Odd Lots - Krishna Memani on Wall Street's Very Expensive "Free Lunch"

Episode Date: May 30, 2025

We're told over and over again that the one "free lunch" in investing is diversification, and that you can improve your returns over time simply by investing in a wider range of assets. This is textbook modern finance. And yet over the past several years this hasn't been the case. An investor would have done great (with the occasional hiccups) just by investing in US stocks. What's more, even within US stocks, investors should have concentrated on big tech stocks. Going long US tech has been identified as the most crowded trade by investors for years, and yet most of the time it has outperformed almost everything else. So what are the lessons from this story? And is now the moment where international diversification is going to work? On this episode, we speak with veteran portfolio manager Krishna Memani, who is now the chief investment officer at Lafayette College. Previously, he was the CIO at OppenheimerFunds, which got bought by Invesco. We talk about portfolio theory, the tragedy of the prudent international investor over recent decades, and whether that realized return we've seen across a range of asset classes should prompt a fundamental rethink of finance theory. Odd Lots Live is returning to New York City on June 26. Get your tickets here!See omnystudio.com/listener for privacy information.

Thanks for listening to OddLots. Follow the show on Amazon Music for more future episodes or just ask Alexa play the podcast, OddLots on Amazon Music. Hello, OddLots listeners. I'm Joe Wisenthall. And I'm Tracy Allaway. Tracy, we're doing another live show and it's right here in New York City. Yeah, this one should be our biggest yet. And we're going to have a bunch of OddLot's favorites and do something maybe a little different to some of our previous live podcast recordings. When the guests are revealed, the show is going to sell out right away. So you should really just go get your ticket right now. It's June 26. It's at Rackett, NYC.

And you can find a ticket link at Bloomberg.com slash oddlots or Bloomberg Events.com slash Oddlots Live NY. We hope to see you there. Bloomberg Audio Studios. Podcasts Radio News. Hello and welcome to another episode of the Odd Lots podcast. I'm Jill Wisenthall. And I'm Tracy Alloway. Tracy, this has come up a few times on the podcast over the years.

But, you know, you really feel dumb. You could really feel dumb as an investor over the last, I don't know, 15, 20 years if you literally bought anything else besides big tech stocks. Big U.S. tech stocks. Yeah, big U.S. tech stocks. Yeah, that's exactly right. And the funny thing is investors have been encouraged to diversify, right? Oh, yeah.

Like, this is the mantra of markets is that you shouldn't put all your eggs in one basket. et cetera, et cetera. And so you've heard for the past 10 or 15 years that you should diversify into international stocks. You should diversify into small caps. 6040. Yeah, 6040. And a lot of those things have turned out to be duds or at least 6040 was a dud for like a couple years. Kind of. I mean, it mostly did well, but like it had some, it had some rough years, particularly out of the pandemic. But certainly you would have been missing out on big gains if you put money into small caps or international stocks versus the big U.S. tech stocks. Right. And, you know, we've gotten a little bit, you know, when Deep Sea came out that raised some questions about big tech

stocks, obviously with the policy volatility in the U.S., which is one way to put it, there have been some questions about, okay, is now the time to diversify abroad? Yeah, okay, you could have bought money buying Ryan Mattel or one of the beneficiaries of German defense spending. But so far, you know, it's still not obvious that like there's some other big moneymaker out there for investors besides big tech. But this is, but we may be at a juncture. Well, I think the other unappreciated aspect is the importance of the benchmarks in all of this. And I think investors tend to think of benchmark index providers as these very neutral entities that are like holding out a mirror to the market and just reflecting what's already there. But actually,

A lot of their decisions are very active and have very, very big implications for investors. So, you know, if MSCI says that the all-world index is going to have small caps and big caps in it, then investors are, you know, they're forced to buy small-cap exposure. That's totally correct. And this is core finance theory, that the optimal portfolio is more or less the global portfolio. We've talked about that with the dimensional guys. you really should have awaited allocation somehow, if possible, to every bond stock and piece of real estate out there. And that's the best you can do. And that clearly has not been the best you can do for a long time. And so we want to talk about the tortured pain of the poor diversified allocator.

And the tyranny of the benchmark index providers. Yeah, very Shakespearean. Anyway, I'm really excited. I think we do, in fact, have the perfect guest, someone who I've been a big fan of for a long time, someone I've wanted to have on the show for a long time. He's probably one of my top five favorite posters on Twitter, although he's quite a down a little bit lately, but I think he's addicted like the rest of us. We're going to be speaking with Krishna Mamani. He is currently the chief investment officer of the Lafayette College Endowment. Previously, he was the CIO at the Oppenheimer Funds, which was bought by Invesco.

So a long-storied career. Someone who knows about all of this stuff. So, Krishna, thank you so much for coming on the podcast. Thrilled, we can finally make it happen. Thank you. Thanks for having me. Absolutely. What do they teach you in school about diversification? What is when they, you know, when you're training to be an investor, an asset allocator, what are they actually, what do they tell you? Diversification is the biggest free lunch available in the investment world. And I think from a longer term perspective, that is absolutely true. And probably something that we

ought to think about, but as you mentioned, the results over the, it's not just last 15, 20 years, the results over the last 30 years, 40 years have been very, very, very different than what you would have expected if you had gone down this path. It doesn't mean that the basic principle is invalidated. It just simply means that you have to think about it and acknowledge the fact that it hasn't worked out according to plan. Where did the diversification thesis actually come from? Well, the diversification thesis basically says that if you have security specific risks in individual securities, if you can find a way of diversifying that away, then that is something that you should do because it reduces your overall risk profile without sacrificing too

much in return terms. So that's where the theory comes from. And the theory is valid. No, no, but who propagated it? It must have had like, you know, an endorser or it must have made its way into the market. in one way or another? I think it came from Cap M and William Sharp and that codery of academicians who basically did the pioneering research in this field in the, let's say, 70s, 80s and early 90s. In my 401K, I have a very conservative, diversified fund. It has not kept up with the S&P 500, I don't think. But every once in a while, such as the first couple,

weeks of April 2025 or the first couple of weeks of March 2020. I take a look at it and I'm like, oh, I pat myself on the back for those moments of diversification. Is it worthwhile just for those reasons? Every once in a while, you're like, okay, you know what? This makes me feel good. I'm not going to panic less. I actually, my poor, you know, that 401K, it actually stays close to all time highs. I keep, you know, allocating it a little bit. How much is that worth in terms of that comfort that I get for like five minutes every 20 years, relative to the cost of underperforming a simple S&P 500. Paying a price for peace of mind.

Yeah. Well, so again, my argument isn't that diversification is a bad thing. I think from economic principles, from financial principles, diversification is a good thing. And if you can find a way of mitigating your overall security-specific risk, you are to do that. The point I'm trying to, I would like to make is the fact that it hasn't worked. And therefore, kind of relying on 30 years or 40 years or 100 years of history to come to some sort of investment principles that people follow very religiously, you know, hasn't worked.

So shouldn't we kind of think about that and try to delve into what are the drivers? And it opens up a new research field because I would argue that. the overall research and financial kind of investing is basically hasn't evolved a lot since the 90s. It's basically redoing the same papers with a little bit of changes here and there. But the core thinking, CAPM-related core thinking, really has not changed. So I think the right way to use this period of underperformance, whether it'll sustain itself or whether, you know, 2025, change the paradigm altogether or not, is kind of irrelevant. The key point is, let's kind of look at this period. Let's look at it in a little bit more detail rather than

being extraordinarily doctrinaire about things, which is, you know, anytime you post on Twitter that, well, my international funds haven't really worked for me, I get schooled by all sorts of people. But the fact is, they haven't worked for me. And, and, and, And I continue to do that. I have a very diversified portfolio, and I will probably stick with it. But I think it is also fair to recognize that it hasn't worked. And therefore, we should look at it in a little more detail and kind of not take the mantra of diversification as religion, which is what it is right now. So in your opinion, what are the drivers or the reasons why it hasn't worked?

Because I imagine, you know, you could tell a story that the big tech stocks in the U.S. have just been phenomenal companies that continue to throw off cash. You could maybe tell a story about the benchmark indices, which we spoke about in the intro. You could tell a story about flows and investors crowding into stocks. Why hasn't diversification worked? Well, so again, let's just kind of narrow it down. When we are talking about this level of diversification, what we are talking about is U.S. stocks not working or U.S. U.S. stocks doing better than international stocks. So that's what we are talking about. I think there are several drivers. I think the kind of the tech supremacy of S&P 500 is certainly one of them.

The profitability of the tech franchise is another one. Low interest rates in the U.S. where growth was higher than interest rates certainly was a factor in driving returns. And kind of the existence of private equity, which got multiples high. So there are a a plethora of reasons as to why things haven't performed. And therefore, you know, it is, it is worthwhile, you know, these are speculations on my part, but this is worthwhile spending a little bit of time figuring this out in a little bit more rigorous way than we have done so far, because, you know, right now, again, if anybody puts up a notion that diversification is bad, they'll get schooled.

But I think given the length of time that it hasn't worked and given the length of the magnitude of how it hasn't worked, I think it is worthwhile spending a little bit of research focus to analyze what the drivers were, as you say, and see if there are some other things that we can divine out of this 30-year episode. So I totally appreciate the need for additional research, and I would agree with you on that. But is saying that diversification hasn't worked the same as saying that investors should only buy winners and avoid all the losers? Well, so I think there's an element of that for sure. That is, international markets have done poorly relative to U.S. markets.

One anecdote here. I used to be the spokesperson for Oppenheimer funds with respect to globalize your thinking in 2011 when the campaign came out. So you were a messenger. I was the messenger of this thing. And I kind of diversified my portfolio based on that thinking. The idea about portfolio construction with respect to diversification isn't that diversification is a bad thing. I think that's a right approach.

I think given the history over the last 30, 40 years, we are to think a bit more about are there other drivers rather than just simply believing in the historical track in the volatility context of that historical track record. On April 4th, 2023, around two in the morning, a man was found stabbed multiple times on a sidewalk in downtown San Francisco. Hey, who did this to you? What happened next turned the story into a political firestorm. Reports have identified the victim as Bob Lee, the founder of Cash App. From Bloomberg podcasts, this is Foundering, the Killing of Bob Lee, beginning.

April 16. So I am very partial to the idea that a big part of the story is the unique profitability of large tech companies in the U.S. But that is clearly not the only story, because it's not just that global stocks have underperformed. In many instances, they've just performed badly against anything. I'm looking at a chart of EWZ, a popular ETF to exposure to Brazil. It's basically flat for 20 years. I assume. the Brazilian economy has grown quite a bit in the last 20 years, but it has not redounded, apparently, to the benefit of an American shareholder investing in Brazilian stocks at all. So obviously, this can't be the entire story that it's just about U.S. outperformance.

It's actually that global stocks have done bad. What's going on? Why in a world in which the economy is generally, you know, more or less growing elsewhere, have international equities actually just done bad on an objective basis? The old adage is the economy is not the equity market. Yeah, yeah. And that is absolutely true. But I think the period from, let's say, 2010 onwards in the U.S. is especially galling.

And I think if I had to come up with a reason as to why that has kind of worked out the way it has worked out, is basically because of dollar-related global flows. Okay. That is, I think the profitability basically attracted a whole lot of things that were going to come to, or a whole lot of flows that were going to come to the U.S. because of the perceived strength of the dollar during that period. Because as I said before, growth was higher than interest rates in the U.S. So it was a natural kind of place for those flows to kind of arrive at. But like, again, another one, Mexico, it's just flat for 20 years. So in your story, it's not quite flat for, yeah, it's, Where was it 2007? So, like, flat for like 18 years. Like, there's a big, the flows are a big part of the story for the fact that these

stocks can't deliver anything over a decade's time horizon. Well, so I think domestic flows relative to international flows are really very important in determining the state of the equity market. Okay. And the best example, counterpoint to what you're talking about that I can give you, is really India. Okay. So India used to be a market that was supported entirely by foreign flows.

Okay. And foreign flows and when there was a panic in New York, all sorts of money would leave India and come here and the stock market would crater. Over the last, let's say, 10 years as the Indian economy took off and financialization and the saving vehicles in India changed, and the equity market as opposed to land and property became the primary source of. savings and deployment of those savings, I think the characteristics... Capital depth. Yes, capital depth financialization of the economy. And right now, the drivers in the Indian equity market, at least for the last five years, really has been the domestic investors as opposed to foreign investors.

So I think that is really the, from a flow standpoint, that is the difference. Yeah, and if you look at the MSCI India Index, it's like the exact opposite. That actually looks like it's done well. Yes, Mexico and Brazil. Joe, you know what I always say? I do, but I'll let you say it. Are you going to say it? No, I want you to say it.

Flows before prose. Yeah, he did it. All right, that makes me happy. By the way, I stole Tracy's joke in the intro. She's not happy about that. I said that thing about how is Shakespearean. Tracy said that right before we went on air. I want to give her credit.

Oh, thank you, Joe. But now I feel petty. I didn't expect you to do that. Okay, going back to the conversation. I'm trying to make you feel petty. You made me feel bad, So now I'm trying to make you feel petty. All right.

All right, fair. Going back to the conversation, can you talk a little bit more about the role of the benchmark index providers in all of this? The thinking in this world is always benchmarks are terrible. But they are terrible, but better than anything else that we have. So I think there is a role for benchmarks. And benchmark providers are important participants in the market. And, you know, the market capitalization of companies like MSCI and S&P and S&P

global kind of tell you as to how valuable that those franchises are. The way as an investor, you know, if you are an asset manager or if you are kind of an asset allocator, you know, how you are doing has to be evaluated in some sort of a rigorous framework. Yeah. And that's where benchmarks come in and that's why we need benchmarks because otherwise it'll be free for all. You know, I can, as an asset allocator, I can, you know, my returns were 10%, let's say, I can always claim that I did a fabulous job and my benchmark outperformed by, you know, thousand basis points. So it's a, you know, there is tyranny of benchmark, but this is a necessary tool that we need. I think a separate question is the, the extent of the kind of

the diversification of the, of the benchmark. So you talked about MSCI AQUI and even things like Russell 3,000 or things like that. So there are issues with diversification. I think S&P 500, on the other hand, for the large-cap U.S. market is a very, very solid benchmark. I mean, there are peculiarities with respect to additions and taking out of the index, but I think that is to be expected in a dynamic market. And I think for most, for the most part, it has worked out reasonably well. You are an employed person. You have had a career, despite imbibing the gospel of diversification. You have had a successful career in the markets. Talk to us, though, about, like, your peers and career risk, et cetera, because at some point, like, you keep making

less money than you could have by buying the U.S. What does that do? And what have you seen, you know, when you look across the industry, do you see an evolution whereby people who were taught the same thing is you about diversification have increasingly felt pressured to not be diversification, or to disguise their diversification in some way that they could tell their investment committee were diversified, but actually, like, we just found a way to like go extra long in Vida. I think in the institutional world, as opposed to retail world, I think diversification is still the matter. And again, to emphasize it, it is the right thing to do. But why do you keep saying that? If you think about it in statistical terms, you know, there is a, you know, there is a,

way to diversify the tail risk. But what I'm saying is we need to evaluate that and see or reevaluate that and see if there are some other techniques and methodologies that we can use where this doesn't become the only way for you to mitigate your overall risk in the portfolio. So what would be another technique or methodology? Evaluating from a track record standpoint, let's say, or from a performance standpoint, let's say, does adding emerging markets to a globally diversified portfolio, does that really add a lot of value to the process? Does a just, let's say, a developed market index, both U.S. and Europe and perhaps Japan, can that deliver some level of correlation to the

overall index without you being stuck in places like, you know, China for a long period of time, or Brazil or Mexico for that matter? So I have a... found the solution. If I had found the solution, I would have implemented that in my personal portfolio. My point is we ought to think about that and we don't really think about it because diversification on a global basis has been the mantra and the accepted doctrine forever. But say more about the career risk. Okay, at the institutional level, they're fine. It's like, oh yeah, diversification. But, you know, for example, I'm always a big fan of reading the Bank of America. a fund manager survey every month. And these are discretionary fund managers that could do everything.

And for like 10 years, with a few exceptions in there, they say long tech stocks is the most crowded trade, but also it's the trade that continues to work. Talk about this effect, this sort of the anti-diversification success on the sort of thinking of a fund manager who probably doesn't love being in a crowded trade, but also doesn't want to underperform. Well, so I think the, the, an active manager is a kind of caught in a way, right? On the one hand, you know, you have to outperform your peers. On the other, you have to outperform the benchmark. And that is a challenge.

And that challenge leads to the sort of things that you are talking about. That is, well, they may do very well relative to the benchmark without crowding into the most crowded trades. But if their competitors are crowded in there and do much, much better than them, that's an issue for them. So, you know, that's their way of solving that particular challenge. I think the crowded trades are, have been there for a long period of time, but I think the way I would evaluate that is how much of a portfolio manager's performance is really driven by, you know, the core views that they express as to what their edge is, right?

I don't understand anything. So every portfolio manager would tell you that their strategy is we look at ROIC. And that's what we focus on. And therefore, that's how we kind of structure our portfolio to pick companies individually. Now, if they say that thing and they are kind of focused on, and that's how I hired them. And instead, they focus on getting into, let's say, crowded trades because they are, going up, then that's really a red flag from an allocated. Got it. Got it. So Joe alluded to this in the intro, but, you know, if you were diversified into international stocks, there was, well,

there were a couple moments this year where you actually looked really smart and you did get a little bit of peace of mind as the S&P 500 was selling off, you know, European equities were surging earlier in the year. But what do you need to see for a durable change in international versus? versus U.S. stocks and specifically U.S. tech stocks? So I think the underlying economic environment has to change for that dynamic. Actually, underlying economic and industrial environment has to change dramatically for that to kind of play out. So if you look at the world from a capitalization standpoint, what we are talking about is U.S. on one side in Europe, you know, Japan, India, China, Brazil, those are really the places that we are talking about. So structurally,

you know, U.S. economy has done better. The dollar is the reserve currency. And the growth outlook over the last 10 years have been much better in the U.S. than it has been. So flows coming into the U.S. ought not to be a surprise in that environment. Okay. Right? And for flows to go the other way, You know, basically, the fiscal expansion in Europe has to get going in a massive way. And that fiscal expansion has to lead to companies and institutions that can take advantage of that fiscal expansion and therefore deliver superior returns to their shareholders, and therefore I'd be interested in buying those companies. The news doesn't stop on the weekends. Context changes constantly.

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Saturdays and Sundays starting at 7 a.m. Eastern. Make us part of your weekend routine on Bloomberg television, radio, and wherever you get your podcasts. Tracy, do you know how much, without looking, the Dax, Germany's benchmark index, do you know how much it's up in dollar terms this year? I do not, although I will confess I have a chart of the MSCI All World versus the S&P 500 on my screen right now. Take a guess. Take a guess. I have no idea. Tell me. 32%. Wow. The German stocks in dollar terms are up 32% this year.

France up 17 and a half percent in dollar terms. The eurostocks 50 up 22 percent. I mean, this is serious. And this is like, these are numbers that we're really not used to seeing. And me and Tracy's entire career, this kind of divergence. Because as of the time we're talking about, the U.S. benchmarks are actually flat on the year, which is pretty impressive, actually, given where they were a month ago. Like at what point you're like, this is a sea change?

What would it take not from a economic? standpoint, but like, you know, what does it take for the other fund managers around the world to like, oh, I believe in, I mean, I don't know, start with, is this the C change here or not in your view? Well, so, you know, again, these are spectacular returns. Yeah. And definitely spectacular relative returns. Yeah. It looks like it's some spectacular objective returns.

It's only May. Yes. But anyway, keep going. And, and, you know, a lot of these returns are dollar driven as well. Yeah. Right. So a significant portion is really. the thing and a lot of it is because of the upcoming fiscal expansion in in germany yeah okay so for this

to be sustainable in the long run i think the economic picture for the for the continent yeah has to change many you know by the way uh just the bovespa the brazilian stock market is up 25% in dollar terms chilean stocks which i've never looked at but it's right here when i go to the w eI page on the terminal, that's up 32%. It's not even, I actually hadn't quite realized this. It's not even just a Europe story. Ladd am too is actually in dollar terms having a phenomenal year. The confluence of dollar weakness, tariffs, you know, those are really the things that have kind of had an impact on dollarized returns. Yeah. If they remain sustainable, then it will be worthwhile looking into those markets, and the thesis would be proven. But we have also had episodes

where we have had these types of moves. False dogs. And pretty soon, in six months, a couple years, you give back all of these spectacular relative returns. But if the argument is diversification is good for protecting you from tail risks, then, you know, what's been happening this year, and specifically in April, seems like a pretty big tail risk. And, diversification worked? In this case, absolutely, diversification worked. The question is, is the diversification or the relative performance of European markets and the rest of the world, is it all concentrated in a very short period of time? What do I mean by that? I think if the expectation is that the U.S., because of tariffs and all sorts of policy responses, the things that drove the dollar,

and the flows into the U.S. go away on a sustained basis. The trend will probably persist. I would posit that that probably isn't, or at least that probably isn't a very realistic scenario at this point. What time frame should you be judging diversification success on? Actually, that's a really good question. So success of diversification from my mind has to be evaluated over a reasonably long period of time. So five, ten years, even 20, 30 years, I think those are the timeframes that you have to evaluate it on. So that everything that has, you know,

everything economically has had an opportunity to play itself out, and all we are talking about is the security-specific volatility for individual securities that benefits from this diversification. So I think it has to be evaluated over a long period of time. And that's why, when it hasn't really performed for as long, period as it has not, despite their recent performance, the point I would make is let's kind of think about that a little bit and look at why that has been the case. Wait, I want to make a counter argument. Why shouldn't we evaluate a tail risk hedge,

which implicitly is what diversification seems to offer, in just very short term. Because like, in March 2020, there was a possibility, you know, the economy could have unraveled further. I could have lost my job. I would have been on the hook for paying for my own health insurance and so forth. I was very excited in that moment that rates went to zero and the bond portion of my 401k or whatever shot up, right? That actually helped me in an acute moment. There's obvious, you know, we haven't hit a recession yet in the U.S. In those acute moments where there's suddenly a risk and your sort of your career is correlated to your portfolio, can it be enough for diversification just to pay off in the Okay, so let's kind of make sure that we are talking about the same diversification.

Okay. So, you know, diversification between equities and bonds. Yeah, yeah. I think that from a risk management perspective, because of different volatility characteristics of the two instruments, that is still very much valid. Okay. You know, one has, you know, double-digit volatility, the other has five, six percent, and they react in, you know, in different economic environments.

very, very differently. So that is valid. I think what we are talking about is really international diversification. Yeah, all right, fair. And if you look at the correlations of international equities relative to U.S. domestic equities, correlation is very, very high. So it's giving you some diversification benefit, but it is not giving you the level of diversification benefit that you think you are getting.

Have you done anything in your own portfolio? to take into account some of these thoughts over diversification? So I've been a victim of this diversification because I constructed my portfolio and I have posted this on Twitter for everyone to see, which is, you know, I have bought, you know, international small cap and I've bought U.S. small cap and I bought developing markets. So I have constructed a portfolio in a very diversified way. It has worked out fine, but it could have. worked out a lot better for that. Am I doing something relative to that? I think the thinking with respect to that has to be about some valuation context in the environment. So if you were going,

after sticking with it for 30 years, if you were going to flip that switch, doing it when the U.S. markets are the most expensive probably isn't the right thing to do. But that doesn't take a way of us thinking about what the drivers of that when that is not the case. I see. Yeah. So so that when the opportunity comes back, we are kind of thinking about it the right way, rather than just sticking to the mantra that we have thought about for the last 30 years. If you flip and suddenly you're like, you know what, everything I was taught, I was wrong. And I'm going to lean more heavily into the U.S. Will you let everyone know so that then we can then diversify exposure?

Like, will you put out that alert? I've finally caved. I've finally caved. I finally don't believe anything I learned in school because maybe the rest of us can use that as an opportunity to go heavy into EEM. Sounds like a good idea. I'll be, again, as I said, school in whichever platform I kind of put that out. As an investor who has kind of stuck with this for almost 40 years, it has been a challenge. And what I am doing is acknowledging that challenge.

That is the lack of correlation that we were expecting from international equities hasn't worked out. That's it. But just on this point, and you've been in a few different seats, how do you have, you know, what do you have to do career-wise? to maintain that discipline. Because this is a big thing, right? Career risk in any seat and there are different, you know, some people are on a very short leash at a big institution that has longevity of over a century,

maybe you have a long leash, et cetera. What is, you know, how does career risk and career longevity play into this type of thing? Well, so, you know, again, you have to distinguish between the type of investor you are. Yeah. So if you are an asset class investor, And your mandate is international investing. International may not have done well relative to domestic investing, but somebody allocated money to you,

and they're looking for you to do better than international benchmarks and your peers in doing the same thing. So there, the career risk is really not direct. The career risk is in terms of flows. That is, if you had a global mandate or international mandate, you know, the... So it's not like you're getting fired for underperforming, it's just that no one allocates to you. No one allocates it.

Got it. If you are an allocator, then, you know, it's kind of the performance is relative to your benchmark and your benchmark, that's how you are evaluated. And your benchmark is for the, for most institutional portfolios. It's still very much MSCIA ACI for the equity component. Christian Mamani, that seems like a really key point. As long as that's the benchmark, some institutional allocation will survive. really appreciate you coming on odd lots we're all going to be looking out for that tweet when you

decided to go into uh mag seven good you know what i really appreciate christina is probably the only person on social media i knew you were going to say this who'll admit that they didn't time the market perfectly and weren't all in on tech stocks over the last 10 years everybody else time the more oh i went to cash you know blah blah oh you know whatever i'm glad someone admits the truth which is that most people have just been, at least in recent years, overly diversified. Well, it's also interesting to me to see a big institutional investor tweet at all. Yeah, well, that's true. All right. So that was really interesting.

One thing I am coming to really appreciate is that peace of mind point and the idea that there is a price to pay for peace of mind. It's not necessarily free. but every once in a while, maybe it does actually help you in acute moments of stress. Well, totally. And look, if the markets are going down, if you're, let's say you're employed in America and you have a lot of, this is something I think about a lot, if you're employed at an American company and you have a heavily exposed American index, when markets are tanking, that is often associated with recession.

Right. And that is associated with an increased probability of losing your job and an increase probability of losing your job is associated with having to sell your investments, maybe even take a tax hit at a time when you can least afford to pay it, sell your investments to literally continue your life, which is sort of like the worst correlation, you know, the worst confluence events. So the idea that like, okay, like if you lose your job and you have to dig into your savings, at least you're not selling at a local bottom in the market. That seems like one benefit to diversified allocation. Yeah, so you're not so invested in basically America squared,

right? And you won't panic. I mean, this is the other thing, right? Like people, we're all, we're animals and you see the line go down and you sell and so forth. Perhaps if the line is a little bit more stable, then, you know, your overall top line, then you don't, you know, then you don't make rash emotional decisions as quickly, which I think there's a lot of benefit to not doing. Do you think there's a difference between how much diversification helps the retail investor versus big institutional investors? That's a really good question. I mean, the nice thing about the big institutions, right, is they have longevity themselves. Yeah. And yeah, it's a good question. But I don't think any American retail investors diversify anymore. I think that, you know, most it seems like retail

investors in America, like, you know, it's not enough to go along Mag 7. You have to sell puts on Meg 7, right? That's right. Like hyper, hyper, whatever the opposite of diversification is. Hyper concentration? Hyper concentration. Yeah. All right. Shall we leave it there? Let's leave it there.

This has been another episode of the All Thoughts podcast. I'm Tracy Alloway. You can follow me at Tracy Alloway. And I'm Jill Wisenthal. You can follow me at the stalwart. Follow our guest, Krishna Mamani. He's at Krishna Mamani. Follow our producers, Carmen Rodriguez at Carmen Armin.

Dashel Bennett at Dashbot and Kail Brooks at Kail Brooks. For more OddLod's content, go to Bloomberg.com slash Oddlots, where we have a daily newsletter and all of our episodes. And you can chat about all of these topics, including investing, diversification, market, and so forth in our Discord. Discord. Discord.g. slash oddlots. And if you enjoy Oddlots, if you like it when we talk about the downsides of diversification, then please leave us a positive review on your favorite podcast platform. And remember, if you are a Bloomberg subscriber, you can listen to all of our episodes. absolutely ad-free. All you need to do is find the Bloomberg channel on Apple Podcasts and follow the instructions there. Thanks for listening. You can get the news whenever you want it with Bloomberg

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