01:34]
Peter Lazaroff
Mike, thanks for having me. This is going to be fun.
- [01:37]
Mike Wahlberg
Yeah, I'm looking forward to it. As I hear your velvety tones there, I feel like it's going to be the battle of the velvety tones today.
- [01:43]
Peter Lazaroff
Well, you know, the thing that people don't understand about a podcast is they think that we just turn on a microphone and ask questions and talk. But there's a tremendous amount of preparation work. You've had amazing guests over the years. I have really been appreciative of the guest I have, but today it's feels like I didn't have to prep as much because we get to just talk a little bit.
- [02:05]
Mike Wahlberg
Yeah, exactly. That's. That's amazing. Yeah. So, so glad that you're. You're here in return for. For those that haven't checked out your podcast yet. Absolutely. You should also some amazing guests over the years there, and we're looking forward to hearing about some of those today. So for the benefit of any of your listeners, I guess Long Term Investor podcast listeners who are new to Enterprising Investor. We interview leaders in the capital markets, from CEOs to researchers, strategists, authors, all with the aim really of illuminating some aspect of investing that is either new or not really well understood. So the show's been around for 13 years. I've been in the host seat for the last three. And my background is also a little bit strange. I started my career as an investment banker with Merrill lynch in Calgary here in Canada as well as in London over in the UK. Then I spent 11 years as a buy side equity analyst and later institutional portfolio manager for what's now RBC Global Asset Management and then did a bit of a weird left turn I took got a Master of Journalism, started producing TV news for cbc. That's our version of the BBC up here. And these days I'm a partner in a $30 billion asset management firm called Leith Wheeler where I run marketing. So Peter, maybe if you don't mind, tell us a bit about your podcast as well as your quote, day job.
- [03:20]
Peter Lazaroff
Yeah, so the podcast, you can see more about it@thelongterminvestor.com or you can go to YouTube. The long term Investor it is actually syndicated by Cheddar News, so all of my guest interviews end up going on to national tv. And I started the podcast about three years ago myself. So you and I have been doing this even though your platform has a little more maturity and tenure. The two of us have been doing this about the same amount of time. And, and I remember when I started the podcast it was because I had been blogging for a long period of time. I'd been contributing to the Wall Street Journal and to Forbes. I had recently released a book at the time in which I had launched the podcast. The book is called Making Money simple. And I remember just getting to a point where I felt like people weren't reading anymore and I was a big podcast listener. I probably waited a year too long to actually hit record and go. But I've been posting every Wednesday for the more than three years at this point coming up on episode 200 myself. And generally speaking, I alternate between doing a solo monologue episode and a guest episode. Sometimes I get too many guests and I have to run a couple guests back to back. But I got that advice a long time ago from some other Canadians, since you mentioned being in Canada, the gentleman from Rational Reminder who has the largest podcast in Canada, if I'm to understand correctly. So shout out to Cameron, Passmore who told me to take that that route and I did and still going strong. But us day job I'm the chief Investment Officer at Plane Corp. So we're an RIA based out of St. Louis with a handful of locations across the country managing about $7.5 billion primarily for high net worth and ultra high net worth individuals, but also some retirement plans and some institutions as well.
- [05:03]
Mike Wahlberg
Great. Well, I'd love it if you, if you could reflect back on it doesn't need to be in the last year, it could be in the last three. But what are some of the more impactful sort of topics or guests that you've had on the show?
- [05:16]
Peter Lazaroff
It's interesting because I feel like I was asking friends to be on the show for a long period of time. I really worked my network. I remember the first time the show got a real bump in listenership was when Christine Benz of Morningstar was on. Christine is somebody I've had a relationship with going for a long time. For those who don't know Christine, she is host of the Long View, which is also a podcast, Morning Stars podcast. She's the head of Personal finance. Really, really well spoken, delightful, thoughtful. So I remember that was the first time I had a guest that made a real impact on the number of people downloading and listening. But I think probably one of the people I was most excited about originally was Burton Malkiel.
- [06:02]
Mike Wahlberg
Burton, wow.
- [06:03]
Peter Lazaroff
Author of A Random Walk Down Wall Street. Bert was a tremendous interview. He later introduced me to Charlie Ellis, who actually was on the show just a couple weeks ago, author of Winning the Losers Game, among many others. There are other really big names like Morgan Housel or Josh Brown or Ben Carlson. All these people who there's a part of me that just cannot believe they came on the show. Carl Richards was my episode 100 guest. He was followed two weeks later by Michael Kitces. All these people who have so much to share and I think what's interesting and I'd be curious about, Mike, how you feel about this. I joked a little at the front end of the show that there's a lot of prep work that goes into this. And I had a very difficult time interviewing Morgan Housel because there's so many different things that you could ask him about. But you have to choose. You have to make a choice for your audience about what is the lesson I want them to learn. And you. I do a lot of prep work where sometimes I feel like if I'm asking a guest a question, I've done so much homework that I basically know what their answer is going to be and that allows me to build a story arc in an interview of a beginning, middle and end. And actually coming up, I'm doing a live version of the show for CFA Live in Chicago in May. So if you are a CFA charter holder or a candidate and you are not registered for that, I remember going to the annual conference for the cfa. That was like the thing to do right when I got my charter. So if you're not signed up for that, do it now. You'll get to see the podcast live. But I look at all these guests and think, man, these are people who have really shaped my thinking and now I'm getting to share their wisdom or giving them a way to share their wisdom with my audience. It's been really, really special over the years. I will say this though. I listed a handful of very well recognized names, but if I have to go back to some of my favorite conversations, I would they. One of them was with a close friend named Ashby Daniels who writes a newsletter called Money Visuals. He has a white label newsletter that advisors can use. And he and I talked about everything. We talked about like what investors get wrong and different ways to think about risk and different ways to define investment success. I felt like that was really fascinating. And then there was another one from a psychology professor at ucla, his name is Hal Hirschfield. And really did a lot of research on your future self. And so trying to connect the decisions we make today with that person, who we are in the future, which research shows us those MRI brain scans show us that we think of our future selves the same as we think of as a complete stranger. I found that conversation still to this day maybe to be my favorite of all the interviews I've done. Really, really great stuff. But I can't wait. I mean, I know who's coming up on the show on the platform and so hopefully listeners will subscribe to the Long term Investor get a chance to see. Oh my gosh, I left out Jason Zweig. How dare I? That was the coolest thing. I interviewed Jason Zweig on the New York Stock Exchange floor. He rarely does interviews, so I interviewed him for two hours and did a double episode. And I think that's the thing is you get so there just, there's so much knowledge out there and it's such a great platform to, to have people learn from these, these legends.
- [09:21]
Mike Wahlberg
Yeah. Well, I definitely echo your, your sentiments about the, about the conference in May in Chicago. I'll be there as well. I'm going to be moderating a panel on alternatives and I'm going to be doing some recording as well. I'm sure we're going to do. Just started talking to the producers here about lining up guests who are speakers at the conference. So looking forward to that for sure. And it's interesting. You know, I totally agree with you, Peter. There have been some amazing guests on the show here that have been impactful in terms of my thinking and just kind of cool. I mean, honestly, sometimes I'm a little bit starstruck by the people we get to meet on here. And, and like we had pretty early in my tenure, so I was still and for anybody that's new on the podcast, maybe go like give me a pass on the first six months maybe. But as I was kind of learning my craft. But in that window, in the beginning there I had Samara Cohen on who, who headed up, I think she still does head up ETFs and index products for BlackRock. So one of the biggest hitters on Wall street was on the show and I had a wonderful conversation with her and she was the most gracious, lovely person and interesting, you know, she had, you learned stuff like she had, she'd gone to school for theater, you know, and she, and she went and got a job at Goldman and then worked her way up. And it's very impressive and very whip smart, extremely intelligent woman, but willing to share her views on that. And you know, Kunal Kapoor, CEO of Morningstar, he was on, I think it was last year, Robert Hagstrom, who wrote the Warren Buffett Way, he came on for the 30 year anniversary and interviewed him. But there's other folks too that you know, are just starting to make their mark in our industry or you know, I've been, been around a long time or they're doing interesting things. So I, I feel like some of the more interesting like I point people to when they say, oh, what do you, what do you, what should I listen to? It's, it's often for me and maybe that's just personal for me is, is it's the authors that I get on that I often find maybe it's also, I mean it's partly because of the, the books are interesting that they're writing, but there's also more you talk about the prep time and it's way more prep time to read somebody's book, but it also, you know, it, it immerses you more. Right. And you probably find this, you know, you have more to talk about because, you know, a lot more about whatever their expertise is. So one of the recent ones we had last fall we had Stephanie Baker on. So I reached out to her. She's a. When I saw that she published a book called Punishing Putin. So she's a Bloomberg reporter out of London who has covered Russia since the 90s and, and wrote this book all about, you know, the US and the world's attempts to arrest Putin's ability to wage war in the Ukraine. So interesting to look at that now, especially in the context of whatever's happening in US foreign policy right now. But it was, I found it was really fascinating on a lot of levels, really looking at sort of the failures on many levels of the West's efforts to apply sanctions. Sometimes it was due to political will or priorities that get. Can change with whether you're hitting midterms in, in the US or, and also other, you know, in that Europe had had a really strong resolution to be able to, to stand up and, you know, make a lot of changes at home and go through a lot of discomfort in terms of their, their, their energy consumption and being willing to make those, make those stands in the face of that, it was quite interesting. And Daniel Paris was on last year as well. So he wrote a book called the Ownership Dividend, which it was actually quite interesting because here in Canada, I mean, I was a Canadian equity analyst when I was an analyst, so I'm used to looking at Canadian stocks. Canadians, and I would say probably the rest of the world are kind of similar everywhere. But the U.S. is where they value the dividend. You know, it's important part of the investing process. And I kind of got more of an education, I guess, on, on the, the perspective of US Investors not valuing them as much, finding that that was, in his view was going to become more important to people. And so he wrote this book in Defense of Dividend Investing. It was interesting for me because it turned out to be quite prescient because our interview was on the morning that Meta announced its first dividend. So I think he was feeling like it was perfect time for a victory lap at that point. But yeah, just this whole idea that it's okay to require some kind of good faith sort of interim payment you don't have to wait to sell in order to get all of your cash back. And then another great book called investing in U.S. financial history. So this was our Mark Higgins episode from, from March of last year. He actually came back on the show in December because of something that popped up in our conversation about US Debt. But he Just he. He tells a fascinating story about the history of the US Financial markets, which sounds kind of boring even to people in our industry, but you would be surprised at how interesting it all is. It starts with Alexander Hamilton and moves on forward. And he. And it was cool for me because it just this idea that, that scandals and challenges and wins all work in cycles. And so even, even, you know, what we're going through now has, has happened before. And I think it gave him a certain comfort, I guess, in terms of how he looks at the world. And, you know, he, he had been an investment consultant before on the institutional side, so if, if he had continued working with, with, with institutions, I think that that would be the message that he'd be bringing them.
- [14:24]
Peter Lazaroff
I'm actually in the middle of Mark's book right now. It's a real big, thick one.
- [14:30]
Mike Wahlberg
Holy cow.
- [14:31]
Peter Lazaroff
But if any of you guys, Guys and gals out there are history buffs, Mark really does do a nice job. I mean, it. It is a really thick one, but comprehensive and interesting reads. Well, pretty. Pretty fascinating stuff.
- [14:45]
Mike Wahlberg
Yeah, it's cool. And it's. And it's. It's. I liked it because he was able to tell. And I've seen him do talk about, like, on. Since then, you know, he's been speaking in conferences and stuff, and he's talking about Hetty Green is one of the stories that's in there that comes out, which is kind of the first real investor, you know, we think about who we see as the grandfathers of capital markets and investing. And, and he identifies this. This woman, Hetty Green, who, Who was way ahead of the curve on all that stuff. And it was a really fascinating story in her own right, which was. Which I really found cool.
- [15:14]
Peter Lazaroff
Now, is there anybody who you haven't had on the show who you would really love to have on the show at some point?
- [15:20]
Mike Wahlberg
Yeah, I, I was, I was jealous when you said you got Morgan Housel on, because I've seen him speak twice at, at Vancouver, cfa Vancouver events, but I haven't. I haven't got him on the show yet. I would love to have him on. You know, Psychology of Money was. Was really formative for me. I felt like not, not even as a. As an investor, but just as. As a person in life, you know, like this idea that I really took away from. From, from. One of the things I took away from that, from that book was this whole idea that they're not looking at you. I love that idea. He talks about that idea like, you buy this sports car with this idea that everybody's going to be looking at you and wishing that they were you. And he's like, no, what they're doing is they're looking at you and wishing that they were in your car. They don't even see you, so stop wasting your money. You know, or the idea of being wealthy versus being rich, the trappings of being rich is what you're spending all your wealth on. And you know, keep it simple. All those messages, it's a. I feel like that would be a difficult one. Like you were talking about trying to know where to narrow it down. I feel like he would be a tough one because there are so many different nuggets that you would want him to, to talk about.
- [16:24]
Peter Lazaroff
Well, and I interviewed him for the CFA Detroit annual event, which maybe that's the cheat code. I noticed that you interviewed Shane Parish at the Vancouver event. Shane would be on my list of somebody I would love to have on the show. And, and sometimes people like that, the only way you can do it is if it's at an event in front of a live audience. But you know, with Morgan, we were doing it right when his second book Same As Ever was coming out. And so I think a lot of the messages in Same as Ever are great. It actually rhymes a little with what Mark Higgins is saying in that like history doesn't repeat itself, but it rhymes according to Mark Twain, not Mark Higgins. But you know. Yeah, I think in general, you know, you hear people on podcast and for guys like us who are hosting, some of it's because we want the guest and some of it's because I have like real questions for these people that unless you, you get a chance to bump into them somewhere, it's hard to hear what they have thoughts on. What was it like interviewing Shane? I mean, that was, that's somebody who's on my list for sure.
- [17:24]
Mike Wahlberg
Yeah. I'll tell you that it absolutely resonated this idea of, you know, the prep overload. I mean, I, it was a 90 minute conversation first of all. So it wasn't a sort of 25 to 30 minute snap chat. It was 90 minutes on stage. And so I read his book Clear Thinking and which was amazing. And you know, that's, it's one thing to read that book and be like, oh, that's interesting, that's interesting. But you know, my book was basically like completely dog eared covered. Every page was covered in pen and, and, and, and pencil. And then that all had to get transferred, you know, into, into a word doc and just sorting all of that. So I actually took a binder on stage of all of my, like, I had like 10 pages of notes.
- [18:03]
Peter Lazaroff
That's awesome.
- [18:04]
Mike Wahlberg
Where I had, I had reordered all of my questions. I'm like, okay, if this, then this. And I wanted to be compared and I really wanted to cover a lot of ground. So yeah, it was, it was amazing because he's just such a charismatic and interesting guy in the first place. Another Canadian. And put the plug in there and his, you know, you know you talk about guests, right? I mean, the Knowledge Project is, is, is, is incredible.
- [18:26]
Peter Lazaroff
Oh my gosh.
- [18:27]
Mike Wahlberg
Yeah, Yeah. I mean the one thing that he mentioned there and I, I don't know, I'm sure he's mentioned this on, on his podcast, but that, that he was all, he was all queued up to do a multi, A multi interview series with Charlie Munger when he died. Because he, I mean he obviously he was, had close relationship with Charlie over the years and interviewed all of those guys. But yeah, he was, he. Charlie had agreed to do like, I don't know, like a five hour interview or something. They. They parse it up into a bunch of different episodes and then, and then he, unfortunately he passed. But yeah, he was, he was, he was awesome. You know, just, just so interesting. And just this, this idea of like the most powerful story is the one that you tell yourself, you know, let go of mistakes. I felt like that was really liberating to me personally to sort of get. Allow yourself those, those mistakes and, and just this whole idea of, you know, making, making your criterion battle it out in your head. I love that idea too, where you're trying to make a decision, you know, identify the criterion that you're going to do it and then make those decisions, then communicate it in a way that your people can understand that and make decisions on their own. So sort of liberating them up and making it, you know, makes the decision scalable and leverage that. I thought that was really, really interesting. I had an opportunity for, on another CFA event. I didn't interview her on stage, but when Susan Cain came here, I had the opportunity to interview her and I wrote an article for the Enterprising investor on the CFA blog. And you know, as you know, she's sort of the. I want to say the father. So she's a mother of research into introversion. Right. And so that was really interesting for me because I, I had never really given a lot of thought to where I am on the sort of. I, I think it's a spectrum of sort of being introverted versus extroverted ambiverted. And, and she, she, she, she was very generous in our interview in terms of just sharing a lot about that and, and talking about questioning your beliefs about people and their potential. And, and if they're introverted, it doesn't mean they don't have anything to say because they don't have a loud voice. It's just a different way of being. And that there are a lot of strengths that are actually superior to an extroverted positions. I found that was really interesting.
- [20:38]
Peter Lazaroff
You know, I just wrote that down. I'm going to check that out. And somewhat of a side story. The Enterprising Investing blog is the very first like byline article I got. And since we're both going to the CFA event and we're both proud CFAs, I'm going CFA charter holders, I, I have to let people know. The way I got that byline was I went to the CFA annual event and I sort of like hunted down anybody who had CFA institute.org on their like email and just kept asking like, who runs this blog? Who runs this blog? And I ended up writing something, I wrote something about international investing. Actually. I think the very first thing I wrote about was hedge funds for enterprise enterprising investors. That's sort of the platform that launched everything for me.
- [21:23]
Mike Wahlberg
Amazing.
- [21:23]
Peter Lazaroff
Got that opportunity, which is pretty wild. And you know, hearing you talk about some of these people that you've interviewed, you know, and I'd asked you like, who would you really love to interview at some point? A lot of the ideas that really changed the way I think, you know, from the time I first wrote an article for someone else is Michael Maubouson. I remember reading his book the Success Equation and I think the subtitle something like Untangling Skill and Luck in Business Investing and something else. And I think when I was younger, I didn't realize how random the world was. And that sort of introduced me to the seam to labs stuff like fooled by randomness. I really like the work that Andy Duke is done. But Michael Maubousan, when you look at the success Equation, he also has another book I'm totally blanking on. It's like a series of essays. But the there was a concept that he introduced that I'd never heard of before, which was complex adaptive systems and how the stock market behaves like one. And for listeners who aren't familiar with the idea of complex adaptive systems, it's largely this idea that each individual piece is acting independently and they're all interacting with each other and there's no real way to predict how it will happen. So the example they always give is if you were like dropping a grain of sand on the table and we've all been on like the beach where you have a mound of sand going up and up and up and the bigger you make it eventually, like avalanches, but in like a controlled experiment where they dropped one grain of sand on a piece of table all at a time, which must have been excruciatingly slow and painful, the mound would continue to build, but there was never any way to determine the exact conditions that would trigger the avalanche. And like financial markets where there's millions of participants interacting with, with each other, bringing different tastes and trading rules into the system, the rules adapt over time based on feedback. And what emerges are these from these interactions of investors use somewhat of this invisible hand, the Adam Smith's invisible hand and millions of participants competing for profits are all going to be pushing that invisible hand. But it's also just so difficult to predict. And I think just the, the randomness of the market, the focus on probabilities, the focus on multiple potential outcomes, when you evaluate the future and the past, all like really, really important, kind of.
- [23:47]
Mike Wahlberg
Like cone of probabilities as opposed to trying to pick a number. Basically, yeah.
- [23:51]
Peter Lazaroff
I think there's just so much and I less so now than say like 15 years ago when maybe I first ran into Mobasan's work. But you know, everything is sort of in shades of gray. And I think even like for me, I'm an asset allocator. I have the same data that everybody else has, but the data isn't always definitive. You have to look at the data and decide like, am I more concerned about implementing a bad idea or missing out on a good one? And how far you are to one side of that spectrum or the other is really going to drive like what gets into your portfolio and what doesn't. And as you make those determinations, you know, the future is uncertain. The only rational way to address an uncertain future is probability. And I don't know, Mobasan is one of those guys where I might get system overload if there's too many things I could ask him and I might panic and not pick the right one. But man, I'd love to have him on the show at some point as well. That, that would be super cool. I have to maybe try the getting to speak at a CFA event where I'm the interviewer. Maybe that's my in on that front.
- [24:55]
Mike Wahlberg
That's your in. Yeah, yeah, absolutely. Yeah. When you were describing his, his book there, it made me think of same as ever. One of the things I, I took away from Morgan Howell second book was this idea. I mean, basically, yeah, he's saying things are random, bad things are going to happen, good things are going to happen. You probably don't know. So just be prepared for uncertainty. That was, that was my, my memory of what my takeaways from that book were. And, and part of, part of me found that book, I found that useful because it's like, okay, yeah, I have to let go of trying to know everything or out know everything versus my competitors. But at the same time I was kind of like, what do I do with that? You know? But I guess if, if you have, if you have some type of a framework like Mombasam is describing, then you have a way to take an acceptance of the unknown and turn it into a decision which ultimately, I mean, it's, that's what you're describing as behavioral finance. Right. And, and I know you're, you're, you're a big believer and, and who have you had on that or would like to have on the behavioral finance world? I'm sure that's something that.
- [25:54]
Peter Lazaroff
Yeah. So I've had Daniel Crosby a couple times. Brian Portnoy, who's on the behavioral side, is actually who I'm interviewing at the CFA event in May in Chicago. But I've had Brian on the show before. I had Mayor Stman, who was maybe the first person to publish on behavioral finance in an academic journal, so to speak. He was fantastic.
- [26:16]
Mike Wahlberg
Yeah, he was on the show as well. He was, he was amazing.
- [26:19]
Peter Lazaroff
Yeah. And, you know, it's so interesting when you bump into people in the behavioral realm and you know, like I've seen. Oh, gosh, I'm blanking On the other UChicago guy who has a Nobel, not Shiller. Also another Bob, though. Oh, Bob Thaler. Wow, that took a while. And listeners, you know, get to hear a more raw version of us trying to sort our thoughts out when we haven't done hours worth of prep on what we're going to say and ask. This is more the real behind the scenes look.
- [26:50]
Mike Wahlberg
The real, the real, the real lives of podcast finance. Podcast hosts.
- [26:55]
Peter Lazaroff
Well, I know we had some other topics we could talk about though. You know, do you want to lead us through those? Do you want me to?
- [27:02]
Mike Wahlberg
Yeah, why don't we, why don't we talk about this? Because I feel like there are themes that have come out of some of the interviews that we've had over the years and things that are just of interest to me. So why don't we talk. Let's talk about private assets because we've seen obviously there's been a big rise in, in productization or, you know, syndication of private asset opportunities, products for lower and lower levels of income or asset level. What do you think about that? I obviously have a view on it, but I'll let you go first.
- [27:33]
Peter Lazaroff
So my view, Let me start by saying plancorp has an allocation to private assets and alternative assets that we almost exclusively use with our family office clients. And our family office clients typically have a net worth of $100 million. So let me just say that that exists and I'm the chief investment officer of that, of the company that has that thing that exists. And I think where I've kind of landed over time. So I mentioned, I wrote on hedge funds for the enterprising investor so people can do some wicked googling and see the killer title I had. I won't tell you what the title is. I won't spoil it. Really good title. I think that they could be beneficial. But where I struggle is, are they necessary? And when I go back through the lens I'd mentioned earlier, are you more concerned about implementing a bad idea or missing out on a good one? On that spectrum, I tend to lean towards being more concerned with implementing a bad idea. Now, with all that said, if private investments were free, like if they had no expense, I am in. I'm fully in. So that must mean there's something there that's good. And the big narrative that typically comes with private assets is that there is a shrinking number of publicly traded assets. When you look at like private equity versus public equity, when you look at the loans in private credit, like the marketplace of companies with a hundred million dollars of revenue needing, like, credit, like why, why would you only do publicly syndicated bonds? You know, there's a lot of decent things, you know, returns, yes, returns were good. I don't know that you can make a decision based off of a decade or even two decades of return. I mean, that's not statistically significant. And then we know that a lot of the low volatility numbers that we see are not really real because some of these things don't price regularly.
- [29:23]
Mike Wahlberg
Yeah, that's just a little bit manufactured, right? Because yeah, if you have fewer price points, then by, by virtue of that, it's, it's, it's, it's going to have a lower Volume number.
- [29:32]
Peter Lazaroff
Right. So I think in general, like the space is not inherently bad. I would challenge how necessary it is to have in people's portfolio. And so here is the thing though, that at least in the US that I think is going to make this conversation much more complicated because with the current administration, it's expected that the Department of Labor is going to give the okay to private equity going into 401k plans. And what that is going to mean is that big players like Vanguard and Fidelity and T. Rowe Price, who make up well over 80% of the target date fund market in the U.S. they're going to add private equity to their target date funds. I mean, I don't know this, but I strongly suspect put a timestamp on it. And so when the public sees Vanguard do that, for example, what does that mean? Is that Vanguard signaling that they think it is necessary for portfolio construction or is Vanguard doing that because they worry about losing market share? I can't answer that question. But what I can say is that there are already a lot of affluent and high net worth investors who think they need this. I would tell advisors that if you have not done the due diligence on this space and do not have a really crisp view on who this makes sense for and who it doesn't, boy, get ready. Because when people have it in their target date funds, they're going to suddenly wonder if every single American suddenly has access to it. Why don't I? So that is a really long winded way of saying like, I think it can be beneficial. I'm not entirely sure that it is necessary for everybody. And a lot of that comes down to you need to have a certain wealth level in order to diversify properly. And active management, you know, it used to be that active management was the only way to access US or international or any kind of public equity market. Right now, active management is the only way to access private markets. I don't love the idea of people predicting the future, but again, it goes back to if it were free. I'm pretty firmly in, like count me in if it doesn't cost anything. But taxes and costs are real, so it's not for everybody.
- [31:40]
Mike Wahlberg
Yeah, I mean that definitely it's a good point on the cost because these are not priced the same as your, you know, even your actively managed equity portfolio, let alone an etf. But it's for me the, the other big piece and it's, we're seeing it in, in, in Canada, even in some of the high, like high net worth managers who are discretionary managers who are allocating higher and higher allocations to private assets for folks who don't have enough dry powder in there to be able to weather it if they had some kind of a life event come up. So you know, you talk about $100 million. Absolutely. That walks and talks like an institution. So to me that makes, you know, it's, it's perfectly interchangeable. You can put, you know, 10%, you can put $10 million into this stuff or $20 million into this asset class, I'll call it an asset class for, for ease here. And if something comes up, you don't need to sell half of your portfolio. But if you have a million dollars or even $2 million and you're, and you're putting in, some of these people are putting up to 50% in private, private assets. That's kind of one level at the kind of high net worth where I, where I, I, I saw red flags and I actually wrote an op ed for the Globe and Mail here of one of our national newspapers just saying that this, this is happening and it's, it's scary, right? It really scares me. But this against the back, it was interesting actually because when I published that op ed I had a lot of people reach out to me from all over the world actually people in England, I had people in Australia and they said like, thank you for writing this. And what they took away from it was the rising trend and you're referring to it a little bit with the 401k stuff, but it's this rising trend of investment banks offering, you know, assets or products that lower and lower asset levels. So, so for mom and Pop Shop, who, you know, it used to be hard to have a million dollars and now it's not hard to have a million dollars. So that, that kind of qualified investor bar is a lot lower than, than it, than it used to be. And so I, I worry that these sort of mass affluent folks are going to get in, they're going to load up and they're, and then they're going to need to get out. And whether that's normal course of business that the, you know, that the private asset managers are in their full rights to say no and, or what we've, you know, seen in the last few years since 2022 and a number of these guys, including you know, some of the big really, you know, B rate, right, they, they, they gated stuff, right. And so folks have kind of got a little bit of an education on oh, these things aren't liquid Like I'm used to, I didn't understand. And then, you know, I need money for, you know, a surgery or something and I can't access my, I can't access all of my assets. So that's where I worry a little bit, is that there's the folks. A little bit to your point as well, is this, this. They, they, they maybe don't understand exactly the nature of what illiquidity means. That's where I worry a little bit.
- [34:17]
Peter Lazaroff
I'm not sure all the advisors who recommend them understand either. But, you know, it's, it's, it is what it is. I think in general, if you're really interested, whether you're an advisor or an investor, you have to understand the why. And a lot of the cases that people make for these things are all 100% factual. The question is, do those facts matter? And that's where things are tricky. And, you know, take your time would be my advice there.
- [34:44]
Mike Wahlberg
Yeah, absolutely. Another one. And I was listening to one of your recent episodes here. You got into crypto a little bit with one of your guests there and it was echoing a little bit of our previous conversations that we've had. But what do you think on crypto?
- [34:58]
Peter Lazaroff
I have written so much on crypto. I think my first crypto article was in like 2016 or 2017, like this massive 4,000 word something or other, where at the time I was saying it's either worth a ton or worth nothing, which is an idea I took from Jason Zweig. And now we look fast forward, it's worth a ton. So it's not worth nothing. I think in crypto is a pretty big term bitcoin to me. The people who are very passionate, enthusiastic proponents of it. Those people sound a lot like the people who were, who we called gold bugs not that long ago. I mean, the early part of my career, I had to deal with a lot of gold bugs. And I feel like gold bugs and laser eyes, you know, are about the same thing. Now, clearly there's a lot of just nonsense in the space, like coins that are created that have no value. And I think just about everybody knows that's all garbage. But when you think about, like, what is bitcoin? Is bitcoin important? Is it necessary? Look, I'm more concerned about implementing a bad idea than missing out on a good one. That's going to influence a lot of things. I don't think it's necessary. It is not. Even if it does become what gold was to the human race in the sense of Some sense of safety. It's not a currency. If you go buy a pizza and you have to pay capital gains because you used it, it's not a currency. It fluctuates too much. It's not currency. It's not a store of value. Nobody's signing commodity contracts in Bitcoin or reporting financial statements in Bitcoin, So it's not like unit that anybody's considering. So it's not a currency. What is it? Well, a lot of people think it has value. So what is the case for buying it? I think more people are going to think it has value in the future. That's, to me, that's textbook speculation. And I.
- [36:57]
Mike Wahlberg
Greater fool.
- [36:58]
Peter Lazaroff
The greater fool theory, for sure, like somebody's going to pay more for it in the future. I, if anything, like when people really want to do it, what I coach them is much the same way that I would coach anybody who wants to buy any given individual stock. You know, if a client comes to me and wants to buy Amazon or Nvidia or whatever, you know, there's a certain amount that you could put towards that and it won't ruin your financial plan, and so be it. But I don't believe in an allocation to gold. And I think that's kind of the closest comparison. And people in crypto don't love that comparison, although they're coming around because they're realizing it's the best story they have.
- [37:33]
Mike Wahlberg
And yeah, that's, that was the, that was always the early comparison. Right. Although they don't really, they don't even perform like each other.
- [37:40]
Peter Lazaroff
Yeah, I mean, the vast majority of crypto is held by a very small number of people and they have a lot of vested interest in this thing. Not going to zero. And the supply demand thing where like, okay, ETFs are approved, there was a lot of demand for them. There's been a huge price spike. What would trigger the next source of demand? Well, you have governments talking about banning it, so I wouldn't look at major governments like the US And China. It couldn't possibly replace the dollar. I mean, there's really no currency right now. And I mean, you just had Mark Higgins on, on the show talking about the dollar, so I don't have to restate his case. So, yeah, I guess in general, I'm not a fan. If you hold it, I bet I understand the reasons you hold it. Those reasons just don't resonate with me. And at the end of the day, it's a little bit like religion. My mother is Catholic My dad is Jewish. They have different beliefs. Neither of them are necessarily wrong. It's fine to have those beliefs. If you believe in the bitcoin story, that's fine. I believe that a lot of people believe, but I don't believe so much that I want to own it myself.
- [38:44]
Mike Wahlberg
Yeah, I appreciated that. It was, I was, I just looked it up here because I listened to it the other day, was, it was Michael Batnik. That's who it was. From it, Holtz and Compound in France. Yeah, because he, I love the way that he described it because it, it captured kind of what I, the way I see it. And I, I, I similarly, I mean, as a fundamental analyst for, for many years, like, I, I'm always looking for the cash flows. I'm trying to understand what's, what, what's the actual case for what, what value does it create. And so I've always kind of come up short on that. But I like the way he talked about that. He, he, he didn't, he didn't think he couldn't see those things either, but he was willing to buy a little bit with money he was willing to lose. When he saw Catalyst, like you're talking about, when it went, when it was getting approved for ETFs, he's like, well, this will probably create demand. And the reason it goes up, as far as I can tell, is because people believe it will go up, so they hold on and they buy more. And that's, that's, you know, if you're willing to accept that as a, as a driver of market and you're willing to accept the volatility that comes with that, then, then go for it. And you know, so far, folks have done pretty well if they've held on, you know, and right now, so you can't argue with that. It's, I guess it's difficult in a way because you see, when you see the success of that, it kind of goes back to the private assets thing. When you see that it creates, you know, because people have a demand for it, then they are provided with products for it. That doesn't necessarily mean that the providers of those products believe that they're, that they have the underlying value, but they're willing to meet a market need. And that's, I mean, that's the nature of our markets. Right. It's kind of buyer beware.
- [40:16]
Peter Lazaroff
They're in the business of collecting assets. And I would say, like, I'm not rooting against Bitcoin, and I do feel like there are a lot of investment Thinkers and financial advisors who are outwardly rooting against it. I don't really care if it does well or not. I would say that people have done very well. And so the question is for that I would have is, if you had cash today, would you buy? And so for people who are holding and they're playing with house money, I feel like the calculus is very different. But for people who are talking about taking a new allocation to their portfolio, like, what is your investment case? And if you tell me, it's because it's uncorrelated, I mean, so is butter production in Bangladesh. You know, you've seen that paper where, like, butter production in Bangladesh is highly correlated to the S&P 500. That doesn't mean I'm going to invest based on butter production in Bangladesh. So, you know, I think in general, it's kind of, if you have cash today and you've never owned bitcoin, the case to buy today is really difficult to wrap your head around. If you've been holding bitcoin for a long time and you've made money, that is awesome. If you want to keep holding, great. If you take some money off the table and play with house money, so be it. But that's the other thing, is that some people who debate this stuff are still holding onto those past gains as, like, validity to continue to own it. Like, yes, it did really, really well, and those people were right. And I never came out with a hard stance like, yes or no? I'm probably more firmly at a no than I've ever been, whereas I just rode the fence because I didn't know what was going to happen. But, yeah, I mean, I wish I had known. And like, any stock that, you know, torpedoes through the roof, that'd be great. But the thing is, I have a financial plan that doesn't rely on an asset going absolutely bonkers to work out. And that's, at the end of the day, like, if you're building portfolios that relies on something just going absolutely bananas, then that's. That's not a real investment plan. That's not a real financial plan.
- [42:07]
Mike Wahlberg
Yeah, yeah, and I'm with you on that. And if there's some allocation of your wealth that you're willing to, you know, treat, you know, put it in 2%, 5, whatever number you want, that's in, I guess, in quotation marks. Prudent, you know, go for it. And people will make decisions that they're going to make. I. I personally won't be putting 50% of my wealth into, into crypto. But it's, yeah, no, like you say, it's, it's, it's, it's to, to each his own. We're, we're coming sort of towards the end of our time here, trying to keep chatting with you here, but we, we do promise our, our listeners, it's.
- [42:40]
Peter Lazaroff
A long episode for both of us. Yeah, our listeners, if they're still with us, we should really give them something special.
- [42:46]
Mike Wahlberg
Ah, well, I was, I was gonna, I was gonna ask you about your experience writing CFA exams, so that doesn't sound so exciting.
- [42:52]
Peter Lazaroff
It is exciting. I lost like four years of my life. I, I failed the first level the first time I sat.
- [42:59]
Mike Wahlberg
Oh yeah.
- [42:59]
Peter Lazaroff
And my now wife told me that if I failed anymore, that I was done. So I went on to pass all three in succession. But I had never really studied that much in school. And so when I sat for the first one, I treated it like I did most of school, like I did not study that hard. And I think what I learned was that the content, it's not that it's so difficult that people can't do it. What's difficult is the sheer volume of it. And you have to be committed. And for me, you know what, anybody who starts taking the exams, I tell them that if you're not exclusively taking practice exams a month before the test is to come, you're behind. And you know, I think that was really the big thing, like always do questions, always do the question bank and that last month it is practice tests or bust, and just non stop and reading the answers. And to me that, that got me through. I still to this day don't understand how I passed level two on my first try. Like level one. When I passed this, you know, the ticket the second time, like, oh, yeah, I passed that level three, I was like, yep, got that Level two. I walked out being like, I have no idea if I passed or not.
- [44:04]
Mike Wahlberg
I went into level two in a really bad. Because I, unfortunately I, I, you talk about not having good study. I had terrible study skills. And so every year it was like. Because we, back then, we had to write in early June every year. And every year it was early May and I'm cracking the books and so.
- [44:21]
Peter Lazaroff
And the weather's finally getting nice.
- [44:23]
Mike Wahlberg
Yeah, it's getting nice. The Canucks were in the playoffs one of the years as well, so that was tough. Everyone's going out to the hockey game. But yeah, so I was just, you know, killing myself to prepare for these exams each year. And, and Level two, as you Know, like, level one's a mile wide and an inch deep. Level two is a mile wide and a mile deep. And then level three is just its own thing. But level two, yeah, I got up against the end. So I was three and a half weeks in. I was like, okay, I, I actually made some educated guesses and I, I skipped two sort of subsections in, you know, one in derivatives and one in fixed income, I think, where I just, I'm like, I do not have time to learn this content, so I'm just going to roll the dice. And neither of those two sections were on the exam that I sat that year. So I got, I got lucky. I didn't get tested on some of the content that, that I didn't get around to preparing. So I, I got lucky and was able to go 1, 2, 3. But my stress coming in was in level one. I had just moved back from England to, to Vancouver and I'd gone in the week or the Friday, I guess, before I'd been home for a month. I guess I came back a month early and for May and to prep for Level one. And then I was starting the, starting at my new job on the Monday after the Saturday exam and on the Friday before I came through. And my, my new boss gave me a tour around the office and introduced me to the president. And the president was like, don't fail. So that's, that was the price. Have a good time, but just, you know, whatever you do, just don't fail. So, so that was the nice pressure that I took into that exam, which in hindsight, he was, he was, he was definitely joking. He was. He's a terrific fellow, Tom Bradley. But yeah, it was in. No, no pressure going in, but my, My, my key, you know, I taught CFA Prep at night as well for, for 10 years while I was a portfolio manager just for fun. And the one thing, obviously, steady early, don't do what I do. And I never told them the, any of these stories when I was up there teaching. But. And I think, yeah, we've agreed on this, is this. Don't forget ethics, like whatever you think you need to study under the ethics section, study that amount one more time because it's. You may be an ethical person, but the way they, they test that stuff, it really gets into the gray areas and it could be difficult to know the exact right answer.
- [46:27]
Peter Lazaroff
Yeah, it's, it's super tricky. There's multiple right answers, but one answer is more right than the other. That's always, always a tough thing to to right size when you're going through it.
- [46:36]
Mike Wahlberg
Yeah.
- [46:37]
Peter Lazaroff
One last piece of advice. Maybe buy an extra calculator. I saw someone, like, crying because their calculator didn't work on the day of exam. They're, like, trying to buy people's calculator. I was like, oh, man, I need my calculator. Yeah, maybe have an extra one. Ask someone who's already gone through the exams if you can borrow their calculator on exam day. Wouldn't be the worst thing.
- [46:56]
Mike Wahlberg
Yeah. Lucky exam. Lucky calculator for sure. Well, it's. It's been amazing having you on, Peter. Thank you so much for, for taking the time to chat, chat with me today. It's been fun to kind of be part of the conversation and answering questions myself, which is unusual for me. So it's been great having you on the show.
- [47:13]
Peter Lazaroff
Yeah. Super fun, Mike. Glad we had the opportunity to do it. And I'll see you in Chicago for CFA Live.
- [47:19]
Mike Wahlberg
I've been speaking today with Peter Lazaroff, chief investment officer for both Plan Corp and Bright Plan, author of the book Making Money simple, and host of the wildly popular Long Term Investor podcast. It's been really fun chatting with you today, Peter. Thanks again. I'm Mike Wahlberg, and this has been the enterprising investor.