The transcript from this week’s, MiB: Mike Wilson, Morgan Stanley, is below.
You can stream and download our full conversation, including any podcast extras, on Apple Podcasts, Spotify, YouTube, and Bloomberg. All of our earlier podcasts on your favorite pod hosts can be found here.
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Barry Ritholtz: This week on the podcast, I have an extra special guest. Mike Wilson has been with Morgan Stanley since 1989, rising up through the ranks of institutional sales, trading, investing, banking to eventually becoming Chief Investment Officer and Chief US Equity Strategist. He has a very interesting approach to thinking about market valuations and strategies and when to deploy capital, when to go with the crowd, when to lean against the crowd, and has amassed and excellent track record. In doing so, I thought this conversation was really quite fascinating, and I think you will also, especially if you’re not only interested in equity, but curious as to how to combine various aspects of market functions, valuation, economic cycle, fed actions into one coherent strategy. I thought this was fascinating, and I think you will also, with no further ado, my conversation with Morgan Stanley, Mike Wilson. Mike Wilson, welcome to Bloomberg.
Mike Wilson: Thanks, Barry. It’s great to be here. It
Barry Ritholtz: It’s great to have you. I’ve been looking forward to this. Let’s, let’s talk a little bit about your background. You get A B, BA from University of Michigan [Go Blue!], MBA from Kellogg at Northwestern. Was investing always the career plan?
Mike Wilson: Yeah, you know, it was in some way, shape or form. I mean, you know, my mom was a financial advisor in the early eighties. She was kind of an inspiration with a single parent, family household. She was basically making ends meet and she, you know, with that time, a woman in as a broker was, you know, really kind of a, an endangered species Wow. And didn’t exist at all. So she got me interested looking at stocks at a young age. And of course I got hooked early because probably to this day, my largest percentage winner of all time was the first stock I ever picked when I was 13 years old. So
Barry Ritholtz: What was that stock?
Mike Wilson: So I was 13 years old in 1980. A boy, I can imagine. I picked Nike. It worked out pretty well and ended up paying for a good chunk of tuition. And of course, once you have a winner like that, you’re, you’re kind of in. So I, I went to school. I didn’t think I would be necessarily doing what I’m doing today, but I knew that I was gonna be interested in financial markets of some kind, and I think I probably ended up in the right place. It took a long time to kinda get to the right role, but, but yeah, I mean, I’ve always had a, an interest in, in markets for sure.
Barry Ritholtz: Do you still have that Nike?
Mike Wilson: I don’t actually. I sold it. I finally sold it, all of it, I believe in the late nineties. So I left a lot on the table. Yeah, yeah, yeah. But it’s still my biggest winner, but I still left, but still
Barry Ritholtz: Right. That’s a good run. 20 years in Nike It’s good that that was the fat part of the curve with them. So I can’t help but notice Michigan, Northwestern in Chicago, and then you come to New York City. What was that transition like from a quiet Midwestern upbringing to New York City?
Mike Wilson: Yeah, I mean, it really was a kind of a, you know, a turbulent sort of emotional thing for me. But I had changed schools so many times through my childhood. I lived in Illinois, I lived in Texas and went to a bunch of different schools, so, so like new adventures was not, not, you know, a challenge for me. But yeah, the big city was, it was a big change. I was a, I’m a rural guy, kind of grew up in a, you know, farm town in Illinois and in Texas, which is in Dallas, but not really a farm town, but it, you know, more rural, definitely more Midwestern southern even. And so, yeah, New York was eyeopening
Barry Ritholtz: And New York in the 1990s was like a BoomTown party. Totally. What, what was that first decade like as a, a junior level banker at, at Morgans Stanley?
Mike Wilson: A Lot of fun. I mean, a lot of fun. I mean, you know, you work long hours, but you’re kind of burning the candle at both ends. You’re, you know, it’s sort of, Work hard, play hard,
Barry Ritholtz: Right That’s what your twenties are for. Yeah.
Mike Wilson: And nothing bad, nothing we shouldn’t be doing. And it was great the nineties still to this day. I mean, it felt, and, and America was really booming. It wasn’t just New York City. I mean, it was almost a, a coming of age for the entire country as, you know. I mean, the late nineties was sort of, you could say peak USA in many ways. We can measure that in a, in a lot of different ways. And, and New York was, you know, a big part of that. So it was, it was a lot of fun. It was exciting.
Barry Ritholtz: What, what were your experiences like as a junior? I banker,
Mike Wilson: Not so fun. I mean, you know, it, you’re learning, but it’s, you know, it, it’s a entry level job and it’s not glamorous. You’re, you’re punching the clock pretty heavy hours, but boy, you’re surrounded by some really smart people and you’re, you’re working on things that are, are forcing you to grow intellectually. It really challenges your resolve. Do you want to be in this business? You know, do, do you wanna, because it, it’s constant as you know. I mean, being in the, in the investment business, being in, in the financial services business, it’s, it’s a constant, you know, evolution. You know, you have to improve your skills. You have to evolve your skills, and if you don’t, you, you kind of die.
Barry Ritholtz: I had a John Mack on the show last year, and, and one of the things that really struck me was his respect and reverence for the culture at Morgan Stanley. Tell a little bit about your, your experiences dealing with Morgan Stanley culture.
Mike Wilson: Yeah, I mean, for me, it, I mean, it was perfect because I, you know, I grew up very independent. You know, my mom put that on me early. And so Morgan Stanley’s kinda the same way. It’s, it’s, it’s your career to manage tremendous support internally to make sure that you have what you need. But, but generally they encourage you to explore your limits. And so that to me has always been a very endearing part of the Morgan Stanley culture. It’s served me well. It’s challenged me. It’s made me kind of better, it’s forced me to, to grow and do different jobs. That’s, to me is the biggest takeaway.
Barry Ritholtz: And 35 years one firm your whole career, that’s a rarity in the modern era. What’s kept you there your entire career?
Mike Wilson: It’s just what I said. I mean, they’ve been, they’ve given me the opportunity to do a lot of different things. I don’t think I could have spent 35 years at any firm doing the same job function. It’s just, I need a variety. And so I would probably say that I’ve had six or seven careers over that 35 year period. And that’s what’s kept me interested. It’s, it’s been exciting. It’s been, you know, it’s been a thrill of a lifetime to be able to, to do these different types of careers.
Barry Ritholtz: So we were chatting earlier about our holding periods, getting longer as we get older. You and I both started as traders. What was that experience like? Again, 1990s big institutional activity at Morgan Stanley. What was your trading career like?
Mike Wilson: Yeah, well that came later. So I was really investment banking. And then I went into really more of a sales role in the nineties. And then I became more of a prop trader in the two thousands sort of post the tech bubble. And I was involved in trading tech stocks, proprietarily, you know, helping the desk make money before, you know, before that became abolished, you know, post GFC. Right, right. And, and that was a, another incredible growing experience. I mean, as you know, you know, trading forces you to really look inward. You know, you’re basically competing against yourself, right? You’re your own worst enemy. You’re your own best friend. You know, it’s a love hate thing. The p and l is everything. And, you know, I discovered I didn’t really like that, to be honest. I don’t, I didn’t, I didn’t enjoy, you know, being married to a, a screen every day. That to me is, is not investing, that’s trading. And, and I, I’m not a trader. I mean, I understand trading. I’m more of somebody who is intermediate term. I’m a cycles person as opposed to a trading person.
Barry Ritholtz: The question that comes to my mind, because of my experience doing something very similar, is I find that trading has influenced how I look at investing. What, what has your experience been now that your time horizon is much longer? How did your experience as a trader in the two thousands impact how you see the world? Well,
Mike Wilson: It absolutely helps. I mean, you know, because it forces you to be honest about, you know, your positioning and it forces you to, to revisit like, why am I involved in this call or position, and does it still make sense? And that trader instinct forces you to be honest with yourself, where I think if you hadn’t done, if I hadn’t done that, I probably wouldn’t be as, you know, open- minded to things changing and, and oh yeah, I could be wrong. You know, it’s funny to me, a lot of people are afraid to admit they’re wrong. I’m, I’m happy to admit that I’m wrong because that’s how a trader closes out a position.
Barry Ritholtz: That’s exactly right.
Mike Wilson: I, you know what I mean? Like, you gotta say, I’m wrong. And then, okay, I, I’ve gotta do something different. And, and I think, you know, my worst mistakes have been when I’ve been unable to admit that I’m wrong. And so the trading experience helped me to kind of get past that.
Barry Ritholtz: The line I recall my head trader drumming into my head was, “It’s okay to be wrong. It’s unacceptable to stay wrong.” [Correct] So, so you hold two roles, and if someone asks me, what are the two best gigs in all of Morgan Stanley? My answers would be, I don’t know, either Chief US Equity Strategist or Chief Investment Officer, you have both of those titles. How does that work? How do you handle both of those?
Mike Wilson: Well, I mean, you know, that’s also evolved over time. I mean, they’re very different constituents. So I would say the challenge of having those roles is that our institutional clients are much shorter term. And, you know, Morgan Stanley has all types of different clients. We have institutional clients, we have retail clients, we have, you know, pension funds, we have endowments. And so it’s, it’s sort of managing that, all of those different constituents with communication. So that, that’s the challenge. I wouldn’t say I like one better than the other, but what I would say is I do find more personal satisfaction in helping the asset owner clients who really need the help. Okay. You know, let’s be honest, most of the institutional clients, you know, they’re pretty sophisticated and they’re looking for an edge. You know, they value our research. They say they value other people’s research, they value the conversations, but they don’t necessarily need your help as much as, say, a, a retail client or somebody who is really entrusting their entire net worth to the firm.
00:10:16 So it’s just different, you know, and, and, and what I find challenging and satisfying is that every meeting I do, I almost gotta put on a different hat. You know, I go into a meeting and I’m talking to somebody who’s really doesn’t care at all about next week. And they don’t even care about this year. They’re thinking about five, 10 years down the road. Right. It’s a completely different conversation. In fact, we end up talking about their business, how they made their wealth. That’s really fascinating to me. Whereas if I’m going into a typical institutional meeting, it’s almost like, you know, wash, rinse, repeat, okay, here’s what’s going on right now, here’s how we’re thinking about it. Which is valuable, but it’s a totally different meeting.
00:10:49 [Speaker Changed] Huh. Really interesting. So I’m looking at all the various roles you’ve had at Morgan Stanley over the past three and a half decades. Investment banker, trader, salesman, strategist, product manager, and of course chief investment officer. What’s your favorite role? And if you could create just one sort of amalgam of it, what, what would that look like?
00:11:15 [Speaker Changed] Yeah, that’s an interesting question. I mean, I would say, you know, I had a lot of fun working on the trading desk. I was younger. We had a group of people kinda the same age. You know, you’re rowing the boat. It’s a tight team of 15 people or so. And that, that role was essentially, I, I, I sort of built what we call institutional sector sales, sort of a desk analyst role. We were the first firm to do that. I was a TMT specialist. And then I built out that effort over the course of, I don’t know, five, six years for every industry. And it was a, it was kinda like your team, and we built it from scratch. Now, every firm has those, has that role. So we were the original, we were the OG on that. And it was a, it was a very cohesive group of people.
00:11:58 We were analysts, we were also traders. We were dealing with clients from a sales standpoint. We were making calls, we were working with our research department, and we’d even work with capital markets, you know, to help them price or think about deals in our sectors. So it was a very comprehensive role, but also specialized. That to me was, I had the most fun, but I did it for almost 10 years, you know, so I kind of hit my expiration date, you know what I mean? Right. And so I wouldn’t wanna be doing that now because I did it. And that’s why I always think about my life, which is the next thing I do is gonna be something totally different. I don’t even know what it’s going to be yet, but I mean, I’m not retiring. I, I’ll be working till, you know, God help me out, live a long life, and I’ll be doing this for a long time. Huh.
00:12:37 [Speaker Changed] Really interesting. Alright, so you cover a lot of, really, what are my favorite topics? The, the five things that are within your purview, US equity markets and trends, economic indicators, how political events, impact markets, corporate earnings, and then federal reserve policies. That’s the big five in my book. I, I love that area. There’s always things to talk about. We, we were chatting earlier and I said, I get a lot of questions and emails from clients. Those are the five areas that 95% of the questions that come in cover. How did you narrow it down to these five? What do you like talking about most when you’re having conversations with clients?
00:13:20 [Speaker Changed] Well, to me it’s all just about the, the riddle. You know, you’re just trying to solve a giant puzzle. I mean, that’s what, that’s what makes markets so exciting to me. It’s a, it’s the marrying, quite frankly, of macro and micro. So I have a, a deep background in micro, mainly the TMT space. And then I developed this macro affinity starting in 2000, really? 2009, 10 in that role. And so marrying the two to me is the advantage. You know, the way we kind of laid this out, and we originally took over coverage of US equity strategy. We said, look, there’s four pillars to our strategy. First of all, we’re cycle analysts. Not to be confused as psychoanalysts, but it’s kinda related, right? Understanding cycles is critical.
00:14:00 [Speaker Changed] Are we talking market cycles, economic cycles, fed cycles, everything
00:14:04 [Speaker Changed] Both. But generally starts with the economic cycle. Where are you in the economic cycle? And then they’re the business cycle effectively. And then understanding that there are also market cycles. And marrying those two is also a big part of our framework. So you have to have some sort of fundamental framework. Mine has always been based on rate of change analysis. So to me, when people look at data, a lot of times, I don’t think they look at data the right way. Now, I, I feel like we educated the street in many ways going back 15, 20 years ago about this rate of change analysis going back to the early two thousands. And now people are kind of onto it, and I’m, I’m not saying the only person thinking about rate of change, but it has become a mu a much bigger feature. So the rate of change matters way more than the level in every indicator you’re looking at.
00:14:47 [Speaker Changed] In other words, are we accelerating or decelerating rather than specific points or,
00:14:51 [Speaker Changed] Exactly. And that can apply to macro data and it can apply to micro data. And that should tell you whether or not an asset’s probably going to be appreciating or depreciating. So that’s one part of our framework. Second part of our framework is valuation fundamental work. You know, earnings analysis, predicting earnings, whereas a valuation based on kind of where we are in the cycle. And then of course, policy is a huge impact on, you know, how that cycle can be
00:15:18 [Speaker Changed] Affected. When we say policy, do we mean fed policy? Do we mean fiscal policy? We mean everything, yeah.
00:15:23 [Speaker Changed] All types of policy, but mainly fiscal and monetary, also geopolitical events. And that’s probably the least important for us because they’re so hard to predict. Right. But, but definitely fiscal and monetary policy. And I think that that’s probably taken on a much bigger role in the last 20 years than it was prior to that 20 year period. The policy now has a outsized impact on markets than it did 20 years ago. Huh.
00:15:46 [Speaker Changed] Really interesting. Yeah. Not too long ago you wrote, this is a humbling business. That’s a attitude I completely share, but I don’t see a lot of people in our industry discussing that. Tell us a little bit about what makes this such a humbling business.
00:16:03 [Speaker Changed] Well, first of all, it’s, it’s extremely competitive. Probably the smartest, most motivated people in the world that you’re competing against. And it’s, and you’re also competing against yourself to try and figure out what’s going to happen. So that’s, that’s number one. So your probability of being correct Okay. Is low, right? I mean, like, if you’re 50 50 or 60 40 on your ideas, you’re really good. Okay. Think about overachievers. You know, when you, and then we recruit, you know, we talk to people, young people always say, you probably haven’t even ever had a B on your report card. They can’t imagine getting a B, well get ready to have a bunch of F’s. You know, and that’s humbling is to say, Hey, you know, like, this is difficult and you’re gonna be wrong a lot. And, and really the humility is important because, you know, failure is all about how you deal with it. You know, you’re all gonna be wrong, okay. At some point. And how do you deal with that failure? Do you, do you double down on your mistakes? Do you, do you deny that you made a mistake? Do you learn from your mistake? And to me, that’s, that really encompasses why I like it so much, because you’re forced to grow. You’re always forced to be growing as a person, as a colleague, as a client service person. And you’re always, you’re constantly learning and, and relearning. So.
00:17:18 [Speaker Changed] So let’s talk about some of that learning. I’ve tracked your career over the years, and I don’t know, a decade or two ago you were more inclined to make bigger, bolder predictions. Now I kind of see you as doing more nuanced strategies. You emphasize relative value. You’re looking for where is an edge I can share with clients versus let’s see if we can, you know, get the big one, right? Why has that philosophy evolved over time and and how do you implement it?
00:17:50 [Speaker Changed] Yeah, I would say it, I wouldn’t say it’s changed completely. I think that there are times in the markets where, you know, the big pitch is easier to go after. I still, I’m, I’m a big elephant hunter. Yeah. I mean, I, I still view myself as, I tend to be more contrarian because I think that’s where you make the big money. All my good calls have been going against the grain, whether it’s bullish or bearish. I would say, you know, we get tagged with being, you know, more bearish and bullish. I would say we’re just more balanced, you know, but we, when we make big calls in the past, they tend to be at important turning points. And of course we don’t get all those right either. But I still enjoy that. We, lately we have not been doing as much of that. Because going back to what I said a minute ago, policy has been so important in the last, really since Covid that it has kind of screwed up some of our indicators in a way where it hasn’t been as easy to have that conviction level that you get run over by policy, both on the upside and the downside.
00:18:50 And so what, what we feel like we have an edge in is calling those relative value trades. And we’ve had great success in that in the last 12 to 18 months, even though perhaps maybe our market call in the last 12 months has been not as good. Well,
00:19:02 [Speaker Changed] Let’s give you some credit where credit is due. Earlier this year you had said, Hey, we’re, we’re very overdue for a 10% correction in the market. And pretty much, you know, July and August, that’s about what we’ve seen in 2024. Do you find it easier to conceptualize market activity when things become more volatile? How do market dislocations affect your ability to read the tea leaves?
00:19:28 [Speaker Changed] Well, I mean, market dislocation always creates sort of opportunity. You know, this year has been very, it’s been very calm from a volatility standpoint, and that’s somewhat boring, right? So we felt like in early July that, you know, that had gotten kind of extreme. There was stuff that was, you know, peering its way out and the risk reward was not as good. Now, 10% corrections are very common, right? You know, they’re not like, that’s not really that big of a bold call that’s just saying, Hey, things are extended. It worked out. Timing was actually quite good. Okay, great. What I, what I would say is that, you know, the, the ability to, to, to read the tea leaves, I would view myself as very good at that. And that, that’s not a humble statement, but I think it’s an accurate statement. Like that’s, we’ve built our career being able to see around the corner maybe a little bit earlier than some people, because we look at the market so closely, the market tells you kind of what’s about to happen.
00:20:23 Once again, you can’t always be accurate, but I would say a lot of our clients rely on us sometimes to help them see around the corner. And they know that we’re not afraid to help them look around the corner. Okay? Whether it’s bullish or bearish, that doesn’t really matter. It’s more of like, what’s not priced right now. What is priced right now is a soft landing. And that is the base case scenario for most people. So you have to ask yourself, okay, well what happens if that soft landing narrative is challenged doesn’t mean it’s a hard landing, just means that it’s challenged. Well, that means valuations are probably too high. And, and that could set off a chain reaction that that’s why you get a correction. That, that was kind of the rationale back in, in early July. Those types of calls don’t come around every week. Right. Those types of calls tend to happen when things are extreme levels. You see the risk reward being unbalanced and you take a swing.
00:21:13 [Speaker Changed] Well, let’s talk about a swing you took, you got 2022 very right. You said things were expensive and not prepared for a fed hiking cycle. And lo and behold, not only were stocks down 20 plus percent bonds were down 15%. It was a pretty awful year. You got the macro picture right. What, what led you to identify that correctly and what made the two years that followed 2022 so, so challenging?
00:21:42 [Speaker Changed] Yeah, I mean, I think, well, what set us up was we, you know, we got the low right in 2020 for the right reasons. We kinda came into the pandemic, more bearish than most. ’cause we thought it was late cycle. Then we got the pandemic and it was to us a really fat pitch, right? So we were very aggressive in 2020 and 2021. And you know, we, we don’t get necessarily a lot of credit, but, you know, our clients give us credit. We caught all of that upside. And so part of that call was just like, look, we’ve had this massive move. It’s mainly because of policy. Okay? We’ve overshadow, we’ve had, we’ve had over consumption from the pandemic and all the benefits that were sent out to people. Valuations are now outta touch with the reality. The fed’s gonna have to raise rates. We kinda use this interesting narrative called fire and ice, right? The inflation will lead to, you know, basically slow down because have to raise rates. And that all narrative just really worked nicely having been so right in 20 20, 20 21. On the upside, the call to kind of faded into 21 was actually pretty easy. Where we, where we didn’t get right, was that we didn’t think they’d raise 500 basis points. So we in some ways we in
00:22:45 [Speaker Changed] In 18 months.
00:22:46 [Speaker Changed] No, I mean, so like that, that actually made us feel then, oh my goodness, they probably overdid it. Right? And that’s gonna lead to probably a hard landing in 2023. But we weren’t alone in that view, by the way.
00:22:57 [Speaker Changed] So, so let’s talk about this a sec. Yeah. ’cause man did so many macro economists and strategists, they might’ve gotten 22, right? But 23 and 24 was perplexing. And we continued to hear recession, recession, recession throughout. I’m not saying you, I’m saying the street throughout 23, the first half of 24, as of August of 2024, there are no signs of a recession. Yeah. The yield curve is still inverted. It’s less inverted than it was. And the som rule arguably ticked off. Although Claudia Som says it may not be indicating a recession now. But how did so many of the traditional economists types get this recession wrong?
00:23:40 [Speaker Changed] Well, I mean, a lot of the traditional indicators were a flashed a wrong sign. I mean, you know, historically that probably would’ve played out. And my personal view is that we had incredible policy support last year, mostly on the fiscal side. Right. Which essentially allowed the cycle to extend itself. I mean, if you take out the government spending, you probably are on a recession in a private economy. And, and look, many people have highlighted this too, ourselves included. We, we have been in a recession in many sectors, kinda a rolling recession. Yes. A term that we sort of invented in 2018, which I regret now. ’cause now people kinda use it in a way, which I think is misused. But anyways, we can leave that where it is. And I, I guess this is where I come out the story, which is I don’t think that they’ve extinguished the risk of a hard landing.
00:24:26 Okay. Because now we’re going into a period where probably fiscal support is gonna have to wane. And we have election, obviously that could affect that too. And also policy now from the Fed may be late and forthcoming. We don’t know the answer yet. So I think it’s almost like a mere image of last year where everybody was so certain it was gonna be a recession. And of course that majority was wrong. Now everybody’s so certain it’s gonna be a soft landing. Who’s to say that they’re not gonna be wrong? You just don’t know. So I think that’s where I, that’s where I come out on the market overall as the index level. We’re not as bullish as others because we don’t think the multiples reflect that there’s still this risk that’s probably 20, 30% at least, that you could end up in a hard landing at some point in the next 12 months. And that’s definitely not priced.
00:25:06 [Speaker Changed] So, so you bring something up that I’m fascinated by and, and it, it plays right to the economist getting the recession wrong in 23 and 24. And that’s your focus on government, both fiscal and monetary support for the economy. When, when we have a year, like 2020, like the pandemic, when the CARES act, and there were three Cares Act, but the first Cares Act was something like 10% of GDP. We hadn’t seen anything like that since World War ii. Shouldn’t that force people to kind of rethink their models when suddenly a few trillion dollars unexpectedly is gonna pour into the economy. I, I remember Jeremy Siegel jumping up and down professor at Wharton saying, this is gonna cause inflation. And nobody paid him any attention back in 2020. Shouldn’t that government support that you are referring to force us to kind of rethink our models a little
00:26:01 [Speaker Changed] Bit. And we did. And that’s why we got 20, 20, 21. So right, because we agreed with Professor Siegel in April of 2020. We said, look out for the inflation. And the people thought we were nuts. They were
00:26:11 [Speaker Changed] Right. The pushback was pretty fierce to that fierce,
00:26:13 [Speaker Changed] Fierce. We got more pushback, by the way, being bullish in March and April of 2020 than being bearish in 22. ’cause people say we were being insensitive to like, you know, the, the disease and we’re not being insensitive. We’re just trying to do our job. And anyways, the, the point is that that boom bust, we compared exactly to World War ii. We wrote extensively about this. The way we adjusted it was we said, okay, these cycles now are going to be hotter, but shorter. And that’s why in 2021 into 21, we said, okay, this is the peak of the cycle rate of change. Which by the way, turned out to be really accurate. We got people out of all the high flying meme stocks and all that, like in March of 21, because we said, this is silly. This is all just covid over consumption.
00:26:53 Right. It’s gonna be payback. So we did adjust all that, but once again, Barry is, you, you can’t get everything right. You know, so that’s right. So we feel like that narrative is still right on track. We didn’t trade it particularly well. Okay. Now what we did trade well was our defensiveness and our quality bid, staying away from small caps. We got out of the memes, you know, the, the high flying multiple stocks, people try to keep buying those and just got carried out. And what I find interesting is, you know, if you’re, if you’re bear and wrong, you know, you get, you get carried out. Okay. And people just hate that. But the reality is, is that if you’re bullish and wrong, you destroy way more capital if you’re telling people to buy these crazy things that have no valuation support. So it’s, it’s just kind of ironic, and I’ll just throw this out as a bit of an advertisement, but like, we run a portfolio of 10 stocks, a concentrated portfolio,
00:27:41 [Speaker Changed] 10 stocks, 10
00:27:42 [Speaker Changed] Stocks, that’s it. Wow. And so the last six and a half years, that portfolio has outperformed the s and p by almost 800 basis points annually. Wow. Annually, okay. That’s huge. With very little drawdowns. And we’ve, and we’ve been underweight the mag seven by like 90%. So No kidding.
00:27:56 [Speaker Changed] I was immediately assumed it was, it was all mag seven.
00:27:59 [Speaker Changed] No, because mag seven killed you in 22. Right? Right. That’s right. So in 22, that portfolio was actually up, and it’s, and it’s long only. So now what I’m saying is that calling the s and p 500 is not really that important to making money. Right? Making money is, you know, pivoting into things that maybe are unloved, getting outta things that are over love at the right time and not overstaying your welcome. And that’s where I think our research and our advice has been really quite good.
00:28:27 [Speaker Changed] So, so here’s what I’m kind of intrigued by. You have all these different roles. You’re looking at all these different aspects of the market, of the economy, of, of various government policies. How do you take that massive information and communicate it to both the Morgan Stanley staff, the sales team, the brokers, the asset managers, and the investing public? I know you do a weekly podcast on your perspective of the market. How do you get all of this information to your audience on a timely basis?
00:29:02 [Speaker Changed] Yeah, it’s, it’s a, it’s a challenge. I would, I would say, of all the things, all the skills that I’ve acquired over the years, probably my best skill is communication. That, that, whether it’s verbal, written media of some kind, you know, people say, I have a face for radio, this is this podcast. Me too. Yeah, the podcast is better. But the point is, is I’m pretty clear. Pe there’s usually, there’s not really any uncertainty about what I’m saying. I could be wrong, but it’s very clear, and people like the clarity of the messaging. So we write a note every week. There’s a cadence to it, right? We’ve developed this cadence with our clients every Monday at, you know, 12:00 AM in the morning, the no comes out. So people are waiting for that. Or we do, we, we do these regular touch points and that regular communication, whether it’s to the institutional community, to the retail community, to our endowment community, whatever that might be.
00:29:54 And of course, then we do a lot of marketing. We do a lot of one-on-one meetings, you know, group events, et cetera. So it’s all those touch points. And the challenge is that we have to deliver the message, depending on who the audience is. When it becomes challenging is if I’m doing a media segment and that maybe the messaging is more for the institutional community, but then the retail community picks up on it and it’s really not for them or vice versa. That’s where it becomes a bit of a challenge. And that’s one of the reasons why I’m now more focused on the institutional side. Do
00:30:24 [Speaker Changed] You ever find yourself, when you’re putting these weekly conversations together, looking at the flow and saying, you know, most of the time this, these data series are just trending, and it’s when either there’s a major reversal or a big outlier that it’s interesting, but all right, it’s consistent with last month’s trend and the previous month’s trend. Do you look at that stuff and say, we don’t really need to talk about ISM again, do we? Or how, how do you deal with that?
00:30:51 [Speaker Changed] Well, I mean, it, look, it comes down to what we think is the most important thing this week. We also, you know, it’s a bit of an art in terms of, okay, when do you press it? When do you lay low? When do you make a relative value call? When do you make a market call? You know, it’s like, well, where’s the opportunity right now? We can kind of go anywhere. The beauty of my job is I can kind of talk about anything. I can talk about rates, I can talk about credit, I can talk about stocks. So that’s, that gives me a wide range of things that I can have something relevant to say every week.
00:31:18 [Speaker Changed] Huh, really, really interesting. So there’s a phrase of yours that you use that I, I’m fascinated by. It’s almost a wartime phrase you had written. The fog of uncertainty reveals new investment opportunities. Explain,
00:31:34 [Speaker Changed] Well, that’s when things are mispriced the most, right? When things are, when things are certain, you tend to get pretty accurate pricing. And of course that’s dangerous too, because
00:31:42 [Speaker Changed] It’s, I was gonna say, sometimes you get certainty in the wrong direction. Correct.
00:31:45 [Speaker Changed] But when things are really confusing, like during Covid for example, you get incredible value opportunities that popped up because nobody knew anything including us, but we knew the price. And that was the main reason we got bullish in March of 2020, was that we were waiting for equity risk premiums to blow out. And they did. And I’m like, well, it doesn’t really matter. It doesn’t really matter what happens if I’m buying this at a 700 basis point equity risk premium, and yes, I’m gonna make money. Okay, I’m gonna, I’m gonna make money. Maybe not next week. Now it turned out it was, it was actually the low. But I mean, like, that’s when value, like valuation typically doesn’t matter, but when it matters, it’s all that matters. Hmm. And the fog of uncertainty creates those mismatches, by the way, creates on the upside too. So for example, in early 2021, we made a pretty important call, which was that all the, the meme stocks were going bananas, right? Because the free money that was floating around, right? Like, well, these prices are, this is not gonna end well. And it sure it didn’t.
00:32:39 [Speaker Changed] Right? Ne never does.
00:32:41 [Speaker Changed] It never does.
00:32:41 [Speaker Changed] Right. How is the fog of uncertainty today? Is it, it’s clearly not March, 2020, but there is a sense that people have no idea which direction we’re gonna head.
00:32:53 [Speaker Changed] I would say that right now, there, there is more certainty in people’s minds than reality. Okay. And that’s really where the opportunity comes up, which meaning there seems to be a lot of certainty about how things are gonna play out, not economically, but also from an earning standpoint. But I’ve heard these same arguments now for four to six months. Four to six quarters, quite frankly, about this re-acceleration in certain things, which does, it keeps being deferred. Okay. There’s also a lot of certainty apparently around Fed policy because they guide, which I don’t think there’s any certainty around. They don’t
00:33:24 [Speaker Changed] Know. I, I mean, the street has, let’s be blunt, been dead wrong about what the Fed was gonna do. I it feels like it’s a year and a half already. Yeah.
00:33:32 [Speaker Changed] The Fed has been wrong. It’s a hard job. You know, I remember, I’ll just go back to an example, but in December of 2021, there was 50 basis points of Fed hikes priced in to the next year. Okay. And I was remember talking to clients going like, like, do you, that’s light. Do you think this makes sense? I mean, they, they we’re runaway inflation, and the Fed has told you they’re gonna start raising rates. And they’re like, well, yeah, it could be more, but like, that’s what the Fed’s telling us. Oh, okay. Well, I mean, so I, I find that, you know, this, and this goes back to, you know, 2003 with Regulation fd, that’s when everything kind of changed. Well, it changed in two ways. So the Fed changed with Greenspan, right. With all this forward guidance. And then of course, it’s just gotten more and more and more you had dot plot now, and it just, it just compounded when you give people a little bit of information, they want more. So the Fed has provi now provides so much information, they can’t even tie their shoes without telling us first. Okay.
00:34:26 [Speaker Changed] To be fair, when you and I first started, we didn’t, the fed didn’t even announce they were tightening. You would just see activity in the bond market. Exactly. And someone would say, Hey, it looks like the Fed raised rates. Now, not only do they tell us they’re raising rates, we get the transcript from the meetings,
00:34:41 [Speaker Changed] And then they have to basically go through every line and they’re like parsing each word. It’s gotta the point now where it’s almost debilitating. Okay. Because the, the markets are almost unable to trade away from this sort of formal guidance. Now that served a purpose to a point. Now I think it’s, it’s outgrown its usefulness in many ways. Okay.
00:34:58 [Speaker Changed] Do, does the Fed lose something by giving up the elements of surprise, the ability to shock the markets? I
00:35:06 [Speaker Changed] Think so. I, I, but more importantly, what ends up happening is the market now gravitates to, you know, pricing in the same outcome, right? No one is willing to go away from the, the dot plot or the, like, it, it, the market rarely gets away from the guidance. And I, I bring that up because it’s the same thing in a stock market now, right? With Regulation fd. And now we have an entire industry dedicated to company conference calls, right? So if you look at the variance in estimate analyst estimates, it has absolutely narrowed dramatically over the last 15 or 20 years in the mid or late nineties when hedge funds became a thing and active managers were doing their thing, the variance in estimates were, was all over the place because we didn’t have this such formal guidance. And so the, the irony here is that in the effort to reduce uncertainty, you actually end up creating more volatility because invariably those estimates are gonna end up being wrong at some point, and everybody’s in the same position.
00:36:06 [Speaker Changed] Hmm. Real, really interesting. So, so you mentioned earlier your focus on cycles, not just economic cycles and business cycles, but market cycles tell a little bit about where are we in the economic cycle and where are we in the market cycle today?
00:36:20 [Speaker Changed] So we’re, we’re pretty convinced that we’re late cycle now, late cycle periods gonna last for years. I mean, the late nineties is a great example of that. I mean, we’re on forever, and so we don’t know when it ends, but it, it’s very hard to argue that we’re mid cycle or early cycle because where unemployment is, I mean, you’re, you’re basically at the 50 or low and it’s kind of turning up. So we’re, we think we’re pretty much late cycle, and that informs us where to be within the markets. That’s why quality large caps have done so well. Quality growth in particular, that’s what works. And this idea, you’re gonna go back to small caps or low quality cyclical, it’s just, it doesn’t work. But people I don’t think understand or appreciate where we are, or they have a different view about where we are in the economic cycle.
00:36:59 So that’s one example on the, on the price cycle or market cycles, I mean, that tends to be around kind of fed policy kind of be where, where the interest rate cycle is. Well, there too, it would suggest that we’re late cycle because the curves inverted has been inverted for two years. We’re now about to re steepen and go positive again. That also would argue that you want to have your risk kind of dialed back, at least from a beta standpoint. You don’t wanna be invested in lower quality balance sheet businesses. You know, credit tends to do much better than equities. That has been the case on a risk adjusted basis. Bonds tend to be a better buy that’s starting to work now. So yeah, I mean there’s, there’s all kinds of things that we look at. And then of course, there’s individual stock cycles, which we pay attention to quite a bit. So we do use a lot of technical analysis. One of the reasons we’re con contrarian is I tend to fade. I I fade exhaustion, exhaustion meaning things get overbought or things get oversold. I like to, I like to kind of press into those, into those points.
00:37:54 [Speaker Changed] Hmm. That’s really kind of interesting. So you mentioned the inverted yield curve, and now that that’s dis inverting and, and starting to steepen, everybody tends to focus on the inversion, but that’s not where recessions occur. It’s after the yield curve inversion unwinds and things begin to steepen. So what are your thoughts on the possibility of a recession in 2024 or, or more likely 2025? Well,
00:38:20 [Speaker Changed] Once again, like our house call is as it’s soft landing’s most likely outcome. We don’t have the answer. Okay. And I don’t think the curve is res steepened in a way that would signal that, you know, recession is more likely than not yet, but that can change. So we’re very focused on that. And usually when the curve and re steepens from the front end, meaning the Fed is catching up, this is why I’m very focused right now on the two year yield relative to fed funds. So two year yields got almost 185 basis points below fed funds, you
00:38:48 [Speaker Changed] Would think is anticipating
00:38:49 [Speaker Changed] Massive cuts, right? Like not 50 basis points, okay. Or 75. It’s, it’s, it’s predicting 185 basis points of cuts over the next probably, you know, 12 to 18 months, which is a pretty aggressive fed cutting cycle. And that’s all it’s telling you. It’s just telling you the, that the, the likelihood that the Fed is behind the curve is gone up once again, not a recession, but the risk of a hard landing has gone up all else equal.
00:39:14 [Speaker Changed] If, if the market thinks we’re getting almost 200 basis points in cuts. It sounds like the bond market is anticipating a recession right now.
00:39:21 [Speaker Changed] The good news is that has narrowed, so the spread now between two years and fed funds is down to 1 45. Why? Because the claims numbers were better. We got some, you know, ISM services data was a little bit better. So this like fear that, you know, got priced in really quickly is now subsided a bit. Doesn’t mean it’s, it is extinguished. It just means that we, you know, the pendulum is swinging back again. And so we’re focused on that. We’re watching it closely. I would say the jury is out, we don’t know.
00:39:46 [Speaker Changed] So markets in 2024 had a great first half of a year. A lot of people expected to build on that 10, 12, 14% gains depending on which markets you were looking at. You’ve come out and said, I think it’s a low probability that there’s a whole lot more upside for the rest of the year. Tell us what you’re looking at there and, and why do you think, hey, the most of the gains for 2024 have already been had.
00:40:12 [Speaker Changed] So all of the gains really since October of last fall has been multiple expansion in anticipation of a fed cutting cycle and a re-acceleration in growth. So we went from 17 times earnings s and p earnings in October of last fall to 22 times earnings in June. Well, that’s about as rich as you can get. So I’m pretty comfortable saying that multiples are likely to come down as the Fed cuts. That’s also something I think people don’t appreciate once the Fed, like it’s easier to travel than arrive. So as you’re moving to the Fed cuts, that’s the best part of the cycle. And we wrote about that at the end of last year when we sort of, you know, threw in the towel that we were gonna have this, you know, hard landing. We thought there’d be a rally, okay, we didn’t think we’d go to 5,700.
00:40:56 But needless to say that that’s what happened. But the best part of that rally has now occurred. So when the fed starts cutting, multiples usually go down and there’s just not enough earnings growth to offset a 10 to 15% multiple contraction between here and the end of the year. We have like 8% growth built in for next year’s earnings growth. So that’s the math. I mean, you’re just, you have a net drag from the multiple contraction relative to what the earnings growth is going to be, even in the soft landing outcome. So I would argue that we prob the highs for the year in the s and p are probably in, that doesn’t mean it’s a cataclysm, right? Okay. It just means that the risk reward now is not particularly attractive.
00:41:36 [Speaker Changed] So you have this very nuanced take that I’m intrigued by what you’re describing is somewhat cautious. However, the nuance is pullbacks are opportunities for investors to put money into high quality growth companies that have strong financials and high earnings potential. That’s a very nuanced position relative to the highs are in for the year. And, and we should expect a bumpy road from here.
00:42:03 [Speaker Changed] Well, it’s a little bit of both. I mean, I, I would say that I think the trajectory is down. I mean, 19 times, you know, next year’s numbers is, you know, which would be the end of the year is lower than what we’re trading today. It’s sort of that low 5,000 as opposed to 5,400 at
00:42:16 [Speaker Changed] The end of the, but what is that five, 6%? Exactly. That’s not exactly, it’s bumpy, you know, end of world. It’s
00:42:20 [Speaker Changed] Bumpy. Like you said, it’s bumpy. It’s not a, you know, that’s the way you phrased the question. So I think it is gonna be bumpy and that’s not, forget that we’re going into this election season. There are some other things going on around the world. There is still excess leverage in the system that I’m not sure how that’s gonna be resolved necessarily. China’s not providing the impetus that people were hoping for from a growth standpoint, right? So we just, you know, we just, we need to take a little bit of a, of a break, you know, and it could just be a consolidation period at the index level, which once again lends me to say I wanna be up the quality curve and I wanna skew more defensive than growth, because that’s typically what works from the Fed cuts.
00:42:55 [Speaker Changed] Let’s talk about another nuanced position that you have that I, I find fascinating. Everybody’s been so focused on the artificial intelligence enablers, Nvidia and all the other semiconductor chip companies. But you’ve made the argument that investors should begin to shift from those AI enablers to the AI adopters as the big next opportunity. Talk about that. ’cause that’s really a fascinating concept. Yeah,
00:43:24 [Speaker Changed] I mean that’s the tech, that’s sort of my technology background speaking, right? I mean, that’s how these cycles work. You buy the picks and shovels or the enablers initially, and then the real money, the real opportunity is with the companies that can actually deploy that technology into a new business model. So if you think about the 1990s is a good example. Everybody will understand the enablers were the telecom companies, the silicon companies, the telecom equipment companies,
00:43:48 [Speaker Changed] Cisco, JDS, Uniphase, all, all these companies that nobody really, the average investor had no idea what their hardware was really doing,
00:43:55 [Speaker Changed] Right? But these were spectacular stocks and, and that was in the build out of the internet itself. But if you think about who actually ended up building the big stocks, the ones that really worked from the internet, it’s, it’s the Mag seven, right? You know, I mean X you know, the one semi country company that has gone crazy here recently, but generally these are the businesses that took the internet and then built incredible business models kind of for free. I mean, they didn’t have to, they didn’t have to spend the money to build the superhighway, right? The guys who built the super highway, those stocks have been terrible.
00:44:26 [Speaker Changed] Well, Metromedia Fiber and Global crossing, they, they spent thousands of dollars a mile and then got sold for pennies on the dollar. But that’s how you end up with YouTube and Facebook and Correct. And, and Netflix.
00:44:39 [Speaker Changed] So that’s why it’s interesting now, Barry, where, you know, so obviously the hyperscalers have been the big winners of the last era, and there’s nothing wrong with these businesses or companies, okay? They’re great, but they’re now the ones spending all the money on this next generation cloud or ai, whatever you wanna call it. Oh, by the way, AI just to be clear, is really just an extension of machine learning, right? It’s not, you know, I’m not sure we’re gonna have really artificial intelligence. I mean that’s a, that’s a, that’s a interesting way to get people excited. Okay? It’s just another investment cycle. There will be use cases in business models that are very profitable, built on the backbone of those cloud networks. Okay, great. We don’t even know who those companies are yet. Okay. My guess is they’re gonna reside in areas where, where great efficiencies are needed. For example, in healthcare, which we were talking about earlier, right? Like a lot of eff in efficiencies in healthcare, well, you know, somebody’s gonna come up with a solution to kind wr out that inefficiency, okay? And there’s massive opportunity for that using machine learning. I don’t know who those companies are yet. Okay? But those are gonna be really the fat pitch that’s gonna be where the real wealth, that the 10, 20 30 baggers, because these companies now, they can’t grow 10 fold. They’re, they, they’re already too big. You know what I’m saying?
00:45:47 [Speaker Changed] It, it’s amazing when you look in the healthcare space, they still use fax machines. I mean literally have your doctor fax the prescription Yeah. To the, why can’t you do email? It’s not secure. Some of this is technology. Some of this is just, you know, having one focused business methodology that, that seems to not be rooted 2030 for what is fax machine 40 years old. It it, it’s amazing. So it’s not so much AI as just a rapid adoption of better technologies and AI helps. How, how, how do we conceptualize that?
00:46:26 [Speaker Changed] It’s just faster processing, right? And then once again, it’s about the solution that it’s built around that, right? The internet was a really interesting development, but I remember 1995 and you remember this like I did, you know, we’re sitting around in the desk and all of a sudden they’re like, oh, there’s this thing called email, right? That we’re gonna introduce like, what is this? But it was such an easy application.
00:46:46 [Speaker Changed] But don’t email clients. You have to get compliance. Not yet to approve that. Not yet. Not yet. Do you, do you recall back in the day where you literally had to have approval to send emails? It’s amazing that that a adoption period was a decade plus long. But
00:46:59 [Speaker Changed] It was fast. It was, I mean it was pretty immediate and, and anybody, you know, could type, could, could use email. And email was, I think still to this day, one of the biggest productivity enhancements I’ve ever seen in my, you know, lifetime Now the browser was the other Yeah. You know, killer app. And now the problem was there weren’t any websites to go to for a while, but those two sort of apps to me were so obvious, much more obvious than say, chat GPT is okay, at least so far. We’ll see where that goes right now. It, you know, it does homework for high school students and can help you and I write a nice poem to, to a loved one or help us write a speech or something. Great. But like, is it really enhancing productivity in a meaningful way? Like we can’t use that yet to, it doesn’t, we can’t trust it for the numbers, we can’t trust it for mission critical type analysis yet. Right?
00:47:45 [Speaker Changed] It, it, it’s a research addendum, but it still hallucinates. And so my favorite story is I, I had Bill Dudley, the New York Fed in as a guest and I used chat GBT just to see if I missed anything. And thanks to chat GBTI learned that he was a linebacker for the Detroit Lions in the 1950s, which kind of interesting ’cause he was also born in the 1950s chat. GBT couldn’t figure out two different William Dudley’s that’ll eventually get worked out. At what point? And, and, and this goes right back to your AI adopters, look, we’re all internet companies, we’re all phone companies. We use all these technologies. At what point in the future do the other 490 companies in the s and p 500, not the AI and not enablers, but the adopters, when do they start to see the productivity benefits from ai? How far off is that in the future
00:48:43 [Speaker Changed] When the, you know, hyperscalers or somebody else hands them a solution? It’s a package solution. I mean, it’s no different than software in the nineties, right? It’s not like you and I were gonna go develop office or we’re gonna go develop Excel. You know, we, but somebody developed that for us to be deployed it in our enterprise and our employees became very productive. So we just need the development of those applications. That’s the second phase. The other problem that we haven’t solved yet is the electricity. You know, the power consumption, the heat, you know, and also to build these things out. It takes time and Right. So that’s, there, there are some, there are some snafus in here that will, you know, retard the expansion and growth of,
00:49:22 [Speaker Changed] But, but all those things are solvable. Of course, they, it’s just a matter of time, you know, but, but is it, and money, is it decades or is it years?
00:49:30 [Speaker Changed] Oh no, it’s years. But I don’t think it’s fast enough to prevent where we are in the economic cycle. Once again, going back to, I think there’s people making the argument that, oh, not only did the fiscal kind of bridge us another year, but now AI is gonna extend the cycle another three or four years. I’m just not in that
00:49:49 [Speaker Changed] Belief because that’s the next cycle. That’s
00:49:51 [Speaker Changed] The next cycle. That’s what to get. That’s what’s gonna be, that’s what’s gonna wanna get excited about when valuations come in at some point in the next 12 months, is my guess. And there’s a, a fat pitch that people have forgotten about.
00:50:02 [Speaker Changed] All right. Last of, of our standard questions. When you look at a market where we are today, when you look at an economy, where we are today, what are your favorite metrics to, to focus on? Whether it’s valuation or, or the economy or inflation. What, what are your big three that you’re, you’re watching?
00:50:20 [Speaker Changed] So once again, it goes back to rate of change. And a lot of the key metrics, I say the key metrics I’m focused on now are things like revision factors. So earnings revision factors, that’s what stocks are most highly correlated to. That’s now rolling over. So the rate of change on that is in a bad slope, which means valuations come down. Doesn’t mean it has to go to, you know, negative, right? But, you know, it can go negative and then we’ll have to adjust, you know, our targets further. Right now it’s in a correction phase From a finance standpoint, from a economic standpoint, it’s all the labor data. Okay. That’s all that matters to me. Now. Everything else is kind of secondary. If the, if the claims data and the payroll data stays, okay, soft landing is the outcome. If that deteriorates further, I don’t think it can deteriorate a whole lot further before the markets start to get nervous.
00:51:03 [Speaker Changed] In our last five minutes, let’s jump to our favorite questions that we ask all our guests. And we’ll do this in a, a speed round. Starting with tell us what you’re streaming, what, what’s keeping you entertained these days?
00:51:16 [Speaker Changed] Yeah, I’m watching sort of an eclectic group now. The bear, I dunno if you’ve seen that show. Love. Love it. We just finished season three, which I didn’t love Season three as much.
00:51:24 [Speaker Changed] Season two is still better, but three was interesting. Yeah,
00:51:27 [Speaker Changed] It’s all good. It’s just great character studies, which, which we enjoy. My wife and I have enjoyed that, that series, we just finished it. Other than that, the offer, if you’ve seen that? No. So the offer is about the making of the movie, the Godfather.
00:51:39 [Speaker Changed] We were just talking about this over the weekend.
00:51:41 [Speaker Changed] Spectacular. We’re not done with that yet, but it’s
00:51:43 [Speaker Changed] Because I can’t remember the last time I saw Godfather two. It had to be decades. Yeah. Oh ago. And someone said, watch the offer. It’s based on the book that the producer exactly did. And people said, when you go back and rewatch it, e everything has different context. It’s
00:51:59 [Speaker Changed] Spectacular. So I would recommend that. And then I’m watching a, a Pete Rose documentary right now. I’m in the third of the fourth. And it, it was not what I expected. So I, I like to watch a lot of documentaries and that one is pretty fascinating.
00:52:11 [Speaker Changed] Huh. Really interesting. Tell us about your mentors who helped shape your career.
00:52:15 [Speaker Changed] Well, I mean this, I dunno if this is gonna sound right or, you know, dishonest, but it’s true. It’s basically my mom and my wife. I mean, these are the two strongest women I’ve ever met in my life. They’ve been extremely honest with me and forced me to grow. And, and so those are the two most important for sure. There’s no one person, but many colleagues and many clients, I would say clients have shaped my views on the markets probably more than colleagues because, you know, they’re actually putting skin in the game. And they’ve also helped me make good career decisions and judgments. It,
00:52:50 [Speaker Changed] It’s such an interesting observation you’re making because we sort of forget how clients force us to rethink certain things. Or someone asked you a question where you think the answer is obvious, but you don’t wanna just give them a quick answer. So you do the homework and you discover, oh, this is a lot more complicated than I originally thought. I’m, I’m glad you brought that up. ’cause it comes up so frequently and I think we, we don’t pay it enough attention. Yeah, it’s real, really insightful. Let’s talk about books. What are some of your favorites? What are you reading right now?
00:53:23 [Speaker Changed] You know, if, if it was up to my wife, I’d be reading like a book a week. She’s a literary giant, so she’s always handing me books. Right. And I am kind of an eclectic reader, but I would say some of my favorite books are The Boys in the Boat. That’s
00:53:37 [Speaker Changed] New series now, also, right?
00:53:38 [Speaker Changed] Yeah. There’s a movie. I, I didn’t watch the movie ’cause the book was just so detailed. It was fantastic of like all the classic books. My favorite was Catcher in the Rye. It’s kind of a coming of age story, you know, animal Farm and those types of things. And then like the, the trashy type stuff. You know, like one of my favorites of all time still to this day is the firm, I dunno if you remember reading the John Grisham novel
00:54:02 [Speaker Changed] Came a, a Tom Cruise movie, right? Yeah.
00:54:04 [Speaker Changed] But I mean, like, so like, you know, that’s, that’s the gamut of it right now. I mean, I read, I read so much for work that I don’t probably read enough books like day to day, but I’d like to read more.
00:54:13 [Speaker Changed] Huh. Really interesting. Our final two questions. What sort of advice would you give to a recent college grad interested in a career in investing?
00:54:24 [Speaker Changed] Well, the, the, the advice I do give them is just real. This is not a sexy business. Okay? This is, this is a grinder business. So if you come into this business, understand, like we talked earlier, you’re gonna be wrong a lot. You gotta have some humility. You are gonna be a lot of highs and lows when things are feeling really good. Take it down a notch when things are feeling really horrible. Don’t, you know, kill yourself. And it’s just, it’s gonna be a roller coaster and it takes a long time to become even close to being a domain expert in anything in this business. There’s so many smart people, there’s so much changing all the time. You know, you, you gotta put 10 years in before you know anything. Hmm. And I think that, you know, I think that’s really good advice to a young person. I wish I had had that advice. ’cause you know, we’re all ball eyed coming outta college thinking we’re gonna change the world. And the reality is, this is a, this is a long road. I mean, 35 years, I’m still learning every day.
00:55:20 [Speaker Changed] Hmm. Really interesting answer. And our final question, what do you know about the world of investing today? You wish you knew back in 1989 when you were first getting started?
00:55:31 [Speaker Changed] Well, I guess part of it’s what I just said, that it’s, you know, it’s, it’s not a sprint, it’s a marathon. You know, cut yourself some slack along the way. You’re gonna make some wrong turns. And I would say enjoy it, you know, because it’s, it’s, it’s a journey and it’s a journey not just about like the people you’re working with and the people you’re helping your clients. It’s learn about yourself. This is a struggle with yourself. I mean, figuring out markets is an internal battle. It’s like, probably the book I should have mentioned was reminiscences of a stock operator. Sure. I mean, I’ve read that like five times and I still go back and refer to it sometimes. I,
00:56:09 [Speaker Changed] I call that the first behavioral economics book.
00:56:12 [Speaker Changed] I, I would agree. And it’s a fictional character, but it’s a real life experience of this is how it goes down. And understanding your faults, your own fault understanding your weaknesses and your strengths. You know, when to press it, when not to press it. And then, and then, you know, unfortunately, and that story ends up with, you know, killing himself. Right.
00:56:33 [Speaker Changed] Because
00:56:34 [Speaker Changed] It, it just, it eats away at you. So that’s, that’s really what I wish I know 30 years ago, like, it’s gonna, it’s gonna take a pound of flesh.
00:56:40 [Speaker Changed] Right. Really interesting. Mike, thank you for being so generous with your time. We have been speaking with Mike Wilson, chief US Equity strategist and Chief Investment Officer of Morgan Stanley. If you enjoy this conversation, check out any of the 500 or so we’ve done over the past 10 years. You can find those at iTunes, Spotify, YouTube, wherever you find your favorite podcast. And check out my new podcast at the Money short, 10 minute conversations with experts about everything that affects you and your money, earning it, spending it, and most importantly, investing it at the money in the Masters in Business podcast feed. I would be remiss if I did not thank the crack team that helps us put these conversations together each week. John Wasserman is my audio engineer. A tick of is my project manager, Anna Luke is my producer. Sean Russo is my researcher. Sage Bauman is the head of podcasts at Bloomberg. I’m Barry Ritholtz, you’ve been listening to Masters in Business on Bloomberg Radio.
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