Animal Spirits Podcast - The Expectations Gap (EP.73)

Episode Date: March 20, 2019

On this week's show we discuss the college admissions bribery scandal, does it matter where you went to college, how the tech companies can help in higher education, CalPERS is making a bigger push into private equity, the expectations gap in retirement, lifestyle creep, how corporate trauma impacts individual stocks, the new Harry Markowitz portfolio is a tad odd, how automation will impact jobs in the future for young people and much more. Find complete shownotes on our blogs... Ben Carlson’s A Wealth of Common Sense Michael Batnick’s The Irrelevant Investor Like us on Facebook And feel free to shoot us an email at [e-mail] with any feedback, questions, recommendations, or ideas for future topics of conversation. Learn more about your ad choices. Visit megaphone.fm/adchoices

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Welcome to Animal Spirits, the podcast that takes a complete. different look at markets and investing. Hosted by Michael Battenick and Ben Carlson. Two guys who study the markets as a passion and invest for all the right reasons. Michael Battenick and Ben Carlson work for Ritt Holt's wealth management. All opinions expressed by Michael and Ben

or any podcast guests are solely their own opinions and do not reflect the opinion of Rithold's wealth management. This podcast is for informational purposes only and should not be relied upon for investment decisions. Clients of Ritthold's wealth management may maintain positions in the securities discuss in this podcast. Deena Isola spoke in front of the Senate Finance Committee.

Ben, did I get that right? No, Financial Services Committee. That's right. Financial Services Committee. And it was one of, if not the most proud days of my short career. I got goosebumps hearing her read her testimony. She said, no one asks for a complicated, expensive products that will drain their harder in savings.

So just a giant, giant kudos to Tony and Dina Isola for the work that they're doing in the 403B community. It's kind of weird that financial services is almost a partisan issue. I guess people take their line. And I'm sure a lot of it has to do with people donating to certain political parties or candidates. But some of the opinions by the Congress people that were talking to them were just so wrongheaded. And it's just kind of boggles the mind. Yeah. It is almost sort of depressing when you see how uninformed the lawmakers are. Right. Yes, they really didn't know what they're talking about in many cases.

And kudos to them for bringing in someone like Dina to explain it to them. But it seems like that's the kind of thing that probably falls on deaf ears more often than not, unfortunately. Yeah. So, Ben, I don't know if you saw it, but there was some news this week about a college bribe scandal. Yes, and Becky with the good bribes. But the fact that we had a full house tie in here, anyone who was shocked by this news, I think I have a bridge to sell you because how could you not know that rich people would do everything in their power to get what they want? right? Like, I just don't get how this was shocking to anyone.

So the Daily had a synopsis, the New York Times podcast, and they said there are three doors to which people can enter college. One is the front door where you play by the rules, you work your butt off in high school, and you get into the school based on your merits, which is how most people enter. Then there's the back door, which a lot of our presidents have entered through. And so it was almost like everybody knew what goes on. Nobody is surprised that this person got into Yale or Harvard because their family, whatever. The side door is what we just saw come to light, and that is actual fraud being committed. I think I saw racketeering in one of the charges. I didn't even know that that was a thing.

Here's something I didn't know. USC is considered an elite school. Did not know that. I don't think it is. Okay, so here's the two hot takes that we got from social media. The one first hot take, which I probably lean towards more, that elite colleges are a form of meritocracy. And they are probably making the wealthy stay wealthier. And it's sort of adding to the increase in inequality. The other hot take was, no, actually, it doesn't matter where we went to college.

Anyone can be successful. And after you get your job, first job, no one cares anyway. So obviously there can be parts of truth to both of them. But which one do you fall under there? There is truth. Yeah, I think that they're both true. I think there's probably some survivorship bias in the idea that it doesn't really matter where you went to college because there's plenty of successful people that didn't.

it's, I mean, it's kind of like Warren Buffett never got his CFA, and he, he turned out, right? Zuckerberg dropped out. What did you, what was that again? Mark Zuckerberg. Zuckerberg? Zuckerberg. You can't say that word. Mark Zuckerberg.

He said Zurich. I think I've heard you say it before and let it slide. I couldn't. Sorry. So, but that's the point. Wait, hold on, hold on. So this is a total catch-22 because once you have a career, nobody cares where you went to college. But it's very difficult to have a career if you didn't go to college. And obviously

there are a million stories of people that made it without college. But my God, does it make your life easier? And the end, the question is how many people that could have been successful didn't get into these colleges and ended up not being successful because they never could get off the ground? And I'm sure that there's a lot of young people. I think that's actually one the reasons young people have been so angry the last decade or so. Obviously, student loans is a big boogeyman that people go to. But it was really hard to get a job for a while there. And people that came out of the 90s, from the sounds of it, they were just handing out jobs to everyone who walked out of school pretty much. It didn't matter where he went. And so the fact that they had to

go, they really had to fight and claw to get a job. And a lot of times, maybe take a job that they didn't want. I think that's probably where a lot of the anger stems from. Okay. So why don't we put some some meat on the bones. What are some of the numbers that you... Okay, so I found a few different articles that kind of point to these hot takes I was talking about. So one research group of which was kind of funny came from Harvard. It's found that children whose parents are in the top 1% are 77 times more likely attended elite schools than parents than kids who's parents are in the bottom 20%. And if you include just elite colleges, there's more kids in the top of 1% than there are from the bottom 60%, which is, that's a pretty

damning stat. Well, so don't you think this guy's back to your point that there are as many qualified, talented kids that never got a chance to go to college as the ones that come out of college. Yes. Yes, that makes more sense to me. And maybe the people who did succeed without going to a good school,

it was just a little harder for them in a lot of ways, unfortunately. A lot harder. And I know, I mean, I know people from college who got a job because their parents had connections and made it through an interview

round one because of a name or something. So you can see how that works to your advantage whether you went to a good school or not. A lot of it is, you know, a name recognition thing or a networking thing. So Scott Galloway threw out some suggestions and kudos to him because he is a professor at NYU and he has the stones to write about this, that his course is way too much money. And he also wrote about it in his book that the schools need to do much better. One of his recommendations is that endowments over $1 billion should be taxed if the university

doesn't grow freshman seats at 1.5 the rate of population growth. Harvard, MIT and Yale have combined endowments approximately $85 billion. million dollars greater than the GDP of many Latin American nations. This one's never going to happen. I mean, just because one of the things about these universities is that they pride themselves on exclusivity. Right. And it would be nice if... By the way, I think Zuckerberg said that in the social network. It would be nice if, I just rewatch that, by the way, it still holds up pretty good. It would be nice if this, if nothing else if this little episode caused people who give millions of dollars every year to these huge endowment funds.

would take a pause and think, like, maybe there's something else I can do with this money. Like, do they really need more money from people who went there and are already making more money? And obviously, if you think that people aren't getting favors for donating to these endowments, then you're also crazy because just because they're not bribing admissions, people doesn't mean that there's not a wink-wing in a nod here and there for people who give money back to those schools. I think that Aunt Becky probably thought that, or might have thought this was a victimless crime because nobody, quote, unquote, gets hurt. but there are only so many seats available to incoming freshmen.

And her daughter potentially, not potentially, took somebody else's seat. And then the other thing, which is obviously nefarious and literally criminal, is that the money was given to a charity and then funneled into the university. So they were getting the right off. Right. That's the worst part. Acting as if they were donating to charity and then it was going to these schools that didn't need the money in the first place.

So I think two of the biggest things that really, get people angry these days in terms of big, broad problems in this country are, one, education in terms of, like, the student loans, and two would be health care. I think if you're going to try to figure out a way to fix one of those two, education is probably the easier one. Healthcare, I think, is just so, there's so much going on and so complex that it's going to be hard to ever fix, I think, to make it more reasonable. But Galloway put out some thoughts in his piece, and he said, why don't we have these huge tech firms, Apple, Google, Amazon, go out and put some money, and train people. And I love the idea of like an Apple AirPods or Apple Podcast University or something

where they have lectures on, and give it away and try to sort of give back in a little ways. I think that would be a nice gesture. I don't know how hard that would be for them to do. But it certainly would maybe take some pressure off of the government putting them on them for regulations and sort of be kind of an olive branch that they're extending. He said flip the business model and charge firms to recruit, shifting costs from students to firms bypassing the cartel that is university accreditation. I wonder if he got a tap on the shoulder today. He talks a lot about being a teacher and some of the things he doesn't like and how it doesn't make any sense. It's almost like he's trying to get a slap on the rest. It kind of reminds me of

Bill Simmons with ESPN where he kept trying to push the boundaries as far as he could until he finally got thrown out of there. I mean, Calloway's already a rich man. Do you think he really cares if he keeps this teaching job? He can probably get a job anywhere he wants. So one of the great things about the stories that sort of united everyone. There was great dunkers on both sides. Yes, there was some good jokes. There was a good 24 to 48 hours of jokes before the really serious outrage kind of set in. So let's move on to a story that is going to be getting a lot of attention today just based on this quote alone. We need private equity. We need more of it and we need it now. That was said by Mr. Meng, who is on Calper's Investment Committee meeting. Ben, your thoughts. Kelpers is definitely the

the most publicized institutional fund, probably besides Yale. But I think they even get more headlines just because they're so big. Wait, how big are they? 355 billion. It's enormous. That's probably pretty hard to manage if I had to guess. Yes. So my take has always been the bulk of, if not all of these funds should be in index funds where they're basically paying nothing. Top. When you have that much money, it doesn't make any sense to try to find little nooks and crannies to outperform. It's never going to happen. So I don't understand how they think they can pick active managers are going to do better than index funds. Well, let's just assume that they can find the magic. Then what? Okay. Well, as you pointed out to me, it sounds big. So they have $20 billion

they're thinking of putting in to more private equity and venture capital and these things. That's roughly 6% of their overall portfolio. That part surprised me that it was that it was only 6.6% of pension assets or in private equity. I thought it was going to be much higher than that. that bit. Well, pensions are much more conservative than their endowment and foundation brethren because they actually have liabilities that need to match, whereas foundations and endowments are a lot of times set up in perpetuity where they can last forever, and they don't have those beneficiaries to pay out. They just have their 5% bogie to hit. So these pensions know they have these payments coming, and that's why so many of them are so worried, I think, because they

know they're screwed in a lot of ways. And I think Kelper probably is in a bad position as some the other pensions, but they're not in a great place either. So let's assume expected returns are in stocks over the next, call it 20 to 30 years or 7%. That's public markets. Let's say private. They knock the cover off the ball. They outperform by 50%. So they add 3.5% to that 7 and they do 10.5%. On a 6% allocation, that's like 21 basis points to the bottom line. Obviously, yeah, over $350 billion that helps and it adds up. But is that going to really help them close that gap, of course not. So if they really wanted to do something, they should really go for it or try something else because this, I don't think this is going to do it for them.

All right. So I see you brought data, which I appreciate. Obviously, the idea that they should be an index fund is one that can be argued, but that is never, ever, ever going to happen for obvious reasons. But assuming that they put $20 billion into private equity over the next decade, that would make them the third biggest investor in the world, which is pretty wild. Right. So it's going to be Calbers and SoftBank competing for all these huge deals, I suppose. And the problem is when going into private investments, yes, you can increase your expected returns, but you also increase your expected risk. So the range of outcomes in private equity is huge, where you have between the top quartile and the bottom quartile is this enormous space where you can drive a truck through, whereas in active equity manager land, the top and bottom quartiles aren't that far apart. So yes, there's the potential to do better. There's also the potential to do way worse in this, in the this move. So my whole thing is that when you have that much money and you're talking about something that is basically decided by elected officials in a lot of ways, everything is political posturing. And I think that these people are making political moves to sort of keep their job

probably. And they're trying to show that they're doing something even if at the end of the day it doesn't do anything for their bottom line. It's not going to help. So they're trying to show lawmakers, hey, look, we tried. Now it's up to you to add more money or cut benefits or cut government services, whatever it is. Well, there was this theory floating around on the internet that the government could just keep spending and spending. So do you think that people that are near retirement have to consider the fact that they might not get the benefits that they were promised? Or do you think that the government will step in and bridge the gap? Are you thinking what I'm thinking Kelper should allocate 20% to MMT? Problem solved? You know, I actually was surprised to learn

that U.S. pensions have a 73% funding ratio. That's high than I would have thought. I had no idea that it was 100% pensions were 100% funded, just not even, I guess, around 15 years ago. We'll put these charts in the show notes. But so that's still, that's a lot of dollars left. The estimates for the shortfall are currently $1.6 to $4 trillion. And of course, a lot of that has to do with current levels of interest rates, which is why there's such a wide range. Like 1.6 to 4 trillion, that's kind of a lot of money. Yeah, it's basically saying that. So what it comes down to is level of interest rates, but then also expected returns. And guess what? Kelpers is trying to say we can boost our expected

returns by adding more to private equity. And then, oh, by the way, the lawmakers don't have to put as much money in. So we're saving you. So again, I think this comes to a career risk thing where they're saying, let's do whatever we can to increase those expected returns because that'll make our funded ratio look better, even if those expected returns are never going to come to fruition. One of the interesting things that they're doing is potentially starting their own private equity fund where they just take the whole thing and I guess hire a general partner, which sounds kind of unorthodox. But what if instead of doing that, what if they just roll this whole thing into a Ponzi scheme and they just have the younger people fund the older people because there

is an endless supply of young employees, is there not? Yeah, we can, you know, we can call it Social Security. Did we just solve the retirement crisis? I think so. Okay, speaking of the retirement crisis. You shared with me J.P. Morgan's Guide to Retirement. And you're a big fan of these books from J.P. Morgan, aren't you? I'll give you credit. You go through them all. They put out good work. They do. I feel like it's my responsibility to go through them. Yes. And so getting back to the expectations thing, they kind of show that, I don't know if this is a good thing or a bad thing, but people in the labor force is expected to continue to grow. So from 1996, at the high end, for people 65 to 69, 22% were in the civilian labor force. They're predicting by 2026, it's going to be 37%. And it's the same thing for people 70 to 74 and 75 to 79. They're basically double from now or from 90 to 6 until 2026, the amount of people in the labor force that are old. Well, I mean, to me, this does not paint a very good picture. My read is that these are people who would prefer not to be working, but have to make ends meet. Do you disagree with that take?

Yeah, I'm sure if given the choice, people would rather retire early than keep working, obviously. But I think you have to take into account the reality of the situation is that people are living longer. So this is a good thing. Obviously, part of it is probably people have not enough in savings to make it work. But you can't expect the retirement age to stay the same when people are living longer. I think if you're, unfortunately, if your plan is to just work longer to make up for a shortfall, your job or your health may make that decision for you where it won't work out. So this, it could be kind of a tricky situation where people try to thread the needle. And the other chart in here from them was they show the expectations of current workers versus the actual experience of retirees. And they found the expectation as people think they're going to retire at 65. Actually, most people retire at age 62. And so if you're banking on three more years of putting off Social Security and saving more and earning a higher income for three more years and that doesn't happen, that could be a pretty

and your savings compounding, that could be a pretty decent chunk of your financial assets that you never get to. So what's the bottom line? The bottom line is, I think people say we have a retirement savings crisis. I think it's more of a retirement expectations crisis where people aren't going to really get what they assume will be a great retirement and they're just going to have to cut back your lifestyle, work longer. Sounds like semantics.

Yeah, but my point is, have you ever seen a breadline of old people on the street? Like they had in the Great Depression, like waiting to be fed because they're destitute? That really doesn't happen as much. It's just people have to cut their lifestyle back and don't really have the drink with an umbrella on the beach like they think in retirement. Remember those people that emailed you, maybe a year ago, who said that they moved to another country and are very much enjoying their retirement? Yeah, I think I actually did a piece on this. And they said it was way cheaper to go. I think they went to Ecuador or something.

And that's maybe not a bad way to go about it either if you're willing to get a little creative. So what's the trade? So that's, what do they call it, geographical arbitrage? sell your house in America and buy a cheaper one in some other foreign country that has cheaper health care and cheaper cost of living. That was actually, that did come up in the fire, one of the fire articles. Yeah. I mean, again, for people who want to get creative and make your money last a little longer or go a little further, it's not a bad idea.

All right. So let's talk about lifestyle creep, which is something that we have spoke about a lot. And I think that we're going to continue to because it's such a, what I think is an important topic. And our friend, Dan Egan over at Betterment, what a really good piece about this. And he said, he made a really good point. And we often hear stories about the guy or family making a million dollars and can't make ends meat.

And this gets people's blood boiling for good reason. And maybe a million dollars is ridiculous. But let's say, I don't know, $300,000. And you think, like, how is it possible that this person is not saving money? And Dan said that income usually increases in irregular little jumps, 3% this year, 8% that year. After taxes and inflation are accounted for, the take-home. differences is even smaller. So it seems harmless to use the extra cash to upgrade our apartment,

car, sofa, TV, et cetera. There's always more money you could spend. And technology has allowed us to tame lifestyle creep because you could automatically move money into either a savings account or into an investment account. So let's say, for example, that your paycheck is $1,000. And then you get a 10% raise and it's now $1,100. You can automatically take $75 and sweep it into a savings vehicle and act as if you only got a quarter of the raise. Yeah, I like the way that, so I ran the numbers of this a couple years ago, I guess, and I said, what if you just decided to save 10% of your salary and it grows 3% each year, which according to Dan, and I think according to reality, it's probably not very realistic.

But I think that's a decent way to look at it. So instead of just saving that same 10% a year, let's say instead of that, you cut it off and just save half of your raise. So you can spend half and save half, which I think cutting it off right away, is a good way to do it. And I found that you basically, let's say you talk about someone earning 60K a year. Their sailor goes up by 3% of year over 30 years. They save 10% and then 10% plus half the annual raise. It gets you about $100,000 more dollars by the time you're all set and done just by never taking that into account in the first place. And I think that that's

the way that you avoid lifestyle creep is just never allowing that money to hit your bank account in the first place. Problem with your example is those dollars are Fiat. That's true. Yes. I meant save them in silver coins buried in your backyard. All right. So what is this corporate trauma chart we're looking at? Okay. So our friends at Whitechart did a post on Boeing, which got shellacked in the last couple weeks because they had a crash with their 737 plane, which was a tragedy. Unfortunately, killed a bunch of people. And that obviously, it's kind of tough to talk about the stock market performance in that situation, but that's what people do in this industry. And so the stock fell

15 percent because I think they grounded a bunch of the planes. And so they put a chart in here and they wanted to see what happened with some other stocks that had some similar crises they dealt with in the past. And so one of them was Toyota Motors in 2010, which you might be aware of if you listen to a revisionist history with Malcolm Gladwell. And he talked about this Toyota problem where they were having people that were having their gas pedal stuck on the the floor, and they thought it was the floor mats, and I think they had to try to replace all the floor mats and something happened. I'm glad it actually went to show. It was kind of an interesting podcast. We'll put a link in the show notes, but I believe he showed that when they

actually did all the studies on it, it wasn't really the floor mats at all. It was people freaking out, and they thought this problem existed, and they just, when they tensed up and stressed out, they, instead of hitting the brake, they were hitting the gas pedal because they're too close together. It was kind of a crazy story. But anyway, this is a, it shows in that period in 2010, where Toyota fell 27% and it shows it against the S&P. And within a little over a year, that drawdown was pretty much all gone. So it's almost like one of those Warren Buffett American Express things with a salad oil scandal where you wonder how many of these things that appear in the headlines

really matter to stocks after a certain point where investors just sell first and ask questions later. The cool part about this chart that we'll link to is that there's a button that you can press so that shows the absolute low for the drawdown this way you don't have to eyeball it. We'll put that in the show notes. So there was an article on the father of portfolio theory who, by the way, did not make it onto our Mount Rushmore.

Should he have? A few people put him on his write-in, Harry Markowitz. Well, so we got a lot of... So last week Ben and I spoke about the Mount Washmore and it's not something that we gave much thought. It was really a spur of the moment thing. I might even take Bill Gross out now that I had some time to think about it. But we got a lot of write-ins for Clarmin, Soros,

Simons and Ed Thorpe. And then I was thinking like, huh, nobody said Dalio. And then later on, we did get two Dalio write-ins. But the people that we seem to leave out were the ones that I just mentioned. All right. Anyway, this article about Harry Markowitz, who is the father of modern portfolio theory, which is basically diversification, said something that is really just amazingly head-scratching. He said, my thought process is this.

they are someday going to rebuild Houston. It will take a while, but they'll rebuild Houston. They're going to rebuild Florida, and they're going to rebuild Puerto Rico. So he put one-third of his liquid assets into large-cap stocks, one-third into an I-share's fund tracking small-cap stocks, and one-third into an I-share-s fund tracking emerging markets. But, quote, then I said, no, no, no, let's take the one-third big cap and split it equally among six equities. He picked Wirehouser to represent the lumber that would be needed.

USG for the wallboards, Corning for the glass, Caterpillar, because, quote, think how many bulldozers they're going to need all over Puerto Rico. 3M for, quote, for who knows what, replacing all the scotch tape of the world and mining. Finally, United Technologies, whatever, whatever. But the point is, this is not a joke. This is a little out there. Do you find it kind of crazy that his paper was written in, I think, 1952? You know, about a year ago, Barry and I were talking, and he said something about having Markowitz on the podcast.

I was like, wait, he's still alive? Because the only pictures that you see of him are in black and white, and he looked like he was 90 in 1950. So are you saying that these six stocks he's picking don't matter for his time horizon? This is an interesting way of looking at diversification. The point is, I can't even believe what I read as I was reading it. It's a little out there in terms of whatever works for you, I guess. But imagine, I mean, we speak about the behavioral stuff all the time and how nobody, nobody is immune from behavioral biases. And this guy literally invented basically diversification.

And he's talking about investing because of a hurricane. Right. Like his thesis is that property needs to be rebuilt. I have a little bit of a hard time getting behind this one, I think. But the assumption that hurricanes could create enough damage. in any given year that those stocks are going, it's going to make an impact on the overall stock market comparatively. That's a, I guess it's a little bit of a stretch. Yeah, why don't we move on some listener questions? Okay. I'm a senior in college and I'll be

going to New York for a commercial banking job this summer. We've been talking a lot about automation in the labor market in one of my classes this semester. And I was wondering, what are your thoughts about automation and finance specifically? Do you see automation is something that will replace lots of finance jobs, make jobs and finance easier or both? I think, so before I get to this aside, no, I talk to some students at Michigan State University last week, and I got this same question. So it's interesting that young people are thinking about this stuff. You know, it's funny because I actually spoke at USC. They probably paid better. I think our company line is typically anything that can be

automated will be automated in the future. So trying to fight against that is just you're pushing a rock up the hill every day. It's not going to help anything. And I think there's probably some older advisors maybe who are fighting against that and hoping they can just hang on for dear life. But I don't see automation as a bad thing. And one of the examples I use when the class asked me is one of the things people worry about, and Gallo actually wrote about this in his book about Apple and Amazon and Google and Facebook, is that there's something like 3.2 million truck drivers in the country, one of the largest jobs that there is, long-haul truck drivers.

Now, what happens if we get Ford or Tesla or General Motors are one of these places that has self-driving trucks? Does that mean 3.2 million people are out of a job? I think you could argue, no, it just doesn't mean they're going to be driving anymore. It means someone still needs to be in the truck to service it and to put the routes in and to unload it and make sure the cargo is okay. So I think that's kind of the way to think about technology in any field, that the jobs just might change a little bit and the stuff that, again, can be automated, will be automated. Good answer.

I agree. Okay, I have a good size 401K balance on my previous employer and existing rollover our IRA. What are your thoughts on rolling the 401k into the existing IRA? I'm trying to simplify the number of accounts I have, but from a behavioral perspective, it's kind of nice not to see the 401k every day since it's a separate login. I think a lot of it probably comes down to the investment choices, but that is an interesting sort of behavioral trick if you just don't want to see what the balance is all the time. But I guess it really depends on what you want to do with the portfolio and how the difference

between behaving and simplifying. I would probably do what he does or lean the way that he's thinking in terms of not seeing the 401K ever. And just letting it roll. It's probably, honestly, for most people, just doing the thing that Bogle said and opening the statement at age 65 and realizing how much money you have

is probably the right thing for most people behaviorally. So this is an actual email that Betta and I got. Do a short segment on all caps why the bond guys are smarter than the equity guys. Give examples,

drill down on it, explain it. Don't you think this is... There was no thank you. There was no please. That was the full email. And you know what? Right to the point. That was very rude.

But it's a good question. But don't you think this is one of the biggest myths out there that the bond market is smarter than the stock market? Not necessarily. Okay. Why do you think the bond market is smarter than the stock market? I didn't say that. I didn't say that.

Well, so the idea that bonds know best, that whenever high yield rolls over, it's the canary in the coal mine or anything like that, no, I don't subscribe to that. However, the thinking behind this is that bonds, Bonds are for people that are more mathematically oriented and equities are for gunslingers, for gamblers. So because bonds have a maturity date, you can actually use math and back into things. Whereas with stocks, there are just way, way, way, way more unknowns. So I think that that is probably the reason why people say that bond markets are smarter or bond managers or bond people are smarter than stock people.

And I think there's probably some truth to that. But in terms of the bond market knows best, I don't know about that. Does that make sense? Yes, that is a good. That's a fair comparison that stock people are more shoot from the hip than bond people. And again, that's part of the reason, the structural reason for how the asset classes work. Yeah, like bond managers aren't using technical analysis. I mean, bond kings are, but bond managers are. No offense to anyone. Yes, but I think it's, I guess maybe people say that the bond market is smarter because the yield curve tends to predict recessions potentially. Maybe that's it. But does that really mean that the bond investors are smarter than the stock investors? I don't know. Ben, I think you and I forget sometimes that we have a lot of listeners that are just trying to learn and are beginners to investing. So we got a very good, basic question that I think we probably take for granted.

What exactly is a hedge fund? The word is thrown around a lot and perhaps your listeners would want to know. I am a person who reads a lot about finance and I am not sure. I have a perfect definition for it. A hedge fund is simply a compensation scheme masquerading as an asset class. No, I'm just kidding. I think that's, you stole that. Did you not?

Of course I did. I didn't make it up. Wait, is that Simon Lack? I don't know who said that. Either way. Rocketeering. So a hedge fund is simply a fund structure that can be used to do some things that you can't do in a more simple structure. And a lot of the reason is because you have to be an accredited investor to invest in one.

And a lot of times. Also, these terms are what's accredited investor and what do you mean? So like a mutual fund, for instance, does not allow you to typically short stocks. leverage. Yeah. So you can short stocks, you can use leverage. You can invest in liquid private investments. Typically, the costs are much higher, obviously. And it's just another way to structure a fund to allow an investor to do a lot more things than they could do in a normal fund structure. That actually sounded like Barry Riddholtz, quoting Simon Lack. Okay. That was like the Michael Scott, the Wayne Gretzky, skate to where the park is going. Wayne Gretzky, quote, Michael Scott.

And I love technical analysis. So that was a joke if anybody thought I was being serious about the bond fund manager. So don't at me, please, please, please. But honestly, there probably are a lot of people who don't understand what hedge funds are and they invest in hedge funds because it is really not an asset class because there are a million different variations within the fund. It's just a fund structure. And there are a ton of underlying strategies within that fund structure. So I can see how it's confusing, for sure. So we have a lot of smart listeners. And thank you to Jeffrey Patak for for sending us a link. Last week, I asked if there was an actual study about fired managers and hired managers

going out to outperform. So we'll include that in the show notes. Ben, what do you got for this week in terms of recommendations? Okay, we finally watched Free Solo, which I think it's, you can rent it, but we actually saw it on the National Geographic Channel. They were doing it for free since it was the documentary. Did you see it yet? I did not.

One of the best docs I've seen in a while. I mean, the guy is equal parts, insane and like mind-blowing how, like, how much of an athletic achievement this was. He climbed this, like, almost unclimable rock face in Yosemite without any ropes or anything on and that's why they call it free solo because he's solo with no nothing holding him down it was just like I knew he was going to be fine because I you know how the movie turns out but it's still like made your stomach do like my stomach was like clenched the whole time watching him and like my palms were sweating the new ryan rsillo podcast on the ringer is called dual

threat and he actually started doing this backup qb podcast series where he interviewed backup quarterbacks to figure out what went wrong so these are guys who'd been that so actually one of them was danny canal who was supposed to be the savior of the giants in the 1990s or I guess the 2000s. And he asked them, you know, what happened in high school and college? You were the person and the guy. And how did you? And it's a very honest assessment.

A lot of them said, you know, I didn't put enough work. I didn't put enough film in it. It's really good, I think, to see, like, what instead of, the thing is, the success story is like it's what went wrong. The other one, so if you pulled up Netflix last week, you probably got a trailer for the new movie Triple Frontier. So my wife and I pulled it up one night. I think it was Thursday or Friday.

and Ben Affleck was in at Oscar Isaac, a couple other actors that you probably know, and it looked like a corny action movie, but the instant gratification is there. You watch the preview, and it's like, oh, now I have to click play and see what this is. It's Ben Affleck. It's a heist in South America. And they draw you in, and let me tell you, this movie was awful. Has Netflix had a good movie yet? Okay, so here's, I'm going to get to this.

But, I mean, this was, Affleck mailed it in so bad, the dragon tattoo on his back was disappointed in him. I mean, it was that bad. It was, I mean, like, it had some promise for the first 20 minutes and then just, it was really bad. And so here's the thing I'm worried about. I'm going to squat on this take for like nine months in the future when it happens. You know that movie The Irishman that's going to come on Netflix? Okay, Scorsese's directing, De Niro, Pacino, Joe Pesci, Harvey Keitel, all these huge names. What if that movie is terrible?

Netflix has not had one good movie yet. Like, I'm sorry, I'm semi worried that that's going to be a best. bad movie. All right. Well, I'm putting it out there. What if that's to the bottom? And that's like a 5% up there.

It could be. All I'm thinking is Netflix is giving a lot of money. And this felt like one of those movies, this triple frontier, that these guys did a money. This was a paycheck movie. Like, Netflix is going to give us a ton of money to do a movie for them.

And it just, you know, sometimes the tone of the movie right away, you're kind of like, ah, it's just never going to get there. They don't really care. Anyway,

I'm worried about the Irishman. That's all I'm saying. I hope it's good. I hope I'm proven wrong, but I'm worried. Anything else? Nope, up to you. Okay.

So last week I did a preemptive recommendation of beneath a scarlet sky. And I'm doubling down on that. It was fantastic beneath a scarlet sky. It was about an Italian kid in World War II who started helping Jews escape into Switzerland. And then he became a spy in the Nazi army. and it was just very, very, very good. Should be a movie? Actually, it is a movie.

I'm told, or I read, that the kid who played Spider-Man is going to be the main star. Oh, great. That's awesome. So, yes, it probably will be made into a movie. So we've spoken a lot about NBA players in happiness. Chris Paul was on with JJ Redick, and they were talking about that. And then Ryan Rusillo was also on with Bill Simmons, and they were talking about, like, do you really buy that players are unhappy?

And Bill Simmons said that, like, it's sort of, have always been this way. Obviously, it's magnified with today's environment that it's not just unique to NBA players. But the point is that, I don't know what the point is, but it was a good podcast. I saw Apollo 11. Oh, yeah. I heard that was good. So, all right, I have a lot of thoughts on this. IMAX? No. Okay. This is the first time I went to, now I'm on Long Island that I went to a theater by myself. And it was me. So you never you said you're not going to be able to do it anymore now that you're out of Brooklyn? Well, I went two towns away. But it was me, and it was two 60-year-old couples.

That was it. So here's my thing. I probably would have left. I probably would have turned it off after 20 minutes if I was watching it at home. Oh, really? That bad, huh? However, no, no, no. That's more of an indictment on me than it is on the documentary.

So I'm glad that I went to the theater because I actually got to see it through. But it was a little bit slow. It was certainly worth it for the takeoff alone. But here are two big questions. And we both read Rocketmen, so the precision in which they did this, everything, is just amazing. Like, even, how did they even know where they were going to come back? Like when they came back down to Earth, which part of the ocean they were going to land in? They knew everything down to the inch.

But what's amazing about that is the equipment that they were using seemed so, like the buttons that they were pressing. It looked like, do these buttons even do anything? It looked like a cartoon. You know what I mean? But so my real big question for this documentary is, how did they make this document? is how did they make this documentary and where did all this footage come from? And if it was available, like, did they spend the last 15 years, like, improving the audio and video? But like, everything was, it was as if in 1969 they made a documentary and only released it 50 years later. Yeah, it is pretty bizarre. Like, where did all this footage come from? So after sitting through it, though, you liked it? It was sort of slow, I guess, but it's just an amazing, like, the triumph of like the human species, I guess, type of thing. Like, it was a big, big, big, big deal.

What I didn't know was they showed the audio and the video from when Neil Armstrong said One Small Step for Man, One Giant Leap for Mankind, he was coming down the ladder. And he said that on his last step down. Ah, okay. So they timed it better. So that was sort of like a goosebub type moment. Yeah. I think it's going to be, I think it's only in theaters for a week, though, is what I'm told.

Okay. All right. Anyway, this one went a little long. Thanks for sticking with us. Animal Spiritspot.com. We love listening to feedback. Thank you very much for Sunday and we will see you next week.