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It’s Only a Question of When | Nir Kaissar on AI, Private Credit and the Regime Shift Investors Miss
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A
The majority opinion is that interest rates are coming down because that's what Trump wants. And now Wash is the, is the is going to be the next chief. And I actually don't think that's going to happen as long as that high profitability is there. That profitability is going to put a floor on the premium valuations. The reason they're premium is because the, the, the profitability in general is higher than normal. As long as it's there, it's going to put a floor on it. But that doesn't necessarily mean you're going to continue to see 13, 14% returns from the S&P 500. If you look at the returns from the S and p Since say 2015, the vast majority has been driven by insane, insane earnings growth upward of 40% annualized from a handful of tech companies that are dominating the market. I just don't see any world where that kind of earnings growth is sustainable long term. If you looked at previous crises, what you would see is, is the spreads widen ahead of the default rates going up. And so we have a signal that says to us, hey, you know, not necessarily, but you might want to pay attention because alarms are going off. We don't have anything like that in the private markets. We don't know who the issuers are. We don't know what their credit worthiness is. We don't know what the default rates are likely to be.
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C
You're watching Excess Returns, the channel that makes complex investing ideas simple enough to actually use, where better questions lead to better decisions. I'm Matt Zigler. Justin Carbono is in the co host seat. With me today we've got Bloomberg columnist and opinion maker extraordinaire, founder of Unison Advisors. It's nir. Ksar nir. Welcome to Access Returns.
- [02:32]
A
Thanks, man. Thanks, Justin. Glad to be here. Glad to be back, I should say.
- [02:37]
C
We're so happy you're back. I'm so happy I get to be at least in the sidecar to Justin's Batmobile. For this one with you, we're starting off with some of 10 unexpected things that you thought might happen in 2026. I love an unexpected things list. Shock on surprise us.
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A
I do too. I'm glad you enjoyed it.
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C
Tell us about it. Give me some of the highlights from some of your 10 unexpected things for 2026 to put on investors radar.
- [03:05]
A
I'll tell you my favorite one. My favorite one is I was in San Francisco with my kids last summer and you know, I had to force them to ride in a Waymo because you got to ride in a Waymo if you're in San Francisco. And they were flipping. The first time I made them get in that car, they were flipping. And after about five or ten minutes I couldn't get them out of the car. And all we could do the rest of the week was ride Waymos. They didn't want to see anything. They just wanted to ride the town around Waymos. And you know, it just, it made me realize that like one, the technology is way more advanced than I think most people realize. Most of the people I know still have not ridden in a robo taxi. And the technology, I think is ready for mass adoption much sooner than I think people realize. And I think that's going to have profound impact on a whole host of things. The most interesting of which I think is that I think we're going to start to have real serious debates about outlawing people driving cars. And I don't think people are thinking about that or are ready for that. But I think it's coming soon. I think the data is going to start to pile up that the robots are safer drivers than the humans. And so obviously there'll be an application there. But I think you will have people analogizing then to all kinds of stuff and people asking where are the robots actually better performers than humans and all kinds of tasks. And, you know, not to jump ahead, but one thing I should say about that is I'm Not a believer in replacement. I'm a believer in enhancement. In other words, I don't think that robots are going to replace us all. I think they're just going to free us to do, let's call it higher order jobs, you know, just the way that, you know, farm machinery did 200, 300 years ago. Same thing. I don't, I'm not, I think it's all going to be good. I think it's all going to be a net positive.
- [04:52]
C
Do you think your kids will ever drive a car?
- [04:55]
A
You know, that's such a good question. I think probably they're old enough. They're. What are they? They're 14 and 11. So I think they're old enough that they will, but my guess is their kids will not. That's my guess.
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C
And why do you think that that level of this is a different type of technical disruption, which is part of what I really liked about your list. Why do you think that's at a precipice in 2026 for that to start to become the consensus awareness?
- [05:23]
A
Because I think it's already there. I mean, it's no longer theoretical. And I think once, you know, it's one of those things, it takes a long time to perfect something, but once it's perfected, it doesn't take as long to roll it out. And so I think you're gonna, I, I, I think you're gonna have waymos in most American cities this year. And I think the, I think the adoption curve is going to be very steep once that's the case. It's one of those things. It's like it's not here, it's not here. All of a sudden, oh, my God, they're everywhere, you know, and I think that's the way it's going to look.
- [05:57]
C
Especially if the safety record is there to back it up. Total make a big difference.
- [06:01]
A
Real world look, the numbers already look good. And I think, you know, the more, the more adoption you have, the more data you have, the better the numbers are going to look, you know, and at some point, I think you're not going to be able to argue with them. You know, now we're having all these arguments about, you know, the robustness of the data set, etc. I think those, I think those arguments are going to be gone soon.
- [06:20]
C
All right, let's take another one that I think is extra fun to argue about. You had an interesting perspective on interest rates and between Trump's bullying of interest rate policy and now with the wash appointment, what Was your take on interest rates for 2026?
- [06:34]
A
Yeah, I mean I think people are, it seems to me that the majority opinion is that interest rates are coming down because that's what Trump wants. And now Wash is the, is the, is going to be the next chief. And I actually don't think that's going to happen. I think, and here's why I say that first of all, I think the two year treasury yield has been very good at predicting where the Fed's going to go. And it has been adamant since September that we are hanging around three and a half. It's been hanging around that level and it has not budged. And I think the reason it has not budged is you look at inflation is running at about two and a half to three. You look at the break evens are running at about two and a half. If you consider all of that, what you're really saying is that we are very close to the neutral rate. Wherever you think the neutral rate is, let's call it 50 to 100 basis points real, we're pretty close. So I don't think that there's much room for it to go down unless you get a meaningful reduction, I think in both actual inflation results and inflation expectations. And I think there's just way too much stimulus in the system which we are seeing expresses economic growth for inflation to get meaningfully, in my opinion, close to 2% or even below 2%. And therefore I think the neutral rate stays roughly at about three and a half for the foreseeable future. And, and the Fed is not going lower now. You know, obviously brics can follow the blue skies, things can change and eventually I think the stimulus will run its course and the growth will come down and maybe inflation will come down with it. But I think that's going to take some time. That's months, you know, that's not weeks. So I just, I don't think it's in the car, you know. And again, these predictions are probabilities, right? I'm basically saying I think this is the likely outcome. If I had to bet, I would bet no interest rate reductions in 2026.
- [08:15]
C
Any take on Marsh, Any opinions on our incoming Fed chair here? Potentially incoming Fed share at the time of recording?
- [08:22]
A
Yeah, yeah, I think he'll get approved. You know, he's, he's really interesting to me in the sense that he is, I think, very serious about going back to the days where the Fed balance sheet was a lot smaller. And I'm still trying to think through what I think the Consequence of that is because, you know, if you take, you know, let's say the balance sheet, I mean, just in Treasuries, let's say, you know, they're holding about, I don't know, 4 trillion maybe. I, I want to look. So I don't want to be too adamant about that number. But if he's serious about reducing the size of the balance sheet, I mean, you could easily imagine a reduction in the trillions, right? Maybe three to four, let's call it two to four trillion dollars. If you were to tell me that somebody's pulling two to four to trillion out of the economy, I would tell you that's going to have a meaningful impact. The question is how meaningful will it have relative to the stimulus that's already in the system and will stay in the system. And if growth starts to slow down, I think he will lower interest rates. And so you had that push and the pull. And I don't think we've seen that push and pull in a long time because we've seen experiments where the Fed is both reducing its balance sheet and raising rates and we've seen experiments where the, where the, where the Fed is easing on the interest rates and growing its balance sheet. But we have not seen those two things work in opposite. And this is, I think Warsh is going to give us a look into that for the first time. And my guess, look, if I had to bet, I would say it's probably a net wash. But I would not rule out the very, I would not rule out the possibility that drawing down the balance sheet to that extent is going to have some negative knock on effects.
- [10:04]
C
All right, I want to shift then over to Supreme Courtland. If the Supreme Court allows Trump's tariffs to go forward with modest changes, does that, what's that due to inflation? What's that due to the rest of trade policy with everything going on?
- [10:18]
A
You know, I think there's a related, I think there's a related question here, which is why haven't the tariffs had more of an impact so far? Let me come back, I'll come back to that. I'll answer your question first by saying that I think that two things. One is, I think if the Supreme Court strikes it down, I think the Trump administration will find other ways effectively to impose their tariffs. And therefore I don't think the market is going to react much regardless of what the Supreme Court decides. And I do think that the Supreme Court is going to be permissive on this score, both as a practical matter, because they're not going to want to deal with the impact of the unwind. But also, I think as a sort of philosophical matter, I think they're just, they're inclined to give the executive as much leeway within constitutionally mandated powers. You know, I should admit to your listeners that I am a, I'm a, I'm a lawyer by training. I went to law school and I was, I'm a former editor of the Michigan Law Review. So what that tells you is that I know just enough to be dangerous, but, but also just enough to read a Supreme Court case and have an opinion as errant as it might be about what these people are going to decide. But that's ultimately, I think, where they're going to come out. But I think there's a related question there, which is why haven't we seen more impact from the tariffs? Which is why I say mostly that I don't think there's going to be much of a market reaction either way. I think people made two mistakes around the tariffs. One is, I think they assumed that, that they are going to be higher than they are because they underestimated their use as a negotiating chip rather than a punitive measure. And I think, you know, I mean, it's, it's been called the taco trade now. That's what we call it. But I think what it is, is, is tariff as leverage. You know, the tariffs are lower than I think anyone feared when the market freaked out in April. But also, I think people made a fundamental, fundamental mistake assuming that the cost of the tariffs was going to be borne by consumers. And, and I think that mistake has to do with two assumptions. One, that affordability is not as big a problem as it is. I've been writing from the beginning that affordability. I've been hampering on this since 2019. That affordability is a huge problem that consumers will not be able to absorb. The cost of higher tariffs and margins in the US Are so healthy that at the end of the day, companies are going to look at consumers and they're going to say we are in the best position to absorb these tariffs and, and we can, as a practical matter, cannot pass them on to consumers and therefore we will have to eat them. And I think what you, I think that's why you've seen no meaningful impact in inflation from the tariffs. I mean, you know, some of it has been borne by, by exporters and some of it has been borne by companies. And I think very little of it so far has been borne by consumers. And I Think mainly because they just don't have the ability to do it.
- [13:05]
C
Wrapped up inside of that. And I'm going to bring this rate to the valuations conversation because you had something to say about this too. And as we look at the valuation of the US Stock market, as we think through what you just laid out there inside of the profit market profit margin calculation these companies are going to have to do, you said something along the lines of between the artificial intelligence part, which I want you to weigh in on, and that lower valuations do not result from a sustained correction, as many fear, but from a combination of stagnant prices and earnings growth. Give me that. But I want the profit margin angle here too.
- [13:38]
A
Yeah. So I think we have to separate out profitability from earnings growth. High profitability is very conducive to earnings growth. But I think ultimately the floor of the valuations, or I should say more specifically the, the level of the valuations I think ultimately is driven by profitability. You can observe this in the market at any time. If you take the stocks and you sort them by profitability, any profitability measure you, you want, you will notice that as the profitability goes up, the valuation, the multiple goes up on any basis. So the profitability ultimately dictates, I think, what the level of the valuation is. However, the earnings growth is ultimately what is ultimately what drives the, the price growth, holding the valuation constant. Right. So, so when you think about whether the market is going to go down or the market is going to go up, I, I think you have to focus on two different things. The reason I say the market I don't think is in any real danger of a collapse is because you have really high profitability. Now as long as that high profitability is there, that profitability is going to put a floor on the premium valuations. The reason they're premium is because the profitability in general is higher than normal. As long as it's there, it's going to put a floor on it. But that doesn't necessarily mean you're going to continue to see 13, 14% returns from the S&P 500. In order to get those kind of returns going forward, you're going to have to have the earnings growth. And that's the part that I'm skeptical about. If you look at the returns from the S and p Since say 2015, the vast majority has been driven by insane, insane earnings growth upward of 40% annualized from a handful of tech companies that are dominating the market. I just don't see any world where that kind of earnings growth is sustainable long term, and I think most of it is in the rearview mirror. And if we go back since 20, since, excuse me, since the 1950s, the S&P 500 as an index has grown, has grown earnings by about 7% a year. If you go back to that world of 7% a year and, and that, that might be even being generous. But let's assume that as a baseline and you assume the valuations are going to stay where they, where they are, add to it another 1 to 2% of the dividend yield, you're talking about sub, sub 10% returns and probably a little bit lower than that, nowhere near the returns we've seen recently. So that's why I say, on the one hand, I think there's a floor on the valuations as long as the profitability remains where it is. But on the other hand, you're just not going to get the same earnings growth we've seen over the last 10 years, which is why you also won't get the same price expansion.
- [16:08]
C
I mean, wait till you see what Waymo does to this market though, once it's in all the cities.
- [16:11]
A
That's right.
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C
Serious question though. On the AI side, what do you see as the AI or the large cap growth or we've seen this explosive earnings growth, do we see that just dampening contracting, just reverting to the mean? How would you frame what's going on in that sector?
- [16:27]
A
You know, I'm sort of with the majority view on this, which I think is that 10 years ago, if you looked at the big tech companies in the us, I think they were siloed and they each had their individual sort of lanes to operate in. You know, Apple did something very different than Microsoft, which, something very different than Google and Amazon, et cetera. And I think more and more they're converging on AI and that creates more. Not absolutely, but more of a sum zero sort of contest. And obviously they can't all win. So I think two things is going to happen simultaneously. I think AI is going to be transformative, obviously. Well, maybe not obviously, but I certainly believe that will be transformative in the near term. I think that it's going, it's not going to bring this kind of growth to the market that people are expecting because the market is so concentrated and because you have a sum zero contest. However, and I liken this to the Internet, right? If you went back to 1995, 1996, and even if you knew that a crash was coming in 2000-2002. If you had bought the market, then the Internet would have made you very rich from then until now, even taking into account those losses. And I think the same thing will be true about AI. That's a lesson about the Internet era that I think we forget often. You know, we always talk about the crash and we always talk about the negative externalities that resulted from that. We rarely talk about the fact that if you just bought the market and, and sat patiently for two and a half decades or whatever, you would have been really rich. And I would say the same thing to you about AI now. I mean, yes, the market is expensive and it will go through various valuation cycles, but in 20 years from now, I will be very surprised if your money in the market is not multiples of what it is now. The handle on the Internet at 95 is probably a 7x.
- [18:16]
B
Well, this is from your. That, that technology article. I mean, I'm just going to read it here. It says, if you bought, and this is your words, if you bought the S&P 500 at the peak of the bubble in March 2000 and hung on all this time, your investment would have grown sevenfold, including dividends. If you had bought the index as the Internet emerged in 95 and ignored the hype in the doom cast along the way, your money would have ballooned 26 times.
- [18:38]
C
Hold.
- [18:38]
A
Oh, 26 times. I'd forgotten what I. Thank you, Justin. I've forgotten what I'd written. Yeah, so even better, even better than I. Than I let on. Yeah. I mean, you know, I think AI is going to be just as remunerative, maybe more so.
- [18:53]
B
Are you thinking we are like in the 1995. If you try to, like, line up the two time frames, is that kind of where we might be with where AI is relative to where the Internet was?
- [19:05]
A
Possibly, yeah. 95 works for me. I mean, I think 92, 93 is probably too early. I think AI is more advanced than that. On the other hand, my litmus test is, you know, by 98, 99, the companies that were going to dominate the Internet were born. But not in 1995. I mean, 1995. I'm embarrassed to admit that I'm old enough to remember this. I remember people arguing. I mean, I was in college, but I remember people arguing about whether Netscape was going to be the biggest company in the world. You know what I mean? If you're, if you're under 40, you've never heard of Netscape, you know, so I think we're in 95. In the sense that my guess is the sum. Not all of the companies that will dominate AI have not even been born yet.
- [19:47]
B
What are your. So if you think about that period of time, the late 90s, you know, the, the thing was, you know, go public as quickly as possible, and a lot of companies did, and then a lot of companies obviously went under. The ones that made it through are some of the best companies in the world now. And your, your article on technology and comparing the. The sort, sort of two times, like, kind of gets at that. But I'm. I'm wondering what are your thoughts on like, companies like OpenAI and a lot of these other companies staying private for longer? Do you think that that's a good thing for investors or is that a bad thing for investors?
- [20:25]
A
You know, I think it depends on the investor. I mean, you know, I, I have, I'm very sympathetic to the retail investor and I have two big gripes. One is I cannot stand the regulatory gates that keep retail investors out of many, many lucrative games. Let's call it private assets, because that's probably the most, the, the most sort of, you know, the biggest gate that has been placed on them since the 1980s. I think that that gate is. Penalizes retail investors to a huge degree and allows those who can get within the gates to make outsized profits early on because there are fewer investors who can participate. So in that regard, I think that the whole staying private longer game has been great for investors who can invest in private companies. It's been terrible for retail investors. And in general, I want to see those gates torn down. It's a bit late. And I also want to see. I also think that the staying private longer is bad from a public policy perspective because ultimately, just a tiny, slightly boring history of this is that ultimately, when we think about the regulatory infrastructure that's in place, the 33 and 34 acts that basically created public companies and required them to make disclosures, et cetera, came about because in the 1920s you had a lot of companies that were growing very fast, obviously in the Roaring twenties, and the disclosure wasn't there. And there was just a lot of BS going on. There was a lot of leverage that was going on. There were a lot of risks in the system that no one could see. And when all that blew up and it had a huge hand in creating the Great Depression, we basically came along and said, you know what? We are not going to allow this much capital to be invested in the shadows. Because the problem is if it goes wrong, everyone is going to Pay the price for it. Right. So I fear that we are going through this again now. We have allowed a private system to grow to such an extent that if it does blow up, if something does go wrong, I almost cannot imagine a situation where it doesn't have a spillover effect that, that is massive, that is big, that regulators have to step in and clean up. And so I think the best way to handle this is to say, look, you want to be private, be private. However, once you get to a certain size, and we can debate about what that size ought to be, but certainly some of these big private companies are already there, including OpenAI. And once you have a certain number of investors, then whether you're public or not, we will treat you as a regulatory matter, as a public company, we will require you to register securities, we will require you to issue disclosures, et cetera. So I think in those two regards, I think the private for longer thing has been bad. However, let me just in defense of these companies, I think we have gone overboard on the regulations, starting with Sarbanes Oxley after the dot com bust, going through the financial crisis. I think we've created so many disincentives for companies to go public because it's so onerous and so cost that I think we need to, if we're going to be principled about this, we need to revisit those regulations. We need to, we need to strike the stuff that's not, or that's not really helpful. And we need to have the lightest possible footprint in order to encourage companies to come out and go public sooner. Justin, one last thing on that. Ultimately, I don't believe that these private companies stay private forever because ultimately the way you cash in still, I don't care what anybody says, the way you cash in is you go public. That's the way you cash in. And now they're trying to cash in by sticking, you know, 401k participants with private assets. That dog will not hunt. That's my prediction. It won't work for. We can get to that if you want, but, but I only say that in the service of saying that if you want to cash in, you got to go public, which is why ultimately they will go public.
- [24:22]
B
By the way, Sarbanes Oxley, that's, you know, that was all the. I, that's the first time I've heard that in years. But that's still like a, that's still like on the books, right? As what companies need. Like it's part of the law.
- [24:33]
A
Yeah, yeah.
- [24:35]
B
Kind of Crazy.
- [24:35]
A
Yeah.
- [24:38]
B
Talk about one thing from the tech article is you were describing sort of a better valuation framework that looked at free cash flows, you know, in terms of free cash flow multiples rather than PE ratios that would account for sort of this, this massive capex been from these technology companies. So can just walk us through why that lens might be the better way to evaluate these companies?
- [25:05]
A
Yeah, you know, I think the modern investor has two problems. One problem is that companies these days are very asset light and so a lot of their value is not really from a technical accounting perspective, their value is not really reflected in their financial statements. And I think the second problem and related problem that you have is that a lot of the reason why the value is in the intangibles is because they spend so much money on development R and D, the capital expenditures are. They're not buying buildings, they're doing research effectively. And so the question is how do we account for that spending A and B, how do we account for the value of that inside the companies? And I think the old way to do to, you know, the old way was to look at the world through price to book on based on net asset value and price to earnings based on how much, you know, the gap, bottom line that they generate. And because of what I'm describing, I think both of those things have a fatal problem. And I think we're in the early, we're sort of in the early days. When I say me, I really don't mean, I don't even know that I even count myself part of it. I really mean financial economists, you know, the, the folks in academia who are doing the research and publishing the papers. I think they are in the early days of sort of researching what is the historical record that we have all relied on that's based primarily on price to book, price to earnings to some extent, price to cash flow, but to a much lesser extent. What does that record look like if we substitute other measures that are more relevant today? And I've sort of run with that idea in trying to propose two things. One is that if you're looking at valuations, you should look at valuations relative to profitability because that's ultimately what's going to drive the valuation. And two, I think rather than concentrate on earnings, I think you want to concentrate on free cash flow because the free cash flow will take into account both the R and D, which is mostly an operating expense and the capital expenditure as a signifier of what you might be able to expect both from the enterprise value of the company. Because, because I think those assets will be, will have value in the future and also as an indicator of future profitability and future earnings growth. And I think ultimately, and I'm not, I'm not doctrinal about it, like, I don't necessarily think that that's the only way to look at it, but I think what I'm trying to answer is the question that I think everyone has to grapple with now, which is how do we account for these companies that, that are spending a lot of their money on things that we cannot touch and things that we cannot necessarily measure the value of today?
- [27:46]
B
Yeah, it sounds like some of Kai. I don't know if you're familiar with Kai Wolf, Sparkline Capital, but he's done a lot of work on intangible assets and intangible value. And it's crazy when you look at like the amount of intangible value in the market today versus, you know, where we've been historically, it's such a higher level.
- [28:07]
A
So, yeah, I mean, it's quickly dwarfing the tangible assets.
- [28:11]
B
Right.
- [28:12]
A
You know, and it will, eventually it will, I have no doubt.
- [28:17]
B
But speaking of tangible assets, I mean, there's this big, you know, obviously trillions is being spent in this AI capex boom. How do you think about that relative to other technological revolutions we've had in this country? And do you think that it will kind of go the way that these mostly go, which is, you know, this excess build out and then sort of like the, the bubble and then the bursting and then what comes out of that is great things for society. I mean, how do you, how do you see it playing out?
- [28:47]
A
Yeah, I mean, I think, I think it's going to be more capital intensive than the Internet boom was because I think. Well, I just think def. I think inherently it's more capital intensive than putting up websites, et cetera. You know, some of it I should acknowledge, is going to involve hard assets, you know, data centers, satellites, robots. So it will have more of a tangible component than the Internet did. But I think that that tangible component will again will, I think will be, will be dwarfed by the intangible assets that will be created. And yeah, I mean, I think you're going to have, I think you described it perfectly, Justin. I mean, I think you're going to have some investment that, that'll be errant, you know, that people will look back and say this was a stupid, stupid use of money. And as we get smarter, I think the investment is going to be channeled into more productive uses. But I think that's going to take a long time. But yeah, I would agree with the way that you've laid it out. Justin.
- [29:42]
B
I was using Gemini this morning to try to create this video for something I was working on and Google was giving the response back to me. There's like too many requests right now, so it couldn't process my. It couldn't produce the video. And you know, I'm like getting mad at Gemini here, but it's like, you know, the amount of data and the amount of, you know, energy that is going into these millions of requests and you know, it's, it's like we expect it like, you know, and it will be there on demand. And I mean that's the type of. But you know, it's still. Not that it's breaking, but it still doesn't always give you the immediate response like you wanted to for sure.
- [30:19]
A
And also the pylon. I'm curious whether you guys agree with this. I think LLMs are by far the weakest use case for AI. I think there's a lot of people going on ChatGPT other LLMs and they're running their stuff and they're like, this is cool, but it's not that awesome. And I'm like, yeah, but this is by far the weakest, I think, application of what AI is going to be. And I think it's unfortunate that in this moment it is the calling card for AI. I don't think it will be for very long. Like I said, once everybody gets into a waymo, I think it's going to be a different conversation. But right now it is the calling card for AI and it's, I think, to some extent unfortunate because I think it causes people to like understate the, the impact that AI is going to have. Does that. I'm curious if that resonates with you. Do you. Is that, do you agree with that assessment?
- [31:11]
B
Well, I mean, I'm using it a lot in my daily, so I see the benefits of it, but I think that you're right, like, and I'm not an expert on this by any means, but you know, if you listen to people that sort of know a lot more than me, it's like, I think this year is going to be the year where this agentic AI and I've even heard some examples of this like personal assistant that becomes like a worker. There was something that was, there was the Claude AI something or other open source thing that was developed in Europe where you can kind of make a personal assistant. That can go through all. There's some security issues here, but it's. It goes through, like, everything, and then you can make it like a worker and have it start doing, like, work for you and this guy. These guys were using it to actually. Their podcasters and they were using it to do the work like a producer would do effectively, like actually send the email, book guests, respond to guests, schedule, and then it built its own CRM. It was kind of crazy, like all the stuff they were saying it was doing. So. So, yeah, I think you're probably right, but I don't know, Matt, what do you think?
- [32:15]
C
I keep thinking of in that, which I think is a really interesting take. So I love that you're pressing my brain on this, and I'm not surprised that you're pressing my brain on this. I think of it in terms of the Jeffrey Moore crossing the chasm stuff, and I think in that early part of the adoption life cycle, I think LLMs are playing an insanely important role and just mass exposure because you're getting people who would otherwise only be late adopters and you're getting to them. At least try it. And I don't know what the conversion rate is on them, but I think we cross the chasm that much faster with AI because LLMs are so pervasive in getting us to just talk about it. The Waymo experience is what comes after. And that B2B reality, I think, is what's going to actually move the needle. I don't think the B2C stuff is going to matter that much.
- [32:56]
A
I love that, Matt. Yeah, I think. Yeah, and I think I did. I don't think I fully consider that. And I totally agree with you that, like, the. The adoption is super helpful ultimately to AI. And if the LLMs are the. Are the pathway to adoption, then that's hugely helpful. Yeah, I think that's a great point.
- [33:13]
C
Which I think is a rare part of this because we actually have the marketing angle embedded in the product rollout. And that's not normally the way this would go because only a bunch of, like, nerds in some data part of the business would otherwise care about this. And now I have people with no business encoding educating me on claudebot and whatever else, and I'm like, okay, this is how Skynet gets invented.
- [33:34]
A
Right, Right, right, right. Yeah, I think that's well said.
- [33:38]
C
All right, so you might have heard there's 493 deadbeat companies in the S&P 500.
- [33:44]
A
I hear that.
- [33:45]
C
And they're calling these guys The Magnificent Seven. And it's not even clear if they were that magnificent last year, but the name is sticking. Concentration risk. Does it matter? Should we care?
- [33:55]
A
Yeah, I think it's problematic. Yeah, because.
- [33:58]
C
Okay, how though, how explain the way that you are viewing concentration risk in large cap indices?
- [34:04]
A
Well, I mean, there's the smaller risk in my judgment, and the higher risk, the smaller risk is, I mean. Well, so let me articulate the problem. The problem is that, you know, a lot of people just buy the S&P 500, which in general is a good idea. But you know, one of the. Traditionally the benefit for the SB 500 is you got a lot of diversification. And now more and more you're getting, you know, 40% of the index maybe is in eight stocks, something like that. We're certain we're. I think we're fast approaching that 40% number if we're not already there. You know, that doesn't feel like the poster child for what the S and P for, you know, for how the S and P was sold to investors for the last 30, 40 years. And so, you know, what, what's the danger? I think the danger, you know, like I said, the smaller and the bigger danger, the smaller danger is that you have is that I'm wrong about the sustained profitability of these big tech companies. The profitability contracts meaningfully, the valuations contract meaningfully, and all of a sudden you have, you know, meaningful valuation contraction in the S and P that hits mom and pop. That's not good. I think that's the smaller risk. I think the bigger risk is an optimization risk. I think the bigger risk is that, you know, because of what we talked about with the, with the sum zero competition among the big tech firms that you just have not very much return from the s and P500 for an extended period of time. And I think there's. Look, if investors. The reason that's problematic is because I think my gut tells me that what's happened over the last 10 years is more and more people have dumped other assets to buy the s and P500 in order to chase the hot investment. And I bet if I were to look at most people's portfolios in the US they would be very, very heavily concentrated in the US probably well higher than what the S&P 500 than. Sorry, than US stocks share of the global stock market is. There's probably a big overweight there. And if we go through a loss decade like the 2000s where the S and P as a result does not really Perform. That's problematic for people's portfolios. But I think there's even a bigger problem which is that, you know, people being, you know, what they are. If the s and P500 stops performing, I worry that they're going to dump it and start chasing things that longer term are going to have a lower expected return. And now they've done themselves damage two ways. You know, they've sort of like got no return from an asset that's super concentrated and then given up on that asset when they shouldn't be giving up on it long term. So I think there's all kinds of, even if you don't think that there are fundamental reasons to not like concentration, there's all kinds of behavioral demons that are lurking in the closet and you know, those never fail to take over. So I don't, I, yeah, I think concentration is an issue. I don't like it.
- [36:47]
C
I want to ask a question that ties back to the company staying private for longer and you just made me think about that explanation. I'm thinking about when Tesla got added to the s and P500 a handful of years back and I'm thinking about how we had this company grow to such a large level and to be injected into the S&P 500 to be adopted by the committee in at a pretty substantial weighting. I can't remember exactly what the weighting was when it came in, but it was, this was a fully formed company, not the way your average company comes in the S&P 500. Do you think we could see more evolution like that too?
- [37:21]
A
I do think so. Because I think, you know, this is interesting. If you were traditionally, if you were to look at the life cycle of companies, you know, I think you would have said the most common way is that companies invest and grow earnings ratably slowly. What changed that in my judgment is all the money that has gone into private markets. I think what that is allowing companies to do now because they have so much access to capital is they're able to front load investment without generating any early, any earnings in order to support that investment. And so what you have, I think what you're going to have is more and more companies that look like Tesla where the, the, there's huge investment up front and there's huge potential in that investment which drives up the price before the earnings show up. And once the earnings show up, the market cap of the company is well higher than companies would have been traditionally. You might say who cares? And that's fine. But the s and P500 committee should care about this because without earnings, they're not going to let that, generally speaking, they're not going to let that company into the, in the index. If you buy the picture of the future that I'm painting, then you're going to have more and more companies showing up with a lot of the gains in the rearview mirror once they enter the index. I got to imagine that's going to be a drag on the performance of the index going forward. And I think unless you have the kinds of reforms that I'd mentioned earlier in terms of treating private companies like public companies once they get to a certain size, I think you're going to have big company, you're going to have, well, let's put it this way, you're going to have private companies with huge investments staying private for longer. And it's not, it won't only be a question of when they entered the s and P500 as a public company. It's going to be when they entered the public market to begin with and are even eligible. Even if the s and P500 says, you know what, we're going to relax our standards so we don't have a Tesla problem again, they may, it might not even be in their hands because these companies may not show up in the public market until they're worth. You know, one of the things I want to do that I haven't done is compile a list of all the private companies by, you know, their market value because the list is starting to get insane, right? I mean it's starting to really get overwhelming. I mean many, many companies with tens of billions, many companies that just by rank order market value would already be among the top 500 companies in the U.S. that's pretty crazy in my opinion. I mean, we don't talk about this enough and if we do, then we should talk about it more.
- [39:59]
C
I think we should. And I think you're raising a really interesting point in how we think about this in the total ecosystem not just as one offs, which puts me back on this one too. And I think about the Russell 2000 problem versus the S& P problem when we just talk about them as an indice. Talk to me about small cap. Talk to me about value. Talk to me about some of these other spaces that are just doing good. I don't know, you tell me if it's going to continue if you think so or not. But talk to me about those other pockets of the market that aren't the Mag 7.
- [40:28]
A
Yeah, I mean small caps I'm a huge booster of small caps, but even I have to admit small caps have a junk problem. They have a junk problem in a world where, where private capital is plentiful. If you're a small company, you definitionally need less capital. There is no reason for you to go public and take on, unless you're required to, and take on all the regulatory burdens that's involved in that. So if you're quality small cap companies, you're going to, you're going to, you know, you're not going to have any problem raising capital. You're just going to stay private. And who's going to go to the public market? The companies who can't otherwise raise money. That's who's going to go. And you can see that in the numbers. I mean, if you look at the profitability for the, I mean, the last time I looked, the ROE of the Russell 2000 was negative. You know, you know, it used to be that you had, the Russell 2000 was bifurcated. You had three, basically three rough buckets. You had the growth bucket, which was companies that didn't make any money but people thought they had huge potential. You had the value bucket, which is boring but stable, you know, stable performance companies. And then you had, you know, companies that were somewhere in the middle of those two things. And now really, I mean, what you have is you start the growth companies in a sea of absolute junk. I mean, companies that are cheap, but they're cheap because they're just like, you know, the business is terrible and hanging on by a threat. What do you do about this? Do you give up on small caps? I don't think so. But I think what you have to do now is I think you have to filter the small cap companies for quality. You know, I think the growth is still a lottery ticket. I've never been a big fan of small cap growth. I think the, I think the historical data is adamant that it's not really a good place to play because enough of those companies are going to disappoint to drag down the returns of the entire asset class. But you still have high quality companies within the Russell 2000. And if you sort by quality first, I mean you can put together a portfolio of Russell 2000 companies with, you know, roes in the high teens that are just as good as what you're going to get from the S&P 500. And right now, because everyone's chasing the large caps, you could buy that profitability for probably half the valuation is probably an exaggeration but let's say two thirds of the valuation. And so there's great opportunity in the small caps and you just have to, I think you just have to make sure that you focus on quality there in the value names. You know, there's less opportunity because the value, the large value is pretty expensive as far as it goes and I think it's probably fairly priced relative to the growth is too broad a brush, the high valuation names in the large cap space because I think ultimately the valuation is really ranking by profitability in large cap. So ultimately you're going to get what you're, you're going to get what you pay for. If you want to pay more in large caps you can get more profitability. If you want to pay less, you're going to get less profitability. But there are free lunches in the small caps that build us the, to.
- [43:34]
B
Build us the small cap quality screen on the fly here. What would you, what would you be looking at? You mentioned roe, but what other things?
- [43:44]
A
I mean, I think you could do it in any one of a few ways that will all yield roughly the same result. So I think ROE and ROIC roc, I think would both be very robust. I'm not as big a fan of ROA because I think increasingly we have accounting problems on, on, on book on how we carry book value. So I'm not as big a fan. Although you'll get to roughly the same place, I also think that if you do it on a margin basis, you'll get to the same place. I'm a big fan of cash flow profitability with the small caps. I don't know how big a difference free cash flow is going to make because ultimately I don't think they spend as much as the large caps on capex. But you won't go wrong doing it that way. It's just that there's less data in the small cap names. And if you do the hard work yourself, if you go into EDGAR and pull up the 10ks and build a database, beautiful, but it'll take you a lifetime if you do it through one of the data providers. I think what you're going to find is the more esoteric you get in the small cap names, the fewer names you're going to have in your universe because there's less information on them than there is in the large caps. So I think you have to be a little bit more permissive. You have to go for the stuff that's going to yield the largest data set for you. And I think you're going to find that cash flow is going to yield more names in your, in your sort and free cash flow. So that's why I say, you know, cash flow, profitability is probably, you know, cash flow divided by revenue, let's call it would be another good measure.
- [45:10]
B
Nice. Like it, you know, not to go too far into the small cap and off the reservation here, but we recently had Dan Justin. Well, I think you're going to like this. So we had Dan Rasmussen on and they put out a paper on biotech investing. And obviously in the small cap space there's, you know, biotechs. But many of them, a lot of them are just, they're, they're just garbage. They're not, you know, they're nothing. But what they found was a very, very strong signal is they looked across the biotech specific hedge fund universe and one of the things that they found was if those funds also, you know, were in, in some of those biotech firms, it was a very strong signal because obviously those funds are employing PhDs and scientists and they know sort of the, the medical literature and the, you know, the testing and the science behind it. And so they found that that was a very, very. Because what they were looking at in their strategies is they were finding that because they run some quant strategies and the biotech stuff was just blowing up on them. So they said, why? How can we improve this? And one of the things that they found in this, you know, research and what they were trying to understand was if those biotechs were held in those other, you know, major dedicated biotech funds and strategies, that was a very important signal in terms of, you know, the stocks that they also would want to be analyzing using their factor. So anyways, kind of bring us into the biotech space. But I think it was just a very interesting way to sort of get, get at that problem.
- [46:44]
A
I find that very interesting because the first thing that comes to my mind is I would love to know why that is. I could imagine many reasons why that might be, one of which is the clustering effect of having, you know, I've been all these biotech company, all these biotech funds probably are friends and talk to each other. And I wonder, you know, and I see this in the private world and I see this specifically in the family office world where, you know, if, if family office is pitched, the first thing the CIO is going to do is he's going to call his CIO friends at the other family office and say, hey, are you guys in this?
- [47:20]
B
Okay?
- [47:20]
A
And if they're in this, then everybody piles in because they figure, you know, you know, the more people are in it, the more trustworthy the operator, the better the operator. Their safety in numbers. You weren't the only fool to go out on the ledge, et cetera, et cetera. And I imagine there's similar clustering effects there. And so I wonder to what extent the, the reason these, these biotech companies perform well in those scenarios and is because you have a group of funds all entering the same names and pushing up the price. It'd just be interesting to see an attribution of how much of it is fundamentals driven, the performance and how much of it is valuation driven. Because the valuation would talk to the clustering and the fundamental would talk to the signaling to the smart people from authority know what they're doing and therefore they can predict where the fundamentals are going to be. It would be really interesting to see, to see the attribution of those returns. Maybe I'll send Dan an email.
- [48:19]
B
Go for it. We'll get you guys both on here. We can. Yeah, that's awesome. Matt, you want to roll with a couple more and then I'll come back?
- [48:27]
C
Yeah, absolutely. Okay, let's talk about credit markets for a second. I want to talk about everybody's favorite thing. Bonds. Everybody loves bonds. Who doesn't love bonds? Who doesn't love credit bonds and taking.
- [48:36]
A
All the credit Treasuries these days. I'm working on a column on that right now. I'm the last defender of Treasuries, Matt, for another day.
- [48:42]
C
If you want be the last defender of Treasuries, go ahead. Do you want to preview that idea? Because I'm going to talk about the opposite of that with you in a second, which is your take on private credit. So give me both.
- [48:52]
A
I can just briefly say that I think, look, Treasuries have problems, obviously. We have a debt sustainability problem. We have too much of the treasury market is owned by foreigners and the central bank soon to be led by, by a guy who wants to sell all the Treasuries and shrink the Fed's book problem. You know, we got problems, but at the end of the day, I just can't, you know, it's the, it's the cleanest shirt in the laundry. Right. As the, as the old adage goes, I just can't imagine if you were looking for high sharps or safety in a crisis. I just can't imagine what you would prefer to Treasuries, you know, so in that regard I think it's probably gone too far. Anyway, that's sort of my short preview.
- [49:32]
C
Yeah, I don't disagree with this. There's a whole bunch of nuance in there, but we're going to ride on that. Talk to me about private credit. Talk to me about what you're seeing in that space. And you know, I'm already going to be wrapping this back into the whole private markets thing because it's so connected. So give me your take.
- [49:47]
A
Yeah, you know, I recently, I recently dug into the historical default rates, ratings spreads for, in the public market because we just don't have good data on this in the private market. Because I wanted to, I really wanted to ask the question, should we be worried about the tight spreads in credit markets? And I came out and we can talk about this if you want, but I'll go to why this led me to the private market. It led me to the conclusion that we really shouldn't worry about it too much. However, what I sort of stumbled into in doing that research is that roughly in the public market, roughly 8% of the adjusted. And I hope you'll fact check me if I'm forgetting my own data, but I, if I'm, I'm going by memory, I think roughly 8% of the public market was rated around B. So not the worst of the worst of the worst, but that's where most of the high yield public market credit was concentrated in the, in the, in the B's. And then when I went and I tried to find data on where the private market is concentrated, I discovered that it was also in Bs. I mean obviously you have higher rated private credit, lower rated private credit, but on average it's around B. And what's interesting about that is now there is as much new private credit being issued as there is comparable public market credit. And the reason that's notable is because the way it generally works in the public markets is you have very, very few defaults in the investment grade universe. I mean, very few. You know, a crisis era default in triple Bs would be like a 1% default rate, maybe 2% at the most. And on the other side of B, if you go down into the Cs, there's just so little there that it doesn't even matter what the default rate is. It's never going to be systemically important. Which means that where most of the bonds are that will have a high default rate is in the B range and a high default rate for them is roughly 8% somewhere in that range. That would be high for them, and that's high. I mean, those are default rates that are generally associated with crises in the credit market. And so it seems to me not unreasonable to. To at least suspect, let's say I'm being as generous as I can be to the private markets to suspect that if the next time we have a crisis, the default rates in private markets should be roughly similar to what we've seen in the public markets for similarly graded debt. And I think that's going to be an 8 to 10% default rate. And the reason that bothers me is because while we have insight into the public market, we can measure its size, we can see who the issuers are, we can even prepare in advance. And the market gives us signals about the default. If you looked at previous crises, what you would see is the spreads widen ahead of the default rates going up. And so we have a signal that says to us, hey, you know, not necessarily, but you might want to pay attention because alarms are going off. We don't have anything like that in the private markets. We don't know who the issuers are. We don't know what their credit worthiness is. We don't know what the default rates are likely to be. We don't have a market signaling when trouble is coming. And I think to have a market that is so susceptible, or at least seems susceptible to the kind of default rates that would be problematic, and to have zero visibility into them is just asking for trouble. I don't really know how else to characterize it.
- [53:27]
C
I think this is interesting not just because you're actually parsing lines versus notes versus loans and all the nuances is here, but much like in public equity markets, public versus private in credit, we've just seen this absolute boom in the size of the market itself and that actual structural size and the reality of the function that it's serving, because these are loans that theoretically might have gotten made by a public entity or in another capacity under a different banking regime, if you will.
- [53:56]
A
Yep.
- [53:57]
C
We need a way to think, think through this that isn't just based on a historical analog. What can you say about that? Why it's important to update this thinking in real time and not exclusively rely on historic reported private credit default rates or something.
- [54:11]
A
Well, I think certainly because. And maybe this is relying, Matt, too much on the history again. But, you know, I think ultimately, because we are not, knowing us, we are not going to have the will to prepare until we have a problem. You know, that's just the reality of it. And so you can either believe that private credit is immune from having problems in the future, from having spikes in default rates, which I think self evidently crazy, or you can believe that it's only a question of when and that we're going to have this conversation at some point and it's all going to be all the usual B.S. you know, how come we didn't see this coming? You know, why didn't anyone see this coming, why didn't anyone do anything about it, et cetera. And here we are, me and you are talking about it right now. Let's do something about it right now, you know, so it's not that we will not have like had the imagination to see the, to see the danger or even to contemplate it or even to argue for it. It's just that, you know, it's the usual thing where there's just no will. And I think that's ultimately, I don't know if I answered your question Matt, but I think ultimately that's, that's why the size of the private credit market matters because you know, it's gotten to a point where it's quickly approaching the size of comparably rated public market bonds and that's, you know, that's a huge.
- [55:33]
C
Market human behavior again and again just the money got.
- [55:39]
B
So I was just looking at some of your strategies and actually this year with at least one of the strategies will be the 20 year anniversary for at least the active equity multi asset one.
- [55:54]
A
So Justin, I don't know if I should be proud of that or not.
- [55:57]
B
Well, I was going to say but I thought in, in sort of at the end here maybe just, I mean one talk through your overall I, you have different strategies for different types of investors level of risk. But just you know, it, it'd be a shame not to at least discuss sort of the overall philosophy investment process to some extent and then, and then if you want to just tack onto that like what would you say and this is kind of one of our closing questions but you know, 20 years of running strategies for investors, your gifts compliant, you know, what's the biggest lesson here that you've learned in your two decades of actually running money? So strategy first, lesson second.
- [56:39]
A
Yeah. Oh wow. Big question Justin. A lot to unpack there. So I would characterize what I do as one strategy with three volatility targets because what I learned early on is that people have real preferences around volatility. So you could basically do the same thing and just give them different flavors of volatility in my case, 7, 10, 13. I don't think there's any need to break it out any finer than that. I mean, if you want more than 13, you just might as well buy the market. If you want less than seven, you might as well buy bond. And once we get into the, you know, between 7, 10, 13, we're just slicing it, I think too narrowly to even bother. And the way I would describe my strategy is, you know, I came up, you know, when I went to business school, I, you know, I was sort of reared on the, you know, efficient frontier, that kind of stuff, you know, and I sort of came away with that thinking that the way we should, that maybe a better way to do it is to do it based, is to construct the portfolio based on expected returns. And it's not that the efficient frontier does not take expected returns into account, but I find that a, it's got, because it's multivariate. The expression of the expected returns is, is, is, has, is less consequential than it would be if you let the expected returns drive the allocation almost exclusively. And also a lot of the models tend to, in sort of classical asset allocation, tend to use the long term returns rather than, you know, sort of medium term returns. In other words, they'll look at the historical returns from various asset classes, plug them in. The problem is the historical returns from asset classes vary wildly in the medium term. And people will argue about this, but I think you can do, you can do it not perfect, but you can do a pretty good job of tagging what the expected returns are going to be over the following seven, ten years. Again, not perfectly, you know, you'll get a lot of things wrong. But, and you will, you will, you will be, I think, particularly successful at turning points in the market. So during sell offs, this is where I think this is most helpful because what will happen is this, the expected returns will blow out. And even if you don't know to what extent there will be a premium there, there will almost certainly be a premium when you're starting at very low valuations, et cetera. So that was the idea. The idea is to let, run the expected returns on a quarterly basis. Let the, the, the expected returns drive the, the, the construction of the portfolio. I'll just share this with you. Looking back on 20 years, it's interesting to look at the periods. The first 10 years were beautiful because they were anchored by the financial crisis where expected returns blew out. And if you were doing the math and you had the gumption to put money behind the Math, you did beautifully. Then from, I would say 2016 to 2020, maybe 2015 to 2019, you got massacred because all that mattered was high valuation, low profitability, stocks and big tech, that's all that matters. If you didn't own the Mag 7 and you didn't own like Roku, you know, peloton, et cetera, you got your, you got your face ripped off and you look like an absolute imbecile. And you had to make a decision like ultimately, do I have, do I think that the way that I'm, that I am doing this is, is, is supported by sort of longer term principles or do I think the market has changed? I was in the longer term principles camp and the last five years have been, have been beautiful because you had the pandemic opportunity, you had the tech crash in 2022 and then you had the revival of the international markets last year. And so if you stuck to expected returns, you did really well the last five years. So it's been, you know, it's been, I would say up and down. I got help us if we have to live through another period like 2016 to 2020 again. Okay, now here's the, here's the answer that's going to surprise you guys. The lesson that I've learned, I mean, obviously I'm not going to repeat the lessons that sort of everybody will tell you, which is be patient, you know, stay in the market, invest regularly. I feel like that's pretty well trod. I'll tell you the one thing that I have come to appreciate in the last 20 years, that if you put a gun to my head 20 years ago, I would never have conceded ever. You ready? After all that buildup, I better, I better deliver. It's that you have a higher probability of beating the market by stock picking than people generally acknowledge, assuming you're brave enough to take massive concentration risk. I think that, and by the way, I realize that this is going to be very controversial. I'm not saying that therefore people should go out and pick stocks because I think most people are going to fail at it and most people should not do that. So let me be clear about that. However, I think if you are willing to put in the work and you're willing to have most of your, whatever bucket you're devoting to this enterprise in five to ten names and you really do your work, I think the probability of you, of you beating the market is way higher than the statistics that we have on active managers beating the market in general. And I think there's several reasons for that, but I'm just going to share one with you, which is that most managers are effectively hugging the market and they just, they have no chance. And if you look at the managers, or at least the managers that I know that are really managing concentrated portfolios, like I said, 5 to 10 stocks make up 90% of their portfolios, a way higher percentage of them beat the market than what you would see in the S and P Spiva numbers. That's something I don't think that I would have said 20 years ago, but I've come to believe is true. And I think you're going to see more attempts to stock pick in the future going forward. Along those lines, a door that was probably opened. You ready? By Cathie Wood.
- [62:36]
B
Okay. Yeah. I like this. I like this.
- [62:39]
C
I'm taking it. I don't think there's ever been a better argument.
- [62:42]
A
I feel like I have to apologize for what I just said.
- [62:45]
C
I don't think you do. This is probably the best argument for Jim Cramer's AM I diversified? 5 stocks calling show updated for the modern era. Perhaps. But I think that's part of the nuance in the, in the Spiva reports when we look at this manager selection thing. And I think that this is also a really important point to raise, because if you're going to look at a bunch of managers with 100 securities or even 50, that's way, way different than looking at active managers with five or 10. And, yeah, a bunch of them are going to have to move back into mom's basement or whatever.
- [63:15]
A
That's right.
- [63:15]
C
Or call Jim Cramer, if he's AI. Jim Cramer, whatever the function is.
- [63:19]
B
It's kind of, you know, the, the guy that's running like the portfolio of five or 10 stocks. I mean, how scalable really is that? I mean, how much assets? So it's like that thing where it's like, you know, assets are alpha so, you know, you don't have. I mean, maybe in the hedge fund world, nears, you know, what you're kind of referring to, but at least in the ETF and mutual fund world, you know, no, there might even be like the diversification rule that you need a certain number of securities, you know, from the regulator standpoint. So. No, but I like it. I like it. I'm stockpicking real quick.
- [63:49]
A
I'll tell you. I just want to, I just want to throw this post postscript in there, which is, I think ultimately the scalability depends on how much leverage you're willing to put on the book because scalability is going to depend on how big the stocks are. Right? So like if, if your expected return from your five stocks is lower because you need a lot of scale and so you need to go bigger. As long as you have confidence, you can just lever it up and you can get to the same return as with lower scale and, and smaller stocks. So there's all kinds of interesting things that can be done, but I feel like I should say again, kids, do not try this at home. This is not.
- [64:22]
B
That's the disclaimer.
- [64:24]
A
Yeah, yeah, yeah.
- [64:25]
C
This is why you're here, to press and expand our minds on this stuff. I'd love that you're even just willing to put this on the table. It's a conversation worth having near if people want to read more of your work, they want to bug you on the Internet. Where should we send them?
- [64:38]
A
You can send them to bloomberg.com you know I write under the Opinion banner at Bloomberg. They can. They could also google my name Bloomberg if they want to sign up for my columns in particular. But you know, I'll put in a plug to to my many great colleagues at Bloomberg. Tons of talented writers at Opinion and I think all worth reading.
- [64:57]
C
So yeah, bloomberg.com bloomberg.com that is. That is near Ksar Justin, thanks for joining me. You're watching Excess Returns. Like subscribe all the things below. And we are out.
- [65:08]
B
Thank you for tuning into this episode. If you found this discussion interesting and valuable, please subscribe on your favorite audio platform or on YouTube. You can also follow all the podcasts in the XS Returns Network at excessreturnspod.com. if you have any feedback or questions, you can contact us@excess returnspodmail.com no information.
- [65:27]
A
On this podcast should be construed as investment advice. Securities discussed in the podcast may be holdings of the firms of the hosts.