Wealth Management and the 'Great Normalization' with Lisa Shalett

Barry speaks with Lisa Shalett, Chief Investment Officer at Morgan Stanley. Previously, she was CEO and chairman at Sanford Bernstein, CIO at Merrill Lynch Asset Management, and now CIO at both Morgan Stanley Wealth Management and runs their asset allocation models and their outsourced chief investment officer models. On this episode, Barry and Lisa discuss the philosophy of managing billions of dollars in assets and wealth management today.  

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Episode Transcript

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

Speaker 2 (00:17):
Really an extra extra special guest. Lisa Shalitt, chief Investment
Officer at Morgan Stanley, has had a number of fascinating
roles in Wall Street, which is kind of amusing considering
she had no interest in working on Wall Street and
yet she was CEO and chairman at Sanford Bernstein. She

(00:39):
was CIO at Merrill Lynch Asset Management, and now CIO
at both Morgan Stanley Wealth Management and runs their asset
on location models and their outsourced chief investment Officer model,
So she's seen this industry from all sides. Not only
is CEO running operations running a substantial firm, but as

(01:04):
CIO for Morgan Stanley is over six trillion dollars, she
is directly responsible for one hundred billion dollars. There are
a few people in this industry who understand what it's
like to work with institutions, work with families, work with
individuals as well as work with advisors and brokers the

(01:28):
way Lisa does. She absolutely has a unique background and
a unique perch on wealth management and what's going on
in the world. I found this conversation to be absolutely fascinating,
and I think you will also, with no further ado,
my conversation with Morgan Stanley's Lisa Shallion.

Speaker 3 (01:47):
Thank you. It's great to be here, Baik.

Speaker 2 (01:49):
Great to have you. I've really been looking forward to
this conversation. You have an absolutely bonkers CV. We'll get
into that in a little bit. I'm just old better
than the alternative, I like to say it, right, But
let's start with your background in your career Applied mathematics
and economics from Brown and then a Harvard MBA. That

(02:11):
sounds like you were on a career path to a
Wall Street quant from early on. Tell us what what
the career plans were?

Speaker 3 (02:19):
Not at all? Right? I in college, I was a
drivetime disc jockey. I you know, abhord the idea of
working on Wall Street. Uh, and so you know, coming
out of school, once I realized that journalists and folks
in radio don't make much money in the long run.

(02:40):
No offense, h this is my side hustle to anyone
around here. You know, I thought I was going to
take the high road and be a management consultant. So
that's what I did for the first job.

Speaker 2 (02:52):
So what changed your mind to say, all right, let
me let me go see what these finance bros On
Wall Street are all about.

Speaker 3 (02:58):
Yeah. So, you know, I did the consulting thing both
before and after business school, and you know, fundamentally, I
was never home. I was traveling and on an airplane
all the time. I was literally arriving back home Saturday mornings,
leaving Sunday nights. You know, I was starting to hit
that you know those magic numbers in the thirties when

(03:21):
women are like, if I don't get it done now,
it's now or never. So I took the plunge. I quit.
I did not have a job, and I said, Okay,
I'm going to go out there and see what's going on.
I knew that I wanted to work with clients. That
was one of the pieces of the consulting gig that
appealed to me. I wanted to work with super smart

(03:42):
people also, something I had loved in that career, and
I really just you know, wanted to be somewhere where
I was constantly learning and growing. Right, and I'm a
New Yorker, So I was coming home most of the
search people at that time, you know, said to me,
the only place ago if you want to do that,
is Wall Street. I kind of balked, and they said,

(04:04):
but there's just this one place. There's this one place,
and the one place for those on Wall Street in
the mid nineties that was very special, was very independent,
was Sanford Bernstein. I walked in the door and I
literally fell in love. I can honestly tell you from
the minute I walked in the door, I knew I

(04:26):
was home, and I always thought I would die there.
But obviously, you know, life is long and stuff happens.
But it was a wonderful, wonderful It was the seminal
chapter in my career.

Speaker 2 (04:39):
I'm trying to remember. Did they get rolled up with
Pimcohen from Alliance? Is that right? So Alliance burning?

Speaker 3 (04:47):
So Sanford ce Bernstein was independent. When founder mister Bernstein passed,
we needed to settle his estate and a decision was
made to merge with Alliance Capital, which was a growth
shop at the time. We thought it would be synergistic
because the asset management business of Sanford Bernstein, as everyone

(05:08):
I think knows, was a deep value shop, right, and
so that merger happened. I want to say, somewhere in
the in the early two thousands, we became Alliance Spernstein,
and you know then, you know, we kind of wrote
it to till the Great Financial Crisis, and our deep
value exposure to financials kind of helped unwind us quite

(05:30):
a bit. And I think, you know, Alliance Spernstein really
spun for quite a long time. It took, you know,
a long long time to get out of that mess.
I left because I got tired of firing all my friends.

Speaker 2 (05:45):
That's tough, Yeah, because you were not just in the
investing side, you were chair and CEO, chief executive officer. Yes,
that's got to be a very difficult experience right in
the teeth of the financial price it.

Speaker 3 (05:59):
Was got awful. And really, you know, the trauma was
when lu Sanders, who at the time had been the
storied CEO of the firm, he had been my personal rabbi,
when he was asked to step down, and you know,
therein began I think the unraveling and a little bit

(06:20):
of the the loss of that you know, cultural juice
that had kind of historically made that firm special.

Speaker 2 (06:28):
So you leave Sanford Bernstein then, which had really become
Alliance Bernstein end up at Merrill Lynch where eventually your
same role chief investment officer for Bank America Merrill Lynch
Wealth Management. First, was there still remnants of Mother Merrill

(06:49):
when you joined post merger?

Speaker 3 (06:51):
There were certainly remnants, So you know, just to reframe,
you know, folks who are Wall Street historians will understand
this chapter. One of the reasons I went to meryll
Is I was recruited by one of my best friends,
who is Sally Crotchek.

Speaker 2 (07:06):
Oh.

Speaker 3 (07:07):
Really, Sally and I grew up at Sanford Bernstein together
as baby analysts, and at that time she was running
you know, the Merrill Lynch brokerage business for b of A,
and she hired me to come in and be the
chief investment officer at Wealth Management. If you remember, during
this period of time was right after the financial crisis,

(07:30):
the worst of it. It was twenty ten, twenty eleven,
and you know, she had kind of gone to bat
very controversially asking the bank to protect clients on some
of the products that had gone bad, and that didn't
go so well for her, and within four months of
my arrival she actually heard that she was fired on TV.

(07:54):
We were together in her office, and there was literally
a cry on on the bus atom of the screen
that says, you know, Crawcheck to leave Bank of America Marylynch.

Speaker 2 (08:05):
Well, that was sweet of them to do it that way.
You know, I have a vivid recollection from the people
we were talking, Yeah, Franco and Dave Roseen Kergan. I
know a lot of Rich Barnstein and all these people
I know from the two thousands Yes era Merrill Lynch.
And one of the fascinating things about Sally Kratchek was

(08:26):
her defense of the Merrill Lynch brands Yes post merger,
and she really helped turn around a malaise just a
lack of office morale amongst here. You have this storied
name that was picked up on the cheap during the
financial crisis and was wildly underperforming as an organization. And

(08:49):
full credit to her for really saving Merri Lynch as
a name and turning tens of thousands of people's jobs around.
She really did you's work there, didn't she?

Speaker 3 (09:01):
Yes?

Speaker 2 (09:01):
Absolutely, So you become chief investment officer for Bank America
Merrill Lynch Wealth Management. What did you take away from that?
You've had this role in several organizations, what was really
unique and special about Bank America Marill Lynch.

Speaker 3 (09:19):
Yeah. So what you know, when I was running the
wealth management business, you know, reflecting on my experience with
Sanford Bernstein, Sanford Bernstein was what we call a closed shop, right,
all the clients were getting proprietary Sanford Bernstein asset management product.
And when I arrived at Merrill Lynch, it was really

(09:40):
my first exposure to really entrepreneurial, extremely talented and aggressive
financial advisors who were operating with what we in the
industry call an open architecture platform right where they could
you know, kind of place best of brief product with

(10:01):
their clients. And so that opened a whole new world
for me in thinking about asset allocation and thinking about advice,
and thinking about active and passive constructions together, thinking about alternatives,
and so you know, what made Merrill extraordinarily special were
the financial advisors who were just spectacular to your point,

(10:25):
the Thundering Herd.

Speaker 2 (10:26):
Yep, yep, remember those those ads from like the sixties
and sevenss on TV. They were absolutely unique. So culturally
I have to think Sanford Bernstein and Merrill Lynch were
both very different. What did you bring from those two
organizations to your work at Morgan Stanley, either philosophically or cultural.

Speaker 3 (10:46):
Yeah. So I think from from my time at San
for Bernstein, I like to think I brought, you know,
kind of my love of original research, my love of
you know, that independent streak, that desire to really you know,
call out conflict of interest and say no, this is

(11:08):
you know, this is what the numbers really tell you.
I like to think I brought that. I think, you know,
from Merrill it was really that appreciation of how do
you work through financial advisor so and you know, as
a chief investment officer, how do you earn the trust
of financial advisors to have influence? Right, because they're what

(11:31):
stand between you and the client. And so, you know,
I think I think I started that process in my
career at Meryl. I think in many ways I still
wake up every day and I think I've got more
to learn in terms of how to be a better
partner to financial advisors today at Morgan Stanley.

Speaker 2 (11:52):
And what It's kind of interesting given the open architecture
at Merrill and the proprietary work at Alliance Earnstein, Morgan
Stanley's a little bit of both. You have consilient research
and a number of people running their own funds that
are specific to Morgan Stanley as well as the open architecture.

(12:15):
How do you look at the combination of both closed
and open together.

Speaker 3 (12:19):
Yeah, well, look, I think it does a lot of things. First,
it avails me of some of the best colleagues on
the planet, right, so I'm surrounded not only by folks
in the wealth management business, but obviously I'm attached to
one of the best equity in trading franchises globally. And
then to your point, you know, connected to pms that

(12:41):
you know are walking the floors with me. But look,
you know, I want to be really clear when I
think about my clients. We're arm's length, so proprietary product
might be appropriate for them if they're open to it. If,
on the other hand, they say conflicts of interest matter
a lot to me, I want everything to totally transparent.

(13:01):
We have those options as well. So you know, I
think about it as as you know, we we work
with clients. We do what clients are in their best interest.
And I know it sounds a little bit like an advertisement,
but I really believe that.

Speaker 2 (13:15):
Well, the next question, the obvious question is who are
the clients? Are they institutions, are they households? Are they
a little bit of both?

Speaker 3 (13:22):
Yeah. So, as you may know, Barry, you know, over
the last you know, really decade since since Gorman acquired
Smith Barney, we've been expanding our footprint in terms of
the client segments that we are focused on serving really exponentially.
So while you might once upon a time have thought about,

(13:42):
you know, the Morgan Stanley Financial Advisors as as you know,
serving that ultra high net worth you know, core client,
you know, now we're you know, serving folks in the
mass market through e trade, We're serving family offices, We're
serve institutions. We've done acquisitions in the stock plan businesses

(14:05):
and the retirement businesses. You noted in my bio that
I run help run one of our ocio businesses, our
outsource where we're working with foundations and endowments and family offices.
So now we're everywhere, and we're serving every type of
wealth client internationally, domestic, self directed through a brokerage account,

(14:30):
all the way through complete discretionary.

Speaker 2 (14:33):
I recall back in the day Morgan Stanley as well,
they're kind of a Goldman Sachs want to bee and
that is no longer the case, it's the best of Goldman,
the best of Merril and on. This is really inside
baseball stuff. So I apologize to listeners, but on the
league tables to say who's number one and underwriting, who's

(14:55):
number one? In attracting new wealth management, who's number one
in self directed? Like, you guys are competitive across the board,
and it's not like the old days where Goldman has
a good year and they you know, take the top
spot everywhere. That doesn't seem to happen anymore. It seems
like the industry has become so competitive you want to

(15:17):
be in the top five or top ten. But the
days of you know, taking number one with a bullet
across all these different areas, they really seem to have faded.

Speaker 3 (15:26):
Yeah, they have. I mean, I think that ours is
a business in almost every segment that requires a lot
of scale, and as you know, developing scale very often
means investing aggressively in tech, investing aggressively in talent, and
you've got to pick your spots right. And so you know,

(15:46):
to your point, I think every you know segment today
is a little bit of a gunfight. I like to
think that you know, in core wealth management, Morgan Stanley,
and you know where we've come, you know, first under
James Gorman and now hopefully under Ted Picks. Leadership is
really you know, differentiating us and allowing us to pull

(16:09):
away from the pack at least in wealth management.

Speaker 2 (16:12):
And you mentioned the investment in technology and people and
the ability to scale at your size, and there's only
you know, a dozen or two companies that can make
this claim that flywheel begins to become very self reinforcing,
and you have the ability to just continue to add

(16:33):
divisions to fill in. Oh we're a little soft here.
Let's let's bulk this up a little bit and put
a little muscle on it because we have the ability
to offer these services to all our clients. What's it
been like watching the how long have you there?

Speaker 3 (16:48):
You're there almost thirteen?

Speaker 2 (16:50):
They're over at dteen. Yeah, so and from twenty twelve
to twenty twenty five, that's a huge run. A lot
of big financial players, Vanguard, black Rock going down the
list have really added some heft, So is Morgan Stanley.
What's been like watching that over the past decade plus.

Speaker 3 (17:08):
Yeah, it's been extraordinarily exciting for us. Obviously, you always
want to be working in a growth business, and so
you know, we've been in a situation where we're hiring people,
which is always exciting. We're going after new types of clients,
new problems, new situations, which keeps you on your toes

(17:31):
and keeps you growing, and you know, really completely new
business segments. I mean, I can't tell you how to
your point that flywheel between moving up market into institutions
feeds your self directed business. I mean, let me just
give you an example. Let's assume that we are administering

(17:54):
a stock plan for a large corporate client. Now we're
going in and we're saying to that corporate client. Instead
of you know, having a financial advisor going to the
country club on Saturday acquiring a client, mono we mono
one at a time, we're now walking into a c

(18:15):
suite and saying to that CFO or that chief talent officer, Hey,
can we provide all of your employees with a financial
wellness program? Can we give every single one of your
employees a free financial plan? Can we give every single
one of your employees a account or advice you know,

(18:38):
to their first you know, purchase in a five twenty
nine account. Things like that where suddenly you're acquiring clients
at scale.

Speaker 2 (18:46):
Huh, really really interesting. So let's talk a little bit
about Morgan Stanley. We mentioned you a previously at Alliance
Bernstein and then you were at Bank America Merrill Lynch.
What led you to make the jump to Morgan Stanley.

Speaker 3 (19:01):
So I had when, as I noted, I'd gone to
work at Meryl very much to partner with my very
good friend Sally Kratchek, and after she had left, I
made the decision that without her there, I kind of
felt among the you know, the thundering herd without a rabbi,

(19:23):
if you will, And I left it. At that point,
I really thought I was going to do my own thing.
I thought I was going to do something entrepreneurial. I
thought I might join an RIA or form my own
RIA at that point, and I just I got a
call from Greg Fleming. Greg Fleming was one of the
co presidents at Morgan Stanley at the time, and he said, look,

(19:49):
you know, I have a lot of contacts over there
at Merrill Lynch. The financial advisors really love you, you know,
come on in and meet our team. And so I
I did, and you know, I had a very similar
feeling to that feeling I had when I first went
into Bernstein of you know, these are just great people
and I would enjoy working with the people. And you know,

(20:11):
before I knew it, there I was, you know, sitting
next to Mike Wilson, who I know, you know, Mike
was taking a stint of rotation through wealth management, and
you know I joined I joined him to build the
team and and really you know, create the platform that
we have today. When when Morgan Stanley and Smith Barney

(20:35):
were merging, there was really no centralized CIO office. It
was the only place that that that talent was coming
from was from Smith Barney, from the Smith Barney side,
And so we wanted to recraft a more Morgan Stanley
integrated firm offering, and so I joined Mike Wilson to
help build that.

Speaker 2 (20:56):
So, so let's talk a little bit about what goes
into managing one hundred plus billion dollars in assets. How
do you develop that, how do you think about asset allocation?
And how do you think about the end clients? Given
how broad your audience and clients are, how do you

(21:17):
create a set of options that checks all the boxes
that you know you need to check? To do this
right but also gives a broad variety of clients what
they're looking for.

Speaker 3 (21:28):
Yeah, so Barry for US asset allocation. All asset allocations
starts with financial planning, and all financial planning starts with
the client. But you can't do a financial plan without
having what we call capital market assumptions. You know, what
do we think every asset class is going to do

(21:49):
over the next three, five, ten, twenty years. Our customization
of asset allocation really starts with financial planning. That is
the lynch pin, and we fundamentally believe that you've got
to understand a client's cash flow, that the client has
to understand their own cash flows. You know. One of
the things that I know, you know, having worked with

(22:11):
a lot of clients, is very often clients don't know
themselves right the the good old fashion, Hey, I'm kind
of aggressive, I'm kind of conservative. Those are such non
normative terms. You never know, are we talking about politics,
are we talking.

Speaker 2 (22:25):
About you know, how about whatever the market did the
past six months?

Speaker 3 (22:31):
And so so, working through the behavioral pieces, the getting
to know your client, the working through a plan with them,
really getting into what are their hopes, wishes, dreams, you know,
what does money mean to them? Why have they accumulated it?
How have they accumulated it? H What do they hope
their legacy will be? Does it have to do with

(22:53):
a charity, you know, a cause, a family member or
members and build a plan from them?

Speaker 2 (23:00):
Huh? Really really quite interesting. So, since you've joined Morgan Stanley,
and I'm going to assume this isn't a coincidence, their
focus has increasingly been on the wealth management side of
the business, which was a big change to the nineteen
nineties and the two thousands, tell us a little bit
about why and how this focus shifted and what your role.

Speaker 3 (23:25):
Is in that. Sure. So look, I think you know
this is I think history is going to be extraordinarily
kind to James Gorman. I think James I feel so
extraordinarily lucky to have served in the firm while he
was the CEO. I think, you know, strategically, you know,

(23:46):
back during the financial crisis, he developed a vision and
that vision was I believe that the wealth management business
is a growth oriented business. I believe it needs scale,
and I believe that when combined with the more cyclical
markets based businesses or the banking based businesses, can add

(24:07):
ballast and create shareholder value. And I think that he
embraced that vision, and that vision had kind of three
chapters to it. The first was, you know, let's buy
Smith Barney and get physical scale, right, just the physical
scale of a large number of advisors. Let's invest aggressively

(24:28):
in technology to support those advisors. I think the second
part of that growth was to say, let's transform how
we serve our clients and the client segments that we serve.
And they started to explore these other acquisitions. First the

(24:49):
acquisitions of these stock plan businesses, which are essentially tech businesses,
tech platform businesses, but would allow us to go from
acquiring clients one at a time to in groups. And
then you know, the last piece of the strategy was
really you know, let's let's go after E Trade and
Eat Advance and acquire those and then we'll have the

(25:11):
machinery so that you can, you know, acquire clients at
the early stages of their life cycle, allow them to
be self directed, and ultimately graduate to advice, so that
your financial advisors actually constantly have a source of new clients,
of new wealth clients that they don't have to be

(25:34):
at the country club every single weekend.

Speaker 2 (25:36):
So what you're describing is you're starting with clients that
have no minimum and they're self directed to d trade.
I don't mean this in a negative way. They sort
of move up or graduate to a little more full service.
They want a financial plan, they want some advice, they
want to think about whether it's saving for home or college,

(25:59):
or or or retirement. And then the next step up
seems to be full on wealth management, where you're dealing
with philanthropy, generational wealth transfer, a lot of bells and whistles,
including a state planning tax. You guys offer the full
suite of.

Speaker 3 (26:16):
Services, absolutely, and I think one of the things that
a lot of folks don't know about us is we're
the eight hundred pound gorilla in actually offering alternatives to
private wealth clients. You know, we are larger than some
of our well known competitors by a factor, and so
what that means is we're now in a position we're

(26:37):
literally about eighty percent of the alternatives that I would
show you as a client are either you know, first look,
meaning we're getting the first look or or best price
by a lot.

Speaker 2 (26:52):
So it's funny because you mentioned Gorman taking over from
his predecessor. Yeah, John macko Mac, who I've had on
the show, who was just delightful. But the Mac era
of Morgan Stanley seemed to have more successfully navigated the
financial crisis than many of their competitors, And part of

(27:15):
me can't help but feel that coming out of the
crisis in better shape than so many others really allowed
more instantly to blow up over the next fifty when
when everybody else had blown up during the financial crisis
in the bad way, they really bulked up in the
good way. Following that is is that a fair assessment?

Speaker 3 (27:36):
That that is a fair assessment, Barry, I think I
look at it in a very particular way. A host
of our competitors were forced quote unquote into the arms
of the big banks, right, So the the b of
a Meryll situation, right, Jp, Morgan exactly you had you had,

(27:59):
you know, city had to make choices around Smith Barney.
It was very, very hard what what Mac and James
Gorman did to rescue Morgan Stanley. And literally they talk
about it as an overnight rescue where half the employees
were packing the boxes just like everybody else, uh, and
the other half were were on the phone with colleagues

(28:22):
in Japan. And as you may recall, what saved Morgan
Stanley was a huge equity infusion from MUFG, from Mitsubishi
Financial Group. And what was wonderful about that is, not
only was it premised on a fantastic, you know, partnership,
but it was an arms length partnership that allowed the

(28:44):
business to be rescued but not devoured. And I think
that for some of our competitors who were suddenly during
the Great Financial Crisis inside you know, systemically important banks,
their knees right just by sheer dint of size got
squashed a little bit because the bank obviously had, you know,

(29:07):
the CEOs of City, the CEO of Chase, the CEO
at Wells, the CEO at b of A. You know,
they're sitting there with the Fed and the SEC every
five minutes. Now I'm not saying Morgan Stanley wasn't at
those meetings, but the stakes were different because we weren't
a commercial bank with a balance sheet the size that

(29:28):
those guys have.

Speaker 2 (29:29):
But even more importantly is you're at Alliance Bernstein. Bernstein
gives up control in the merger. You're at Meryl, Meryl
gives up control in the merger, third times a charm
when you end up at Morgan Stanley. Mitsubishi had a
substantial steak, but they didn't take a controlling steak, and
the local US based management were able to continue making

(29:51):
the choices they made. I have to think that was
just a giant home run investment for our MUFG. That
has to be just a giant winner for them.

Speaker 3 (30:03):
And I And you know, I think if again, if
you go back and look at it, you know where
where are the Morgan Stanley stock bottomed and where we
are today? Like I said, I think the history books
are going to be quite kind to mister Gorman.

Speaker 2 (30:19):
And you know, you you talked about some of the
acquisitions Smith Barney, Eating Vance. I'm trying to remember the
direct indexer you bought. I didn't know if it came
through Eaton Vance. Yes, what was that? Parametric?

Speaker 3 (30:33):
Yes? Yes, so yeah, so fantastic, Uh Memory Barry, because
that has been transformational as you know, indexing, tax management, Uh,
direct indexing or the ability to customize are you know,
all demands and and it's a tech it's a very
tech heavy business. So Parametric was buried inside of Eating Vance.

(30:56):
It is you know definitely diamonds in the rough that
we got and now is a key capability offering within
the suite of products.

Speaker 2 (31:06):
Huh. Really fascinating. So let's talk a little bit about
what's going on these days, and I want to start
with a quote of yours that I really like. We're
all long term investors until the market goes down, and
we're recording this in the midst of a pretty healthy
sell off in February and March, especially now that the

(31:29):
new North American tariffs seem to be taking place. Tell us,
what why do we give up our long term perspectives
once the market starts heading south.

Speaker 3 (31:40):
So there's the emotions and then there's the math, right,
So what I always say is that you know what
the Nobel Prize winners and behavioral economics will tell you
is that emotionally, losses hurt four to five times more
than gains satisfy. And that's actually intuitively appropriate because typically

(32:06):
our wealth, we feel it has taken blood, sweat and
tears to acquire or accumulate. And when we experience a loss, right,
a fifty percent loss can happen right in a very
short period of time, But to round trip and recover
our high water mark. We've got to be up one

(32:26):
hundred percent, right, which may take us twice the three
times as long. And so the math is asymmetric. The
emotions are asymmetric, and fear, as we know, just the
same way. When things are running hard and you feel
like you've got the pomo and the missing out, it's greed.

(32:46):
When you know there's a lot of red on the screen,
people are you know, your stomach's you know, totally seizing up,
and it's about fear. I don't want to experience loss.
I don't want to have to make a decision of
what do I do here?

Speaker 2 (33:00):
Yeah, the asymmetries are really fascinating. I am not a
fan of Vegas or casinos, but I go there as
a sociologist and I always find it amusing that right
off the casino floor is a big, beautiful jewelry store
filled with lots of expensive watches, and because those gains,
it's house money. It's ephemeral, but losses are an existential thread.

(33:24):
It currently feels like the world is coming to an end.
Exact for get down fifty percent. We're recording this five six,
seven percent off the highs and people are talking like
it's the end of the world. Let's talk about another
one of your quotes, that kind of quote my eye,
which was discussing the Great normalization? What is the Great normalization?

Speaker 3 (33:45):
So, you know, we've been trying to remind clients how
extraordinary in financial history the past fifteen years have been.
Since the Great Financial Crisis, We've had an unprecedented level
of Federal Reserve involvement. We've had markets that have been

(34:06):
buttressed by the Federal Reserve balance sheet, that have been
buttressed by a disproportioned amount of time having financial repression
or low rates, rates being held down. We've had gone
through the COVID crisis, which stimulated unprecedented fiscal stimulus. As

(34:27):
a share of GDP and performance, what clients have actually
experienced If you go back to March of two thousand
and nine, right, and you and I remember March of
two thousand and nine, the bottom we were probably looking
at an S and P five hundred that was trading
in the mid six hundred.

Speaker 2 (34:48):
Sixty six six. I remember the devil's bottom.

Speaker 3 (34:51):
The devil's bottom, and look at where we are now.
Even though we're off, we're still up. During that time
nine x nine x over fifteen years. So I tell
people what, let's put this in perspective, What that kind
of mathematically translates to is we've for fifteen years, we've
compounded at about fifteen percent per year. So that's two

(35:14):
times normal for a business cycle. Let's call it a
you know, where we had two very short recessions, two
back to back very long business cycles. Not normal. What
was also not normal is during that time the degree
to which US exceptionalism and the US outperformed the rest

(35:35):
of the world. I mean, we were outperforming every year,
year in year out by six hundred and seven hundred
basis points per year. And so when we you know,
kind of came into January of twenty twenty five, we
were starting to talk to folks about, look at where
the dollar is versus virtually every other currency, super strong.

(35:56):
Look at the share of US equities versus the rest
of the world. We're ten percent of the world's population,
we're twenty five percent of the world's GDP, we're thirty
three percent of global corporate profits, but we were sixty
seven percent of all stock market gap just extreme. And

(36:19):
so what we were starting to talk to clients about is, look,
this is an extraordinary amount of large s, and a
lot of it has come from FED accommodation from stimulus.
Now we're on the other side of that. We have
a very robust economy. We've relevered the economy, if you will.
Where the leverage of the private sector, the household sector,

(36:43):
the corporate sector that got us into the Great financial
crisis that's been healed. Right. We have households that can
still carry for the most part, their interest burdens.

Speaker 2 (36:52):
Very very low historically.

Speaker 3 (36:54):
Right.

Speaker 2 (36:54):
It's not the total debt, it's the debt relative to
discretionary come exactly exactly.

Speaker 3 (37:00):
Corporations that still have an extraordinarily relative low locked in
cost to capital. And what's become relevered is the federal
balance sheet and the government balance sheet. And now here
we are in every couple of decades, we have to
go through these periods where there's heat in the economy,

(37:22):
and inflation is one manifestation of the heat. Real growth
and investment is another manifestation of the heat. But the
other manifestation is you probably have overdone it on the
stimulus and you've got to pull it back and there's
going to be some pain. So when we talk about normalization.
We say, look, we're not going back to two percent
interest rates, normal cost of capital in an economy like

(37:46):
Americas that has real fundamental growth of two percent and
real inflation or experienced inflation of two and a half
to three, which is what we've had for the last
eighty years, right, not two percent target that the Fed says. Right.
What that tells you is that long term rates used

(38:06):
to be normal at five to six percent, right, that's
not crazy, right, and yet the market continued to sell
it at twenty two times forward multiple. So what we've
been saying is part of the great normalization is over
the next couple of years, we think long rates start
to move towards five to six percent like they were

(38:27):
in the aughts, in the two thousands and in the nineties, right,
and multiples start mean reverting a little bit to seventeen.
And that's the great normalization. Your earnings actually start growing
into those multiples.

Speaker 2 (38:40):
You mentioned the two percent target of the Federal Reserve.
Did you work with Roger Ferguson when he was at Meryl. No,
I did not, But he eventually became vice chairman of
the Federal Reserve. Yes, and put out this delightful research
piece that said the two percent inflation target comes from

(39:01):
a New Zealand television show in the nineteen eighties and
it has nothing whatsoever to do with the modern economy.
I'm to this day delighted by that. And I don't
understand why the Federal Reserve continues to be so locked
in on two percent, which we had in the twenty
tens when yes, deflation was at risk. Correct Now that
we've moved from a monetary regime to a physical regime,

(39:26):
three percent seems to make more sense and we're there,
We're there. I don't know why they're stuck on that.
I think they're just afraid of making mistake Again. Part
of the normalization that, hey, the Fed's a little behind
the curve with what's going on in the rest of
the economy.

Speaker 3 (39:43):
No, exactly, And I think one of the things that
has the market having to adjust is this idea of
a data driven FED. Right in a world where the
Fed's the only headline and the FED is giving forward guidance,
it's really easy to have low vall and for everyone
to just ride momentum. But in a normal world where

(40:08):
the FED has to respond to economic data, you and
I know economic data is a manifestation of human behavior.
It's volatile, right, So the FED is going to be
more volatile. Policy is going to be more volatile. It
means your interest rate curve, your yield curve, needs to
have some term premium in it. Remember that. And that's

(40:31):
part of the Great normalization. You know. I do the
math when I do some of my chats with the
younger folks on the team, and I say, okay, real growth, inflation,
term premium, see this thing. It's been zero or negative
for the last fifteen years. That's not normal.

Speaker 2 (40:51):
So wait, you're saying the thirty year bond should pay
a higher yield than the ten year bond, higher than
the two year. Yes, I'm not familiar with. It's been
opposite for me, exactly. It's so hard.

Speaker 3 (41:02):
Exactly.

Speaker 2 (41:03):
So another quote of yours, which I assume is related
to this, is the era of set it and forget
it is over? Is that what we're saying here?

Speaker 3 (41:13):
Yes, exactly. So you know what comes out of this
idea of the Great normalization is it's also an era
where we can't just passively close our eyes. By the
S and P five hundred market cap weighted index and
go to bed. It was a great fifteen year run.
But our view is that as cost of capital readjusts

(41:37):
as it's actually a positive number. This is where the
skill of corporate management starts to differentiate winners and losers.
And we move back to a world, right, and you
and I grew up in this world, that that fun
world where you're actually stock picking, where the research that
individual fundamental analysts were doing mattered and you had to say, hey, hey,

(42:00):
these guys are going to win because these management teams
are taking strategies that can work, and these management teams
are dropping the ball.

Speaker 2 (42:09):
Huh. Really really super interesting given all of these changes
that we're witnessing. And again this is something else you've
written about, how do you separate the signal from the noise?
What's your process for filtering out what's just the noisy
data that's within the margin of error or just slightly

(42:31):
beyond and genuine important market information.

Speaker 3 (42:35):
So this is the art, right, This is the art
of all of it, is separating the noise in the signal.
For us, the signal is always operates ultimately on just
two axes. Is what's really going on in terms of
the rate of change? In growth and what is going
on in terms of the rate of change of inflation,

(42:55):
because the rate of change of inflation is going to
give you an indication of policy bias, of rate bias.
And if you can focus on those two things and
every single piece of data you get, you say, what
does this mean for growth? What does this mean for inflation?
You can try to keep yourself sane at night.

Speaker 2 (43:13):
Huh So, I'm curious as to February was a tough month.
We've seen volatility spike now up to twenty three or so.
I haven't even looked at it today with markets off
a couple of percent. The questions you're getting from clients,
what are you hearing, What are you hearing about tariffs,

(43:33):
about the post election regime change, about what's going on
in geopolitics, what's lighting your phone up? And what are
you telling these folks?

Speaker 3 (43:43):
You know, obviously we would love to spend the bulk
of our time talking about asset allocation as it corresponds
to growth and inflation. Unfortunately, exactly to your point, Barry,
we're spending a disproportionate amount of time out of our
comfort zone being asked to respond to our understanding and

(44:04):
our expectations for the economic impacts of policy, and what
has complicated things, as you know, is that this administration
has chosen to implement policy fast and furious, and in
many cases quote unquote in parallel, right. I think that,

(44:25):
you know, coming off of the election, coming off of
the campaign season, a lot of us were trying, you know,
to build models based on well, they're going to sequence
things right, They're gonna you know, deliver some of the
bad news early and then you know the candy will
come at the end. I think what we're experiencing, especially

(44:46):
after the last fifteen years of this kind of one
or two note market right where it's been, what is
the FED saying, oh generative AI looks like good headlines
to seventeen lines a day of policy flood the zone.
So clients are asking for certainty, they're asking for clarity,

(45:08):
and it's hard. I'm going to be honest with you. So, look,
we're in the camp and this is a pure economic view.
I hope I'm not going to be accused of being political.
Pure economists will tell you that tariffs, particularly if implemented
over long periods of time and to the extent that
they cause trade war reciprocity tend to be destructive to

(45:33):
total global trade, and aggregate tend to be a one
time inflationary problem and tend you know, to to really
you know, kind of hurt the efficiency of markets, and
so I think we're seeing some of that. I think
it's very hard for CEOs and CFOs today to be

(45:54):
making decisions not knowing what the policy duration is going
to be. It's one thing to have a policy and say, okay,
we're deregulating X, or here's the new tax policy for
the next four years. I can work with that. When
you tell me we're having twenty five percent tariffs on lumber,
well how long, how much? Where aw's it going? You know?

(46:17):
I think that's the big question is is the inconsistency
of it and the questions of is this a negotiating tactic,
what are we negotiating for? How do I model it?

Speaker 2 (46:29):
That kind of thing, And you know, it's really hard
to get a handle on this because let's just use
Canada and Mexico. The first tariff was floated and then
it was quickly resolved and it felt, oh, this is
just a negotiating tactic. The effect of the second twenty
five percent tariffs on Mexico and Canada and ten percent

(46:52):
tariffs on China. And it's not only surprising that it
was done, it's kind of perplexing. What are we getting
out of the tariffs with Canada When you look at
some of the supposed bases for this. The fentanyl that

(47:13):
comes into the United States is mostly brought in by
US citizens and smugglers. It's not coming in from either
Canadian lumber or oil, or televisions that are being built
in Mexico and sent over the border. It's you know,
it's kind of odd, especially given the North American Free

(47:37):
Trade Agreement that was negotiated to replace NAFTA was Trump's tready.
So the whole thing is kind of you know, clients
don't like to hear you say I have no idea
what's going on, and beware of people who say they do.
But it really feels like this is sort of arbitrary

(47:59):
and capricious, and we don't really know how this resolves.
It's sort of grit your teeth and write it out.
Is brace yourself, mauthora. That's what it feels like.

Speaker 3 (48:08):
Just hold on and the way I always frame things,
as I say to people, look what kind of risk
premiums are there in the markets? When stocks are very expensive,
as they have been for a while, here, it tells
you risk premiums are tight. Right, things are quote unquote
price for perfection. When credit spreads are tight, it tells

(48:31):
you people are not requiring a premium for fear or
default or uncertainty. Right when there are no term premiums
in the in the United States Treasury curve, it's telling
you the same thing. So look, if this were all
happening against a backdrop where stocks were selling it fifteen times,

(48:51):
where you know we had eight hundred you know, basis points,
spreads in high yield, all this kind of stuff, you
and I might be saying, Hey, guys, yes there's uncertainty,
but this is a buying opportunity. Look, you know things
are selling off off of fifteen multiple. Where do you
think they're going to land at thirteen? We're going to
buy here, but we're not there. Markets hate uncertainty, and

(49:15):
they really hate uncertainty. When things are priced for perfection.

Speaker 2 (49:20):
Does it give you a lot of room for error?
So let's talk about something more positive. AI has been
the big story for the past couple of years. Let's
talk a little bit about that and other emerging technologies
or innovations you think might impact the investing landscape over
the next decade. What are you looking at?

Speaker 3 (49:40):
Yeah, so we're looking at at a lot of things.
But look, clearly, generative AI is transformative, There's no doubt
about it. I think the conundrum for investors is how
do you stay ahead of the revolution itself? And what
I mean by that is that, you know, technology innovation

(50:03):
tends to follow very clear scripts over history, and by that,
I mean you tend to get the big infrastructure build,
then you get the software applications, and then you get
mass economy wide deployment, and in that sequence you get

(50:24):
new killer apps and the quote unquote the winners of
that era. I'm not entirely sure that all the winners
have been identified with regard to generative AI. And while
the Magnificent Seven are magnificent on many, many, many financial attributes,
on many innovation attributes, you know, I think the market

(50:46):
is telling you that maybe they are not the only
winners here, and that maybe the growth in the infrastructure
build doesn't go on forever. And certainly our experience with
the Internet validates that. So you know, what are we
super excited about right now? We're we're super excited about

(51:06):
some of these AI adopters. We're looking at areas, whether
it's document recognition, voice recognition, all these various applications, the agents.
You know, how we're going to deploy AI into learning
agents to help human beings do things. Almost become the

(51:28):
white collar robot, if you will. I think, you know,
that's all very interesting, But where AI is likely to
have some of its most profound impacts is in healthcare
and the extent to which we're going to be able
to use large language models just to process data and
personalize medicine and personalized diagnostics and solutions, treatment plans so

(51:54):
much faster.

Speaker 2 (51:55):
I saw a fascinating video the other day about AI
being used. So when you look at the history of healthcare,
it really started out as a little bit of chemistry,
and then it became biology, and then it became genomics.
And one of the challenges is trying to figure out
how protein folds and how different molecules interact with the

(52:20):
body's receptors and immune system. And it turned out that
like for the prior fifty years, we've identified a few
thousand different combinations of molecules and protein foldings, which is
key to figuring out what the genetic code operates in

(52:40):
actual life. And so they went from like the library
of twenty five hundred protein folding protocols to using AI
identifying like four hundred things exactly. Like it's an insane
order of magnitude, and we've only begun figuring out how
do these different proteins work on different parts of the
body and response to different diseases, infections, virus. It's like,

(53:05):
it's shocking that these aren't headlines yet. Yeah, just academic research,
but it seems like when people are talking about longevity,
it's not the cold plunge that's right to do it.
It's going to be all of these half a million
news correct protein designs tell us a little bit about

(53:26):
the investment opportunities that exist in the healthcare space.

Speaker 3 (53:29):
So right now, you know, healthcare is one of the
sectors that we have moved over weight. You know, clearly
the healthcare sector over the last you know, decade, and
much of this bull market in large part has been
left behind and valuations have been you know, with the
exception of some of the obesity drugs, the pharmaceutical industry

(53:52):
has been squashed by by worries about regulation, squashed by
the power of the insurance companies, you know, squashed by
patent xpery, you know, squashed by a lot a lot
of things. But we think that that valuations are there.
We think that that's a great place to invest, and
you can do it obviously through venture and in the
public markets. Other themes that were super super excited about

(54:17):
our defense and space and the and the conjoint between
those two. You know, this idea that ultimately the way
we think about weaponry, the way we think about defense,
will be humanless, not unlike you know, some of what
you see in the sci fi movies and Star Wars,

(54:37):
unmanned vehicles doing the very surgical games of war, if
you will. So I think, you know, that's something we're
super excited about. Some of the innovations in the energy space,
not so much purely around clean tech or powering data center,
but really thinking about how do we more creatively use

(54:59):
and we're deuced dependency on some of these rare earth
materials to create battery autonomous vehicles another one. So all
of these areas the very very fascinating time to be
an investor in new tech.

Speaker 2 (55:15):
Yeah, you mentioned autonomous and defense. This giant New York
Times article came out about the war in Ukraine and
the transition from World War one and two type trench warfare,
armored vehicles, tanks. Exactly seventy percent of the casualties inflicted

(55:36):
in the war as of recently are being driven by
drunk It's absolutely futuristic sci fi. When warfare changes that rapidly,
it has to make you raise the question, how do
the geopolitical alignments change?

Speaker 3 (55:53):
Here?

Speaker 2 (55:53):
We are, how we are? How do the big defense
companies like there's a reason Pallanteer has been super hot
and not necessarily Luckheyed Martin or Boeing correct, It's really
quite fascinating. I have two personal questions yes, to ask
you before we get to our favorite questions. All right,

(56:14):
starting with you wake up every morning at five oh seven.
So first, why five oh seven. It's such a specific
number as opposed to just setting the alarm for five
or five thirty. And then if you're up at five
oh seven, give us a day in the life of Morgan,
Stanley's chief investment.

Speaker 3 (56:33):
Oh jeez, So I'm extraordinarily superstitious about odd numbers.

Speaker 2 (56:39):
Really, yes, wait, you were applied mathematics undergraduate. Yeap, that doesn't.

Speaker 3 (56:47):
It's just screams. I guess it's part of my lived
experience is that, you know, I always say to people, hey,
it's an odd number year, We're good, you know, really,
Oh my god, I'm very I'm very so I'm.

Speaker 2 (57:01):
Trying to remember the Nobel laureate in physics. I'm drawing
a blank on his name. Who a grad student visited
his house and there's a horseshoe over the doorway. Yeah,
And the grad student says, professor, you don't you don't
believe in lucky charms and things like that, And the
response was maybe it was plank, I'm not sure, but

(57:22):
the response was, I'm told it works whether you believe
in it or not, which is which is pretty charming.
So but I believe in it. Odd numbers.

Speaker 3 (57:32):
Is really so it's an odd number. So so look,
it was something you know, back in the day, one
of my jobs was I was a director of research,
and so I always had to be at my desk
right at six point thirty. So I got into the
routine of, you know, up five oh seven, you know,
do the quick twenty minutes on the treadmill, grabbed the
coffee shower out the door, and so that's you know,

(57:54):
still still me. You know, old dogs, new tricks. It's
been it's been really hard.

Speaker 2 (57:59):
And how different and is every day as Cio is like,
I like to sometimes ask, what's the day in the
life like? But I suspect no two days are the
same for you.

Speaker 3 (58:08):
Now, No two days are the same. But but Barry,
let me just tell you. I I wake up at
five h seven every day and the very first thing
I say is I am blessed that I have the
career that I have, that I have the seat that
I have at this point in my life because I
am learning every day. No two days are the same.

(58:31):
I get to hang out with the most amazing people
like you, you know, like my colleagues at Morgan Stanley,
like my clients, all of whom are you know, so
so interesting and successful in different ways. Going to meetings
where you get to hear Scott Vaisant speak at the
New York Economics Club, and you know, you're just really

(58:53):
feel alive, You feel plugged into the world and what's
going on. So I feel blessed every day and No,
two days are the same.

Speaker 2 (59:03):
So last last career question. You've been watching the state
of the economy, the markets, just what's going on in
the world for just about twenty five thirty years. What's
been the most significant shift you've observed in wealth management
over that period.

Speaker 3 (59:22):
Wow, that's a fantastic question. Look, I think if there
was one theme that I would say over my thirty
year career that has characterized everything, it has been the
democratization of reasonably sophisticated product. Right, So whether you know,

(59:45):
you talk about you know, first coming into the business
and the advent of you know, first mutual funds was
about democratization of you know, diversified stock investing U and
then you know passive asting as a way to get
access to an index in a you know, more technology

(01:00:05):
efficient way. You talk about the original rollout of quote
unquote liquid alternatives or evergreen type products. Uh, and now
we're at the point where, you know, we're talking about
very sophisticated private equity private credit products being contemplated for
four one K plans and being packaged in these structures

(01:00:29):
to give folks periodic liquidity. So democratization of you know,
sophisticated alpha and beta that that once upon a time,
I think, you know, when I, you know, started in
the industry, people would say, well, there's the market and
then there's the extra stuff, and that's and you've got
to figure it out. And if you don't like that,
own some bonds. I think now it's it's the democratization

(01:00:55):
of very sophisticated access, of access to sophistic cada products.

Speaker 2 (01:01:00):
So let's jump to my favorite questions that I ask
all of my guests, starting with what are you streaming
these days? What are you watching to relax or on
the treadmill or just to keep you entertained?

Speaker 3 (01:01:13):
Love streaming. The most recent thing I finished was something
called Shrinking Yeah, so yeah, so good. I've been watching
Prime Targets.

Speaker 2 (01:01:23):
What are Prime Targets?

Speaker 1 (01:01:25):
So?

Speaker 3 (01:01:25):
Prime Target is a show about a mathematician who's working
in Oxford who is working on a thesis to generate
prime number combinations and permutations that supposedly, if he's able
to develop this algorithm as part of his PhD thesis,

(01:01:47):
would unlock or give folks the ability to hack almost
any system. And so of course it becomes a scenario
where you know, there's the bad guys are chasing him
to try to get his thing, and of course, you know,
the national security agencies are trying are chasing him, and

(01:02:08):
it's kind of a spy versus spy kind of thing,
and it's a poor, innocent nerd guy in the middle.

Speaker 2 (01:02:14):
And what is surface or surfacing?

Speaker 3 (01:02:16):
So Surface is a is a show also on Apple TV.
It's in its second season. It's about a woman who
kind of fakes her death as a way of leaving
behind her life and going back to England. She'd been
living in the United States. She was married in a
marriage that wasn't great, and she fakes her death to

(01:02:39):
go back to England to investigate what she thinks was
her mother's murder when she was a kid.

Speaker 2 (01:02:46):
Huh really interesting. Let's talk about your early mentors who
helped shape your career.

Speaker 3 (01:02:52):
Sure you know Bernstein was that seminal place, So the
two I would I would speak to one Sanders. Lou
Sanders was the CEO at Sanford Bernstein. In my humble opinion,
one of the greatest value investors, uh, certainly that I
ever met in my career. Just brilliant numbers person, very

(01:03:16):
very high integrity. Taught me how to be objective, to
get the emotions out of it, to build the model,
and have the discipline to build the model. Sally Crotchek,
we talked about one of my best friends in the business.
You know, someone that I care a lot about, someone
who showed me how to lead. Although we were peers.

(01:03:38):
She has a natural charisma and natural instinct for leading people.
She and I kind of worked side by side through
the nine to eleven crisis. I learned a lot from
her in terms of what people need from leaders when
things are tough. They look to leaders to say the

(01:04:00):
right things and do the right things and be strong
people and not get you know, bogged into headlines or theories,
but just to say, remember what we're here to do.

Speaker 2 (01:04:11):
Let's talk about books. What are some of your favorites?
What are you reading?

Speaker 3 (01:04:14):
Commons? What am I reading? So now this is going
to reveal my politics. The last book I finished was
a book called Prequel by Rachel Maddow, and it's a
very in the middle of reading, it's fantastic, she said,
it's captivating, and it's fantastic. And it's captivating and fantastic

(01:04:34):
not for good reasons, but it lays out some of
the dynamics of American history and American political dynamics between
the wars between World War One and World War Two
and the First America First movement in the United States

(01:04:55):
that was very much against America ever getting into World
War Two.

Speaker 2 (01:05:01):
Very isolationists, very anti yes, and.

Speaker 3 (01:05:05):
It was, and it was in this a way that's
similar to our current political dynamic. It ended up bringing
in some very different factions right where you had, interestingly,
coalitions of people who ended up being a political block
who came at things from very different points of view.
So you had kind of the Father Coglin part of

(01:05:28):
the movement. Father Coglin, for those who know, was a
very very famous Sunday radio show Catholic preacher and sacifist. Correct, Yeah,
but very isolationist. That was one dimension of it. And
then you had, you know, kind of the anti communist
and the anti immigrant sides of the party and some

(01:05:52):
other other dimensions to it. But it's fascinating book. Prequel
Rachel Mattow really recommend it.

Speaker 2 (01:05:58):
Our final two questions, what sort of advice would you
give to a recent college grad interested in a career
in either wealth management or finance or anything related to
your work?

Speaker 3 (01:06:11):
Yeah, so, and people hate when I say this because
it belies the path that I took. But I'm a
big believer in liberal arts education. I don't think that
to work on Wall Street, to be a great portfolio manager,
to be a great you know, economist, to be a

(01:06:33):
great strategist, that you have to study finance or business
administration or go to the Wharton School of Business. I
do not believe that. I believe we live in a
world where if you know how to read books, if
you know how to teach yourself things, if you know
how to learn how to learn, you can have a
phenomenal career. And it's exactly to your point, Barry, that

(01:06:56):
you and I entered the business twenty five thirty years ago.
Oh nothing's the same. It's all about adapting. And so
if I tell folks, study what you love, study what
you're passionate about, learn how to learn, and never lose
that hunger for knowledge.

Speaker 2 (01:07:12):
Become an autodidact. Learn how to learn, learn how to
what's going on? Our final question, what do you know
about the world of investing today that you wish you
knew thirty years ago when you were first getting started.
And I don't mean by Amazon at iwin Apple at one.
I mean, what broad principle did you learn along the

(01:07:34):
way that would have been useful to have found out
much earlier that.

Speaker 3 (01:07:37):
Being right is not what matters.

Speaker 2 (01:07:40):
A you're going to have to expound on that being.

Speaker 3 (01:07:43):
Right is not what matters. What matters in the long
run is what Einstein said, you know, decades ago. Remember
the power of compounding. If you save, if you're disciplined,
if you just have a consistent plan, you will highly

(01:08:04):
likely compound your wealth at at least seven and a
half to eight percent per year, which means you will
double your wealth every decade, double your savings. Whatever that
is for most of us, if we're lucky enough we
have you know, three four doublings in us. Just do that.

(01:08:25):
And it's not to say that what I do all
day doesn't matter, or what you do all day doesn't matter.
It's just at the end of the day, we're trying
to guide people. But as I say to my team,
I know, the likelihood I'm going to be right on
any given decision is at best fifty to fifty. What
matters is do we have a good plan and are

(01:08:46):
we being disciplined and consistent about it because compounding is
your friend.

Speaker 2 (01:08:50):
Really fascinating stuff, Lisa, thank you for being so generous
with your time. We have been speaking with Lisa Shallatt.
She is chief investment officer at Morgan Stanley Wealth Management.
If you enjoy this conversation, check out any of the
five hundred previous discussions we've had over the past ten years.
You can find those at iTunes, Spotify, YouTube, wherever you

(01:09:14):
find your favorite podcast. Be sure and check out my
new book, How Not to Invest The Ideas, numbers and
Behaviors That Destroy Wealth out everywhere March eighteenth. I would
be remiss if I did not thank the crack team,
and I'll just put these conversations together each week. Andrew
Gavin is my audio engineer, and A Luke is my producer.

(01:09:38):
Sage Bauman is a head of podcasts here at Bloomberg.
Sean Russo is my researcher. I'm Barry Prudhos. You've been
listening to Masters of Business. Oh, I'm Bloomberg Radio. Y