The Compound and Friends - Pigs Get Slaughtered, Doing The Work with Rachel Robasciotti, GameStop Short Squeeze

Episode Date: January 29, 2021

Josh's take on Wall Street changing the rules to squirm out of the GameStop short squeeze plus an epic story from the annals of Wall Street history you've never heard before. Then, Josh talks to Rachel Robasciotti, founder and chief executive officer of Adasina Social Capital. Rachel is not just talking about the work - she's actually doing the work. You're going to love her story.  Be sure to leave us a rating and review - these help other listeners find us and join our booming podcast. Thanks! Obviously nothing on this channel should be considered as personalized financial advice or a solicitation to buy or sell any securities. See our disclosures here: https://ritholtzwealth.com/podcast-youtube-disclosures/ Hosted on Acast. See acast.com/privacy for more information. Learn more about your ad choices. Visit megaphone.fm/adchoices

The big uproar this week taking place in the short squeeze stocks really is epic on many levels. And I think the level that it's most epic on is just the sheer scale of this particular short squeeze. And not even in dollar terms, but just in terms of how many people are involved. but just in terms of how many people are involved. You're talking about somewhere between two to three million people who regularly check the WallStreetBets thread at Reddit, and then you're talking about a whole other army of nameless, faceless TikTok users, many of whom are placing buy and sell orders in stocks for the first time in their lives. Somebody was trying to figure out whether or not this is like highly organized or it's just like a mob, like a rabble and nobody really knows who's in charge or who's leading this thing.

The answer is a little bit of both. So there are YouTube accounts that have been talking about buying GameStop and orchestrating a short squeeze. That's true. But most of the people who've jumped on board are only doing so because they see other people doing it. They don't know what the origin of the trade is. The way I explained it to somebody, remember that day all of a sudden out of nowhere where you logged into Instagram and like 500 of your friends

were dumping buckets of ice water over their head. They didn't organize that. The letters weren't sent out. They just saw other people doing it to raise money for ALS research. And then celebrities started doing it. And then their friends and their family. And before they knew it, for no other reason than to be part of it, they started dumping buckets of ice water

over their own heads or their kids' heads or their kids were dumping it over their heads. And it just went from there. So that's how quickly and without rhyme or reason things spread on social media. There doesn't have to be a leader. There doesn't have to be an organization. There doesn't have to be an organization. It's unnecessary. It just so happens that this particular meme, rather than being

performative videos of people accepting challenges or doing dances, revolved around buying a stock that hedge funds were short and not selling it no matter what until those hedge funds cried uncle. And I think some of the people that are involved are involved because they think they'll make money and others are involved because it's now political. And it's become a situation where they're going to stick it to the man and then every other motivation in between. And then a lot of people are just there because they don't want to miss out. So that's what's going on. And then all of a sudden on Thursday morning this week, Robinhood, Interactive Brokers, and a couple of other firms suspended new trades in the stocks in question. So it's like GameStop and AMC and BlackBerry,

and there's a bunch of others. And they basically said this is liquidating trades only. So there's still going to be a lot of volume, but they don't want new trades being created. They don't want new options trades being put on. And they're trying to tamp down on the frenzy. The conspiracy theory is that some of these very powerful hedge funds that were suffering as a result of these stocks' meteoric rise got to some regulator who then called these brokerage firms and said, hey, guys, put an end to this. And one of the most colorful versions of the conspiracy I saw was that Citadel, which is the buyer of all of the trade volume on Robinhood. So if you're ever curious, how does Robinhood make money? They sell the trading volume to Citadel, which is a hedge fund that acts as the counterparty for all these trades.

And they're making money every time some idiot kid buys or sells a stock. All right, fine. Not a secret. Citadel, though, also has money invested in Melvin Capital, which is the $12 billion hedge fund that's probably at the epicenter of the short squeeze. So that's my favorite colorful conspiracy story is that this trading in these stocks was halted and the rules were changed all of a sudden to bail out, you know, SAC 0.72, which is Steve Cohen and Citadel and all of these firms that had a lot to lose. And it just so happens that Citadel has some leverage with Robinhood because they're on the receiving end of all the trades being placed there. Okay. I don't know if that's true. We'll

find out. But I want to talk about this thing with the rules changing, because to me, that's the biggest takeaway. If you're trying to understand investing in markets and how this stuff works, the main thing that you have to understand is that Wall Street will always change the rules in order to survive. By Wall Street, I'm talking about the large banks, the large brokerage firms, the hedge funds and asset management firms that Wall Street caters to, the top 1% of 1% of financial services industry people, they will change the rules. Their attorneys and operatives are all former regulators. The people in Congress who vote on major rule changes are all funded by PACs, which are very heavily donated to by Wall Streeters. In the end, there's a self-preservation mechanism here,

and Wall Street will survive. It always has. It always has. So there's probably some truth to the idea that powerful people wanted this to stop. And just like that, brokerage firms start limiting trades in these securities. And all the internet super friends are screaming. Barstool is screaming, Dave Portnoy and the Winklevii Bitcoin twins and Chamath and Elon Musk. And everyone's now going to start screaming and I get it. I would be mad too or maybe it's just like a thing where you can like stoke this populist outrage and everyone retweets you. So you're seeing a lot of that going on and I get that and you're also seeing the media clutching their pearls because the type of traders who are making money from this short

squeeze don't look like the type of people that they consider to be acceptable or they consider to be the right people. This is the wrong people making money. These are people that are in chat rooms anonymously and they're not like guests on television. They're not the type of people that reporters typically quote for stories on the market. They share memes. They tell jokes. There is misogyny. There's racism. It's very casual. They make jokes. They call themselves autists, which is like a reference to them being autistic. It's an in-joke. They call themselves retards. They say all kinds of unacceptable words that in polite society are not said. And they look like a rabble and they are a rabble and that's perfectly fine. But that is why I think there's this almost knee-jerk aversion to seeing these people

pocketing $100,000, $500,000, a million, $10 million, $25 million. How is that possible? How could the Ivy League graduates who run hedge funds and say all the right things and attend all the right parties and be dressed and groomed impeccably and media trained when they're behind a microphone, how could they lose money to these people? Now, no one's saying what I just said out loud. They wouldn't dare. But that's where that knee-jerk aversion comes from. They almost can't believe it. How are these idiots beating the cream of the crop investors? I don't understand. How is this guy losing money? He lives in Westport. He rode crew at Dartmouth or whatever. I don't even know about that stuff. I'm a middle-class kid from Long Island. I don't even know about that stuff. I'm a middle class kid from Long Island.

I'm not acceptable to them either. And that's how I know. That's how I know. Because I've experienced all this firsthand. Who is this guy? That's like the thought that crossed everyone's mind when I first started to come up in this industry. So I understand it. I've experienced it myself. Anyway, I want to get back to this thing though about there being rules.

Because this is the most important thing I'm going to tell you today. And we won't dwell on this for a long time. But I want to tell you a quick story. And it's a great story. But it's really important. The original Amazon.com stock on Wall Street 100 years ago was a grocery store chain. In 1916, 1917, a man named Clarence Saunders, he was a clerk at a grocery store. And back then, they were called general stores.

And back then, if you were grocery shopping, the way it worked was you walked into one of these stores and all of the goods were sitting on shelves behind the counter. And you pointed, you said, I want that, I want that, I want that. And the clerk behind the counter, he had a stick and he would pull those items down for you off the shelf and then ring you up. And that was how you bought groceries for your home. Clarence Saunders had this idea that what if we just put all the goods out on shelves and let people walk around themselves? I know that sounds like, yeah, duh, that's a supermarket. It didn't exist. He invented it. He invented it. And it was wildly successful. People liked the idea of being able to scrutinize the package of something they were going to buy or see two or three versions of something alongside

each other and take their time shopping, not have to stand there and work with a clerk who was waiting on their every word. So it was wildly successful. So he's a guy from Memphis, very unassuming guy in terms of like his education, but very outspoken, colorful, larger than life character. And he creates this thing. It turns into the Amazon of its day, completely revolutionizes shopping. It's hard to believe. This is pre-Walmart. So he was Walmart before Walmart. And he just completely turned the paradigm of how to buy things on its head and ended up opening hundreds of stores, eventually thousands of stores, but opened hundreds of stores all over the South and the West. So very far away from New York City. However, he goes public. This is right after the pandemic, 1918, the Spanish flu wipes a huge

percentage of Americans out. And then we have the roaring 20s. This is the very beginning of the roaring 20s. So 1920, 1921, he's got the hottest stock on Wall Street. And he's very far away. He doesn't know the bankers. He doesn't know the traders. There's no conference calls back then. There's no IPO roadshow. You list a security and it trades. Everybody wants in on this stock because Piggly Wiggly, which is the name of his chain, is just a business that's on fire. Again, this is like Amazon right after coming public. So here's what ends up happening. He starts building these corporate stores that he owns in his own area all over the South. that he owns in his own area all over the South.

But then to grow the chain a little bit faster, he starts selling the naming rights to Piggly Wiggly. And up in New Jersey and New York, an operator buys the rights to the Piggly Wiggly name and opens like five or six stores. And those stores go under. Had nothing to do with the brand or the real corporation. The guy was just a bad operator. The stores go under. Had nothing to do with the brand or the real corporation. The guy was just a bad operator. The stores go under.

But that attracts attention from the traders on Wall Street because they see these stores and they say, wait a minute. Five Piggly Wigglies just closed down, but that's the hottest stock on Wall Street, right? So it's a $50 stock and everyone's trading it. It's going up and up and up, but their stores are failing. So that initiates a short selling barrage, which pushes the stock from 50 down below 40. And they're selling it and they're betting against it. Merrill Lynch is one of the biggest firms betting against it in size, and they're driving the share price down. And Saunders, who is sitting at this time in a pink marble mansion that he built himself,

they call it the Pink Palace. I think it's still there. It's a museum. So he's sitting in Memphis, and he starts getting newspaper reports and telegrams about the crash happening in Piggly Wiggly shares up in New York. And he says, oh, no, no, no, no. F*** this shit. I'm not having that. And again, I told you, this is a larger than life guy. He's a bon vivant. Everyone in town loves him. He's running around throwing money at people. He's like a hometown hero. He's a local boy done good. Is that the expression? All right. So he goes up to New York. And prior to going up to New York, he raises himself $10 million. And he raises money from southern banks. So he goes to New Orleans.

He goes to St. Louis, locally in town in Memphis. And he raises $10 million. And he has it in cash cash and he stuffs it in a suitcase. And the story goes, he had so much cash on him, it didn't all fit in the suitcase. So he had it bulging out of his pockets. He gets on a train the next day or a couple of days later, he arrives in New York City and he walks right to the New York Stock Exchange. And he's basically like, who the fuck is shorting Piggly Wiggly? Show yourselves, right? So he's pissed off and he's got all of these, they're not hedge funds, but they're like brokerage firms and these shadowy operators. So what does he do? He finds Jesse Livermore. Jesse Livermore, 12 years earlier, had just become the richest human

being alive and then lost his entire fortune speculating in stocks. We're not going to do a whole Livermore thing. But suffice it to say, he's the world's greatest and worst trader, both at the same time. Famous on Wall Street, famous off Wall Street, and just a reckless, wild, insane speculator who's had huge success and huge failure. But the street accepts him as one of their own. Well, Saunders hires him and he makes him the chief of staff. And by the way, I'm relying heavily on a chapter in John L. Brooks' excellent book, Business Adventures from 1959 in telling the story. And I'll link to that in the show notes. So Livermore signs on because this guy's throwing millions of dollars around. And basically what they want to do is corner the market in

shares of Piggly Wiggly. So Clarence Saunders wants to buy up every single share that he can find. And Livermore is going to help him locate all the stock, which we'll talk about in a second. And he wants to make it so that at a certain point, he owns so much stock that he can call it in and all of the shorts who have borrowed these shares to sell them are forced to buy them back somewhere and deliver them. But the way a corner works is if you've cornered the market, if you control all the shares, then the people who have sold those shares, they have nowhere to get them to replace, which is what drives the stock price up. That's what's going on this week with AMC.

And to a lesser extent, with the other stocks, this is what's going on with GameStop. So there's just not enough shares to buy back at a reasonable price to replace the shares that have been sold short. Okay. So Clarence Saunders is going to pull off a corner. And Livermore's job then is to take his money and scour all the brokerage firms and locate the accounts or the clients who own this stock and try to buy it from them for this war chest of shares that Clarence Saunders is going to build up. All right. So that's what's going on.

And while that's going on, Saunders is also running newspaper ads, especially in Memphis, trying to drum up interest in people buying these shares from him and then holding them for a year. So in other words, he's got this $10 million worth of loans from banks, so he can't hold the shares forever. They used to be interest rates, right? So he can't just buy them. It's not even his money. So he's trying to resell these shares to regular investors with the condition that they hold these shares for a certain period of time, which is like effectively taking them off the market and not allowing the short sellers to be able to buy them.

So that's the scheme, right? And he's running ads and he's shredding hedge funds in the ads. So Sanders is out there working with brokers. He's on the street. And this is from John L. Brooks, quote, on the first day of his duel with the Bears, Sanders operating behind his mask of brokers bought 33,000 shares of Piggly Wiggly, mostly from the short sellers. Within a week, he had brought the total to 105,000, more than half of the 200,000 shares outstanding. So in other words, there's only 200,000 shares out there, and he already has half of them.

shares out there, and he already has half of them. Meanwhile, ventilating his emotions at the cost of tipping his hand, he began running a series of advertisements in which he vigorously and pungently told the readers of Southern and Western newspapers what he thought of Wall Street. And here's what Sanders said. Shall the gambler rule, he demanded in one of these effusions, on a white horse he rides, bluff as his coat of mail, and thus shielded is a yellow heart. His helmet is deceit. His spurs clink with treachery, and the hoofbeats of his horse thunder destruction. Shall good business flee? Shall it tremble with fear?

Shall it be the loot of the speculator? On Wall Street, Livermore went on buying Piggly Wiggly. End quote. So he's in the newspaper bashing Wall Street. Sound familiar, right? Much the same as Wall Street bets is out there trashing hedge funds. And in the meantime, he's got Livermore operating on the street, accumulating all the stock. The stock goes from 40 to 50.

Now it's at 60. It's the highest price it's ever been. There are reports coming to the short sellers on Wall Street from Chicago where the stock is already cornered. So remember, Chicago has its own exchange at this time. And the reports are, hey, there were no shares available here. So if you're short this stock in New York, you're starting to get nervous. You're starting to get nervous. And again, while he's cornering these shares, he's reselling them to regular investors in the South under this banner of let's destroy Wall Street. Let's kill these guys, right? So it's very, very similar to

what we're looking at right now. And there are a lot of machinations in between. At some point, Livermore gets nervous and he quits. The regulators start asking, what's this guy up to? The stock exchange is asking Jesse, yo, what's your boy doing? What's really going on? Because he never came out and said, I'm about to corner the market. That was never a formal declaration that Saunders made outright. formal declaration that Saunders made outright. So in the end, Livermore walks away and Saunders has collected about 98% of all of the outstanding shares. So let's go back to John Brooks. A week later on Monday, March 19th, Saunders ran a newspaper ad stating that his stock offer was about to be withdrawn. This was the last call.

At the time, or so he claimed afterward, he had acquired all but 1,128 of Piggly Wiggly's 200,000 outstanding shares for a total of 198,872, some of which he owned and the rest of which he controlled. So now he wants to spring the trap and Jesse Livermore is out. So he's got to do it himself. So he does it with a massive announcement on Tuesday, March 20th. First thing in the morning, he calls in all the outstanding shares. Meaning if you're short the stock, you have to find these shares to buy

to replace what you've borrowed. And you can't because Saunders owns them all. So this is it. Piggly Wiggly opens up at 75.5 that morning. It's up 5.5 from the previous day's closing price. This is back to Brooks. An hour after the opening, word arrived that Saunders had called for delivery of all his Piggly Wiggly

stock. According to the rules of the exchange, stock called for under such circumstances had to be produced by 2.15 the following afternoon. But Piggly Wiggly shares, as Saunders well knew, simply wasn't to be had, except of course from him. So basically, the stock goes from 90, except of course from him. So basically the stock goes from 90, then 100, then 110. It just continues to rise. It gets up to a high of 124 on that day that Saunders called for delivery. And the next day at 215 is the deadline for short sellers to deliver the stock that we all know they could not have delivered at this point. And then exactly what you think an organism or an individual who's under existential threat is going to do, they change the rules. Quote, after the close of business, the governing committee of the exchange announced both the suspension of trading in Piggly Wiggly and the extension of the short seller's delivery deadline until further action by this committee. There was no official reason given for the decision, but some members of the committee unofficially let it be known that they had been afraid of a repetition of the Northern Pacific panic if the corner were not broken.

of a repetition of the Northern Pacific panic if the corner were not broken. Northern Pacific, by the way, is a railroad where there was a corner that ended up crashing the entire stock market. So basically, Saunders is back in Memphis. He thinks he won. He thinks he's got paper profits worth several million dollars based on the stock being over 100 and him owning all of it. And he thinks he's got everything straightened out. And he thinks by the time they come to meet that deadline, the share price will be like $250 a share. That would make him one of the wealthiest people in the country. But then nobody comes and settles.

The short sellers don't show up. The governing committee of the New York Stock Exchange had, quote, kicked the pegs from under Saunders by announcing that the stock of Pickley Wiggly was permanently stricken from its trading list and short sellers would be given a full five days from the original deadline to meet their obligations. Saunders is on the losing end of things and he starts issuing statements that what the stock exchange is doing is unbelievable. It is unbelievable to me that the august and all-powerful New York Stock Exchange is a welcher.

Therefore, I continue to believe that the shares of stocks still due me on contracts will be settled on the proper basis. That's from an editorial in a local Memphis newspaper. Quote, this looks like what gamblers call welching. We hope the homeboy beats them to a frazzle. He's the homeboy in Memphis. It doesn't go his way. So I'll spare you the rest of the story. If you really want to read it, I highly recommend reading Brooks's book. But in the end, the corner does not work out and Saunders owes back that entire $10 million, which of course he can't get because the share price collapses. It's an absolute debacle. It's Wall Street

changing the rules when it suits them at the 11th hour to get out of a jam. Very, very similar to what we've seen go on this week. Very similar. And in the end, Saunders loses the business. So the Piggly Wiggly brand lived on, but he was completely and personally destroyed, completely ruined. There are rumors that Jesse Livermore actually secretly switched

sides. We don't know. We'll never know if that was true. But the point is, that is one story of dozens of stories of exactly this kind of thing happening. And this idea that Wall Street's interests, most powerful people are going to sit back and be victimized by 19-year-olds on the fucking Robin Hood app. That was never going to happen. Or it was never going to happen for long. It never has happened. And it never will happen. So this whole idea of the democratization of investing, well, that's what everyone thought Robinhood was until this morning. Robinhood said, no more trading in these stocks and completely decimated the share price of these companies that people had their money tied up in.

up in. Now, we don't know why. We don't know who got to them. We don't know if somebody called them and said, hey, let me give you the heads up. You better cut this shit out. We don't know. We'll find out, or maybe we won't, but this is the way it's always been, and you don't think Robinhood is Wall Street? You think they're like Silicon Valley? Let me help you with that. They're a regulated brokerage firm. They're regulated. SEC, FINRA, right? It's a small world. There are only a few thousand brokerage firms left in this country. It's a small world. And everybody that is transacting in financial services is in some way, shape, or form monitored or overseen by Wall Street and its very powerful interests. And I'm not saying it'll be that way 500 years from now, but 50 years from now, probably. So there's a limit to the democratization

of anything. And there's a limit to how much money is going to be lost by the big boys before somebody puts their thumb on the scale. I tweeted this week, and I never tweet. I put out a chart of the stock market, actually the XLF, the bank sector, prior to and after the March 2009 decision to suspend mark-to-market accounting. There's a FASB 157, basically a rule about if you were holding assets on your balance sheet as a bank or a brokerage firm, that you had to mark them to whatever the going rate was on the market. That rule was suspended. It's not a coincidence that the same week that happened, the 57% peak to trough bear market ended. The 2008 crisis ended March 2009, the same week that Congress overturned or suspended that accounting rule.

All of a sudden, all of these toxic assets on bank balance sheets that had to be sold didn't have to be sold anymore. It's not a coincidence that that's where the bank stocks stopped going down, the US stock market stopped going down. the bank stocks stopped going down, the US stock market stopped going down. That was done to preserve the last standing US banks, right? Whoever was still around, Goldman, Morgan Stanley, JP Morgan, Wells Fargo, US Bancorp. That was the rules being changed for the preservation or the self-preservation of the beast. It's always going to be that way. I give you 50 other examples, but we don't have any time. We have a lot to do today. I just want you to understand that in the end, Wall Street will always change the rules.

Just how it is. All right. Today we're talking to Rachel Robichaudi. And Rachel is just, she has a spectacular story. I'm so excited to introduce you to her. And we're going to talk about some pretty deep and important topics going on right now. But I think you'll really get a lot out of this. So stick around.

We're going to do the disclaimer and the music. We'll jump right in with Rachel. And today's going to be an epic show. We'll catch you on the other side. Welcome to The Compound Show with downtown Josh Brown. Josh is the CEO of Ritholtz Wealth Management. All opinions expressed by Josh or any podcast guest are solely their own opinions and do not reflect the opinion of Ritholtz Wealth Management. This podcast is for informational purposes only and should not be relied upon for investment decisions. Clients of Ritholtz

Wealth Management may maintain positions in the securities discussed in this podcast. wealth management may maintain positions in the securities discussed in this podcast. I'm here with Rachel Robichaudi. She is the founder and chief executive officer of Adesina Social Capital. So happy to have Rachel here with us. First things first, you're in San Francisco? I am, yeah, in San Francisco, California. I don't hear a lot about San Francisco in the pandemic. I feel like I only hear about LA. What's going on there? I don't know. I think that we might just tend to be more open to wearing masks up here.

A little bit more in favor of a group effort to get through this? Yes. There you go. Yeah. Fair enough. Thankfully. Although we did have our troubles early on, but things seem to be clear enough. Yeah.

I feel like New York is not as bad as I thought it would be in the resurgence. We definitely had a tough March and April, but I feel like we're kind of average in the New York area. Not much better, not much worse than any other big city. Definitely. And we all have had to have our turn. I'm realizing. That's true too. So I wanted wanted to talk to you about we're going to start with your background because it sounds like it became obvious to you that money was very important in the world at a very young age. And I think your first realization came from something that your godmother had explained to you. And it was this really great Morningstar profile written about you that I got that anecdote from. But I would love to hear you

just in your own words, kind of explain how you came to realize, okay, money is this really big deal thing that I better become more knowledgeable about. Sure. So I grew up in Oroville, also in California, but very different from San Francisco. It's rural, it's small. And we grew up on a particular side of town, the south side of town, which is where a lot of the black folks who had migrated from the south had come to live when they were working on building the dams and their families just stayed. when they were working on building the dams and their families just stayed. And just where we grew up on our side of town was pretty segregated from the rest. And there was just there was a lot of difficulty just around poverty and a lot of the other things that kind of come with poverty. And I remember listening to this radio program that I just loved and asking, like, how was it possible? Like, why did they, why did they make this radio program? Like that I enjoyed so much, much like your podcast. And I was told after a little bit of thought that it was actually advertising, but that basically,

you know, I enjoyed the story, but so did other people. And there were advertisers that wanted folks to hear about their products and services. And so I was like, oh, these advertisers are paying money. Money seems like it's really important. Money makes important things happen like radio programs. Right. I got the show because of money, right? Yes, exactly. Okay. So your childhood wasn't an easy one. And I know you've talked a lot about a lot of this publicly. And I think it's talked about a lot of this publicly. And I think it's important for people to hear stories like yours. The inspiration that I get and a lot of other people get hearing from people who have overcome hardship to achieve great things within our industry, I find that it goes a long way.

I want to give people some context to understand just how much you've achieved relative to where you began. So if you want to give us like some idea of what it was like growing up, where you did, how you did, and then we'll get into how far you've come from there. And I think it's really amazing, by the way. Oh, thank you. I appreciate that. So as I said before, it was a pretty segregated neighborhood, was an all black community. And it was a pretty segregated neighborhood. It was an all-Black community. And it was mostly a community of women. Mostly the men that I grew up with in my family were either in and out of jail, or I actually had three different family members who were killed by the police over the course of my life when I was a kid without any repercussion for any of those.

And I was homeless multiple times as a kid. And I also just happened, I, I don't like, it's interesting. I can't say whether it's a bad thing or a good thing. I had two severely mentally ill parents. And occasionally what can happen with severely mentally ill people is that they can have a really intelligent child. You know, the synapses can be firing so fast that it's a problem or you can get, you know, a lucky roll of the dice where there's, you know, firing just fast enough to work out well. And so I was a really smart kid. I was the lightest skinned person in my family. You can see me, but I know that the podcast audience can't. But, you know,

I have probably more white appearing features than other people in my family. And in a variety of ways, I just found myself in school and in other environments, just interacting more with white folks that wanted to help or found me easier to have around or didn't, you know, make certain assumptions about me. Plus I was wicked smart. So one of the things that's really interesting, you start to realize that not having money makes all of these other problems worse. So like we talked about why money is important. The absence of money has a way of exacerbating pre-existing problems, you know, dynamics

within families, conditions, right? Yeah, absolutely. So I mean, there was drug abuse and the things that can kind of come with that, which are like domestic violence. And all of those things seem to be worse, the more impoverished we were. So the less money you had, the worse things off, the worse off we felt like things were. And the harder it is to deal with those things or make them better, obviously, less resources. Yeah. Poverty is a long-term stressor. Not having what you need to get by is just, I mean, it just makes everything harder. My family used to joke and say it's expensive to be poor because you get all the late fees and fines and tickets you can't pay and those kinds of things. Right. It's regressive. But so you are a gifted student.

There was something very special about you that was apparent at a young age. And I read that you graduated high school at 15. Is that right? I did. Yeah. I skipped several grades, graduated high school when I was 15, went straight into college. And you went to UC Berkeley. Did you know that you wanted to be a financial advisor in college or how did that whole thing come about? You know, I actually saw someone, the parent of one of my friends was a financial advisor and he was a black man and he really helped people and he also was able to do really well

for himself financially. And I was like, oh, well, I want to learn about money anyway. And this is a way I can actually help people, right? And also make money and help myself and my family out in the process. So yeah, actually I did an internship my last year of college in the financial industry. Okay. And then you did something extremely brave. In 2004, you're 25 years old. So you and I are about the same age. You had worked at a couple of like large firms, well-known banks. And you said, you know what?

I'm going to do this by myself. And this is not 2021 where there's software everywhere and all these networks and there's social media and you could just launch your own firm. In 2004, that shit is unique and hard to do. There aren't as many resources or examples, but you did it. So I think like 20-something advisors do that today all the time. 16 years ago, that was bold. What was it about the firms that you were working at that inspired you to say, you know what, I got to get out of here.

I'm going to do my own thing. You know, the way that finance was built kind of started to feel extractive to me in a certain sense, just kind of like trying to extract the maximum labor for the lowest possible cost out of the folks that work there. And I think a lot of folks know that when they kind of start off in what we used to call the bullpen, like, you know, inside of a wire house. Yeah. So yeah, thankfully I maneuvered my way out of ever having to make a cold call, but I still was just in a place where I was like, people aren't treated well. I wanted to work like the clients I wanted to work with were like women, LGBTQ people, families, and people of color. Not the traditional clientele of those institutions. Right, exactly.

We would go to like create a brochure and you would be given a template brochure and I would be like, oh, none of these people actually look like the folks that my clients are going to want to see. So yeah, I wanted to do something very different and I just didn't feel like there was an environment that was super supportive of what I wanted to do. People didn't really think that there were assets there or interest and that it was a really viable market. And so and I also just wanted to have peers. I wanted to have other women and people of color and queer people around me.

And I just traditional finance wasn't where they were. So at a certain point, because I wanted to do what was best for clients, I started my own independent firm. And I say that just because I was working at a large firm where at one point they were tying how much health insurance they paid to like how many proprietary products we sold. And I was never into it anyway. But at that point, I never heard that one out of here. I was like, yeah, it didn't last very long. I found out. But at that point, I was like, OK, it didn't last very long, I found out. But at that point, I was like, oh, okay, this is actually just being strong-armed. So it was a combination of wanting to do what was

best for my clients and also feeling like, hey, if I'm going to have the kind of environment I want to work in and work with the kinds of clients I want to work with, I'm going to have to do this myself. Growing up poor, I wasn't this very risk-seeking person. I actually really wanted a certain amount of safety and stability, but it didn't feel much like a person. I actually really wanted a certain amount of like safety and stability, but it didn't feel much like a risk. It actually felt like I was just investing and having a work life that I could. What's the first thing you did? So, so you leave, is it real? Is it like getting office space or get a phone number? Like what, what do you even do with that? Yeah, it's get it on face. It's get a phone number.

I started working with an independent broker dealer at first. And then a few years later, set up my own RIA. So you build this thing and it reflects who you want to be with, who you want to help, what your values are, which again, these days, I think we take that for granted because all of us have the ability to do that now. But it was very rare, I think, at the time that you were doing it. But then you're fairly off – I don't want to say off the radar, but you're not quite getting like national attention for what you're doing. You're just doing it because it feels right. Do I have that right so far?

Yes. I would say until this past summer, yeah. So now this summer, like, all hell breaks loose. Some of the worst videotaped evidence we've ever seen and we've seen a lot over the decades.

Like, literally, one of the worst things I've ever watched, the George Floyd clip surfaces and several other incidents in other parts of the country and the pot just boils over and people just,

they've decided that they've had enough. And, you know, we had the marches in my town, took my kids outside to witness what was going on, explain to them, handing out bottles of Poland Spring. It was like just this moment where nobody could avoid having the conversation. No matter what side anyone was on, it was time to have it. And this is when you decide, I'm going to start talking about my thing, my story.

Do I have that about right? Yeah. I mean, so, you know, we were initially working, doing like more wealth management work, but ultimately we weren't finding socially responsible products. They were evolving into what is now ESG. And our clients were like, this doesn't quite match what we thought it was going to be. So we were in the process of developing a different investment strategy to really align with our clients' values. And we realized that most of our clients care very deeply about racial justice.

And actually, it was like racial, gender, economic, climate issues were really coming forward. And so by last summer, we had a fully developed strategy for public equities. And we're working on one for fixed income that specifically centered racial justice and the intersection of other types of justice. And I just want to pause for a moment here and just like do a quick little insert. If we were in an article, I would do a little insert where it's like, let's talk about justice. So before people are like, I'm not interested in this. Yeah, please. In the United States, we think about justice in this rather punitive way.

We have a pretty advanced criminal justice system. We imprison more people than any other country in the world. And I think that when folks hear about justice, they're kind of often thinking about punishment. But in reality, what I'm talking about is a different kind of justice. It's just the acknowledgement of harm and the repair, right? So it's really more like restorative justice. So when we're talking about racial justice, it's like, oh, where has there been harm and what can we do to repair it? It's not necessarily that punitive form. Okay. So you're building out investment strategies that aim to align people's investment capital

with the ideals and the values that are like core to who they are as people, which in my view, like anybody, anybody could say, well, I ran the quantitative analysis and blah, blah, blah, throw that shit out because that's not the way people act in real life. People don't optimize for ideal, you know, optimal performance. They optimize for like, this is the way that I want to live my life. And this is what I want my money to do some of the talking for me. And if that means I gain some performance, great. If it means I give up some, that's fine too.

Oh, and by the way, in a recession, in a bear market, this is a portfolio that's stickier. It's easier for me to hold on to because it's meaningful to me. It's not just the triple Qs and the SPY, like this portfolio aligns with my values. So I don't throw it out so easily just because there is volatility, right? Yeah, that's been true for us for sure. The client relationships are much stickier because their portfolio has meaning to them. That's right. So I think that that's very strategically key to what you're building. And I've always thought that way. Okay. So you're building these portfolios for people and you come to this realization though, that just excluding a handful of stocks from a client,

it's like not far enough. That's like now baseline stuff. So talk to me about what your strategy is and how it differs because I'm sure you roll your eyes sometimes when you hear people say ESG this, ESG that. There's not that much special happening with those portfolios. What are you doing that sets you apart? So a couple of things. And first is that, so we are excluding companies from the portfolio, but the way that we're doing it is not just based on what we think makes sense. It's actually based on what the folks who are most impacted by the issue that we're looking to address tell us will make a difference to them. So for example, on the area of gender justice, when we're looking at like the Me Too movement, it wasn't just looking at a gender lens portfolio by putting women on corporate boards. It was like, oh, what about those policies inside of the companies that allow like serial harassers to keep going? But very similarly, like with racial justice, when we talk to a lot of these racial justice movement leaders, like the Movement for black lives, movements that are very centered in justice and peace. I think that's very important because I think those can get sometimes

conflated. But what they're talking about is like, hey, we have to deal with this mass incarceration system. It's at the core of what happened with George Floyd. He was on his way into what we call a carceral system. And when we talk to these folks, they're saying, let's deal with prison involvement and the money bail system that's part of that. Let's deal with the fact that there's this carceral system that overwhelmingly imprisons Black and Indigenous people at far higher rates than other folks. And what's interesting is that our industry, at the same time, we're making a lot of really important statements. Actually, many corporate leaders beyond our industry were making a lot of statements around

the time of the George Floyd protests. They were really centered around diversity, equity, and inclusion. And while that really matters, focusing on that is a bit like giving nutritional advice to someone who has a bleeding wound that needs a tourniquet. So we were like, that's great. We should eat well. And let's stop the bleeding. So yeah, what we realized was that our portfolio needed more attention to what we were

focusing on, which was actually the voice of those who are most impacted by these issues needed to be lifted up because our racial justice exclusion list is one that we were sharing actually widely, stepping outside of that ownership model of believing we can only impact the companies that we are investing in and really saying, no, actually what we can do is make sure that other investors are listening to these folks too. So there are companies that a lot of people wouldn't even think about as being like negative for things like racial equality, but they're financing the activity of companies that are truly suspect in those areas. It's not as simple as saying for-profit prisons are a tiny piece of the S&P,

throw them out. We don't need that. Gun manufacturers, there are only three of them publicly traded. Big deal. You basically have the S&P minus five stocks, and then you get to the oil companies and you can just remove the whole industry. It's more systemic even than that. Can you like share some of your experience in looking at the way in which companies inadvertently are doing harm to some of these causes? Sure. I think you brought up a really important word that can also be a buzzword too where people people can go, oh, there we go with the systemic thing. That was the one piece that we heard as much as racial justice was a comment about systems. And rather than it being a buzzword that divides us, I just want to take a moment

to say that there were white people from Europe that came over and built this country. And we know what conditions were like when they came over. A lot of them were being persecuted for their religion. There was a lot happening in the economic system where there were a lot of poor people being imprisoned and they were given the option to come over to the United States. So these are a lot of traumatized, scared people that come to the United States, are in a scarcity mentality and set up a country and start to build systems that allow for the taking of land and the taking of labor from others because they're in a scarce environment. I mean, we're operating inside of systems that were built by people who had unresolved trauma that were scared.

And it was life or death every day. Absolutely. When we start talking about systems, I think sometimes we can get in trouble by attacking each other, by attacking the people. When in reality, what we need to really be doing is taking a close look at those systems, dismantling them and through a lens of repair, making something better. But I say that like the system of institutionalized racism in the United States

is just like us all sitting on a conveyor belt. It's set up so that certain people get directed one way and other people get directed another, right? And if we don't bring some amount of compassion and humility to understanding that we're all on a conveyor belt, that we all have to kind of like wake each other up, stand up and walk the other direction, we're just going to stay on that same system, that same conveyor belt that was built by very scared people. And I think that's actually a really important place to start when you are talking about

systems. So thank you for letting me go on that diversion and come all the way back. So what's the piping of this system? It's not just the private prisons. It's also the money bail system that supports people getting into the prison system. It's also the fact that private prisons are mostly REITs. And those REITs require a ton of financing to allow what they do to continue happening. So it's looking at the banks that fund them. Debt service and underwritings and right.

Exactly. It's a whole industry that might be a step or two removed from the problem, but still very much part of the problem. Exactly. And working on the systems that underpin that is how we're going to actually solve the problem. Basically, what we need to do is to make it impossible to profit, right, off of incarcerating other human beings in that way. So Rachel, I feel like this has been done successfully before, even in our lifetimes, the way in which South Africa was just so completely isolated by the international community. I'm not saying that that was the thing that finally put an end to apartheid, but it played a major role. I mean, it was an untenable system, right? But I know divestment played a really big role. And it's funny that you mentioned

that because I often say we haven't had solidarity like everyone working in concert on racial justice since apartheid. But I got to tell you, last year, it's very interesting to look at some of the private prison stock prices to see what they did while the rest of the stock market was primarily on a recovery through the end of 2020. A lot of them stayed, you know, in pretty bad shape. And I think that's because of some of the attention we were able to bring to this particular issue and the solidarity we were able to build within our industry. So some of the criticisms that you hear about trying to introduce a value system into investing, and I don't even know that they're worthy of like batting away, but just worth bringing up.

And I'd love to hear if you have a take on that. Oh, please. So this is a conversation. We don't stay in conversation with each other. We don't get anywhere. So let's hear about it. You'll often hear, and this is like coming from typically dispassionate quants, people who just look at historical returns and they skip the morality question entirely. And they'll say, if you had excluded tobacco companies, which clearly are among the most poisonous corporations ever known

to mankind in more ways than one. Tobacco companies were the best performing stocks in the history of the English stock market, which predates ours. And the data we have is that they're almost like all of the return that English shareholders earned. And so if we were to pull those stocks out, it would hurt performance. And we if we were to pull those stocks out, it would hurt performance. And we go down the list of other sectors, obviously fossil fuels and other vice stocks. And then the other rebuttal is that everyone draws the line in different places. So how do you effectively scale a values-driven investment program that's relevant to more than 10 people, given the fact that everyone's got different views? And I'm sure you get asked this question

all the time by clients and prospective clients. I would say that true return for all human beings is both a social and a financial return. If I'm doing great, but my best friend is eating cat food in retirement, that matters to me. It actually affects me both financially and emotionally. If I'm doing great, but my best friend is eating cat food in retirement, that matters to me. It actually affects me both financially and emotionally. If I'm doing great in my house, but I go downstairs, which this actually happens because I live in downtown San Francisco right now, and there are people without homes on the street who are more likely to get COVID and also potentially infect me, the social return is very personal for me. So I think part of what's happened in finance is that we've cut off a very natural social return that's part of a true return by looking only at this personal financial element. And we're kind of ignoring something that's very real for all of us. So I think that's why there's this big interest in ESG and any kind of social investing is because more and more as we encounter, you know, climate crisis, racial justice issues, we're noticing like, oh, actually, we're all extremely interconnected, even more so than we may have thought. So social returns matter to us. But separate from that, we're operating under the assumption that social justice movements are giving us early indicators of material risk in public markets.

Go on. That's a really bold statement. But I can tell you, if you track how social justice movements, the number of people in the streets, like how large they become, the policies they're able to shift. If you take a look at that and then you follow certain industries and stock prices over time, there's a correlation there. And so what we believe is that in a service economy, I'm going to get really technical here for my quant folks, in a service economy, when you're looking at book to market, and the book doesn't even account for

goodwill or off all of those kind of like off the balance sheet. Intangibles. Yeah, the intangibles. But at the same time, in a service economy, those intangibles are so significantly important to brand value and actually to the success of the business moving forward. I think we kind of have to start turning our attention to who's shaping the perceptions about what's a good company and what's not. And I think those who are impacted by the problems we hope to address have these huge microphones called smartphones and social media accounts. And so I think that paying attention to social movements just kind of shows us where the market's going to be heading too. So I actually think it doesn't make financial sense. When we saw Nike go all in on Colin Kaepernick three years after he was head of the

league and do a billboard in Times Square and very publicly just say, we have chosen a side. You know, cynically, you could say, well, the people most likely to be upset or angered enough to stop purchasing Nike goods are probably not purchasing many Nike goods these days anyway, because they're probably over 50 or over 60. Whereas the people most likely to purchase Nike goods for the next 20, 30 years are people more likely to take Colin Kaepernick's side themselves. So you could cynically say Nike is not necessarily doing this altruistically. They see an opportunity to galvanize their consumers. But so I guess my answer to that is so what?

Yeah, I don't care. And I can tell you there's some pretty interesting stuff that we find even just with municipalities, like in our new what we call fiscal justice municipal strategy. It's really interesting when you take a look at the cities that have large black populations that have huge amounts of their budgets that are funded by fines and fees. Meanwhile, they're giving corporations tax abatements and they have these huge police brutality settlements happening on a regular basis. They're basically funding their police brutality through these settlements. When you look at that conflation of things come together, what you end up finding is civil unrest and ultimately bond price impact as well. So it's not just on the company side. This is actually also something that we see in other places too. Like we can actually see it in municipal bonds. So it's like, oh, how you structure your budget, right? Is that is something that can have an impact. So as bondholders in those places, we see part of our job as going

in and saying, hey, the Treasury Department, did you know that you're looking a bit like Kenosha right now? And let me tell you, cities really care. So in the end, yes, cities and corporations are going to act in their best interest. But what we see that they have in common is social justice movements leading the way. So Larry Fink is someone who I think embodies the new zeitgeist among corporate leaders in that he will very performatively discuss these issues that are on the minds of young people and more progressive executives. And he says all of the right words. And next week, I think his latest annual letter to shareholders comes out. And each year, there's another – there's a theme attached to it.

And this year's theme allegedly is going to focus on racial inequality, racial justice, etc. I'm not surprised. I doubt you're surprised either. They are the largest asset management firm on the planet. They're $7 or $8 trillion. I don't even know what the number is anymore. But I do think what they say matters. The question is whether or not they're just saying it and then just it's business as usual in reality or not. And I'm not an expert in this, but I've read both sides of that. Where do you stand on efforts among, you know, Jamie

Diamond, even at JP Morgan, another massive asset manager. Are these companies making changes? Are the words they're saying matching their actions? Are you skeptical? I would say the same thing to Larry Fink and BlackRock, as I would say to State Street, Prudential, Northern Trust, stop funding private prisons. If that's what you care about, that's what those who are most impacted. That's what the actual folks who are out in the streets who are impacted by these issues are saying.

And right now, unfortunately, those are some of the companies that are on our racial justice exclusion list specifically, right, for being holders of those shares. Now, I've had conversations with the very top level of some of these companies. And what I hear is, you know, that's really happening because they're index, you know, they're these index funds. And they, you know, when I come back to them and say, you know what, we make indexes, we make index funds. They're not naturally occurring phenomena. Right. Well, here's the thing. I'm like, yeah, exactly.

They aren't naturally occurring phenomena. I'm like, you are a huge client for that index. You have an impact on what actually goes on that index. Furthermore, a full replication strategy still leaves room to leave certain positions out. And they just basically haven't been willing to bend. So literally put your assets where your statements are. Rachel, is it as simple as Larry Fink calling MSCI and saying, get those goddamn private prisons out of the index, or we're switching to Footsie Russell, or we're switching to S&P? Like, is it that simple? That's one thing that could happen. Another thing that could happen is they could say, like, to their portfolio managers, yeah, it's a 99%, you know, replication strategy.

Make sure these are not the companies that end up, right? You have room in that, in a large index to actually not invest in private prisons. Well, maybe we'll be surprised next week. If Larry is listening to this podcast, he can give me a call if he wants any strategizing or ideas. I have a feeling after this episode goes live, you will be getting many high level calls based on who I know is in my audience. Oh, wonderful. Let's hope that does move the needle. I want to pivot to you and your firm. I've been on Twitter since like day one, like 09. Before the term social justice existed, before the term virtue signaling existed, anytime you would go on and say something like, hey, I feel really

bad for these people who are going through this, or hey, I support these people in this struggle, there's always the people who are knee jerk. Oh, you're just virtue signaling. Oh, you're just a social justice warrior. You're just tweeting. You don't do anything. What I love about your story is that you're the person that makes them look like clowns for saying that because you are actually the living embodiment of those ideals. So this is both in the way you've built and staffed your firm, which we're going to talk about, as well as the way you've cultivated your clientele. So we're going to get to the investment side in a moment. side in a moment, but I read that more than 80% of your firm's clients are women and more than 70% are LGBTQ plus. And first of all, is that accurate? Yes. And it changes. We've grown so much recently that it changes constantly, but yes, as of the last recording. Okay. I would say that

makes you by far an extremely unique firm. There are 18,000 RIAs, and I know most of the larger ones. You are very unique in that regard in a very good way. And then eight employees, but your firm is entirely staffed by women, people of color, and members of the LGBTQ community. So I assume that was deliberate. And is that something that you think will continue? Yeah. Well, I mean, I do definitely have the advantage that when we say these are the things that we believe in, I physically actually represent them, right? Yes, you're doing that. That's very helpful to be a queer black woman. Be like, no, really, we get it over here. What we actually do is we know that finance is overwhelmingly white and male. And if we want

to truly have diversity, we know that we have to look for transferable skills outside of finance. So we actually go to other industries where we can find people from non-traditional backgrounds. And we tell them, you know what, you have this skill that would be really useful over here on the investment side. We'll teach you all the things that you don't know, but you have these particular skills that are transferable. And when you do that and are willing to go out of the same pool you've already been working with, you surprisingly get a different population of folks. I'm so glad you said that. So as a firm, we're working on diversity and we're making progress. We probably started later than we should have, like most firms. And the four founding partners

are white males. So we look like many other firms within the industry and we're doing our best to be part of the solution. And I had a conversation with somebody who put me on blast on Twitter. So he's a solo advisor. And he like, this is probably July, August when, you know, just everything was happening. And I never heard of this guy. And he's just like, Ritholtz Wealth Management, 30 employees, not one African-American employee. And so a reporter, I wasn't, I w I'm not like heavily online anymore. I'm not like sitting on Twitter or whatever. So reporters send me that tweet. My first reaction is who the is this kid? I'm, you know, how many, how many African-American employees does this guy have? He's a solo advisor. He has none, whatever. It's

very easy to go to my corporate website and do that. So I was very upset about it. I was very angry about it. And then like two months ago, it was still in the back of my mind. And what I was really mad about was myself, right? Like he, his tweet was just putting attention on something that was already bothering me. So I called him up and, or I emailed him and I said, you want to get on the phone with me? Tough guy. He gets on the phone. We have a great, we have a great conversation though. And he genuinely, he genuinely means well. And he said exactly what you just said. So I said to him, I'm like 6% of financial advisors are African-American

six, one and a half percent are certified financial planners. Like, where do you want me to hire from? Please tell me. And his comment was, dude, you're fishing in the wrong pond. If we're trying to bring more people of color into this industry, you have to give people from a different discipline a shot to do this. You have to think about who's got transferable skills and you have to mold people into the profession. So this is like a 27-year-old who's smarter than me. Anyway, that's a really important point that you made. And I want to ask you this because I feel like this is going to be on a lot of the people's minds who are listening to this, Rachel. A lot of RIA owners want to be part of the solution, right? Like it's not like people

like, you know, who cares anymore? They really do care. They, they not for the optics, but they want to be part of the solution. What do you tell people in that position that want to hire? Who do they talk to? Where do they go? Like, do you have advice for people that are, that are dealing with this? Because it is a situation where a lot of people, there's a lot of energy behind this and they want to do the right thing. They just don't know where to begin. Like, well, can I tell you, I know I said that diversity, equity, inclusion is like nutritional advice, but nutritional advice is very important and also good.

And let me tell you, I wish that when I was coming into the industry, everyone was like seeking after like a black queer woman to be on their team. So I feel really happy about this tremendous interest that's surfaced. You feel it, right? You see it. Oh yeah. I see it. I feel it. It makes me very hopeful. I think a couple of things. One, if you're going to get folks with transferable skills, listen, I'm, I'm a business owner. If you're going to get someone with transferable skills, that's a lot more work you're going to expend, right? Molding them and supporting them. So that means your business can't just be trying to extract the maximum amount of work at the lowest possible price. I mean, you're actually going to have to invest something there with an uncertain

outcome about whether they stay with you long term. Licensing, right. Certified financial planning coursework. This takes, it takes years to turn someone into an advisor. You're right. I also think doing our own work and our firms, you can hire black person after black person after black person, but they'll keep, you'll have a revolving door going if you haven't done your own internal work. And when I talk about your internal work, I don't mean that everybody needs to sit in a circle and cry, though sometimes that's necessary. That's not actually what I mean. What I mean is that-

I like to do that at home by myself. Right. Okay, good. That's not actually what I mean. I like to do that at home by myself. Right. Okay, good. What I actually mean is that we actually have to understand how finance was built and the responsibility that we have as a result. So the first mortgage that ever existed wasn't a mortgage on a home.

It was a mortgage on a human being's body. And that body was the body of a slave. And Wall Street was built by black hands and slaved hands. And it became the primary trading market in New York. These are I have a series called Race and Finance on our website. And we just start with some basic education, just knowing that we may not be responsible for that. Because remember, we're sitting on the conveyor belt that was built by scared people, right? And what they wanted to make sure they were okay. But understanding that that's what this machine was built on should start to wake us up and give us every incentive to stand up. And you have to start walking in the opposite direction if you're in the midst of a system that was designed to have a particular outcome.

I would say awareness of these things that you're referencing is almost zero. And I'm pretty like well-read. I read a lot of history last summer when that show on hbo did an episode about the tulsa massacre black wall street i was like what wait what this actually happened because they don't you know they don't teach that in school like they teach like martin luther king and malcolm x if there's time. That's the worst massacre on US soil ever. And it's glossed over. And I think Damon Lindelof, the producer of the show is like, you guys never heard of this really? Because it was like an uproar in social media. So these stories are not very well known. So I agree with you. So having an awareness

of the history, I think is really important organizationally. What else do you think is a precursor to doing a good job with diversity of staff as you're building a firm? I'm telling you, retention is just as important as bringing in new folks and really mentoring them. And the retention is going to be dependent upon white people starting to see whiteness. And what I mean by that is that frequently when I talk to a white person, they don't see white as a culture. It's just the default. This is part of when we talk about systems, part of the issue of systemic racial injustice. It's like if white is the default and everything aberrant, everything else that's not that is aberrant, Then I come in with really fuzzy, large hair,

maybe even an Afro, and then I'm strange. I don't look like a financial advisor. Those are the kinds of things that I think we have to start recognizing. Like, what is it that's white culture? What is it that's really Western? Because if folks come in and they look different, talk different, have different ways of connecting with people, and we don't see those as valid, then we aren't actually creating a welcoming or hospitable environment. Do you think though that it introduces a new type of friction by constantly pointing those things out? How do you introduce these ideas into a workplace in such a way that it doesn't have the opposite of your intended effect. And it doesn't make people just dig in even further to, to where they want to be. And they don't want to hear this stuff. Like what I'm sure you've seen examples of that. Yeah, I have.

And I have to tell you, there's something that I just have less and less patience for, and that's the calling out. And I know you got called out on Twitter and you turned it into a wonderful thing connecting with this advisor. But I really do think that we're actually trying to build a world that we can all live in together. And so there has to be a calling in. There has to be a like, hey, this was my experience when you said that. This is how it felt to me. So I always say, keep it personal, keep it historical. So talk about the impact on you as much as possible, how that felt. Even if you're another white person that hears something or sees something, talk about the personal impact on you. And we all can't really know what we are about without truly understanding our history.

And our history is one that's actually really shameful in the United States. So there's a reason why you didn't hear about Greenwood and Black Wall Street and that horrible massacre there and why most folks who are working in finance don't understand the very, the degree to which it was entirely built on Black and Indigenous land and labor. So I think just getting that history, seeking that out, sharing that history and making sure that's something that's known, in addition to sharing about your personal experience and letting folks know that the reason that you're telling them is because you actually are looking to bring them into a deeper understanding rather than to call them out. I think it's just so critical because if we are in an hourglass

economy, the point is not to turn the hourglass upside down. The point is to do away with the hourglass. Right. And so I think that calling people out is just like trying to flip the power structure and saying, oh, I know more than you do now. I'm on top. And I think that what we really have to do is just break that hourglass wide open. Okay. I like that idea. And I do think it's powerful, you know, raging against each other on Twitter versus picking up the phone and having one-to-one conversations about these things, you know the result is almost always going to be more productive. So I really like that idea. I want to talk about the ETF. This is something

that you launched. It's about, how old is it now? It was launched in December. Okay. So it's like brand new. It still has that new ETF smell. It does. Okay. It's called the Adesina Social Justice All Cap Global ETF. And I don't know how much you're able to say about the ETF versus, is it index based or it's active? It tracks the Adesina Social Justice Index. And that's an index of almost 900 publicly traded companies that are global, large, mid, and small cap. And over 50 different screens are used to make sure that it's actually advancing movements for racial, gender, economic, and climate justice. How much of this is being done algorithmically versus like qualitatively?

I'm so glad that you asked that. So we are actually passive investors at heart. I've never been big on the active management. So what we are is pretty passive. Like I do believe in optimization though, like you have to optimize after you've done the screening. So we're pretty passive investors, but we're very active on the social justice front. So technically it's an active ETF. And I say technically because where that active happens is really around issues of social justice. So what we're really doing is taking a much larger universe of over 9,000 publicly traded companies, and we're screening it in order to come up with a little over a thousand companies, which we then optimize down to get close to 900 for the ETF. Could you tell us about Rise portfolios and the

impact list, how those things work and why they factor into that process? So Rise became Adesina. Rise was a project of a wealth management firm. And basically we spun out that project and created Adesina Social Capital. So what Rise was, was actually separately managed accounts. And what we've done is we've made an ETF. We still have separately managed accounts. Those are still available that are based on the ETF. We also have a separately managed account for that fiscal justice municipal strategy that I was talking about as well. And you asked a question earlier about scaling that I never, I never answered. So I just want to make sure I talk about that.

I think that there's a lot of people wanting to feel good about their investments. So for the moment that they sit down and focus on it and they fill out like a values questionnaire that can help an advisor know what to look for in the investments. But what that doesn't do is that doesn't build solidarity. And I'm not interested necessarily in appeasing my or anyone else's sense of guilt about what I'm holding. What I'm interested in is actually advancing movements that are making a better world for people on the planet. So we actually don't sit down with clients and go through a values questionnaire when we're setting up the SMA. And we didn't do that with the ETF. What we're really doing is connecting deeply with social justice movement leaders like First Peoples

Worldwide, the Poor People's Campaign, the Movement for Black Lives, One Fair Wage. And they tell us, you know, on the area of economic justice, for example, you know, it's nice to look at executive compensation, but it's extremely important to eliminate the sub-minimum wage. Did you know you could be paid $2.13 an hour for work in this country? And the company, a publicly traded company can do that. It's outrageous. Completely outrageous.

And they get away with it. So we're doing things like publishing a list at the end of this week. Actually, we'll be publishing the sub-minimum wage exclusion list so that we can build solidarity with other investors around divesting from those companies and also doing shareholder engagement if you're invested with those companies. So this is from the Morningstar profile of you and your firm. So this is from the Morningstar profile of you and your firm. You've got screens that fall under two broad categories, people and planet. On the people side, systemic sexism, gender equity, human rights, racial justice, fair labor, LGBTQ equality screens, human safety screens like tobacco, weapons, fast food. So these are the types of issues that you're talking to organizations that are telling you these are the problems being caused by these things. And then that will impact the way in which you're running those screens. Right. Okay. And then on the planet side, environmental sustainability, clean air and water, animal welfare, corporate governance. So I guess the question is, do you ever worry that you'll just flat out run out of companies to invest in? Like, are you able, and I don are enough companies left after we look at all of these things that we're doing in this society?

How does that shape the way that you'll handle the allocation? So when we first started managing separately managed accounts, we first started putting those together. My business partner, Maya, and I definitely were like, well, when we're done implementing all these screens, we may not have a portfolio. So we had to just try to be open to that. So we were really pleased to have several hundred to choose from. And when you look at that as, like, I think the FTSE all-cap global, like, has over 9,000 securities. If you look at that starting off with a few hundred, like, the percentages aren't great. But what I can tell you that's really exciting is that over time, we've only seen the number of companies that can pass our screens grow.

Okay. Which means that, right, these issues are getting amplified in a way where publicly traded companies are paying attention. So that's where I want to wrap up. Do you think that things are improving like noticeably, in reality, not just in the rhetoric of a CEO, but like, do you think that fortune 500 companies are truly making improvements? Are you hopeful about the state of things now? They improvements are absolutely happening to the degree that we're all open to learning our history. I think that that will only continue. I think that we are at

the very beginning. It's almost like, you know, we had slavery and we had colonization and we never talked about it again. So we're talking about it again. And that's extremely important. And I think that corporations are made up of people. And if people are getting the message and really starting to understand that we are all far more interconnected than we are disconnected, then I think that we can only go in one direction. Rachel, I want to just say thank you so much for coming on and telling your personal story and walking us through the way that you're investing for clients. It's just been so inspiring for me to read about and now finally having the chance to talk to you. I really

appreciate it. And this was like one of the best hour long conversations I've had in a long time. So thank you so much. And we're all rooting for you. And we all want to see you grow your firm and grow your ETF. And I hope you'll come back sometime and talk to us again. I would love to. Thank you for asking such insightful questions. Very cool.

All right. That's Rachel Robichaudi, everyone. And if you want to read more about her stuff, you want to, is it Adesina? Adesina.com. Adesina.com. A-D-A-S-I-N-A. And then. Adesinaetf.com also, right?

Yes. Okay. Adesinaetf.com. Also JSTC is the ticker symbol for the ETF. For justice. Well done. Rachel, thanks again. Thank you.

Thanks for listening. Check us out at thecompoundnews.com for daily investing and market insights. You can watch all of our videos at youtube.com slash thecompoundrwm. Talk to you next week.