ETF Edge - Timeless Investing Wisdom: Morgan Housel’s New Book 11/27/23

Episode Date: November 27, 2023

CNBC’s Bob Pisani sat down with Dave Nadig, Financial Futurist at VettaFi, and Morgan Housel, partner at The Collaborative Fund and author of “Same as Ever: A Guide to What Never Changes.” Arguably one of the most popular writers on the subject of investor behavior, Housel is the author of “The Psychology of Money” – now out with a new book offering timeless lessons on what never changes in an ever-changing world.In the “Markets 102” portion, Bob continued the conversation with Dave Nadig from VettaFi. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

The ETF Edge podcast is sponsored by InvescoQQQ, Supporting the Innovators Changing the World, Invesco Distributors, Inc. Welcome to ETF Edge, the podcast. If you're looking to learn the latest insights on all things, exchange, traded funds. You are in the right place. Every week we're bringing you interviews, market analysis, and breaking down what it all means for investors. I'm your host, Bob Pisani, and I hope everyone had a happy and safe Thanksgiving holiday. Today on the show, a very special guest with us, he's the author of The Psychology of Money

and is arguably one of the most popular writers when it comes to investor behavior. And he's out with a new book, This Fund, offering timeless lessons on what never changes in an ever-changing world. Here's my conversation with Morgan Housel. He's a partner at the Collaborative Fund and the author of Same As Ever, and Dave Naudit, Financial Futurist at VETA. Morgan, your key theme is that investing styles and technology are changing all the time, but human behavior doesn't change. Why is this such a key concept to grasp as an investor? Well, Bob and Dave, very nice to see you. Thank you for having me. I've always been interested in investing and history, economic history, investing history. And to me, the most important

and most interesting thing when reading history was not the things that have changed over time. It's reading something from 100 years ago or a thousand years ago and realizing to yourself, like, if you change the dates on this to 2023, every single word would fit into this. That, to me, is the most interesting thing about history. It's what never changes. It's most interesting to me because everyone knows. is how hard it can be to predict the next recession, the next bear market, the next pandemic, the next terrorist attack, the next election. It's very, very difficult.

And I think we as a financial system in the whole industry are actually very good at predicting what the economy and the stock market are going to do next, except for the surprises, which tend to be all that matter. The things that actually move the needle in investing, it's Pearl Harbor, 9-11, COVID. The things that nobody could have seen coming, at least ordinary lay people could not have seen coming are what do the most damage. So I think if instead you shift your behavior to what you know is never going to change, the behaviors that are just indelible parts of how people work and will keep happening over and over again,

you have a much clearer view of what your future is going to be and what the economy's future is going to be. You know, Dave, he makes such a good point. And I've been saying for years, we have this fancy thing, this iPhone, that we keep interacting with. And yet the emotions that govern us, fear, greed, hate, envy, lust, haven't changed in 10,000 years. And we keep having new technologies, but we keep interacting with it the same way because none of that inside our head has changed at all. This is what Morgan's getting at. Yeah, all we're doing is doing things faster and with a little bit more leverage than we were able to do before. And I think, you know, Morgan, I think you make this great point in the book that, you know, that calm plants the seas of crazy and crazy is normal.

And there's sort of that idea of how do you, what I've been calling, how do you build on sand? How do you be calm in a crazy world? Morgan, I'd love to get your thoughts on how that threads through the book. You use some great examples. You've got great quotes in there from people like Talib and folks like that. What do you mean when you say that calm plants the scene for crazy and crazy is normal? Yeah, let me just spell it out very, very quickly for you. When the economy is strong and people are optimistic about their own lives, they very rationally, very normally, they become optimistic.

When they become optimistic, they go into debt because that's the reasonable thing to do if you think your future is bright. when they go into debt, the economy becomes unstable. When the economy is unstable, you eventually have a recession. So, Com plants the seeds of crazy. The reason you have a recession is because the economy was strong and stable. And I think just coming to terms of that makes it so that when you have a recession or a bear market, you don't have to say what went wrong. Who's to blame?

Who's screwed up? Why did the economy break? Nine times out of ten, it didn't. It's a completely inevitable part of how these things work. And I think just realizing how inevitable it is, makes it more palatable to deal with when you go through it. The other side of this is that the recession and the bear market plants the seeds for the recovery because people get scared into action.

All the new technologies come about because people are motivated by fear rather than just opportunity, which is a great thing. You have lower valuations, of course, more opportunity. So just understanding the normal cyclicality of this I think removes 90% of the noise in markets where you don't need to explain to yourself why this happened. It's just a normal feature of how it works. It's like an endless cycle of birth and rebirth, I guess. A good part of the book, and I love why you write about risk,

because people don't know how to evaluate risk. You've got a great chapter explaining why so many events that are supposed to happen once in 100 years, like a hundred year flood or a hundred year hurricane or a hundred year pandemic or a hundred year stock market crash. They seem to happen a lot more often than 100 years. Explain that effect to us. Yeah, I mean, if in any given year there is a way, 1% chance of a once in a century hurricane, a 1% chance of a once in a century earthquake,

and equal chances of terrorist attack, pandemic, recession, whatever it might be, you can list 100 things of which there is a 1% chance of it happening in every given year. That means in every year, one of them is probably going to happen. We don't exactly know which one, but you're never, you're never going to have a year, you're definitely never going to have a decade, in which there isn't something that happens where you would say this was a once in a century event. And that's why these things that come in hit us, whether it's 9-11, Pearl Harvard, COVID, Lehman Brothers couldn't find a buyer in 2008, things that you'd think would only happen once in a lifetime, some variation of it happens almost every year.

And so the normal path of an investor is every year, every quarter, sometimes every month, there is something going on in which you could reasonably shake your head and say, I can't believe this is occurring. This is a terrible thing. I never thought I would see this. But it happens over and over and over again. There's a great quote by the Stanford professor, Scott Sagan. He says, things that have never happened before happen all the time.

And I think that's a good way to think about risk, too. It's like it's a constant chain of surprises, and that is what is normal. The surprise itself is not surprise. What is normal is that you're going to have an event that happens very frequently that you never thought you would see coming. So is it just because of technology and our increased access to information that there's this sort of vibe session going on to steal that from our friend, Kyla Scanlan. You make a point in the book that things are actually doing much better than people might expect since the 50s.

And yet, if you look at the polling, Americans in particular, about as dower on the state of the country and institutions as they've ever been measured. How do you reconcile that disconnect? Yeah, Dave, I think there's two things going on that you can explain this. Well, there's actually probably dozens because this is a very complex topic. But two, that really stand out to me. One is that, yes, by comparison, if you are comparing your own economic well-being to people on social media, to people on Instagram and TikTok, where it's a curated highlight reel of the fake version of people's lives where everyone is going to look prettier, happier,

and richer than they actually are, that even if you are statistically doing well, it is very easy, it is easier than ever today to feel like you are falling behind by comparison. That's a big part of this. That's always been the case, but social media just explodes this. it makes it go supernova because the comparison game, particularly for young people who are the most psychologically vulnerable to these issues, it's off the charts. That's a big part of it. Another part of it that goes overlooked a lot is that particularly in the last three or four years since COVID, the economic experiences, the disparity of those experiences has, I think, been

starker than ever before. Because in 2020, if you owned a laundromat or a restaurant, it was worse than the Great Depression in 2020 for you. If you were a tech worker, the best year you've ever had. You made more money and had more job security than you've ever had in your entire life. And because of that, I think half the economy does not understand the experiences of the other half. And it makes it so that even when the numbers look good, whether it's GDP or unemployment or the stock market, whatever it is, you have probably half the country who says, that ain't my experience. That's not what I've seen. It's always been like that, but I think it's starker today than it's ever been. Let's talk about one of the emotions that you have a chapter about, Envy.

A great quote from Charlie Munger, who said, and I'm paraphrasing him, the greatest motivator of men and women is not greed, it's envy. And you talk about the 1950s, which is when I was born. I'm a baby boomer, and there seems to be this ridiculous nostalgia for the 1950s, because people seem to have thought it was some kind of golden era. And at a certain level, it was, as you point out, you could survive on a single income, for example. But on a lot of other levels, the 1950s was not so great, and certainly the period today is much better in terms of health-wise, even in terms of education, in terms of people's incomes. And yet people are still nostalgic about this.

And you make a very important point, I think, about why that actually happens, because the incomes were more level. Explain this to us a little bit. Explain the role of envy here and how it comes into this nostalgia about the 1950s. Well, I think this too is a very complicated topic. It's not something that is just black and white. Here's why it happened. Part of the reason the 50s felt so great economically is that by comparison to the Great Depression in World War II that preceded it, any economic prosperity felt like a dream.

So by comparison to that, that's a big part of this. One other reason, though, is that the 50s and the early 60s were this very unique period where for a brief period of time, 15 years or so, there was very little wealth inequality, at least relative to what happened before and since, the distribution of incomes got very flat. And for better or worse, it did something very important to people's mindsets, which is, you know, there's no such thing as an objective measure of wealth. Everything is just relative to other people.

Everything is just like, how much money do I have relative to that person? That's how your well-being is measured. And in the 50s, when there were not billionaires and centa-millionaires running around inflating your aspirations, it was much easier for people to look at their peers their neighbors, their coworkers, even their bosses, and say, relative to that person, I'm doing pretty well. They're not doing dramatically better than I am. So relative to them, I feel like I'm doing pretty okay. And so even like the idea that, you know, you can live off of a single income, true. Part of the reason that was the case is because living in an 800 square foot house

and going camping for your vacation was the adequate thing that people did. Most people would not consider that today the adequate lifestyle. And so even if you could back then, I think by and is because expectations of what your life was were much lower. And we talk all day in economic circles about price inflation. CPI, that's inflation. I think a much bigger inflation that hurts the economy, hurts people, is expectations inflation, which, by the way, like there is a good element to it. We want people to feel like it is like there is the potential of a better future.

That's what motivates technology and improvement and whatnot. But you can easily imagine a world in which my grandkids, are earning more, living longer, living in a much better world than we are today. But they don't feel any better off because every one of their peers is doing the same and earning more money. And by comparison to them, it makes sense. And I think to it in many ways, that's always how it's been, that most people today, even like the average ordinary median American today, would not trade places with John D. Rockefeller,

who was the richest man in the world back in his day. Because there are so many things that we take for granted today, whether it is medicine or technology or communication that he never had access to. And so you have these ridiculous things where even the ordinary American today would not trade places because expectations of what your life should be have gone up so much.

That was a long thought and it was brilliant, but let me just bring you back to the envy point. So your point here is 1950s, the incomes were fairly flat. I grew up in the suburbs in the 1950s of Philadelphia and everything looked like a Levittown, essentially. We were all pretty much the same income level

so everybody looked around I wrote it was the same. Today, your point being, I think, that people look around and the income levels are very different. You could see it on things like social media, and so people get angry, they get envy. This is bringing in this envy quote in Charlie Munger again. And it's not just that there is some wealth disparity, but people feel it differently because they can see it much more obviously. That seems to be a key point for what you're making here. Yeah, and again, like that's always been the case, but social media, just in the last five or ten years when Instagram and TikTok really figured out the algorithm. The algorithm is really designed to create phomo and envy. That's what's

going to get your attention and see why is that person richer, happier, prettier than I am. That's really what it is. So particularly for the younger generation, it's worse than it's ever been. Yeah. So let's get to the Buddhist, you know, Zen Cohn moment here. Managing expectations, a key part of your first book and also a key part of same as ever. So there are your circumstances, what you have now. It's how much I'm making. This is. who I'm living with. This is my job. This is my circumstances. Outside of that, I look at this, I'm paraphrasing you a little bit, there's needs and wants. The things that I need is, you know, I need to have a shelter, I need to have food, but there's wants that we all have. Some of us

have bigger wants than others. We want a bigger house. We want a bigger car. It's managing those wants, those expectations that you seem to be addressing. In Buddhism, I took meditation, and Dave did too. One of the things they teach you in meditation is to see that most of these ideas in your head, like the desire to have a bigger car, it just only exists in your head. It doesn't have an external reality, that desire, and you can have a relationship with that thought, I want a bigger car, make it go away or reduce that expectation. It doesn't exist in the real world, this thing that you have in your head, and you can manage that expectation. I'm trying to get to the Zen moment here that you have some brilliant insight here. That seems to be it. managing expectations.

Yeah, and you know, I'm not the kind of person who says, like, look, you should go, you should go live like a monk. You should go live in a burlap sack and be happy with what you have. There are those people who exist. I'm not one of those. I think you can use money to give yourself a good, comfortable, happy life. But you have to really get to the core of what people actually want in life, which tends to be control over what they're doing and some sense of respect and admiration from the people

around you. And by and large, going out and buying a bigger house or a nicer car, doesn't get respect. It's not going to give you any of those things. I think that's the real... It makes other people more envious. I think you said that in the book. But I think it's important that we're not talking about degrowth, which is a phrase that gets kicked around here. And I'm glad you made that point, Morgan, that you're not talking about telling everybody they need to go live in the woods in a burlap sack as much as I might enjoy that personally. What you're saying here is that simplicity is worth something on its own. And I think, Morgan, you even have a chapter in there

where you talk about simplicity versus complexity, that drive for the bigger car the better vacation, the bigger house, oftentimes it's just a complexification of our lives. And I think Morgan's sort of at the front end of a bit of a movement in financial advisor circles towards recognizing what's actually enough and that everything that is surplus actually just gives you life optionality. It doesn't mean you have to buy a bigger car. Yeah. I don't think you'd look better in a burlap sack. Dave always shows up in a better shirt than me, which annoys me greatly. I want to move on some other thoughts here. You've got a great chapter on the, how to put this,

the right way to view inspired but crazy people, like Elon Musk or Steve Jobs, even Dragon Walt Disney, the man, which is a lot of fun pointing out that he was very driven and difficult to work for. So what's the right way to look at all of these crazy geniuses to Elon Musk and the Steve Jobs? I think you have to realize that people who think out of the box in ways that you enjoy in ways that are beneficial to the world or their business almost certainly also think out of the box in ways that you are not going to enjoy, that you're not going to agree with. And that's always, so you look at Elon Musk, like, of course, of course he does things that people find morally wrong. Like, this is a guy who's trying to go to Mars right now. Of course he's not

a perfectly well-balanced individual. That's always the case. You're almost never going to find someone who has crazy out-of-the-box good behavior that doesn't come with some views or traits or actions that you're not going, that you're always, that you find wrong. It's always a case. So be careful who you're looking up to because, you cannot just pick little bits of people's personality. You can't just say, I want Elon Musk's ambition and Bill Gates' net worth and this person's health and this person's, you have to take the full package. And it's almost always a case, people that people who are abnormally good at one thing tend to be abnormally bad at another.

And I think it really gives us a false sense of who our heroes should be and what we should learn from those heroes, knowing that we can't pick and choose little bits. It all comes in the same package. You've got a chapter on investing on passive indexes, funds and ETFs. Passive funds and ETFs, you say, best vehicle for the majority of investors. This is Dave and I are bread and butter. We live on this stuff. But give us the Morgan House reason why the average person is better off, hands down,

investing in low-cost index funds. I always first make the point that, look, that's how I invest. I think it's how you guys invest. But people are very different. People have different risk tolerances. And I'm not the kind of person who says, everyone should go do this. Everyone's different. You've got to figure out what works for you.

I'm a passive index investor because the bet that I'm making, the game that I'm playing, is I'm making a bet on capitalism, that people will become more productive over the next 50 years, and those benefits will approve to me. And the beauty of these ETFs, of course, is that you can do that through virtually no effort and almost zero cost now too. So the ability to do that, if you compare that historically with the, investment options. That is amazing that you can just make a virtually cost-free, easy, diversified bet on capitalism for the next 50 years and play that game and then use all that

bandwidth that you would normally go towards picking stocks towards what I want to do, hanging out with my kids, going for a walk with my wife, that's the biggest thing for me. To me, one of the important points about ETS that tends to go overlooked is that it does not improve your investing behavior per se. It could actually make it worse, the fact that it's so easy to trade in and out. So even if it is a beauty for diversification and cost, the most important investing attribute that's going to contribute to your success is do you have the right behavior? And there are plenty of people who think that they are long-term investors in ETFs who are going to panic sell during the next 10% decline. So as great as they are, it doesn't necessarily promote and

fix the biggest problem in investing. Okay. I want to get some quick thoughts on some very short points in your book, and Dave, you get in here. You had a great thought on stock prices and financial data. The valuation of every company is a number from today multiplied by a story about tomorrow. That's a great Morgan Houselism right there. Essentially, you're saying here, there you go, valuation of every company is simply a number from today multiplied by a story about tomorrow. This goes to your point about stories are what really motivate. people. But the point is, analysts, a Caterpillar analyst has to figure out what the stock price of Caterpillar is a year from now. You think like, wow, how could that be hard? You know,

but it turns out there's a million different things that can go up into making that price a year from now and not just the earnings and not just the dividend of the company. There's a story that you have to put together about it. Explain this. This is a profound form. Yeah, so a number from today and a story about tomorrow. The most important thing there is that the stories are way more powerful and volatile than the number from today. So the number from today, you're talking about Caterpillar stock. We know the number from today, dividend, yield, earnings per share. We know that today.

Multiply it by a story about tomorrow. Well, the story is basically what kind of mood are people going to be in in the future about Caterpillar? Are they optimistic? Are they pessimistic? And when you frame it like that, when you're talking about Caterpillar stock price a year from now, basically what you are saying is what kind of mood Caterpillar investors are going to be in one year from now. And when you frame it like that, you see kind of how absurd it is, that anyone would be able to do that. I don't know what kind of mood I'm going to be in tonight, let alone a group of strangers will be in a year from now. So that's why it's so difficult.

The other thing that's really important here is that when interest rates were zero, the story about tomorrow is effectively all that matters. And that's why you have a whole generation of startups who had no business, no prospects, worth a zillion dollars. It was all baked into the story. Well, I think it's important to point out that things like fundamentals are also, part of the story. I think the shift that's happened is they probably matter a lot less than perhaps they did say in the 80s. So, you know, if you have an expectation about Caterpillar's earnings or their order flow, that's part of the story. But I'm with you. I think that the story about the sector, about the stock, about management often matters far more than the fundamentals

would suggest. Let's let me move on. You've got to go ahead. Do you want to say something, Morgan? Go ahead. No, go up. Good. Okay. The value of patience. This is, you know, You know, this is Morgan Houssel with the Zen Cohns. Most great things in life from love to careers to investing gain their value from two things. Patience and scarcity. Patience to let something grow in scarcity to admire what it goes into, what it grows into, excuse me. The trick in any field from finance to careers to relationships is being able to survive the short-run problems so you can stick around long enough to enjoy the long-term growth. get through the short-term problems to enjoy the long-term growth.

Morgan? It's all about endurance and survivability. If you can put up with all the unpredictable nonsense in the short-term in the economy and in your career, and there's a lot of it to put up with and deal with and survive financially, that's when the rewards come in. And it's like you have to just split apart and say, what are you being paid for as an investor? Why is there opportunity here?

And the cost of admission, the reason there's opportunity, is because you have to be willing to put up with and endure uncertainty and volatility. So if you can do that, the rewards can be great. The cost of admission is worth it. But I think just viewing it as a cost of admission and not something that is wrong with the economy, wrong with the market, or something that you should try to avoid.

Just pay the cost and put up with it. And the rewards on the other side can be far worth it. Yeah. My favorite topic in the world is understanding compounding interest. If it's anything to teach a teenager, its compounding interest. Small in the beginning and very big at the end. So here's Morgan on compounding interest.

If you understand the math behind compounding, you realize the most important question is not, how can I earn the highest returns? The most important question is what are the best returns I can sustain for the longest period of time? Little changes compounded for a long time create extraordinary changes. That's a great line.

What are the best returns I can sustain for the longest period of time. And you talk about the optimal period tends to be, you know, 10 to 20 years for investing in the stock market. Any particular reason for that? Or explain that a little more to us. Well, I think what's important is that in any given year, the best returns that you could probably earn in a year are not the returns that you can sustain for a long period of time. Timcoe back in the day had this phrase called strategic mediocrity, which was in any given year, they were not going to be in the top quartile, but over a 10-year, period, they were going to be number one. Because everyone else who was gunning for the biggest

returns in any given year got pushed out. They couldn't sustain it. And the people who can actually keep it going for the period of time are the ones who win. I heard the story recently from Warren Buffett. This was back in the early 2000s in the wreckage of the dot-com bubble where Amazon bonds, you had, I forget the exact number, but I think you had short-term bonds that were yielding 10% and long-term bonds that were yielding 8%, something like that. Buffett was buying the long-term bonds that yielded less, which should not make any sense. Because for a company, the longer the bonds, the higher the odds that they could go bankrupt, it didn't make any sense.

He explained later, the reason he bought the 10-year bonds that yielded less is because earning 8% for 10 years is way better than earning 10% for two years. It's just, it's not how high the returns are. It's what can you keep going for the longest period of time? The longest period of time. And I think it's so counterintuitive to investors. Great. I want to make one quick little turn here and get your thoughts on this, Morgan, but I want

to ask Dave first. NASDAQ announced this week it was launching several options on ETFs for gold, silver, natural gas, oil, and long-term treasuries. What's interesting here to us is this will enable traders to trade the contract on the day it expires. These are known as zero-data expiration options. We've covered this before. They can be used to bet on or hedge against extremely short-term market moves. So the options on these used to be just weekly. And now what's happened is they were expiring on Friday.

Now, NASDAQ has added Wednesday options aspirations as well. So, SIBO has had tremendous success with its S&P zero-day options. So there's now one expiring every day of the week for the S&P options. Now they're going to these other ones on NASDAQ two days a week. So what are we to make of this, Dave? There are worries this is encouraging short-term trading, largely from retail investors. Is this overblown? I understand the concern about retail investors because absolutely you can fire up the

Robin Hood account, you get enormous leverage and zero data expiration options. You're basically just making a bar bet on what's going to happen to that stock during that day to pay, depending on where you price in. So I understand the concern. When you look at who's actually trading these, which you can't tell perfectly, but you can tease it out, that's not what's going on. This is largely institutions, hedge funds, and day traders using these as short-term leverage speculative vehicles with the extra added bonus that they never have to settle.

You can buy it at 10 and sell it at 3, and it never should. shows up on your book at the end of the day if you're a trader, say, at a prop shop or a hedge fund. So these have become enormous institutional tools for folks that are trying to make strong opinionated bets about market moves, earnings releases, geopolitical concerns. I think most individual investors probably don't have any business in here at all. They're naturally very speculative because of the inherent leverage. But isn't 50% of it, 50% of the options trading is now zero data expiration on the SEPs? It's enormous.

It's huge. And the re... That's what it seemed to intuitively appeal to retail investors. Folks, you get up in the morning. You think where's the S&P going at the end of the day? It's a one-day bet. It settles in cash. But I think there's a great example here of teaching folks the difference between investing and speculating.

At the end of the day, if you go buy your gold zero-date expiration option at 10 o'clock, at the end of the day, you've either lost the money you paid in the premium, or you made a little money because you got the bet right. And then tomorrow you have to decide again. That's not investing. So I'm cautious about... these products because I agree they're problematic for undereducated retail investors that don't know how to trade the options market. But I don't think the tools themselves are inherently breaking the market. Like most market structure things, not a problem until it is.

All right. He and I talk about this endlessly. Morgan, I don't know how much you're following this. Any thought you have zero-day options accounted for more, like I told them, 50% of all the overall S&P 500 options volume. You're the great sage here. What if anything is this telling you, concerned about this or whatever? Well, if I'm concerned about it, I think if to the extent that retail investors get into it, you know how it's going to end, at least for the majority of them over time. I'm making a bet on the next 50 years. That's the game that I'm playing as an investor.

I hope to own the stocks that I own, God willing, for the next 50 years. So when I hear about people making a bet between now and lunchtime, I understand why it happens, and I don't even criticize it because they're playing a different game than I am. But I think at their core, I think the majority of investors are closer towards wanting to reach a goal that they have many years or decades into the future. And the more times you have games that might push them or entice them into a much shorter period of time to a one-day period of time,

you know how it's going to end for the majority of them. Well, that's exactly my concern. I want to push them where he's going and not... But we ask the markets to do so many things, Bob. Allocate capital, save for retirement, and be the casino for folks that want to take a pun. We ask markets to do everything to everybody. Everything and probably too much.

Yeah, yeah. Stop being so sage about this. Let me gripe about it for crying out loud. Now it's time to round out the conversation with some analysis and perspective to help you better understand ETFs. This is the Market's 102 portion of the podcast. We'll be continuing the conversation with Dave Nautic from VETA-Fi. Thanks for joining us, Dave, and being back with us. Let's just talk about how the year is ending for ETS.

It was a, I don't know how you characterizing it. It was a little bit disappointing in that flows, which you and I follow, were on the light side. I think we're $400 billion. We're used to seeing $7 or $800 billion. Well, the last couple of years. Last two years we've had monster years. Is it maybe not a surprise? What stocks down and bonds down last year?

Not a surprise? Is it a surprise? What's going on? I mean, last year was such a year of shifting sands. I mean, nothing was working. Everybody was looking for safe havens. So a lot of money moved. When that money moved, a huge part of it was short-term bond funds.

Right. A lot of what we looked at last year was basically people parking their cash in a different vehicle than they used to, not their margin account, but, you know, Pemco's Mint or, you know, JPST from JPMorgan, short-term bond funds that generally did quite well in that sort of narrow window where people were assigning cash into them because interest rates were coming up. This year's been a very different story. We've had a surprising bull market, right? I mean, everybody's trying to call it a bare market rally or whatever we're going to call it this year. You know, the magnificent seven have really driven top-line returns. The average investor is not getting anything like NASDAQ,

returns unless that's the only thing that they were in. The average investors doing about 10 or 15 points worth than that because they're in the S&B 500. Lo and behold, that owns things that aren't Microsoft and Apple, right? So I think it's not surprising to see a bit of calm and that people made their reallocations going into the beginning of this year. Stuffs generally worked, so there hasn't been a huge impetus to take a bunch of money and move it somewhere else to chase commodities because inflation spiking or chase equities because they just sold off real hard. So it's not super surprising. I think to me, the most interesting part of ETF flows this year is how boring they are. Right. The average allocation is 60-40. That's what we've seen. About 60%

equities, about 40% bonds in flows this year. And then under the hood, about a 20% allocation internationally, which again is a pretty solid, boring, long-term kind of allocation. I think we'd both be happy. An index fund's still getting the lion's share of the money. The vast majority of money still going into cheap beta, you know, V-O-O from Vanguard, IVV from Black Rock, Spy, obviously, or the big bond funds like TLT from I-Share's, the 20-year Treasury, huge year. Massiflows, $30 billion float into that,

which to me seems a little bit nuts given what's been going on with the curve, but tons of money chasing it. But there has been the steady drumbeat of active managers really coming to play. We've seen a ton of launches. Almost every major headline named active manager with big mutual fund complex is now in the

ETF business or is right about to be in the ETF business. Even folks like Putnam are coming to market and that's pulled in 20% of the flows. That's a big deal. Active though is I think the point here is that's good flow you want to see right. I mean look a mediocre fund manager mutual fund manager is going to be a mediocre ETF manager if you change rap. That's not going to change anything. But you are lowering costs at least.

So that's a good thing, right? That's always a good thing. And for the most part, the active products that are showing up that are sort of either clones or actual conversions of mutual funds are coming in either below any of the mutual fund pricing or at the sort of lowest institutional pricing. That's got to be great for investors. The reality is, if you look at the S&P Index versus Active report, hasn't been any better years the last couple years for active managers. the average manager is still massively underperforming. Yeah, hasn't changed at all. Bitcoin ETF, we beat this one to death.

The current thinking seems to be early January is when they have to give the initial response. Seems like a reason. Is there a reason? Can you think of a reason why suddenly Gary Gensler is going to fight to the death and try to delay this even more? A court has already, in the Grayscale case, basically told them you need to cure this mistake you made, which was approving Bitcoin futures and not approving because they're like products. They've been told to correct this mistakes. It seems like the only way to do this is either kill Bitcoin Futures ETF

or approve a spot Bitcoin ETF. Is there another way, can he fight on? Well, there's some shenanigans. I was a believer that there was some chance they would actually go back in and disapprove or delist the futures-based products. I no longer believe that. I've gotten enough intel from folks both at staff at the SEC and from the issuers who were having conversations with these.

SEC to suggest that, no, they're pushing forward here and we will get an approval and it's a matter of when. January seems like a reasonable bet. So I don't think we're going to get a disapproval of the futures products. I don't think we're going to get an endless delay. First quarter sometimes seems reasonable. The only place I could see some shenanigans is specifically about Grayscale and the conversion of GBTC from a Pink Sheet Trust to an ETF.

Because that's different. It's just because it's different. And also because Grayscale had the timetable. to be the one that sued the SEC. You think the SEC holds that against them? I think the SEC is an institution, and institutions are made out of people, and I'm sure they were not happy to have to go to court.

So I'm not suggesting that they're going to do something illegal or wrong. I'm just saying if there are ways that they could make GBTC's life a little bit more annoying over the next six months, they will probably take those opportunities. So it's not inconceivable that GBT actually converts after we get a launch of a clean product, I suspect more likely what we end up with is some sort of starting clock date

and everybody gets launched on the same day. I'm going to leave it right there, Dave. Thank you very much for joining us. Dave Nauging is the financial futurist over at VETify and thank you everyone for listening to the EGF Edge podcast. InvescoQQQQQ believes new innovations create new opportunities. Become an agent of innovation. InvescoQQQQQ.

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