A (3:48)

Yeah. No, that's a great story. And, you know, I've spoken to many investors, and many of them who have unconventional background tend to do quite well because they think a bit differently. And have you found that having a paramedic background, EMT background, has helped you in some way in investing in markets?

B (4:05)

I think so, yeah. Not the right thing that you learn when you're a first responder or an emergency medicine, so that you will find yourself in situations where by any stretch of the imagination, if you were in that situation, it would be by far the worst day of your life. And it doesn't really matter that the building's on fire, someone's screaming in your face. There's, you know, there's violence or there's something crazy going on. At the end of the day, someone's having an emergency and it's medical emergency, and there's a way to deal with that. And, you know, so you know that you can always kind of fall back on a series of steps that you've been kind of drilled on that you know how to kind of react with. And that's something that's pretty useful, at least I'd say, in markets. With the idea being that if you are prepared for a wide variety of scenarios and you say if X happens, then I'm going to do Y or Z or, you know, having a strong framework for any set of probabilities is kind of the most helpful thing that I've found in terms of being able to consistently generate alpha. So there are some kind of crossovers, especially like recently when stuff gets crazy. And the interesting part of that, right, is there's always something lurking around the corner that's going to be something that's very difficult to prepare for. But something that I've become pretty enthusiastic about is kind of becoming a student of financial history. Because while every cycle might be unique in its own way, there's also an aspect of there's nothing new under the sun, right? So there might be one aspect where a couple of correlations break down or it's a little different this time. But mostly, if you have a firm grasp on how things have happened before, you'll probably be a little better prepared for how they'll happen.

A (5:52)

Now, in terms of your framework, you've talked about some of the elements of your framework and one of the things you talk about in your writings is around identifying the 1% of companies that tend to deliver all the performance in equity markets. Can you talk more about what you mean by that?

B (6:07)

If you were to go and look at, you know, back to like as far as markets go back, you go to the, let's say you start in the US and you start in like the 1900s and you look at a list of stocks that had, you know, 100x return in a period of 30 years or less. Those tend to be the stocks that contribute the most to the index, of course, because they're the winners. And they also, as you do this exercise, you consistently run into examples of, if you had a firm grasp of the trends that were occurring, like long, long cycle trend, right. Whether it be the proliferation of smartphones or software more recently, or going back, the computer manufacturing industrialization, they're all trends that you can observe. And if you are kind of second order about it, you can kind of have a good feel for which companies that 1% will be. And so it starts with kind of a macro process of just, you know, is this the environment to. That's conducive to this kind of theme or trend. And once you get there, then it gets into really narrowing down how that trend is going to play out. You know, the idea of the best way to outperform in markets is going to be to have a really well thought out view of what the world looks like in 18 months or 36 months or you know, you know, I think that those time frames are probably different in macro versus equities, right? In macro, I think anyone who says that they know what macro is going to look like more than a year out is either lying or overconfident. But in equities it's less about the cycle and more about the long term inflection points. So blending those two things, I think is, at least for me, has been a durable kind of pathway to understanding how these markets intersect and how things work. Your mileage might vary, but that's worked for me so far.

A (8:09)

And you haven't really talked much about earnings season, all of those sorts of factors which many investors tend to focus a lot on each earnings release and then they trade around that wall. So when it comes to something like earnings, how do you look at earnings season in relation to the way you look at megatrends?

B (8:29)

You have to isolate the impact of the trend from the impact of numerous other factors. This is why I think that like having a relatively informed or macro aware view is so important because as things change, you kind of have to ascribe different aspects to different events or things that are occurring. So like right now is a great example. So artificial intelligence has been a huge trend that's, that's kind of driven markets for a relatively prolonged period of time. And let's say we're on the cusp of a recession, it's very likely that if returns suck. Right. And companies sound pessimistic and you know, a year from now, every company that has anything to do with AI is down 30 to 50%. The prevailing sentiment will probably be in the markets. At least AI is the kind of prevailing sentiment in markets will be AIs. This was all like a stock promotion scheme or whatever. If you have a strong view that artificial intelligence, machine learning is going to be the defining, most transformative kind of technology of this decade. And then you also have a strong macro view of we're going to have this cycle and it's going to play out a certain way. You can kind of be there at that point of disillusionment and it gives you multiple points where you can kind of take advantage of sentiment just because you have a stronger view on the longer term outlook and being kind of on top of obviously every single earnings report you have to listen to what companies are saying and companies will by and large tell you what's going on. But synthesizing a kind of top down picture of is this theme still occurring and how's it playing out? A good example would be the investors kind of latch on to one specific aspect of a theme. That's how they start to view things. Everything becomes viewed through this one aspect. And for AI, that was basically, or it has been Nvidia, right. And the fact of the matter is it was super easy a year and a half ago, or I guess two years now to say I don't really know what this technology is going to look like 24 months out. I do think it's going to be big. And if it's going to be big, then we have to build the infrastructure in order to accomplish that. And so the lowest risk way of playing that is by being long Nvidia that makes the GPUs that you need in order to do AI. That doesn't necessarily mean that Nvidia is AI, but as the trend progresses and as Nvidia consistently beats earnings, Nvidia an investor perception becomes AI. And keeping yourself kind of one step removed from that and still maintain this top down view where you can say okay, what's priced into these earnings estimates for Nvidia? Pretty unrealistic. But at the same time I don't think that AI is just going to go away. If anything, what you see more times than not is the economy goes through its cycles or stocks get ridiculous and then there's a drawdown. But during that period, and the drawdown is honestly when most of the innovation happens and being able to not fall victim to that disillusionment and kind of stay on top of how things are progressing, you think about in 1929, you could have gotten the shirt ripped off your back being Long Radio Corporation. But just because radio went down 90% doesn't mean that Radio was not a pretty significant and transformative technology that kind of shaped the way that technologies would be for decades to come. So keeping open minded about the idea that investors will take things run with them, always bring them too far in either direction, but staying true to the idea that you have a long term view and then you have a macro view and then you have a view on the individual companies and how investors are perceiving that that keeps you grounded and allows you to have a long term view. That's unaffected by short term volatility.

A (12:23)

One of the big themes you've been arguing for recently has been the haves versus have nots. It's a great name of the theme. So can you talk more about that?

B (12:33)

So that's kind of something that's a little bit more the way that I kind of view themes in equity markets is if you imagine like a, like a four quadrant chart and on kind of the X axis you would have macro or micro and then on the Y axis you would have innovation versus continuation. Right. So something like, you know, let's say you could also call innovation disruption. Right. So something like the bank of Japan is going to normalize yield curve control. Right, Right then. And that has a lot of implications for banks versus the rest of kind of the Japanese equity universe. So for a while playing yield curve control normalization was like, like you just got long topics, banks and then you shorted topics against it. And that did great for a while. And that's kind of in like the far upper left of that quadrant. Right. It's macro oriented and it's about a disruption or a change to the system. Whereas then you can have things like, you know, artificial intelligence is much more on the MIC level, but it's also about a disruption. Right. So it's just trends kind of plotting out. And I would say this one is much more of a, it's kind of a, it's a disruption because if you look at how things have gone over the past 10 years, obviously the top 10% has done much better. They've been huge benefits of fiscal stimulus.

A (13:54)

They've been really top 10% of consumers, you mean?

B (13:57)

Yeah, just in terms of you could separate it by net worth or income. It's pretty much going to show the same picture. They've been pretty big beneficiaries of fiscal spending, They've been big beneficiaries of monetary policy. They just have had their skills, have been more in demand. You know, white collar has done much better than blue collar. And the idea is much more predicated on what the market has priced in and what companies have done rather than what the real world implications are going to be. It's not necessarily like if we were to have a wealth effect driven slowdown or a policy driven slowdown, that kind of the bottom 90% wouldn't be negatively impacted. It's much more about companies are on top of this. Right. You look at the companies that have done well and by and large there are companies consumer facing that have embraced kind of premiumization and targeting this top 10%.

A (14:52)

Just to help elaborate on that point, I mean, can you give some examples of companies or products that have benefited from, you know, the top 10% of consumers?

B (15:01)

Yeah, absolutely. I mean you can look at the luxury goods to start with, right? You can also even with like airfare, right. You can look at like companies that have prioritized first class and business class or kind of premiumization versus the low cost carriers. You can look at basically companies that have subscription models, that have introduced more premium tier pricing versus companies that have stayed stagnant. You can look at on like a micro level look at the performance of like sprouts farmers market versus dollar stores. There's just kind of been a, an overwhelming targeting of the wealth accumulating in the top 10%. And, and that's something that historically speaking, if you have a recession, the, the top 10% of earners tend to be much better insulated, right. But they also have much higher fixed costs. And also they, they do tend to have a little bit better job security. But that does get disrupted from time to time, right? During like the global financial crisis that got disrupted with mass layoffs and finance, whereas some blue collar jobs had more security. And what we're seeing now, at least what I'm seeing is when it comes to the technological landscape, artificial intelligence, it's not in a place right now where it can really steal a white collar worker's job, but it is getting to a place where if you are a company and you are forced to lay off half of your IT department, you become much more open to kind of implementing artificial intelligence solutions even if they're not 100% correct all the time. You just have a, you know, instead of having a 10 person team, you have one guy that's kind of sitting on it and making sure that the errors aren't, you know, atrocious. And that's a huge threat to white collar employees that are, you know, making 300, $400,000 a year because they have much higher fixed costs. And the net impact to company earnings in the economy from someone that is making $400,000 a year and then suffers like permanent job loss and they go back into the job market and the only job they can find pays $200,000 a year. There's a much bigger impact than someone who's making 60 and then their next job pays 50. So I think that this is just something where I didn't see a lot of people talking about it. It's very kind of well defined phenomenon. And, but the Idea that it might change has not really been explored. And it just seems interesting to me that we might, if we do have an economic slowdown, you could potentially position yourself in the short term release for companies that have gotten totally destroyed. You know, you look at especially off like tariffs and stuff that might do better just relative to a lower base.

A (17:40)

And so with this type of story, I mean it's a fantastic thing that you picked up. So essentially, you know, the top 10%, they've benefited a lot recently and many people would assume they do okay in a recession, but this time it may not be the case. And there's that AI kicker within there as well. But this type of theme, how do you go about playing this from an investing perspective? Is it that you wait for a recession or is it you position now for this, you know, this divergence trade? I mean, how do you structure this as an investment?

B (18:10)

The kind of macroeconomic like top level insight that led to us exploring this was for a while we had a dynamic that we called Schrodinger's recession or Schrodinger's soft landing, which is basically the idea of we're rapidly oscillating between whether we're going to have a recession or a soft landing. The recession doesn't really exist until it's observed. Just like Schrodinger's cat. You would see in soft data people were exceedingly pessimistic, but they would have a survey and it's like, how do you think your business is doing? Oh, terrible. And how's your business doing? Oh, we just had the best year we've ever had. It was a very weird dynamic where the SOP data was just not showing up at all in the hard data. And investors would pretty consistently build up these walls, worry that then they'd rapidly take down and that's the best possible environment for equities to continue going up. It's just like investors hate uncertainty, but the thing that they love the most is the resolution of uncertainty. So we were in a very constructive macro environment for quite a long time. And then we started playing around with this idea of the main risk to the economy. This was in December of last year. The main risk to the economy is really just stocks going down because of us. Consumer spending is now more than half driven by the top 10%, whereas 20 years ago was more like 35%. And the wealth effect there is pretty significant. And households were more allocated to stocks than they ever had relative to other assets. So we term this the macroeconomic Ouroboros. Which Greek mythology, the snake eating its own tail, where the head of the snake is asset prices and then the tail of the snake is the economy. And that led us down this path of exploring the concept of haves versus have nots in a recession. And we had recently covered tariffs when it was still just the Mexico, Canada stuff. And we laid out our view. We came into the year with 5600 price target on S and P, which obviously got blown up. But that was kind of solely due to tariffs. But because of that kind of initial weakening in some of the narratives that were driving stock market outperformance, we kind of figured it would be a good idea in a portfolio to have upside to an economic slowdown that's primarily driven by the wealth effect and driven by kind of contraction in high income consumer spending. And one of the other things that we kind of set out to do with that is that you don't really need a guy to tell you like, hey, if we have a recession, you should be long staples and short discretionary, right? And the more that we had made multiple kind of recession baskets, but they all kind of end up looking the same. And the issue with that is just you get into a dynamic where everyone puts on the same basket and everyone's kind of playing a recession the same way. And that's how you just get totally destroyed when you have a degrowsing event. So you look at the stocks that have outperformed since Liberation day, and if you make that list of just sector beta adjusted stocks that have outperformed since April 2, it's not a list of staples and utilities and traditional, it's very much just a positioning driven thing where half the names are basically just short covering dynamic driven and the other names are just names that have already gotten smoked and nobody really owned. So there wasn't much degrossing impact. So we basically set out with the idea of every recession is similar but has a unique quality about it, right? And what might be the unique quality if we were to have an economic slowdown here? And how do we create a basket that captures exposures that aren't just kind of these cookie cutter long stable, short discretionary type factor traits. So that's where we kind of came into it and then started going company by company and looking at their strategies and looking at where they were most exposed and also looking at how they performed and how they might perform in the event that high income consumer spending took a hit from a stock market drawdown. And yeah, we just went through step by Step. And that's basically the kind of process that you start with like a quantitative screen that's like very broad. And then you kind of use qualitative insights and individual company research to kind of narrow this down. And then you get a basket. And when you then eventually you get to the point where you look at the historical performance. I try not to like look at the historical performance of any of our equity baskets while we're making them because that's like a one way ticket to just overfitting and creating something that's not going to work in the future because you're just over indexing to the past. But by the time we were finished with it and we'd done all our research and kind of looked at the performance, it was like very clear. Like this is not a typical recession basket. Right. It's not something that just outperforms on any hint of economic slowdown. But it does perform pretty well with how various income brackets have done versus one another.

A (23:10)

Right.

B (23:11)

Like the biggest periods of outperformance are when you have kind of a consumer confidence curve inversion. Right. Where upper income consumer sentiment is below lower income. If you separate those into. Into, you know, a quartile. Yeah, it was like an interesting exercise.

A (23:26)

And you know, did or does this basket that you've arrived at, does it differ from the position unwind since the liberation day that we've seen in terms of the sectors that bounced or corrected lower because of positioning, is it different from those?

B (23:43)

Yeah, it's performed quite well. And part of that is because of that dynamic that I just described where a lot of the stocks that are kind of exposed to the have nots are drastically under owned, they've done terribly, maybe they have high short interest and if you get a degrossing event where you just have a huge unwind of momentum or you have a big kind of short covering event that's going to drive performance. So I think it's, you know, we released that basket March 31st and it's only been a month and there's been a lot of positioning driven kind of stuff that's occurred. So it's maybe a little too early to say whether we have been right. The performance has been good. But the, you know, I don't know if we can actually. We can't like declare victory.

A (24:27)

Yeah, now I hear you.

B (24:28)

It's too early to say.

A (24:29)

Can you give some examples of the sectors or types of companies that you know, featuring on the long and short side just for us to get a taste of it and how it differs from sort of the classic staples versus discretionary.

B (24:40)

Yeah, sure. So a part of kind of constructing or any basket really is when we have a big theme. So this is like a big theme, right? It's very macro. It's kind of, it touches kind of disparate parts of the economy and the market. We try to separate it into sub themes. So we did the same thing in March of 2024. We made a basket that was like our Trump long, short basket. Basically the idea that Trump's odds at that point of being, even being the candidate were too close. So we created a basket of just kind of here's the 50 names long, 50 names short of how to play that. But instead of just a disparate kind of collection of stocks, we separated it into sub themes. Right. So you had like, you just went through all of Trump's comments and stuff. You had a basket that was like EU Defense versus US Defense. That's a sub theme. Tariff impact, long, short, that's a sub theme. Kind of like IRA exposed versus Trump policy exposed, et cetera, et cetera. So the first thing that we kind of do with a big theme like this or a potential big theme like this is separated into sub themes. So for example, on like the long side you would have for haves versus have nots, you'd have like accessible recreation. And then on the short side you'd have travel and or not just necessarily luxury travel, but just travel. And then you know, you would have something like digital banking and mortgage lending versus traditional wealth management. That's not necessarily like a classic recession trade where you're like long these kinds of like rocket mortgage for example or something like that. But you're kind of playing more towards AUM shrinking and wealth effect driven kind of slowdown in traditional wealth management. And then maybe if you do have recession and rates come down, which, you know, I guess we don't know at this point anymore if that's what happens. But you would see kind of an opening up of mortgage lending and these digital platforms that are more kind of accessible. Another, you know, kind of even just looking at like subscription income, right? What are like subscriptions that people are less likely to cancel versus like premium subscriptions. So an example there is if I'm sure your listenership is probably more well to do so I'm sure a lot of them probably have American Express platinum cards.

A (27:02)

Yeah.

B (27:03)

And you know, you kind of get this thing for free. Clear, clear, secure. It's like, I guess like a worse version of TSA PreCheck I never really understood the business model but you know, if you're paying for it, it costs like $200 a year or something. That's something where very easy to get canceled versus something like a Netflix subscription that's you know, much stickier and kind of less exposed to the, it's more exposed to kind of the everyman versus just like the, of upper income consumers and then mass market auto versus luxury auto kind of. And then really like the other core of it is just kind of blue collar versus white collar. Right. So you have some like white collar staffing agencies, but you also have, you know, firms like, like Accenture or, or ad agencies, stuff like that. And then on the blue collar side you have kind of like vocational schools, like United Technical Institutes, that stuff that's more geared towards the, the kind of AI tale of maybe we need less lawyers or may less accountants. So yeah, it does end up having some defensive beta that's kind of unavoidable when you make a basket that's predicated on the economy slowing down. But it's also got a very kind of unique factor exposure that's a little bit more differentiated and more kind of unique than kind of traditional, just long xlp, short xly.

A (28:24)

Yeah, no, it makes a lot of sense. And you know, obviously one challenge we're all facing at the moment since the inauguration of President Trump has been just the volatility of his policy that we've had. And you said earlier that equity investors hate uncertainty. I think all investors hate uncertainty. And so how do you contend with that? We've had so much volatility around trade policy. One day there's a tariff announced, then next day it's reversed or paused and then it comes back on or off and it carries on like that. And now on top of that, recently we've had comments where President Trump has started to challenge the Fed to lower interest rates, which introduces some risk premium there. And the list goes on. With this type of, of environment, how do you adjust for that for this?

B (29:08)

I mean the first thing you have to. I think everyone kind of did this. Do you see that, you know, chart come out the table of like tariffs and you're like, oh, this is, this is crazy. And then you have to kind of, then you immediately you're like, well my probability tree is useless. I'm going to throw this in the trash and I'm going to draw a new one. You obviously have to start with like the absolute worst case scenario me. The worst case scenario is basically like stagflation in the US Economy at the same time that you have extreme dollar weakness and maybe threats to the US Reserve currency status. That's kind of, you're like, okay, that's the absolute worst case scenario. And that's probably, we have to price in some percentage chance of that happening. And then that happens. And the 12 hours, basically when that chart came out, we have a team of five and all just stayed here midnight and we released an article of here's kind of the most outsized tariff impact and exploring could we have stagflation, could we have a recession where rates don't go down, Stuff like that. But then you have to also have a framework of there is a level at which even Trump kind of capitulates and there will be plenty of opportunities for him to do that. We've been in this limbo where for the past three weeks, I think one of the bigger advantages that it has, I know a lot of investors that completely stopped trading China in 2021 when they underwent this deleveraging cycle and big pushback against big tech and stuff like that. I never did. And for a period of about two years, that was a terrible mistake. And then it started being a little better in terms of returns. But, but the frameworks that I developed for viewing how China works, where like there's this one guy and what that one guy says goes, that's kind of been helpful over the past three weeks. But we're still a democracy and there's, we're still going to see over the coming weeks and months court challenges. And so when you look at that, you do kind of get into the idea of there are going to be bunch of opportunities for Trump to be able to walk things back without losing face, where you can very easily imagine a scenario where there's a court challenge to tariffs and he says something like, we can't, we're going to have to pause the tariffs. And it's because of the globalists. Right? That's like, it's like a very easy scenario to envision. So you do have to, that's like once you've done the worst case scenario, we kind of say, okay, well now that we've priced in, let's say, you know, a 50% chance of the media recession or research of inflation or kind of both occurring at the same time, what are the kind of pain points that could force a policy reversal? Because really you've gotten into a dynamic where you have a generational inflection point that is predicated on one dude and that's super uncomfortable. And that's pretty paralyzing for investors because you look at the way that things are and you say, well, if this continues and this is how things are going to be, then we need to adjust to a new status quo that changes the plumbing layer of the global economy. And that's a huge deal. And stocks should be a lot lower and rates should be a lot higher. And then you have to kind of temper that with. But it's one guy, right? And he's still subject to approval ratings. And so I think that that's kind of what the market's doing right now, where we kind of. Anytime you have a big change, the market's reaction is just, now let's be aggressive about pricing this end very quickly, which tends to be a good thing. Right. I think that when you look throughout history, the kind of geopolitical events that don't have, like, an immediate pricing in tend to fare worse. And just to, like, go on a total tangent here, I'll come back. But it's always interesting when you see, like, investment research or whatever that talks about the. You want to buy the geopolitical dip in equities, right? And their reasoning as well. On average, when you have a geopolitical event, you kind of, you know, you look six months forward and the returns are positive. So, you know, you kind of take that at face value. But when a big geopolitical event happens, you kind of say, well, you know, what geopolitical events are we talking about? And then you go in and you're like, okay, so which geopolitical events did you use? And it ends up being like, 25 events, right? Over the past, like, 120 years. And you're like, well, if there's 25 events, we don't really need an average. We could just show a table. So let's actually look at this table. And what you notice is, like, the geopolitical events that correlate with these big kind of, you know, down moves that are almost immediately reversed. They're events that are, like, primarily rooted in human fear, and they generally have to do with whether it's, you know, terrorism or war or like, the President gets assassinated. Those are all very scary events. But at the same time, you know, we're not like strangers to war. We know what wars look like economically. We. Or like the, you know, JFK gets assassinated, and you're like, oh, my God, what if it was the Soviets? And, and. But the thing is, the US Has a pretty firm and tried policy for what happens if the President gets assassinated. So things eventually normalize and of course equities go back up the times where they don't. And again, this comes back to, you don't need to use an average when there's 25 items, are times when there are very significant changes to the way that the system works, basically like the plumbing. So you look at in 1971, the end of the dollar's convertibility to gold, or 1929, these drastic changes to global trade at the same time that you have a big upset with how basically investing works and regulatory changes. Those are always the geopolitical events that I think demand more certainty and to be taken more seriously in the terms of their longer term impact on returns. But again, the reason why this is such a unique environment is just because literally tomorrow Trump could come out and say, actually nevermind.

A (35:27)

Yeah. And we've already seen over the past few weeks there are some constraints. When the bond market started to sell off with equities, we saw that when he announced the pause. Recently we've started to see his net approval rating fall and that in Trump 1.0, at least we knew that was one of his constraints that he had have forced him to switch. So you're right. I mean, we shouldn't just assume it's a static game here.

B (35:50)

Yeah. And it is always kind of astonishing how quickly crazy, crazy things can just become the status quo.

A (35:57)

Right.

B (35:57)

Like if you look at like 2022, if you're talking to an investor in 2021 and you're like, listen, a year and a half from now there's going to be a land war in Europe, interest rates are going to be 5% and inflation is going to go back to like, like where it hasn't been since the 1970s. They would be like, that sounds like a really bad environment for stocks. And you'd be like, like we're already headed back up to like all time highs. Right. It's something where it never fails to like amaze me at least like how quickly investors are just people. Right. Like people are very adaptable and you have stuff that's crazy that happens and then like the craziness becomes the new status quo. And then the bullish case is stuff's not that crazy. You know, like, like when you're expecting insanity and the reality becomes like crazy but like not, not, not insane, then that's like, that becomes like a bull case. So it is something where it's a pretty delicate environment because it's, it's not as kind of cut and dry as like A financial crisis or just you know like the banks failing in March where that, I mean that was the most simple one where it's just well the Fed cuts off interest rate risk. But you do have to be kind of more nimble about it just because of that kind of ever looming threat.

A (37:07)

Yep, that makes sense. I did want to move towards some of the more micro megatrends that you've talked about in some of your research. One is weight loss as a megatrend with obviously some of the pharmaceutical breakthroughs, then also mental health tech. Can you talk more about these and what are some of these other types of megatrends you're looking at outside of the more macro driven ones?

B (37:31)

Yeah, I mean there's differences between trends and megatrends and I don't know if there's a firm line but there are kind of trends that play out over decades and then there are trends that are just kind of like this year. It's also a function of what kind of stocks are making up this trend. Right. So like with like the mental health trend for example, something that I haven't really seen spoken about is the idea that when it comes to tariffs this comes back to the idea of like you want to fit your trend within a friendly macro environment. Right. Within like companies generally obviously small and mid cap, especially like microcap has just gotten absolutely destroyed relative performance wise over the last few years. And when you look at tariffs and you start like looking in depth, especially in companies in healthcare, the large companies have like very globalized supply chains because like there is pretty significant upfront cost even if it's cheaper to manufacture in China when you're doing especially in like a, like a high regulatory environment like, like healthcare, there are significant upfront costs associated with moving your supply chain to save costs in the long term to China. What you notice is there's smaller companies that are more insulated just by the fact that they're smaller. It seems almost counterintuitive but it wouldn't surprise me if we saw small and mid cap stocks outperform over the next year relative to large cap. And part of that is the only stocks that are really like addressing mental health which has kind of become a crisis especially since COVID are these kind of small and mid cap mental kind of companies in this area. So that's kind of a favorable like where maybe like these aren't the companies that are going to solve mental health but they are operating in this area. They do have a tailwind from demand just because it's kind of become a crisis. And at the same time they're kind of insulated from the more deleterious macro effects that are, that are occurring. So that's one thing that we've explored at length. Another thing that we wrote about back in, I want to say January or maybe February. The kind of just a trend that we've covered for probably since we started is kind of the idea that fiscal spending tends to drive like at the micro level, drive returns more significantly than investors expect. Just this is like the, of every dollar fiscal spending or deficit spending is a dollar of corporate profits. And that's kind of like something that drove equity returns in the United States for a pretty significant amount of time. Right after the, based on the nature of the spending by the government, there was a period of time where the government was spending very much in the way of kind of supporting consumer demand and that was great for consumer facing stocks. And then Biden kind of shifted this more towards this kind of IRA I CHIPS act where it was much more a driver of kind of these more industrial, positively exposed to the domestic component requirements, stuff like this. And now you get into an environment where the US like for the past three months they've just been talking about, well, you know, we have to reduce fiscal, we have to reduce deficit spending. And meanwhile, at the same time in Europe you have, you know, November Mario Drahi releases this report about making Europe competitive again. And it's honestly amazing because for me it's like I remember reading through the ira, which is like I do not recommend and was like a very painful experience, but it's like a document that's thousands of pages and you basically just have to go through and be isolating like, well, this will affect this specific sector and this specific company that's X, Y and Z. And this is better for this solar company than this one or this company that makes copper wire in the US So meanwhile in Europe it was just like Mario dry being like, we need to do fiscal spending and we need to funnel it to these exact sectors in this exact way. And it's like, thanks Mario. Amazing. That saved me a lot of work. But another thing that the macro trader who I originally learned from said is when you're trading in Europe and Mario Drahi says something, you get the fuck out of the way. And so Mario Drahi said something and it was very clearly going to be an environment where, where even if Trump doesn't cut fiscal spending, which I think probably, if your aim is to cut fiscal spending, probably teetering us on the brink of a recession is probably not the way to do that. Whatever that ends up being the case, there's still uncertainty about it. And then at the same time you have much more certainty in Europe. So we wrote about just the theme of this concept of fiscal primacy, where fiscal spending is one of the primary driving factors behind equity returns, has shifted from the US to Europe and to a certain degree China.

A (42:13)

That's fantastic. Yeah, that makes a lot of sense. Now we've covered a lot of ground and we could talk on for much, much longer. But I do want to round off the conversation with a few personal questions. You talked about the macro investor neighbor who influenced you. So whether it's him or someone else, what's the best investment advice you've ever received from anyone?

B (42:34)

Oh, God. There's so many, I think like, and like the reason there's so many I think is just because there's like a. I think it's a Buddhist concept. I don't know exactly, but I think it like translates to having a beginner's mindset. And it's just like coming into things with the idea that like you don't know anything and everyone has something that they can teach you. And I think that that's like, it's nowhere true more than it is true in finance because a lot of people, even if you're like constantly analyzing specific companies in the sector. Right, Right. You're not running that company or like you're doing global macro and you're analyzing these trade flows. You're not like doing import export. Right. Like you're not on the. Just like, like coming in basically constantly maintaining the idea that everyone has something to teach you and you probably don't know as much as you think. I think that that's like probably the one thing that's been more incredibly valuable to me than, than anything. Right. Just listen to people and kind of have common sense about things and don't develop a dogma that kind of closes you off off. But in a more market sense, I would say, like the concept of macro and micro not really being two different things right there. It's like it's more of a continuum or like a feedback loop. The micro is responding to the macro, which is responding to the micro. Like it's all kind of the same thing. And from that like looking at like, you know, just because you're investing in, let's say, technology or AI, right. Doesn't mean that you don't pay attention to other markets or the economy large. Right. Just because like there's a new sexy trend doesn't mean that like semiconductors aren't cyclical anymore. So the idea that like everything is correlated to some degree and keeping track of those correlations, I mean there are rules that those correlations play by and then when they don't, that's evidence that something extraordinary is happening. That can be technology outperforming despite interest rates continuing to go up, up or like long duration assets continuing to perform even though interest rates on the long end are saying high. Or it could be speaking more recently like the correlation between gold and real rates held very fast, very strong for a very long period of time. And then when it started breaking down, guess what? That was probably when you should have been buying gold, right? Or yen versus the interest rate differentials or even on a kind of micro level these correlations of like for a period of time Apple and BlackBerry traded probably very similar, right? Like they've both kind of exposed to the handset and like, like mobile device markets and those were their biggest growth kind of vectors. And then you have some sort of event and you know, oh, now they're not correlated anymore. And that, that's at least what I use to kind of give me a clue that something deserves further investigation. Because there's so many things you could be using your time for at any period of time in the market. There's, there's a million things happening, happening and you have a finite amount of time. So you have to be pretty decisive about what you choose to focus on at any given point. And that doesn't mean that you shouldn't like take the kind of work to become an expert in any one area. You absolutely should. But you know, that takes work and time and labor and you have to be selective about where you choose to do that. So I think paying attention to those correlations and when those correlations are breaking down when people are genuinely surprised by things, that's probably been the best advice I've gotten. Yeah, that's really, I think probably the final one would be like, like if you don't love doing this, don't do it because you're going to be competing against people that absolutely love it and like are so excited to come into work every day and if you are unenthused about it, you're going to get stomped.

A (46:08)

Okay, now that's great. And another kind of related question I suppose is, you know, some of our audience are relatively young and they're at university, they'll be leaving university, you know, for the real world. I Mean, what advice would you give them given and all the change that's happening in the world between AI, geopolitics and President Trump and so on, I.

B (46:27)

Think it kind of comes back to just what I. If you truly enjoy doing something, like, if you're really into it and it's something that's durable, and even when you're doing other stuff, you're thinking about it, doing that is going to be the right thing. Because whether it's like AI or some other disruption from, like Trump or whatever, at the end of the day, like, if you're constantly engaged and constantly wanting to do, if AI changes the way that finance works. Well, if you really love doing finance, then you will find a way to incorporate AI more effectively than the next guy. Right. So just, you know, I guess that's like super trite.

A (47:03)

That makes sense.

B (47:04)

It is true.

A (47:05)

Yeah. And then just to round off, you know, what are some of the books that have influenced you?

B (47:09)

Like, especially right now, I would say if you haven't read Alchemy of Finance by George Soros House, you got to buy that. You got to flip to the third part where he's talking about the Plaza Accord, and you just got to read that. I mean, it's one of my favorite books about investing, and it's super densely written. It's like one of those books where you read 10 pages and you're like, what is this guy talking about? And then you read one sentence and you're like, oh, okay, I get it. But it's something where, whether fortunately or unfortunately, we live in extremely interesting times now. And so reading kind of the accounts of traders that have, have lived through interesting times and also kind of reflected on them and created frameworks for how to deal with interesting times is invaluable right now because that's. You're never going to be able to fully replicate experience, but you can kind of osmosis your way around that. So that would be my 1 recommendation for this current environment.

A (48:00)

Yep. No, that sounds great. So there's been fantastic speaking to you. And just a final thing. What's the best way for people to follow your work?

B (48:09)

We publish on citriniresearch.com it's a newsletter format, and we publish a portfolio that kind of contains our active equity baskets. We have like a community chat where we kind of, you know, things that don't deserve, like a, like a full long form article. Just kind of random insights and discussion. So, yeah, zatrinyresearch.com and check it out.

A (48:32)

All right. No, that's excellent. So we'll keep up the good work and thanks again for all coming on the podcast.

B (48:36)

Thanks a lot Paul. I really enjoyed being here.

A (48:39)

Thanks for listening to the episode. Please subscribe to the podcast show on Apple Spotify orever you listen to podcasts, leave a five star rating, a nice comment and let other people know about the show. We'd be very, very grateful. Finally, sign up for our free newsletter@Mac.com we'll be back soon, so tune in.