Market Cycles and Investment Strategy With Charles Schwab's Liz Ann Sonders

Barry speaks with Liz Ann Sonders, chief investment strategist at Charles Schwab. Liz Ann focuses on the entire economy. She’s also the cohost of the On Investing podcast and a keynote speaker at numerous company and industry conferences. Liz Ann and Barry discuss her investment experience, working with Charles Schwab, and market cycles.

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Episode Transcript

Speaker 1 (00:02):
Bloomberg Audio Studios, Podcasts, radio news. This is Masters in
Business with Barry Ritholts on Bloomberg Radio.

Speaker 2 (00:18):
This week on the podcast strap Yourself in for another
great one. Liz Anne Sanders, chief investment strategist at Schwab,
helping to manage eleven trillion dollars in client assets. What
a fascinating career she's had. She's been on all of
the best of lists. She's just really insightful. What she

(00:38):
does is really kind of unique. She combines top down
market analysis with looking at everything from sentiment to economic
data to fun flows to really what the clients of
Schwab are doing. I know Liz for almost twenty five years.
Every time I speak with her, it's always it's great.

(01:00):
This is another conversation that is also fabulous. With no
further ado, my discussion with Liz Anne Sondershwa's.

Speaker 3 (01:08):
Great to see you.

Speaker 2 (01:09):
I know, it's always I always have so much on
each other for a long time, a long time. It's
always so much fun chatting with you. I want to
talk about what you're doing with the podcast and what
you're doing at SCHWAB, but I have to start with
a little bit of your background undergraduate economics and polisci
at Delaware MBA and finance from Fordham which at the

(01:31):
time you went there, was it called Gabell. No, it's
now called Gabelli School of Was the career plan always
Wall Street? No?

Speaker 3 (01:40):
I honestly, I think if you brought me back to
my college days and asked what is your career plan,
if I was honest, I probably would have said not
quite sure. Yet. The decision to do a double major
there was to keep it very open and broad. All
I knew was that I want to live and work

(02:00):
in New York City. So got out of undergrad pounded
the pavement in New York, but across a spectrum of industries,
not all Wall Street. I interviewed at a sports marketing
firm and an ad agency, and I had two interviews
in a row at Zwig Avatar. Did a lot of

(02:20):
research on the company, which, by the way, this was
in nineteen eighty six, So doing research on a company
meant going to the library, pulling up a microfiche machine,
actually cranking the handle, and look at newspaper clippings, and
was fascinated by Marty Swig, the co founder, and enjoyed
the interview process like the people with whom I met,

(02:43):
and I don't know. A little voice just said, this
seems to make sense.

Speaker 2 (02:47):
And I recall reading a book Marty's Wyg wrote, I
want to say in the late nineties when I was
on a trading desk winning on walls, late eighties, late eighties. Well, yes,
I got his book when I started around the time
of the Netscape IPO.

Speaker 3 (03:03):
He did, you know, newer versions? He did updated versions.

Speaker 2 (03:08):
So whatever that version was in ninety six ninety seven,
And I vividly recall that, how did you how did
you get the gig with Marty's Wyg? What was that
like it?

Speaker 3 (03:19):
I was a grunt at the outset. I did whatever
they needed me to do. But they were a firm
that believed in promoting from within and educating their young people,
so I saw that as an opportunity. They paid for
grad school one hundred percent, so I made the easy

(03:40):
financial decision to do that at night while still learning
a living and having my education paid for. And so
many things that I learned from Marty, I could consider
him the first mentor, whether he realized it or not.

Speaker 2 (03:57):
People, by the way, people don't realize specially the generation
that came of age in two thousand. What a legend.

Speaker 3 (04:04):
He was unbelievable.

Speaker 2 (04:06):
I think at one point in time he owned the
most expensive apartment in the United States. Is that true?

Speaker 3 (04:13):
Yes, it was the top three floors of the Pierre,
which is now owned by the Commerce Secretary.

Speaker 2 (04:21):
H that's amazing. And he was always the answer to Hey,
do any of these technicians make any money? And the
answer is yeah, I'm looking at Marty's wife. I mean,
for the younger folks, go look up Marty's wig. He
was absolutely a legend. I remember him from my early
days because he was on Rukeser.

Speaker 3 (04:39):
He was one of the originals on the original Wall
Street week YEP.

Speaker 2 (04:43):
I mean back in the day when all of financial
media was an hour that was television a week.

Speaker 3 (04:47):
And even it was a half hour. That's eight thirty
pm Friday nights on PBS produced by Maryland Public Television.
And Marty was not only one of the original panelists,
he was I think the original elf, as Lou used
to describe them.

Speaker 2 (05:03):
The people came back.

Speaker 3 (05:04):
And that's another thing that intrigued me about joining the firm.
Is I remember getting a little bit of a kind
of a wink wink, nod nod from an economics professor
that I had not just to me, but to the class.
And he made a funny comment about given that one
of the jobs that we had as students was to

(05:26):
read the Wall Street Journal every day and just keep
up on markets and the economy, and that if you
had too many late nights at the Stone Balloon, you
might want to just get a really brilliant thirty minute
recap by watching Wall Street Week on Friday night before
you then go out. So I thought, all right, I'll
see what this Wall Street Week is all about, and

(05:47):
so I started watching it before I joined the business,
before I started at at zyg Avatar, and then I
joined the show in nineteen ninety seven, which was surreal.

Speaker 2 (06:00):
So you were not that far out of school when
you start.

Speaker 3 (06:03):
Well, I was. It was eleven years so since you
and I have talked about our first experience together, which
was on TV TV appearance and I went on the
show as a special guest. So I remember getting the little,
you know, pink slip from the receptionist that told you

(06:25):
who had called. There was voicemail at that time.

Speaker 2 (06:28):
It said Lewis R.

Speaker 3 (06:30):
Rich de Brof the producer of Wall Street Week called,
They'd like you to come on as a guest, and
I thought it was somebody playing a prank on me.
Really yeah, until I called and it was legit and
I went on as a guest, and then shortly after
that they asked me to become a regular panelist, and
it was a thrill.

Speaker 2 (06:48):
So you were Zwag for a number of years. Had
you end up thirteen.

Speaker 3 (06:52):
Years eighty six to ninety nine?

Speaker 2 (06:54):
How did you end up at US Trust?

Speaker 3 (06:57):
So that was kind of funny. I so I was
on the Avatar side of the YG Avatar broad set
of companies, which was the institutional money management side. I
was a portfolio manager co ran stock selection, but I
was always much more intrigued by interested in and with
a desire to spend more of my time doing top
down macro research as as a bottom I just the

(07:24):
inner voice said, you don't really love this that much,
and there wasn't really an opportunity, uh for that. It
wasn't that I was pigeonholed, but it was a growing
role as a portfolio manager. So I got recruited over
to US Trust to co run their large cap growth theory,
which which put me yet again in that position, but

(07:46):
felt like the platform was broader and my inclusion on
the Investment Policy Committee. They actually purposely wanted some top
down analysis based on my learnings for working.

Speaker 2 (07:58):
Growth means here's a universe, it's it's one hundred of
the S and P five.

Speaker 3 (08:03):
And we were a concentrated manager only owning now less
than twenty five typically with a four to five year
holding period.

Speaker 2 (08:11):
So not a closet index there now high active ship.

Speaker 3 (08:15):
But I also didn't love the pigeonholing aspect of it,
where you know, the mantra had to be large cap growth.
I liked thinking bigger picture and thinking about different parts
of the market cycle and what works. So ten months
after I joined US Trust, Schwab acquired US Trust.

Speaker 2 (08:35):
That was two thousands.

Speaker 3 (08:36):
That was two thousand, and you've been there since then,
for it'll be twenty six years at the beginning of
next year. And when I realized I did indeed want
to be adopted by the new parent company was when
Chuck Schwab himself came to New York with our CEO

(08:57):
at the time, Dave Patrick, and sat with me and
said we would like to create this role of chief
investment strategist, which didn't exist at Schwab before. This was
the beginning of our entree into actually giving advice as
opposed to just being a platform for traders.

Speaker 2 (09:14):
So let's let's dive into that. So I was going
to ask you what the process was like. But they
acquired us trust for the assets and for the platform.
You were a bonus that came along with it.

Speaker 3 (09:26):
Well, well, that's kind of you to say, Well, they
did offer me the role. It had not existed before.

Speaker 2 (09:33):
That's a big deal.

Speaker 3 (09:34):
And I said yes, please, yeah, absolutely, And the rest
is twenty six years of history.

Speaker 2 (09:40):
So let's dive into this. What are the let's take
a look at the numbers on the Schwab platform as
a custodian or however Schwab is touching for one, Okay,
how many trillions of dollars are on that platform?

Speaker 3 (09:55):
Eleven point two to three trillion.

Speaker 2 (09:57):
All right, so keep working at it.

Speaker 3 (09:59):
And that is yeah, yet the size of the US economy.

Speaker 2 (10:03):
Wow, that's unbelievable. And at the time, what was Schwab
in two thousand.

Speaker 3 (10:11):
Oh gosh, you know what, it was less than that?
Because I remember getting this little plexiglass. Well, no, it
was a it was a holder for sticky notes, uh huh,
and it had a star on it and it said,
you know, one trillion in clin essets. But that was
after Uh, that'sition of me.

Speaker 2 (10:30):
And so that's an incredible growth. Schwab really is a
platform that are so many things to so many different people.
There's an institutional business, there's a business and full disclosure.
Were custody at our firm, at Schwab, most of our
assets are there, so you custody for ori I, A

(10:51):
S and others, self directed investors, individuals who doesn't Schwab
work with, it's pretty much everybody.

Speaker 3 (10:59):
Well institutions. So the way we define institutional when we
talk about it and use that term somewhat generically, we're
actually referring to the part of the business that you're
involved with. So independent wealth management firms rias that that
platform with Schwab via the custody of assets, but a
heck of a lot more than just that. So that's

(11:20):
how we defined institutional of them totally using rounded numbers here,
but of the ten of the eleven and a quarter
trillion is about evenly divided between individual investors on a
platform self directed and well not always. No, we have
we have a whole wealth management arm that all feeds

(11:42):
not just to the individual investor side of what we do,
but to people in our world, so advisors on our platform.
So that's about evenly split. And then the remainder is
workplace services, so stock plans for big companies and for
one k So it's what we but we were dominated

(12:07):
by individual investors, even on the quote institutional side, because
most of the advisors on our platform manage money for individuals.

Speaker 2 (12:17):
That's really so that's really we would.

Speaker 3 (12:18):
Consider the advisor our client, but we're providing a platform
there for them, you guys, to advise for the most
part individual investment.

Speaker 2 (12:29):
And I know I've told you the story before, but
when we launched our WM in twenty thirteen, we launched
with TD years later acquired by Schwab. Hold that aside,
and we were very data driven. We ran a lot
of analytics, and every time we didn't win a prospect,

(12:49):
when we would go through the list of the reasons,
the number one reason is, hey, you guys don't custody
with Schwab and my money is at Schwab and call
us if you ever decide to true, and finally we
all looked at each other, Hey, there's no reason not
to open a second custodian, and so we did, and
it caused like a flood of new clients and new

(13:11):
families joining us. Because but the crazy thing is, it's like,
I have never seen a financial institution with that much
brand loyalty from the audience, from the clients. Because think
about it, when you talk to people about Wells Fargo
or City Bank or any large financial traditional bank. Maybe

(13:33):
a little bit at JP Morgan Chase, but for the
most part, no one says, oh, I don't want to
be with you. You are not affiliated with I'm making
up stuff Key Bank. But we just heard it so
many times it's like, all right, they don't have to
hit me in the head so many times before I
realized this.

Speaker 3 (13:50):
The power of our reputation is really extraordinary.

Speaker 2 (13:53):
And Schwab dates back.

Speaker 3 (13:55):
You know, about fifty three years years, that's easy, the
nineteen seventies. And you know, Chuck has has written about
the history of Schwab and his history. His most recent
book was called Invested, and it was essentially a memoir
of his time in this business.

Speaker 2 (14:17):
And when you say Chuck Chuck Schwab himself, Chuck Schwab,
who people used to think wasn't a real guy. Oh,
it's a real guy in the commercials is him, is him,
And he's still up and about. You were telling me
he was. He's just won a golf tournament at eighty eight.

Speaker 3 (14:32):
Last year he won the nantucka golf club that's a
member member at eighty seven, and he almost wanted again
this year at eighty eight. So regularly shoots below his age.
Still a very active chair of the board. But the
culture that he has imbued in Schwab is really second

(14:53):
to none. And you know, our sort of corporate for
lack of a better word, tagline is through client size,
and he has fostered this leave, eat and breathe. Everything
you do has to be from the perspective of clients.

Speaker 2 (15:08):
So you're really the perfect person to ask a question,
and I'll ask it specifically about Schwab, but it's obviously
true about the entire industry. You've witnessed a shift from
a lot of self directed investors over to the advisor
driven side. What has that process been like at Schwab.

(15:32):
So we're talking just trillions dollars.

Speaker 3 (15:34):
Not just the advisor side, but investors at Schwab who
who want guidance, who want advice, whether it's through advisors
on our platform or directly with us on our private
client side of the business. And it's just the natural

(15:55):
evolution of Schwab moving decades ago from a platform and
for the self directed to a behemoth that actually provides
that guidance and advice now both directly through certain channels
and indirectly through the advisor channel.

Speaker 2 (16:13):
So true or false? And I love this question because
so many people doubt it. We are today in a
golden age for investing for individuals. How do you answer that?

Speaker 3 (16:27):
Can I say yes, yeah, true, just yes No. I
didn't say true.

Speaker 2 (16:31):
I said yes yes, golden age of investing.

Speaker 3 (16:33):
Well, I think it's both true and false, depending on
how you define okay, explain the age of investing. I
think we are as it relates to individual investors that
understand that discipline is such an important part of the
process that they don't think of getting get out as

(16:54):
investing strategies. I fully agree that those are really gambling
on moments in time. You wrote about it brilliantly in
your book The Emotional Side, And so I think it's
true in the sense that a lot of those more
seasoned investors that take that disciplined approach are are more

(17:16):
equipped now and have more access to UH information and guidance,
and when used in the right way, has been to
the great benefit of their success. But then you have
retail traders, which I'm not here to say that they're,
you know, the ultimate contrarian indicator, but I think the
perspective there is one of very short time horizons, the

(17:41):
you know, by the dip mentality, which you know, to
their credit.

Speaker 2 (17:45):
That works in a bull market.

Speaker 3 (17:48):
But a lot of the you know, younger retail trader
uh that was born out of the pandemic era. UH.
It's not that they have blinders on to the long
term or the big pick, sure, but they've been they've
been I guess so far anyway to your point, properly
schooled by virtue of by the tip has worked. But

(18:09):
I'm starting to get some anecdotal evidence that they're I'm
not sure that there is a full understanding of what
a market cycle actually looks like and that there is downside.
So I think there's more bifurcation and there's a wider
spread in terms of how investors are approaching the market

(18:32):
or how traders are approaching the market, and they they're
not in conflict, but they're kind of at different ends
of the spectrum from a what works, what doesn't work?
What are the benefits of taking a long term approach
having those disciplines as opposed to just you know, fomo,
I'm in and you know, buy every dip.

Speaker 2 (18:53):
Think about everybody who was born in the nineteen nineties,
by the time they come out of college post financial crisis,
they've pretty much only known one of the greatest rampaging
markets in history.

Speaker 3 (19:08):
Was brutal from an economic market perspective, but it was
five weeks in the case of the market, right mids
in the case of the recession.

Speaker 2 (19:17):
So although people still didn't believe it throughout that summer,
as from the March twenty twenty Lowes till the end
of the year, I think the SMP five hundred was
up sixty nine percent, and people fought it the whole
way because their personal experience didn't jibe with what there
was exactly inequities, which is fascinating. Coming up, we continue

(19:39):
our conversation with Lizanne Saunders discussing her experience as a
market strategist. To Chub, I'm buried Ritults. You're listening to
Masters and Business on Bloomberg Radio. I'm Barry rut Holts.

(20:05):
You're listening to Masters in Business on Bloomberg Radio. My
extra special guest this week is liz Anne Sanders. She
is the chief market strategist for Schwab, helping to oversee
eleven plus trillion dollars in client assets. So Schwab created
the market strategist role for you. What does it mean

(20:29):
being a market strategist? How does that differ from either
a PM on the equity side or an economist more broadly.

Speaker 3 (20:38):
Well, it's certainly differentiated from a PM in that I
am I'm not picking stocks. I'm not a trader. I
don't analyze individual stocks. So it's purely top down.

Speaker 2 (20:50):
Top down meaning markets, economy. Yes, do you look at sectors?
Do you look at now?

Speaker 3 (20:57):
So we have my colleague and co host on our
on Investment podcast as Kathy Jones, So she's my counterpart
on the fixed income side. She's our chief fixed income strategist.
And I say often it sounds like it's jokingly, but
it's actually quite serious that I was thrilled when we
brought Kathy on because then I was able to stop

(21:18):
pretending like I was a deep dive expert on the
fixed income side of things. My background is on the
equity side of things. But what's unique I think about
this role as as it has existed in the almost
twenty six years that I've been at SCHWAB and have
been in this role, is it it blends the market
analysis with the economic analysis, so we don't have these

(21:39):
distinct roles of chief economists and chief investment strategists. And
that was always pleasing to me because I'm not sure
I would either be as effective or enjoy what I
do as much if I had to have my market
views beholden to economic views that were completely distinct. I

(22:03):
think having that overlap and analysis has been a benefit.
I also, because our investor base are almost all individual investors,
that's a very different audience that if you're one of
the big investment banking research wirehouse firms, where a good
chunk of your client base that is a consumer of

(22:26):
strategists work being institutions. I think it's a very different
animal in terms of what is valuable, what makes sense,
and maybe importantly again in keeping with your book, thinking
about not just what matters, but what doesn't matter, what
shouldn't matter. And I remember one of the first things
that Chuck talked to me about twenty five years ago

(22:48):
was him not being a believer in the whole year
end price target, which was music to my ears, because
I think, particularly for individual investors, there's really not that
much practical value to that. It's sort of one point
in time. Every strategist has to adjust those forecasts constantly.

(23:10):
It doesn't tell you about how to manage through market cycles.
It's just one end point to one end point, and
so that is certainly one of the differentiators as well,
in addition to having that blended market analysis and economic
analysis role, not sort of falling into the trap of
the way strategists get pitted against one another.

Speaker 2 (23:32):
I love that you call it a trap, because it's
easy to see what happens when people make a forecast
like that and then they tend to marry it regardless
of what data comes along. I think it was Ned
Davis's book was called Being Right or Making Money, and
he explained how frequently people would just get so hung

(23:55):
up on admitting error that they would stay position, the
wrong posture, the wrong holdings, rather than admit they were
wrong and adjust to.

Speaker 3 (24:06):
Whatever they and the trend. You know, one of Marty's
wig was well known for quite quite a bit, but
you know, he coined the term don't fight the fed.
But he also was known for saying, the trend is
your friend, and so staying in gear requires constant thinking
and rethinking. In fact, I always use an example of

(24:27):
the perils of the year on price Target. If a
strategist at the beginning of nineteen eighty seven basically said
the market's going to close pretty flat relative to where
it ended nineteen eighty six by the end of the year,
they were right from a point to point. However, to
suggest that the market was just boring and flat all year,

(24:48):
does that little hit, Yeah, it was just a tiny
little tick. That was September nineteen. It was no October nineteenth.
October nineteenth. But there were you know, there were warning sides.
And here can I tell you another funny early story.
So I started in the summer of eighty six and
as and we were Marty's side of the business, which

(25:10):
was mutual funds, which was the Zweig Demenna hedge Fund,
which is still ongoing under the leadership of Joe Demenna.
We would be generically thought of as market timers. We
were tactical ass at allocators on the avatar institutional side,
much more traditional market timing on the ZWYG side, particularly
the hedge fund and coming into eighty seven, we were

(25:34):
over the cross of strategies. Cross strategies were essentially fully invested,
but started to get much more pessimistic about the market.
In August.

Speaker 2 (25:43):
You had a huge runoff, huge run up until was
it like.

Speaker 3 (25:50):
And so we started to adjust allocations down more extreme
on the hedge fund side, where Marty went I think
to essentlely a short position.

Speaker 2 (26:02):
And famously discuss.

Speaker 3 (26:05):
The Friday night before the crash. He was on you
can YouTube it now and Lou asked him or made
a comment. He said, Marty, you seem particularly bearish, and
and Marty was seen as this perma bear he.

Speaker 2 (26:23):
Was just but he wasn't.

Speaker 3 (26:25):
He was just He always was a nervous He always
had a little bit of that that angst and that
rumble way. So he would at times be nervous when
his view on the market was very bullish. But so
then Lou concluded the question with do you think we
have a bear market ahead of us? And Marty said, well, no,

(26:47):
I think it's more likely to be a crash and
pretty much it could happen any day. And then he
not only said that, but then he laid out and
I think it could be really ugly. But then I
think we we immediately rally off the low, but then
we probably retest the low before we take off again.
So here I am less than a year in the business.

(27:10):
We had gone from being almost fully invested in equities
down to I don't know twenty or twenty five percent
invested in equities right into right before the crash. So
the little voice in my head is thinking, what's the
big deal? Why is everybody freaking out? You just figure
out before the crash that there's going to be a crash,
You move money out right, and then you take advantage

(27:32):
of cheaper price, you put it back in easy easy, right,
Little did I know?

Speaker 2 (27:37):
And to just reflect how accurate ZUIG was Monday down
twenty two percent, a rally that failed the next day.
You didn't quite get back down to.

Speaker 3 (27:48):
You you didn't fully retest.

Speaker 2 (27:49):
But a day is kind of twenty two eight, all right,
I'm rousing and and double check those numbers. I could
be wrong, but you know, portfolio insurance was a big
part of that, probably made what was a ten percent
correction more than double. So maybe that's why you didn't readtest.

(28:13):
And then it was off to the race to break.

Speaker 3 (28:16):
And we had started buying after the crash, so ended
the year with just off the charts performance. And again,
you know, naive young me is thinking, you don't know
why everybody's freaking right so much?

Speaker 2 (28:28):
Why are these people talking about how difficult this is hard?
So the obvious question, how significant was Marty to shaping
your framework for understanding.

Speaker 3 (28:39):
Extraordinarily impactful because I think the thing that resonated with
me the most, and you wrote about it in your book,
and it's the likes of the Sir John Templeton quote
about bull markets are born and pessimism the ground, skepticism mature,
and optimism die in euphoria. I think that's such a
brilliant way to describe a market cycle, in part because
the only terms used in there have to do with

(28:59):
them exactly. There's nothing in that line about market cycles.
It has anything to do with what we all obsess
about on a day to day basis, monetary policy, fiscal policy,
what the next inflation report is going to be, even
earnings and valuation. And Marty understood that too, and so
much of the work that he did was steeped in
that sentiment analysis.

Speaker 2 (29:19):
I love that you brought that up, because so I
took the technical analysis training course with Ralph Aknpora, and
I don't really think of myself as a technician, but
I certainly wouldn't buy anything without looking at a chart.

Speaker 1 (29:35):
Right.

Speaker 2 (29:36):
I don't need to see an analysts research report, but
I have to at least get a sense of is
it trend up? Is it trend down? Has this been
going sideways for years? And the best technicians I know
have always brought in behavioral economics and sentiment before we
called it behavioral, absolutely, and Marty certainly was one of them.

Speaker 3 (29:56):
Absolutely, And so my maybe sort of added focus on
the emotional side, the sentiment side of the market very
much was borne out of my time working for Marty,
and I still think it's extraordinarily important. And one of
the messages we always impart to our investors is ideally

(30:20):
you don't figure out the hard way whether there's a
wider or narrow gap between your financial resk tolerance and
your emotional risk tolerance, because those two at times can
be completely different. And I always describe financial risk tolerance
as kind of what's on the proverbial paper your time
arise in. Do you need income? What is this money for?
Is it for retirement diversification? Blah blah blah blah blah.

(30:44):
But if you are going to, you know, panic and
sell everything at the first bear market level declines in
your portfolio, you're maybe not as restolerant investor as you thought.
And it's just the vast majority of mistakes that we
see extreme mistakes purely driven by emotion.

Speaker 2 (31:04):
You know, there's a line I remember from when I
was on a trading desk that I didn't really understand then,
but it sums up that gap between your financial risk
tolerance and your emotional risk tolerance, which is figure out
who you are, because Wall Street is an expensive place
to learn exactly right, You don't know who you are.
You don't know what your emotional pain allowance is. You

(31:27):
don't want to panic out. The word capitulation technically means surrender,
so you go to a march O nine. That capitulation
meant people just couldn't take the pain anymore. Make it stop,
just get me out of everything. And that's how bottoms are.

Speaker 3 (31:44):
Can I share the March O nine?

Speaker 2 (31:46):
Oh, we were talking about We were talking about it.

Speaker 3 (31:48):
But we didn't have microphones in front of us, so
it was let's go back to March sixth of two
thousand and nine. So I lived in Darien, Connecticut for
twenty two years. We raised our kids in dairy Enne
and it's one of the hotbeds of Wall Street.

Speaker 2 (32:07):
In fact, bedroom communities short communitation.

Speaker 3 (32:09):
Short commune to the city. Our town made the cover
of BusinessWeek in two thousand and eight the latter part
of two thousand and eight as the town most impacted
by the financial crisis in the country, and they did
it based on the percentage of the working population that
worked either on Wall Street in some capacity or in
real estate, and so it was I was surrounded by

(32:33):
Wall Street people, not a lot of Wall Street women.
It was also a town where most of the women
who were raising kids were stay at home, so I
was always steeped in conversation about the markets, and in
the role that I had, I would always get peppered
with questions So my husband and I are at a
dinner party in dairy Enne. It was toward the end

(32:56):
dinner and dessert had served, maybe about a quarter of
the people had left, a smaller crowd just sitting around chatting,
and the host of the party, who was at that
time a thirty plus year veteran of Wall Street, said, Lezanne,
I must say I don't envy you right now. And
he was a bit dramatic, and he kind of paused
for effect, and I said, oh, what do you mean?

(33:18):
And he said, well, I really think that there's no
chance that this stock market ever gets to another high.
I think there's a decent chance that retail investors will
never buy again, never, never, just which makes me question
the viability of a company like Schwab. And So I
don't even remember what I said. I think I did

(33:41):
some generic version. Well I beg to differ, but I didn't.
I was also ready to leave. You know, I like
a nine handle on my bedtime, So if it's eleven thirty,
I'm like, okay, chop chop. So I just I wanted
to end the night. We get in the car, unprompted,
and I haven't had to a story at all. Before

(34:02):
my husband puts the key in the car. He looked
to me, he said, did you hear it? And I said,
the bell ringing. He said, I knew you were thinking that.
So I called my friend the next morning and I said,
I am working on a report. And all of my
research reports written research reports. I use rock song titles,
some rock chick from way back. So I said, I

(34:22):
am working on a report that I want a title,
Here comes the Sun? Can I share the anecdote?

Speaker 2 (34:27):
No name, just no name.

Speaker 3 (34:28):
I said, I'm not going to mention name. He said, sure,
I think you're going to regret it. Every time I
see him, he does like the fists to the forehead, like,
oh my gosh. And that was when the last person
is standing has gone down, that is, And I think
that's interesting. What's interesting about senema is we know sentiment

(34:49):
at extremes serves as a contrarian indicator.

Speaker 2 (34:52):
Right most of the time, you could pretty much ignore
it without middle ring.

Speaker 3 (34:55):
Without anything resembling precise timing. That said, as we all
earned in the late nineteen nineties, extremely optimistic sentiment can
last for a really long time. You know. Greenspan made
is a rational exuberance common.

Speaker 2 (35:07):
In ninety December ninety seven.

Speaker 3 (35:09):
It wasn't until you know, three plus years later that
the market top.

Speaker 2 (35:12):
Down in March two thousand, almost four years.

Speaker 3 (35:14):
That said, when sentiment gets to such an extreme of despair,
it's not a precise contrarian timing, but there's a narrower window.
Pay attention, yes, pay more attention to extremes of despair
than you do extremes of enthusiasts, because the ladder can
last a long time.

Speaker 2 (35:33):
Tops are a process. Spotttoms are a moment, absolutely, And
you know, there are all these old trader cliches and stuff,
but they become cliches for a reason. And you know,
we all experience the world in a very narrow window
of as eight billion people on the planet. Our experiences

(35:55):
are maybe tenth of a percent of what the rest
of the world is experiencing, and so we tend to
extrapolate out to the rest of the world. But very
often what's happening in the markets is not reflecting your
personal experience. But after you've lived through enough cycles, you
start to be able to hear those sort of things

(36:17):
I had that was a pure death of equities business
we call cover from the late seventies and a year
or two later that was it. It was the next
thousand per second market. Yeah, absolutely amazing story.

Speaker 3 (36:30):
I have one other anecdote that's an interesting one to
think about how emotions come into play. Was out in
Silicon Valley area, maybe about a year ago, a little
less than a year ago, and heard from a client
that he had finally given in to his financial consultant
suggestion that he trimmed just back about ten percent of
his n video holdings. He was an ex employee, had

(36:52):
a lot just you know, diversification.

Speaker 2 (36:55):
Right, We're going to leave some money on the table
in order to reduce draw down Volatiley.

Speaker 3 (37:00):
He ended up splitting the difference. He didn't want to
trim any He trimmed five percent, and then the stock
went up by twenty some odd percent in the short term,
and he was mad at the financial consultant that the
stock had gone up, and to his our financial consultant's credit, said,
would you really be happier if the ninety five percent
you still own went down twenty percent?

Speaker 2 (37:22):
Listen in the beginning of this show, Video psychologists value
that he was almost more, and to his credit, he said,
you know what, that's the way I should think about it.

Speaker 3 (37:32):
Was more concerned about the top tick the bottom tick
I trimmed it wasn't I brilliant because then the stock
went down twenty percent. So our emotions play tricks on
us in a lot of different directions.

Speaker 2 (37:44):
You brought up my book. I try not to talk
about it on the show. Well, the regret minimization chapter
is all about your role as an individual investor is
not to outperform the market or top tick or bottom
tick stocks. It's hey, how can you avoid making decisions
that you're gonna say ten years later? What an idiot?

(38:05):
I was, just as Charlie Munger said, what can you
do to be less stupid? And if you know, we
see these portfolios that started out as a million or
two million dollars, but through either smarts or good luck
or some combination, they had a big slug of Nvidia
ten years ago and now they have a twenty million

(38:25):
dollar portfolio, eighteen million of which is in Vidia. Hey,
do you really want to ride this up and down?

Speaker 3 (38:31):
You've won yet?

Speaker 2 (38:32):
Me think about what twenty million dollars in long term
investing does for you. Do you really want to ride
this down when it takes one of its regular drawdowns,
and what I want to say it gave up about
a trillion dollars in market cap this year before recovering.

Speaker 3 (38:50):
But can I can I say something else. I'm not
an analyst. I don't cover Nvidia, but the whole focus,
the uber focus on the Magnificent seven. Let's just use
that as an example of a cohort. So we're dealing
with cap weighted indexes in the case of the SMP
and the NASDAC, and I think one of the messages
we impart to individual investors is, don't feel like you

(39:11):
have to have the same concentration as what's embedded in
these cap weighted indexes. That's an institutional problem. If you're
benchmarked against the SMP on a quarterly basis, you are
at the mercy of the construction of that index. But
as an example of how I describe this, in Vidia
is the best performing stock within the mag seven year
to date, but it's the forty seventh best performing stock

(39:32):
in the S and P five hundred. It's the number
one contributor to S and P gains by virtue of
the multiplier of the cap size. So there's forty six
stocks in the SMP that are outperforming in video this
year in Vidias I think ranked number six hundred and
thirty something in the NASDAK, meaning there's six hundred and

(39:54):
thirty some odd stocks within the NASDAQ that are outperforming
the best performing MAG seven. So it's the constant trait.
It's the contribution that sometimes gets conflated with the performance.

Speaker 2 (40:07):
I have a buddy who's a technician who looks at
a ratio of the marketcap SMP versus the ecal weight SMP,
and what we've been seeing this year is the equal weight.
I'm trying to remember where we are now. I haven't
looked at it recently, but when it's going up, it's
telling you the big caps are faltering. And when the
ratio is going down, it's telling you the big caps

(40:28):
are doing well. Unless I'm doing that backwards. It depends
on which one is the numertor which one is the denominator.
But clearly the outsized weight market cap wise is Nvidia
number one or two behind Microsoft or Apples.

Speaker 3 (40:43):
Number one right now, but it's been you know, Meta
and Alphabet have actually been kind of battling, and then
also Microsoft. Those are the four of the mags seven
that are outperforming the S and P or to date,
the other three are underperforming. And in fact, a few
days ago, because I tracked this on a daily basis,
Apple was down I think seven percent year to date.
That was its worst year to date performance and it

(41:06):
was the five hundred and third ranked contributor to the SMP.
So the multiplier of capsize works in the other direction
if you're an underperformer as well. A lot of people say, well,
what do you mean five hundred and three the SMBs
five hundred stock in B shares, But you've got share exactly.

Speaker 2 (41:23):
So that's a great trivia question. How many companies? How
many stocks?

Speaker 3 (41:27):
How many stocks are in the S and P five
hundred and there's also not two thousand in the rust
of two thousand?

Speaker 2 (41:31):
Are the Wilship five thousands like thirty?

Speaker 3 (41:33):
Well, yeah, the Wilshire five thousand used to be about
eight thousand stocks and now there's just fewer stocks.

Speaker 2 (41:39):
Roughly absolutely coming up, we continue our conversation with Lysanne
Sonder's market strategist for Schwab discussing the current environment. I'm
Barry Rittalls. You're listening to Masters in Business on Bloomberg Radio.

(42:05):
I'm Barry Ridults. You're listening to Master some Business on
Bloomberg Radio. My extra special guest this week is les
Ane Soanders. She is the chief market strategist at Schwab,
helping to oversee eleven trillion dollars in change in client assets.
So I went back and looked at my notes. The

(42:25):
last time we had a conversation like this was spring
of twenty twenty four, was six months before the election.
I don't think the election surprised many people. It sort
of felt like that was inevitable. Maybe that's a little
bit of hindsight bias. How has this year played out
since January twentieth relative to expectations?

Speaker 3 (42:47):
Well, you know, let's focus on not so much the
beginning of the year, but the setup going into April second.
I think that was a pivotal point because we knew
tariffs were coming. But I think there was complacency as
to what the announcement would be on April second, an
assumption that, okay, ten percent across the board tariffs. It's
kind of built into expectations.

Speaker 2 (43:08):
You call it complacency. I call it a failure of imagination.

Speaker 3 (43:12):
Because afterwhids failure to imagine the cheesecake factory menu being
held up, and reciprocal tariffs of a massive size.

Speaker 2 (43:21):
Yeah, right, Because you think about it, he talked about tariffs.
I called himself tariff man. It's the most beautiful in
the dictionary. None of us imagined that he would just and.

Speaker 3 (43:31):
That reciprocity wasn't about tariffs that other countries had as
part of their policy, but reciprocity relative to trade deficits,
and the confusion that that brought about when you think
about there are many countries, particularly.

Speaker 2 (43:47):
Smaller Vietnam is the classic using.

Speaker 3 (43:49):
But also you know the Madagascar and Bangladesh. We're never
going to have a trade surplus. They can't afford to
buy thirteeny and in the case of you know, a
place like Madagascar are they produce most of the vanilla
in the world. That gives them literally and figuratively an industry,
and they can't afford to buy what we export, which
is much more value add So I think that was

(44:10):
a big surprise factor.

Speaker 2 (44:13):
A math effectively a conceptual math error.

Speaker 3 (44:17):
Yeah, and of course running trade deficits. The other side
of that is a capital a count surplus, so we
export dollars into the rest of the world, and those
dollars have to be put to work, and they get
put in some and equities, and so I think that
became a significant concern. I also have been really shocked

(44:38):
Berry at how the general public doesn't understand literally who
pays the tariffs.

Speaker 2 (44:45):
It's a vat tax, it's evaluated tax.

Speaker 3 (44:47):
On the first time, I decided, I was speaking to
an audience in Naples, Florida in the spring that well
to do audience, so assuming they have some investment expertise,
but we're we're not deep in the import export business.
And I decided, let me just lay out the actual
definition of tariffs. I said, notwithstanding the shorthanded headlines of

(45:09):
tariffs on China, tariffs on Mexico fill in the blank,
tariffs are paid by the US company importing the goods,
are not paid by the targeted country. It is not
the case that, as I've heard from friends who didn't
understand how this work, that in order for China to
export goods into the United States, China has to pay
a tariff to the United States. Barry, do you know
how many people came up to me after that event

(45:31):
and said I had no idea, and that's what's a
little frustrating because there's still that shorthand and at times
when there are comments made by the administration that China
again fill in the blank of the country paying us
more in tariffs, it's the US company. It's a tax
on US companies. Now a valid debate is who ultimately

(45:55):
bears the cost and is it the exporters that will
lower their price to offset the tariff that the US
company has to pay. Very little indication that that is happening.
And then of course it's do companies need it in
their profit margins or do they pass it on to.

Speaker 2 (46:09):
But either way, either companies are going to have lower profits,
which means the stock market could support a lower pe multiple,
or there's only so many dollars it's finite, right if
they're so what we saw, we saw this is taking
place in three steps in anticipation of the tariffs going
into effect, and especially with the ninety eight pason.

Speaker 3 (46:31):
April well, so that was the thing that has happened.

Speaker 2 (46:34):
Excess import inventory.

Speaker 3 (46:35):
Bill one week from April second to the intra day
low on April ninth, there was sort of a complete
about phase. So what none of US can do is
try to gauge what the next social media post is
going to be. There's been so many fits and starts
from a tariff perspective, whether it's delays, tariffs coming down exceptions.

(46:58):
This has been an elongate process. It was certainly wasn't
a moment in time kind of thing. But what we
can analyze, especially as as a strategist, are the setups.
So we already talked about the setup going into April. Second, well,
the setup shifted very quickly, so you went from complacent
sentiment to despairing sentiment.

Speaker 2 (47:18):
You had a VIXA in the low teens that spiked
up by thirty and I want on the eighth, I
wanted to buy, and I'm like, I have no idea,
what the hell the next tweet is going to be?
Can I really put money in my personal account put
money on at risk that could be destroyed by it.

Speaker 3 (47:35):
But then then you had the market technically oversold, breath
and fully washed out. So then you get the really
just incrementally positive newsday on April night and off to
the races. But then you had the power of the
retail trader and that cohort has become unbelievably power powerful,
representing somewhere in the twenty to twenty five percent of

(47:55):
daily trading volume, and that by the dip mentality was
such a fuel for the market. What concerns me a
little bit now is if I track a lot of
the baskets to track like micro baskets of stocks, Goldman
has a lot of them, Ubs has the Meme stock basket.
You go back to that inter day low on April ninth,
and it's baskets like the Memes, nonprofitable tech, heavily shorted stocks.

(48:20):
That is the perfect example of retail traders kind of
powering this market higher. And in the heavily shorted piece
of that, it's also suggested maybe of retail traders with
a little bit of the stiket to the man which
which throw the initial Meme stock plays back in twenty
twenty one thing. Yeah, and it's it's alive and well again.

(48:42):
It actually has forced institutions in some cases to cover shorts,
which has added to the fuel. Now, I think as
we think about the setup, we're arguably back in a
similar pre April second a bit of complacency and which
maybe means vulnerability to the extent you get some sort
of negative cost.

Speaker 2 (49:03):
So that's where I wanted to go. Since we're talking
about the current environment. It felt like a lot of
savvy companies loaded up on inventory in that ninety day
pause front run of the tariffs right exactly, and then
they were capable until that ran down of not really
being affected by tariffs. And then even as the tariffs

(49:25):
started to bite, they see it seemed like they were
eating the increase and not passing it along. But that
can only go on for so long. It feels like
the next phase is consumers are going to pay.

Speaker 3 (49:38):
And to your point, Barry, there there wasn't much of
that eating it at the early stages because of that
inventory build by front running the tariffs and building inventories
at a low cost basis providing some time flexibility around
when to make the decision of eating it and the
profit margins or passing it on to the consumers. We're

(50:01):
now starting to see attempts to pass on to the consumer.
But maybe the more interesting thing to consider right now
is so much focus on goods that are impacted by tariffs,
what's the rate of inflation in those goods? Trying to
gauge the tariff impact on the inflation statistics. But what
we're also starting to see is demand destruction and switching

(50:22):
on the part of consumers. So I think we have
to analyze the impact of tariffs in a parallel fashion,
not just gauging what the inflation impact is. And you
can do that by separating out goods and services within
the goods categories of an inflation metric like CPI look
at those that are directly impacted by tariffs, not impacted
by tariffs, but there's the demands destruction side of things.

(50:44):
So we track the weekly consumer spending data, and if
you separate that into tariff impacted categories, that's where you're
seeing a compression in that spend.

Speaker 2 (50:54):
So to be fair, when you look at the US
as a thirty thirty one trillion dollar economy, when you
look at the value of imported and by the way,
that economy is much more services than goods oriented, and
then you look at the percentage of goods that are imported,
it's a trillion or two trillion out of I know

(51:14):
it sounds crazy to say, eh, what's a trillion, but
it's a trillion out of thirty plus trillion dollars. So
the worst case scenario is it takes a quarter or
half a point out of GDP but probably doesn't tip
us into a recession. Is that a fair way to
describe it.

Speaker 3 (51:30):
Yeah, in and of itself, it probably doesn't. But there's,
you know, the feedback loop that happens if company right labor.
Where if companies because they don't have that ability to
pass most of it onto consumers in part because of
the demand destruction that I'm talking about, then there's that
eating and profit margins, and then does that feed into
the labor market side of things. I think that's why

(51:52):
the FED did what it did, the risk, the risk management,
the insurance cut to try to stem ay weakness in
the labor circuit.

Speaker 2 (51:59):
So let's talk about the crosscurrents since you do both
markets and the economy. We've had a softening labor market,
at least in the past few months, and then the
whole I don't know if that re statement is precise,
but it certainly makes it clear we were too optimistic
about the labor market over the past four quarters. Inflation

(52:21):
sort of residual, sticky inflation that hasn't come down to
the FEDS two percent target. We can argue about whether
that really should be a three percent target, but hold
that aside. Yet at the same time, we see corporate
profits continue to grow and markets making new all times highs,
which that combination expanding profits all time price hise tends

(52:44):
to be bullish historically. How do you navigate all of
these positives and negatives?

Speaker 3 (52:49):
Well, here's one way to think about the connectivity between
the market and the economy. I think it's very circular
right now, or maybe chicken and egg. And what does
does make me harken back to the late nineteen nineties
as a bit of a comp to the current environment.
It's not so much is it a bubble? And there's
more there there in the AI world.

Speaker 2 (53:10):
A lot of revenue, a lot of actual.

Speaker 3 (53:11):
Denominator in the valuation equations, right, Not clicks and eyeballs,
not every company just adding dot com, you know, to
the end of their name, but the wealth effect. And
it's chicken and egg. And what makes me think back
to the late nineteen nineties is in that ninety nine
blowoff into the peak in two thousand, whether it was

(53:34):
valuation metrics like the Buffet model, which looks at total
market cap of all US stocks as a share of
total GDP.

Speaker 2 (53:41):
Which is at all time highs which and way.

Speaker 3 (53:44):
Higher than it was back at the peak in ninety
nine or two thousand. At the time, households exposure to
equities as a share of their financial assets well at
an all time high, significantly higher. So if we remember
when the market topped out in March of two thousand
and then we started what was a two and a
half year bear market, we ended up getting a recession
declared in two thousand and one. It was a very

(54:07):
mild recession. It was one of the proof points which
for what I always say, drives me crazy that people
think of recession as traditionally or classically defined as two
quarters in a row of GDP. That's never been the
definition of recession NB. Well, it drives me crazy. And
in fact, one with the benefit of revisions, wasn't two
quarters in a row of negative GDP?

Speaker 2 (54:29):
Same thing? In twenty twenty two people were talking about
it the revision.

Speaker 3 (54:33):
The revision took out that one plus plus.

Speaker 2 (54:36):
When you have a spike in inflation, it's not that
the economy is contracting, it's that we back.

Speaker 3 (54:43):
Out increase exactly.

Speaker 2 (54:44):
The economy is so hog that inflation makes it look negative.
It's not a contraction, it's just a price problem.

Speaker 3 (54:51):
But that one recession was actually very mild.

Speaker 2 (54:55):
Began in March, I think ended in October.

Speaker 3 (54:58):
Short, it was mild. There was not really a financial
system crisis. It wasn't a credit crunch. I think it
was the weakness in the stock market caused the economy
to contract because of the wealth effect at the time.

Speaker 2 (55:12):
I'm going to take it just a step further. I
have vivid recollections of speaking to people speaking to clients
or other people's clients in ninety six, ninety seven, ninety eight,
ninety nine, who had been in the market for fifteen
twenty years. Hey, we want to trade up to an
Isica house. Hey we want to buy a beach house,

(55:32):
a lake house, a vacation property. And the person said,
I'm not sure if the market's going to go higher
from here, but I want to pull half a million
out of my account and buy real estate. It's like, Hey,
you're going to have that house for the next twenty
five to thirty years, even if the market keeps going higher.
Who cares? You're sitting on such profits. Why not? And

(55:53):
so I kind of got a sense that it wasn't
so much the wealth effect as people had heard done
the big buys before the market crash, which tends to
freeze people in place. So I saw a lot of
rotation out of equities just because people were sitting on Look.
From eighty two to two thousand, the Dow gained a

(56:15):
thousand percent. People were taking a little of the house
money off the table and lending the less. The rest ride,
and then the dot com implosion, I want to say
eighty to eighty three percent peaked a troth on Nasdaq.
On the queues, yeah, the S and P. Yeah, And

(56:36):
the Dow held up the best because it was least
exposed back then before Microsoft and Intel.

Speaker 3 (56:42):
And price waited not capital right, that's right. So well,
I just think we and again it's a bit circular
in that, you know, if and when we get another
bear market, we essentially had one this year, just missed
it on the S and P the index level. But
here's here's another set of statistics. The average max the

(57:05):
average member maximum draw down for the S and P
year to date is twenty four percent. The average member
has had a bear market. The average member within the
NASDAQS maximum draw down is forty seven percent. Wow, now
you want cap weighted, well, the average member just each
individual member was there? No, because it's individual members, you

(57:27):
just track what each member maximum draw down was at
any point and then take an average of that. But
here's the maybe more interesting one. In an environment since
the April ninth inter day low, we haven't had much
any kind of pullback in either the SMP or the Nasdaq,
But just since that low, in an environment where the
SMP hasn't even had a two percent pullback, the average

(57:47):
member within the s and P since the closing low
on April eighth, has had a fourteen percent maximum draw
down and within the Nasdaq has had a thirty two
percent maximum draw down. So there's a lot of rotation
in churn under the surf, which you don't pick up
if you're only focused on the index level, which has
that cat bias to it.

Speaker 2 (58:08):
That's amazing. So last question before I get to my favorites.
We're talking about a lot of things that are in
the headlines. What do you think investors are not thinking
about or talking about, but perhaps should be what topics, assets,
data points?

Speaker 3 (58:25):
There was one I thought about this morning, and it's
not so much what people aren't talking about, so I'm
going to answer in a different way. It's what I
hear a lot of people talking about. That isn't quite
the right way to think about it, And that is
the cash on the sidelines argument.

Speaker 2 (58:41):
So zwy hated that, and I'm not a fan either.

Speaker 3 (58:44):
But it often the specificity around that has to do
with the amount of money.

Speaker 2 (58:48):
And money market seven.

Speaker 3 (58:51):
Trillion and change, and that that is sitting there as
either if not imminent, but ample fuel. If that money
decides to repatriate from money markets into the equity market, boy,
we go off to the race.

Speaker 2 (59:06):
That money mostly come from bonds?

Speaker 3 (59:08):
It did?

Speaker 2 (59:08):
You're getting such low yeal in bond so mine.

Speaker 3 (59:11):
I think a lot of it's sticky.

Speaker 2 (59:12):
My Schwab money market account last summer. So we bought
a house, a beach property in February last summer, I
was getting like five three five two in the Schwab
What is it? Snock snacks. I don't even remember the symbol.
I'm like, why do I need to mess around with
ten or twenty year bonds? But getting much better.

Speaker 3 (59:31):
But here's the other angle to that. If you think
of seven trillion dollars as some massive fuel for the market.
You need to look at it as a ratio relative
to the total market capitalization.

Speaker 2 (59:45):
And it's gone up less than the stock it's.

Speaker 3 (59:47):
Only twelve percent all time low. In that the history
that we have for that data is eleven percent. To
put that in context, in eight oh nine, when money
was flying to money markets because it was fleeing the
equity market, at the peak money market assets relative to
the size of the stock market was more than sixty percent.

(01:00:11):
Now we're only at about twelve percent. So the math
is such that even if all seven trillion dollars was
to leave on mass and go into the equity market
as a fuel at twelve percent of total market cap
versus say, you know, sixty three percent of total market
cap in nine, that's a very different Not to mention

(01:00:32):
back to our initial point, I think a lot of
that money is sticky. That was money that was forced
out the risk spectrum into other categories within the fixed
income market in order to pick up yield when there
was none to be had. So I don't think we
should consider that some sidelines cache that is just itching
to find its way back into the riskier asset classes.

Speaker 2 (01:00:53):
Someone once debunked the cash on the sideline argument, and
it might have even been Marty's wig in winning on
Wall Street by explaining it this way, Hey, I'm gonna
buy a million dollars worth of stock. It means I
have a million dollars worth of cash, but no stock.
I buy a million of the spy. Now I have
the spy and they have a million of care.

Speaker 3 (01:01:16):
Every buyer there's a seller.

Speaker 2 (01:01:18):
There's no cash on the side line. It just changes
hands the same dollar amount. So it's been one of
those things that has persisted forever.

Speaker 3 (01:01:25):
And they're also the more buyers than sellers. No, no, no, no.

Speaker 2 (01:01:29):
That you you are tagging all my favorite pure.

Speaker 3 (01:01:33):
There's maybe more enthusiasm on the buy side versus the enthusiastic,
but there's no more buyers and sellers vice versa.

Speaker 2 (01:01:40):
For my head trader used to say, there are more
buyers than sellers at this level, and now you go
up to the nice next price level where there are
a matching number of buyers and sellers and the price
stabilizes if a price is going up. Okay, at that
particular at twenty seven to fifty five, there may be
more buyers than stock for sale, But at twenty seven

(01:02:01):
seventy five. Then that's how you end up with price stability.
So yeah, more buyers and sellers. No, no, they're an
equal amount of buyers and sellers. That's how the other
line I love has been trade takes place where there's
a disagreement about value but an agreement on price. And
that seems to really explain that. All right, I have

(01:02:22):
to get you out to catch your plane, so I
only have you for a limited amount of time. Let's
let's speed through our favorite questions, starting with tell us
about your mentors who have helped shape your career. I'm
pretty sure I know that too.

Speaker 3 (01:02:37):
Shocker, Marty Swag, Yeah, Chuck Schwab okay. And in the
world not too shabby, not too shabby mentors, Yeah, boy
was I lucky? And I will say in the world
of media another name we've already touched on Lewis Rukaiser.
One of the best pieces of advice he gave me
was was when I was on the show for the
first time as a guest and he was saying hello

(01:02:59):
to me for the first time, welcome me onto the show.
This was off camera, and he asked me whether my
parents were still alive and whether they were finance people,
and I said, nope, far from it. He said, okay,
when you come out here and do the interview with me,
get them to understand what you're talking about. And that
was such a moment of Okay, get people to understand what.

Speaker 2 (01:03:19):
You're talking that's so funny. My mom was a real
estate agent, my wife is an art teacher, and it's
always make them understand it. Don't don't don't clutter it
up with jargon.

Speaker 3 (01:03:30):
That's right, make it ndred percent.

Speaker 2 (01:03:31):
Well, that's interesting that it was. It was Rukaiz who
said that let's talk about books. I mentions Wyg's winning
on Wall Street. What are some of your favorites? What
are you reading right now?

Speaker 3 (01:03:41):
So my favorite? So I'm not reading a book right now,
I must say I don't have a lot of time.
I read constantly. I drink from a fire hose of information,
but it tends to be you know, like reports, reports
and deep dive fed research. But my favorite book of
all time, and it is market related, is Reminiscences of
a Stop operatorsolute favorite. I tell young people to buy

(01:04:03):
it all the time. It still resonates today.

Speaker 2 (01:04:06):
And your substitute AI for railroads and Telegram exactly. It's
the same.

Speaker 3 (01:04:12):
It's the same, it's the same story. But I am
a big podcast listener. Uh huh. So that's the longer
form way, including Masters in Business, well that I absorb
information beyond the traditional drivers that come into my inbox.

Speaker 2 (01:04:29):
Literally, it's easy when you're traveling, if you're on a plane,
the car. I just find it's so easy. All right,
So you told us what you're what What other podcasts
are you listening to? What are you watching on Netflix?

Speaker 3 (01:04:40):
I listen to Masters in Business. I love Grant Williams
series of podcasts. I love them because their long form
and the big picture and top down, my favorite non
investing podcast is SmartLess. I just love those.

Speaker 2 (01:04:55):
Those guys are great.

Speaker 3 (01:04:56):
They're great, They're they're so fun.

Speaker 2 (01:04:58):
I'm going to tell you I listened. I've had Michael
Lewis on the podcast I have.

Speaker 3 (01:05:03):
I have met and have interviewed Michael Lewis on stage
at SCHWABS Impact Comfience.

Speaker 2 (01:05:08):
And the story he told and I'm not even gonna
mention it, the story he told on SmartLess about a
family tragedy.

Speaker 3 (01:05:16):
Was just it was unbelievable. And what his friends said
to him ers therapist said to him, the reason why
you're so exhausted after this life's tragedy is in your mind,
you're rewriting the future without her, without her right And
that was such a moment of wow. But yeah, that
was one of the most impactful interviews.

Speaker 2 (01:05:36):
I've heard that stayed with me for a long time.

Speaker 3 (01:05:38):
In terms of what I'm watching. Well, Morning Show just
started back up again.

Speaker 2 (01:05:42):
So we'll get back into that.

Speaker 3 (01:05:44):
And I loved Department Q.

Speaker 2 (01:05:47):
Was it was intense, it was a little slow, but
they really it really paid off. If you like Department Q.
There's a movie I want to say it's on Netflix
call called Black Bag. That's the sort of espionage thing.
And I walked in on my wife watching Killing Eve,

(01:06:11):
which she's like.

Speaker 3 (01:06:12):
It was great, like a scam. It was great.

Speaker 2 (01:06:15):
There's there's been a ton of stuff. We just finished
The Gilded Age, which is which that feels modern.

Speaker 3 (01:06:22):
I'm obsessed with that era in New York City. I
have read every book written about it. I'm just so
so that is so right up my alley.

Speaker 2 (01:06:30):
So we watched The Crown, but we never watched Dalton
Abbey and I all said, oh, you like Gilded Age
in the Crown Abbey, so that's on my uh. And
during the pandemic, I had never seen a single episode
of Madmen, and that was mind blind to watch. That
felt like more like a documentary.

Speaker 3 (01:06:48):
It's fun to go back and watch some of the
old shows.

Speaker 2 (01:06:50):
Absolutely, All right, all last two questions. We'll get you
out of here on time. A recent college grad is
interested in the career and investing or doing market strategy,
what sort of advice would you give that?

Speaker 3 (01:07:01):
Well, the world you live in and indirectly I live
in on the advisor side, that's an incredible growth area
in the broader realm of financial services, independent rias, wealth
management firms, even the wealth management divisions at the big
wirehouse firms, because it's essentially a first generation business and

(01:07:22):
so there's a lot of succession planning happening right now,
and I think for young investors that's such a great
avenue to go in. More generic advice that I give
young people, especially as they embark on the networking and
interview part of the process, is be way more focused
on being interested than being interesting. Don't go in there

(01:07:43):
and say, here's all the fabulous things have I done,
Especially if that's limited to an undergraduate education, but be interested,
ask questions, be engaged, show the enthusiasm. That way, you're
not bringing something into the mix by virtue of what
you know. Econ you know two o eight course took
that they think, oh god, we have to hire this
person because we don't know anything about that, so we're

(01:08:04):
bringing is be interested?

Speaker 2 (01:08:06):
Huh? Really interesting? And our final question, what do you
know about the world of investing today? You wish you
knew back in the nineteen eighties when you were first
getting started.

Speaker 3 (01:08:18):
It seemed to be a little bit easier to analyze
markets in that day using kind of traditional stuff models.
To think now about how much more of an influence
there is of geopolitics and macro and how much more
complicated an ecosystem, not to mention the channels of information

(01:08:39):
that occur through social media. I kind of wish it
was back to what at the time didn't feel terribly simple,
but I think then was a little bit more simple
and more concrete in terms of what drives markets. I
think there's more psychology now with a wider band of
what that means and what that represents months, and it

(01:09:01):
would have been interesting to kind of know that in advance,
the little birdie landing on your shoulder, saying, Here's what
I don't know if I would have believed that forty
years from that point, I'd still be doing this. But
just how much more complex an ecosystem that the markets
live in these days?

Speaker 2 (01:09:19):
Huh? Really interesting? Lizanne as always delightful. Thank you so
much for with your time' always really really interesting. We
have been speaking with liz Ane Saunders. She is the
chief investment strategist at Schwab, helping to oversee eleven trillion
dollars in client funds. If you enjoy this conversation, well

(01:09:41):
check out any of the five hundred and sixty four
we've done over the past eleven and a half years.
You can find those at YouTube, Spotify, Bloomberg, iTunes, wherever
you get your favorite podcasts. Be sure to check out
my new book How Not to Invest The ideas, numbers
and behavior that destroyed wealth and How to Avoid Them

(01:10:03):
at your favorite bookstore. Now, I would be remiss if
I did not thank the Crack staff that helps put
these conversations together each week. Alexis Noriega is my video producer.
Anna Luke is the podcast producer. Sage Bauman is the
head of podcasts here at Bloomberg. Sean Russo is my researcher.

(01:10:24):
I'm Barry Ritolts. You've been listening to Masters in Business
on Bloomberg Radio.