Market investing is really like no other discipline because the whole world is telling you no no no and you're say well maybe yes you're swimming against the tide in like no other industry because it's the Judgment of millions of people and all their decisions on a stock but that forces me to have discipline we aren't going to be changing human nature anytime soon you got to just stick with the model the stocks don't know you own
them and even if they did know they still wouldn't care I want to show investors you don't have to do anything fancy you don't have to trade you don't have to do any of this you're transparent everything is on the list
you hold for a year and then you give yourself the option of replacing five names I'm lazy as you can be that's it that's my [Music] secret well hello everyone it's Jibo Shan with yet another infinite Loops today's guest has been a very very good
sport to me over on Twitter I don't think I'm ever gonna call it X are you Eddie no it's always Twitter so my guest today is Eddie elen Bine who is the proprietor of one of the OG blogs on Wall Street and investing called Crossing Wall Street his buy list is a thing of Legends we're going to talk about that and we're going to talk about a lot more but so much so that it actually led to an ETF called advisor shares Focus Equity ticker
CWS and I noticed I haven't been over on Morning Star forever but you have five stars Eddie welcome thank you very much and I just want to say for years I've been a a big fan of yours and I it teas you that you had a big a giant social media team but I know you don't you're a brilliant Tweeter so and funny and you it is impossible to go to a mean war and emerge Victorious no many have tried so I just want to tell you that
and and also you have such a wonderful team at oan siasa management so uh I thank you it's it's a great honor to be here oh it's a great honor for me to have you Eddie because uh you also are an incredibly good sport and you know generally speaking uh I've been following you for for years and you just really are a good sport about everything uh you got some great quotes uh I think if I'm remembering correctly your PIN
tweet is uh along the lines of uh a bubble is a bull market in which you have no position am I getting that right yeah yeah so so let's go let's go origin story as I mentioned in the intro you literally were one of the First Financial blogers I think you and my my buddy Barry rolt were the only people blogging and and I know that uh the traditional uh mainstream Financial media didn't I think there's a great story where they had you on TV in the
early days and and I think as you put it they sat you at the Kids Table tell us about that um but so yeah Barry uh was the first person I read a lot that you was was was blogging and so I jumped in after he did and at that time you know the the media they just did not know what to do with us and I remember uh I was invited on CNBC and I mean they just didn't even know what it was I remember the the the woman said so what are your bloggers
saying just say like not like the people reading it are called bloggers not and that even took a while and I remember I had this very you know uh complicated you know I was going to say well the Federal Reserve right now is and they just TR so what are you guys what what's what are the bloggers talking about and I wanted to go on discuss markets at a sophisticated level and it was just a um I remember shortly afterwards then all
all of the uh Financial media sites had their blogs but I remember they they were say what if somebody put something up on a Blog that isn't correct on the the media somebody and I I was trying to say that it's a whole uh network of people so somebody can come back and then comment on that so it's not just one post that just goes into The Ether but this was um it was lost on them it took them a while to pick up what was
really going on so uh I I used to do quite a bit of financial media CNBC especially um and but what what was it Eddie that brw to to that brilliant as it turns out uh decision to be the first to kind of plant your flag on the the
blogging side of uh of The Ledger and uh you know was it a preent was it being online early what was it that got you there I think well I'd seen that that blogging had taken off talking about a lot of the events after in and around
911 and a lot of you know people talking about National Security and politics and then it got into finance and I remember thinking look I I have something to say and I can't go through the traditional Gatekeepers so maybe I can start my own blog and I can discuss uh things in depth that I think are interesting I remember early on there was this story The Wall Street Journal did about how people were uh Executives were
backdating uh stock options to to their benefit and I remember they played it out as this it was this obvious um theft that they were doing and they said they were benefiting off 911 and I thought that was extremely unfair the way they presented that article and I had to this was the kind of um issue where I had to sit down lay out my argument in several paragraphs why I thought their reporting on this was very poor I couldn't just
shouted at somebody I needed to take my space and lay out the argument and that's what blogging allowed me to do and where I would have had if I wrote a letter to the editor or something like this I had no other way of reaching people and then when you sit as something interesting in a blog and then it gets passed on to somebody and they pass on to somebody else and then it can you know become a larger and and more broadly
read yeah I think that uh there's still kind of uh all media not let's not just single out Financial media but I I think there're still kind of in a tantrum about the ability that uh people are able to make reasoned incredibly good arguments via a Blog and they can't stop anyone from reading them right right and the also the interactive nature of both social media and blogs where your readers can start a conversation with you it's sort of
peer-to-peer as opposed to one to many uh you were much earlier than me though I didn't figure that out I'm much slower than you obviously I didn't figure out the fact that I really needed to be on social media until about 2015 I I had an early like Twitter account I think I loged or I think I joined in 2009 or 10 but honestly the first time I went on Twitter and I was looking at it and now this is Circa 2009 right right and and I had a lot of
young people working for me at osam at the time and I called some of them in I'm like explain this to me this guy is like he's talking about his lunch and right how how is this gonna be this great financial Network I I wised up I wised up and pretty much moved exclusively to social uh are do do you think that tenor and uh spirit of conversation Etc is still what it once was or or are we out of that golden age I think we probably are out of that
golden age and I can just say for me personally the the blog has faded in use um I do some news updates and I post my my free newsletter on my blog and I have my my active uh buy list page but in many ways Twitter has swallowed that and also for me substack has swallowed that as well and that is where a lot of it's easier for me to focus on and those have come at the expense of just my traditional WordPress blogging
site so do you think that the other the other thing if you because you're like me uh you've been around for a bit uh do you remember uh back back in the day in the early 2000s where literally you couldn't have a blog or Twitter handle if you were in asset management and and the switch from that that absolutely not thus all of the anonymous uh people on uh Financial Twitter at that time uh and then like f fast forward I don't know 10
years and it was like if you are not on financial Twitter like who are you I think the real turning point was when the journalist came on and they said okay you this this actually you got to be H and somebody like Joe weisenthal
you know early on really understanding that and um and then you know they're following people who maybe Wen journalists and so like myself and others once that happened I think things be the thing about financial Twitter for
all the complaints about it it's a very good way to disseminate live information something that's going on in the market right at that time it's it's it's it's an excellent place to do that for all the criticisms of Finance Twitter which there are many and many are are well reason but just getting information out there it's hard to beat it yeah I I kind of developed a thesis that Twitter uh you know a is antifragile right like how
many times have they announced the death of Twitter especially after Elon took it over and it just continues to zoom along and I I kind of thought uh and and jury's obviously still out on this but that the Twitter really could emerge as the first worldwide Global intelligence network uh but you you needed to do a lot of curating a lot of pruning Etc do do you uh follow people like with who you just absolutely disagree on markets
just to see what they're saying I can't really not not to do it to hear what they say uh a lot of it is um a lot of what I like about Finance Twitter is I can have those voices go away I don't have to listen to them of course you don't want to create a bubble but I just mean people are kind of obnoxious and you know Twitter's a unfortunately anything within Finance it's easy to get an audience just to be obnoxious and contrarian and uh you know
just angry you can you can build very quickly an audience um but that's what I'm not terribly interested to listening to those voices yeah and uh I think you like me are looking for things to root for as opposed to against and uh that kind of leads me to your your buy list uh which is really fascinating um when I was going through it again and I I I was REM reminiscing about I actually put in my book what works on Wall Street there was
a fund which changed uh owners many many times I think it's currently called the Voya uh corporate leaders fund that started back in like 1935 but the idea was some somewhat similar to yours because your buy list is now 25 names
used to it started at 20 right right right but you but you hold yourself to one of the things I love about it is you're transparent everything is on the list uh you hold for a year and then you give yourself the option of replacing
five names am I still getting that right that's correct yep yep and and and so basically it's kind of uh I always joke about how lazy I am and and how I was Su one of the aspects of being able to succeed in asset management was my natural laziness but what what gave you that IDE idea was it just a uh a belief in Buy and Hold investing uh what gave you the fiveyear holding per tell us about the list I S I wanted to show people that it
could be done to to to have a bu list the actual uh years ago uh Lewis Riser would have his guest his regular guests I think you call them the elves and they would do at the beginning of the year select I think I don't think it was a particular number of stocks but that's how they their contest uh each year so I so it sort of loosely based off that and uh so I said when I started the blog I think the first year of the buy list was
2006 so we're coming this is its uh 19th year of the buy list so um I yeah I chose 20 names and I wanted to show investors you don't have to do anything fancy you don't have to trade you don't have to do any of this let's just buy and hold and watch these 20 names and see how well they do and so that's of how what the buy list was about that was the idea I wanted to get across and the reason I did five was I felt uh that
that is a that that means the average holding period is now with 25 stocks is five years and that I think is sort of the length of a market cycle that's a I think a reasonable enough time to judge uh has this been a good investment has
this been a bad investment um some people think it as a hindrance but I see it as a benefit because when I make these changes to my viist I just have to sit down and say am I comfortable holding Hershey or appac for
the next five years on average once you think that way it really changes the way you look at a company and what you want from the company so a lot of things I have no idea what some companies are going to be like in five years if they're going to exist or not with her she I think I have a pretty good idea what it's going to look like uh with FICO I think I have a a good idea so I in many ways I see it as a benefit of getting that five years so
I'll just say when we started uh the ETF the Bist became an ETF uh we bumped up against some of the waiting regulations of the SEC uh so just by increasing it from 20 stocks to 25 really made those concerns go away so it was kind of a small change but helped us out once we became an actual legal trading Vehicles then there's a different set of rules you have to play by so and uh has has the way you create the list uh changed in
any material way since she started it no so so just sticking with your nitting y i i i have what I call a watch list of about 80 to 100 names um I can't say I know everything about the company but I'm Vaguely Familiar with those companies and those are sort of like the minor leagues of the the Bist as the majors and I look who looks cheap who's been doing well who's ready for promotion to the big leagues and so it's
companies I've Been Looking For What and maybe one of the downsizes are looking particularly in December looking for uh stocks that are a bargain by the way I'll just say this if this is a good lesson to investors a lot of
times when a stock is added to the buy list its best year is like its third year on the buy list that happens a lot you put on the stock and you look maybe it's it's up 5% it's up 12% and then the third year it's up you know 41% I mean
that's happens so frequently you know Peter Lynch says Sometimes the best stock to own is the one the best stock to buy is the one you already own and that happens a lot you know sometimes maybe my analysis were just a little early it takes takes a little time but that third or fourth year you really get the Home Run gains yeah and you know one of the things that I find interesting I I believe that uh there are many paths to
stock market success mine was through quantitative investing uh but as I was looking at your stuff and you know I think one of the other benefits of a Quant isn't just provide it to quants but one that's a general benefit and
that is discipline right like when you're a Quant you and and you and you might lack that internal fortitude well then being a Quant is very helpful right because you gota you got to just stick with the model how do you how do you
avoid because really your discipline is legendary how do you avoid second guessing how do you avoid all of the you know holy maybe I really up here well the thing is I don't avoid this I'm always second guessing always the market investing is really like no other discipline because the whole world is telling you no no no and you're say well maybe yes you you're you're swimming against the tide in like no other industry are you doing this
because it's the Judgment of millions of people and all their decisions on a stock and you say nope you're wrong uh but I I always am uh second guessing myself I the benefit again I think of just saying December 31st we're going to change uh the stocks uh that is putting a completely artificial uh um you know straight jacket on but that forces me to have disciplines so I get scared uh a company I like a lot saic they they're
down a lot today they had an earnings report they felt just a bit short of expectations and I'm sure there's lots of people no we're just selling it and and I would be tempted too but nope I'm going to hold on to it and fortunately the rules of the buy list and the ETF dictate that uh we can't do anything until December but I know human nature absolutely I would want to uh run and or pick up the the hottest thing that's
just how markets works and as you know the data clearly shows that you know it's always the markets going from one extreme to another it's Market is made up of people it's you know that's one of the problems about quantitative things is you're trying to uh add numbers you're trying to distill something that is at roote is just highly emotional and it's a it's a very human entity so I I get I get nervous afraid second gu myself it happens all
the time yeah I I've long said that the Four Horsemen of the Apocalypse are fear greed hope and ignorance and that you know we we we we aren't going to be changing human nature anytime soon markets change sounds I love that I'm I'm GNA
definitely steal that that's going to be a full quote uh but you know essentially Market change millisecond by millisecond human nature barely budges Millennia by Millennia you know I think the last sustainable Edge
in public markets at least is arbitraging human nature and one of the things that well they might look very different your process vers say a quantitative process they are a process right and and I've always thought that people who had a process that they believed in that they in many circumstances especially on the pro side of course but even for retail individual investors is a process that they've done some time looking into that they've done
some homework on and I think that's important because they got to be able to stick with it right a process isn't going to do you any good if uh if you're if you're jumping around all the time uh but you know you've WR couple things that I want to talk about tooo because I I just think that some of your insights are great deep truths about investing and the elen bind Theory to explain the entire stock market I love the modesty
of that that's where you and I get along totally well what why don't why don't we start with uh some some deep truths about investing that you that you wrote about I don't I think it was a while back but I think there's still true when I when I went through the list it I was like yep yep yep give us a couple well I I I was a fan of Bill James who writes about baseball statistics and he said you know he once sort of said after 20 years of
looking at baseball statistics I want to take a step back and list what what he called the Deep truth of of and so I was taken by that that phrase that deep Tru so I tried to take it on to finance and I think I had 44 them and by the way Morgan howel he advised me to turn that into a book and that was before all the Su success that he's had so he was I I I should have taken him up on his advice back then but I did not so mistake on my
part well but we we do have at oi Ventures we do have a infinite books division so if you want to rethink Morgan's advice you know funny story about Morgan before he became you know the uh the saint uh to financial
investors everywhere that he was I knew Morgan way back in the day uh and actually tried to hire him and he had the incredibly intuitive good sense to turn me down but uh I think yeah I think that would be a great book okay Eddie give us
some of the Pearls of Wisdom uh the great truths about investing oh I don't I don't have them in front of me do I I'll I'll think of a a good one I don't know if I specifically said this but one uh I think is an important truth is that they say uh bull markets go up uh by the stairs bare markets jump out the window and that's very very true the the bull markets tend to be long not terribly interesting markets um also the since
the the uh bare markets are so sharp the bull markets climb unusually fast and that unnerves people uh usually the bare markets the it the the problem isn't right at the top but historically it's a slide an ugly slide before the big drop um again the these are generalities but you find that uh again and again within uh within the markets another one is about looking at the balance sheet now I want to be careful how I say this
because there are obvious exceptions but usually the pro companies don't get into problems because of the balance sheet rather the balance sheet becomes a problem because the company is trying to cover up issues within its operations the operations is always really the ground floor where you want to look and and the balance sheet follows that there are obviously exceptions to to that but nothing can really if you want the
balance sheet to improve once operations improved that's going to help things a lot and once operations start going bad it's difficult to turn around and you're going to start to see those cracks and fissures show up on the balance sheet so
it's sort of which comes first and it's usually you want to see are the operations are they expand you are they selling uh are they you know is inventory backing up that those are things that you want to look at um do
you have any yeah we we actually build a lot of those into uh at my former firm you know that I'm no longer at oaly Asset Management uh because the great Folks at Franklin Templeton are running things over there now and I think doing a great job of it uh but we we when I was still there we built a lot of those checks on the balance sheet into the quantitative models that we used uh just to to check for what you just said you had a couple
more that I really love um this one I love in particular stocks don't know you own them yes yeah what do you think I mean you you can hear on like I hear you know stocks are taking a breather right now or you know this rally has legs it really wants to go higher there's no such thing as the market there's just people you know the stocks don't know you own them and even if they did know they still wouldn't care uh you know stock nor or stocks
lottery tickets it's it's actual legal you know it's a it's an asset it's holding of a of a company and but people don't I I've also noticed when I you know what used to work at the money show years ago people would come up and they call the stocks by the ticker symbol you know what do you think of nmva they don't even think of it as a as a company so that's something I've I've I've learned that it's there's nothing
emotional about it or or people get angry at the company and say okay I'm selling it um it just doesn't work that way it's it's very very unemotional yeah that's the other place where we're syo I I definitely found that being um uh being removed uh from emotions helped me considerably over some pretty interesting markets um you know when right after the great financial crisis uh a uh a guy who had been covering quants for Leman which became
Barkley uh came out and chatted with us and he basically told us that more than 60% of the quants that he covered had overridden their models read emotionally uh during the great financial crisis and yet I didn't see any of that from you uh at all like is it just that you have ice water in your veins or or what is there some kind of trick that you can share with our listeners and viewers I'm lazy as you can be that's it that's my
secret that is both of our superpowers Eddie I think that definitely it it helps to uh have a little benign neglect and I charge 20,000 to attend my boot camp where I tell you this I'm just really un isy here so what H what do you do with your boot camp how how long uh is it and and uh how do I sign up I'm there just one day the the the rest it's like nine weeks or something so a lot of people think you know when Robin Hood came on the scene
oh my God they're just gamifying it and turning it into a casino I happen to hold that opinion about that particular app but what what do you think about the idea that investing has become I mean you know with all the mem stock guys and they a movie about it um do do you think that that people are uh or more people I should say because we both know about the bucket shops that Jesse Livermore uh started his career uh more than a 100
years ago in for those who don't know what a bucket shop is in the old days of Wall Street you could go and basically trade prend stocks right they did follow the actual name up and down uh but these were basically off off Street beding
shops and they call them bucket shops um unregulated yeah completely unregulated uh but now do you think with all of the proliferation of instant trading all that kind of stuff do you think that many people are are really
just gambling as opposed to doing any kind of real investing the answer is yes but it's always been that way and it doesn't bother me whatsoever and this is one of the things you I've noticed about financial media Financial commentary is so often it's a thinly veiled public moralizing oh isn't it terrible that people are investing in Bitcoin isn't it just awful so what you where is the danger you always say it's dangerous
well they're you know they'll lose their money there still there's no big danger in that nobody's dying nobody's going to war or anything like this you know uh Amazon un plunged I think 96% from its high it's okay you know so it it goes back up what I don't like is when people say is this dangerous is it gambling yeah sure there you know the people lot of young people they get money they make dumb dumb decisions as you you know
pointed out and probably things are probably a lot uh safer these days than they have been historically with all the you know crazy stuff stuff that was going on in the older Market years so you know are they gambling sure I don't
see the harm of it they can go to Vegas and gamble as well they gamble for real that reminds me of the old Maxim that if you don't know yourself Wall Street is a very expensive place to find out another one of the things that you
and I uh agree on is uh and you had it in your deep truths was uh um don't invest based on demographics and being an old being an old hand at this you're very well aware that there was a certain someone who got very famous writing books about this uh and then tried to put it into practice like you and unlike you didn't have such a great time but I don't I'm not gonna sigle him up because there were a lot of people uh following
demographics and and I remember I read all those books and I was sort of intrigued by the theory so I tried to follow a along and and then I just kind of thought I I I I understand why this would be a thing to look at but um and and I kind of left it there right and and but then I noticed afterwards the revisions to some of these books and it was like oh oh no no no no wait that I I didn't mean the market was going to go
down I I forgot about the NASDAQ I was talking about you know and it's like the old joke I used to have at my first company was shasi Capital Management when one of our smaller cap and midcap uh strategies was not doing well we would joke internally that we should maybe try to compare it to the smle as opposed to the Russell right I mean demographics of course it's an important thing as far as like geostrategic things I know people looked
at like the Soviet Union if you looked at in the 1970s it was really crumbling this was quite of under the surface you can see this they had tanks they had Jets they had planes we saw all that but really the if you looked at the the country it was becoming a very very weak country um so of course demographics are are very important in that sense but as far as the the stock market and financial decisions I just don't see the
importance stand of play or particularly saying that um you know we have an aging population so you should buy this well yeah we have an aging population but I mean lots of things can be bought um I doesn't necessarily uh come to you I mean look at uh I think of one of the biggest uh success stories on Wall Street over the past few decades is Colgate paol it's been a massive winner for decades any demographics about that that nothing I can see
um you know or or people will try to you know paste on a story like Disney and it's the the children business just all business is is about satisfying a need that's all you have to do it's it's it's it's a lot more complicated and it's a lot less complicated than you think just uh find out you know where there's a problem is customers need something and fill that need that's what business is is all about yeah for the for addition of what
works on Wall Street we also looked at uh the uh various sectors and lo and behold over in more than 50 years the one of the best performing sectors was consumer staples and you know yeah oh tobacco like we used to have uh at at my first firm again we were younger than it so we around a lot more but we had uh the the uh joke portfolio which was the the oppos oppos it of uh ESG investing uh we called it the eat drink
and be merry for tomorrow you die portfolio and we had Pharmaceuticals tobacco makers gun manufacturers that thing rocked and rolled well I I should have to say that advisor share is a wonderful business partner I have uh that that they they do all the running of CWS they have a they one they the largest cannabis fund MSO but they have two other funds I love one is vice VI I and the other is yolo y I think those are the best ticker
symbols you can get that's really funny um but you know again it speaks to what you just the point you just made uh companies that are providing people with solutions to their needs or their desires and doing it well well guess
what you make a lot of money uh doing that providing people with what they need or want um another another thing that you uh go after uh that I to have gone after in the past is the whole notion of academic Finance now as a
Quant I have great respect for the people who did a lot of the long-term studies like B French Etc right uh but some of the conclusions I I differed rather dramatically with them on uh which led to things like the capital asset pricing model modern portfolio Theory uh I tend to take the metal brought uh the misbehavior of markets uh point of view which is wrong what do you think I I agree with you and and in particular the the one um I mean for
example okay value outperforms but it can go for years with underperforming so when when you talk about these things we're talking about you know know um 15 years can be a very large portion of a person's retirement years and where's the value premium the one I'm particularly skeptical about is the small cap premium um I don't see any obvious reason why it should exist I can understand why value reason uh could
exist value premium but small cap uh I just uh I I don't I I uh I've been unpersuaded by I my uh my mind is open to to the facts I understand that historically there's been showing very substantial outperformance particularly by micro caps as well but as far you know I think that could be um a hangover from the older style markets um I don't know I'm just I I haven't been fully convinced on that if my memory serves me correctly uh a fellow
by the name of bance wrote about the small cap uh phenomenon in 1985 in the Journal of portfolio management and I was intrigued by that and so I did a a deep dive and then obviously for what works we did look at market cap as one
of the factors and and what the problem with the the huge spread that early January uh well actually it was more a problem with the data sets you know that's what I thought AC academics and and that's why I felt like as a
practitioner I couldn't run tests the way that academics ran them because I'm a practitioner and what the academics did that led to that really big Delta in the academic literature on the small cap effect was they invested in the desile
of stocks on their list that were the smallest right well the problem with that was they had virtually no liquidity and the market yeah and so basically they made the assumption that oh it was quoted at a dollar at the
beginning of the year and it was quoted at $10 at the end of the year wow that's a great thing what they failed to remember because they I don't mean to be an here they are academics they might not understand as a practitioner does well there's this thing called a bid ask spread yeah and and you know remember the old joke about the guy who finds the tiny company and he calls his broker and he goes I want you to buy you
know $10,000 worth of the stock and the broker's like whoa you know that's a and he goes just do it hangs up and he looks at uh it up on the online the next day and it's like up like 25% he's like I am on to something here continually calling the broker buying more and more and more and the broker's like please you gotta and he keeps cutting them off and anyway he finally looks at it up online it looks like he's tripled his money in a
short period of time and he calls the broker and he says Stell and the broker goes to whom right he was the only buyer and and so that was the uh the artifact in the data that they didn't understand right that they there is value in micro caps but I think the reason behind that is very different than just their size the size obviously is a very important aspect but the secondary and tertiary reasons are micro cap stocks have virtually no
coverage by any analyst and uh you know in our micro cap at osam something like half of them had no analyst coverage at all sort of like a quants Dreamland right and and the second thing is that because there's no coverage there's lots of inefficiencies down in that market but the other part is the market itself the universe itself of microcap companies is basically dog what you've got to be able to do is find the
Diamonds in the Rough and it gets a lot easier especially for a Quant if nobody else is looking uh to to find Z down there but we did find that the the really big idea of the small cap effect uh was really an illusion uh and and
publish that in in The Bu race addition of what works was a substantial part of it did it happen in the month of January um I didn't I didn't break it down on looking at it on the month to month but yeah I've read some other
practitioners research that said January had a had a big uh tell as well um the what do you think though did did you did you follow all of the academic Finance I did I did for a for a while and absolutely the father franchise go to
the data Library a lot so I got into that but it's it's it's interesting how once you become a practitioner so much of that really goes out the window it really is it is two different worlds but by the way I don't know if
you saw this was recently in Bloomberg uh talking about the I guess the controversy within the farm and French uh data did did did you follow any of this I have not seen that I am uh I I put in my book because I thought it was a really important paper was a uh by the by a guy by the name of mcquery and he calls the myth of 1926 and which he kind of takes apart the crisp data set that's the center for security research price at the
University of Chicago and basically he he shows in his work that uh the the crisp data set which I've used by the way so full disclosure in in the book I have several things that are tested on crisp uh data but since it doesn't have fundamental data we're only able to really test things like momentum and caps and things like that but tell me about about the uh the uh French F uh controversy you're mentioning yeah so I this is all
secondhand but you know it's for people to know this data library is is a hugely important resource for uh uh Finance academics and professionals and uh there was an an article uh or a paper published uh questioning about how how this data was used and there were the data would actually change depending on when you accessed it so it was not if you just thought this was one continuous model no it wasn't like that at all all
now F and French they had an explanation they came out with a paper that addressed this you might say that that there was perhaps no intention of being misleading and some of the um uh improvements they had to the data were
not necessarily in their advantage you know maybe showing that the value premium was not as strong as they in I think that was for small cap uh but I guess there was some controversy in that world cliff assness I'm a huge fan of
love fall he was he he said that this was uh um not that important uh the criticisms that they were making without without any other person to uh I'll take what Cliff has to say is true I'll assume that his position is right but I know that that was recently Bloomberg wrote about that and it was specifically about this data where I guess F and French they had their reasons to do that maybe they didn't explain it were were as transparent as
they could have been that's as I as I understand the uh the issue well yeah in my in my new life I am not as wired in and glued uh into all of the controversies uh in quantitative Finance but I know from writing the original version of what works on Wall Street uh even the gold standard data set cop uh copu stat which includes all research companies really important right so research if it's in the research database the company went out of
business got bought went bankrupt Etc um and uh a lot of the original qu research similar to my own uh didn't have the research data and so it looked like wow this is amazing look at all the alpha you can get so you really have to
have all of the companies that used to be uh available but no longer were to avoid the upward bias but we also in some of the original research uh the people were assuming that they would know a number when it was printed
in the data set right so they they didn't time lag for the fact that you didn't you didn't know that I tried to address all of that with what works on Wall Street and and then we did do an example of saying okay so here is and
let's just picks up simple here's buying uh the 50 stocks with the lowest PE ratios right um and doing it annually um and we're going to do it just on the active data set right and so here are the results for that then when you add
the research uh database in the results go way down right because uh low PE low price to book is often appr proxy for risk of bankruptcy and then when you time lag it so that you only know the number when you actually would have known it in real time goes down again and so I I'm a big believer in always pushing the envelope because what you really want is you you want an honest assessment of what a person could expect
using that particular type strategy so we we tried to be very very careful with all of the thing I was able to sort of stand on the shoulders of giants I always joke that if Ben Graham had a data set like I was able to get and computers I would have never been able to write what works at Wall Street because Ben Graham would have written it but what was the spark because I want you to walk us through how you decide uh
to put a name on your your buy list to bring them up to the Big Show from the miners give us a sense for what that process is I like to look for a a consistency in operations so a company that has steadily Rising sales and earnings uh steadily Rising dividends it doesn't have to be but you that that's you want to see the trend that is rising in in business um you know acceptable balance sheet um I I hate to use the phrase um a strong Moe but that
certainly does play a big role that a company has a well-defined market Niche there somebody that uh they serve their market and they do it very well um that that have some sort of enduring competitive advantage that always uh
plays a good role think of a company like Moody's wonderful company uh FICO I me you know when a company uh when the particular name becomes the aute when people talk about their FICO scores uh they they don't use any other companies
and they're probably unaware that it is a company but that's you know so dominant in their field um I think of a company like Striker which is on the by list the uh uh you know we're all slow going bionic uh companies like that that have um a a well-defined market Niche are well-run I I like companies that I don't know you're I know I'm not going to get headache from I know afflac is a superbly well-run and I trust the
management a lot of times there's a controvery about looking at uh the numbers are are they uh uh the pro former earnings well there's a reason why we have Pro former earnings for good companies I trust what they have to say for sketchy companies I don't so it's it's always nice to have companies that I consider high quality and if I see any problem that they have I know that's a um a reason why I may not want to hold
them uh any longer um so just uh I I would say high quality companies uh companies that I uh I believe in I have a lot of faith in I like the transparency from compan I I like when companies offer uh Financial guidance for the coming year you don't have to do that uh sometimes they're very you know unsure about that and I certainly understand but it I like when the company says um you know we see we're going to earn $5 per share next year uh
it it adds a layer of comfort uh to what they're doing so it's in the the broad outline that I look for high quality companies and that's so what what uh what everything that goes into it and many changes over the years or just sticking to your knitting have you found anything like like is there a new uh factor or thing to look at that you weren't looking at originally when you started in 2006 that you're looking at now that you really believe in
nothing like major I I probably will um I know there's some research on on companies that have high short interest and if I see a real red flag on that that will uh I don't think I did that years ago but I'll at least consider that nowadays um but outside of that now it's pretty much the same thing and you know the other thing that you and I really align on is ultimately if if you're a hyperbolic Discounter and only looking at today
right you're probably going to get sucked into uh a more trading oriented aspect uh and and and in my mind like markets are the greatest gift to people who want to save for the very very long term right and and I know that you feel the same you're really good on Perma Bears I love the way you uh you taunt them and uh and and do you think it's just because of you know pessimism sounds smart oh absolutely no it sounds wise it
sounds you know that that the sort of cic I hate the cynicism masquerading us with is something that that's what I I really uh ticks me off uh and and you know there's always something that to to become a bear there's always things you can look at and saying things that are gonna always fall apart my friend Gary Alexander talks about the apocolocyntosis in a better tomorrow that things will gradually uh get better and improve and
that has been the the winning way I mean we we've been doing this country for 230 years and uh it's it's not you know it's it sounds like it's the easier way and perhaps it is the easier way but I found you know I think there's no question that even look at look at the disasters we've had the financial disaster we've come through them all and nothing like the uh the Great Depression or the Civil War my goodness we don't face anything
like that you know uh but I it's it's the the gloom and doom crowd I find uh unimpressive yeah and uh I I used to bang my head against the wall continually uh trying to make exactly the point you just made I'm kind of like hey you know uh just in my career we had a the Great crash of 1987 we had the Savings and Loan Scandal and you can fill in like and people it's so funny to me because I'm I I I was usually pretty good at reframing things
for people but in the here and now if the market was like plunging they they they just seem to throw all of their all of those things out the window and then I bet you've heard this a million times too look at me dead serious but Jim you don't understand it's different this time and I think that uh you know uh I I like Warren Buffett will never short the United States of America because like we have it is you just enumerate it we had
a civil war for God's sake and and then fought in two world wars and suffered through a great depression and Market crashes and here we are and the person who just invested for the longer term ended up doing significantly better now even the people who always respond now do Japan well guess what the the nikai finally now now I will admit that you've got to have had a really long-term perspective to have hung in there with
with the m do do you do any non- us investing or is yours entirely in the US uh I I placed no specific t uh Target on that so I I I did have some I don't believe I have any right now yeah and any chance for any of the so-called
story stocks and and I don't mean the ones that are just story but stocks like that everyone loves to say that they own like Nvidia or uh those types of names do do you look at those or is your process wanting to stick with the more
boring but Dependable generally probably because of me I I like more of boring names and a lot of the uh uh things I just I just don't have the expertise I I've had had I had Microsoft for for a number of years I I I sold it uh too early I should have held on um so yeah I felt I felt comfortable with that it's it you know I I I have a a weakness for you know uh smaller industrial companies with pretty basic operations that's sort
of what I often lean towards and I I'll go anywhere I can find a bargain have you found anything that surprised you when you went into actively manage an an ETF uh that uh either bug you or or you were like what the hell uh I didn't have this problem and I was just doing the buy list absolutely and and the thing is like so many people I said oh Wall Street they have all these terrible fees and the fees are too high the fees need
to you know come down and Vanguard you can buy and you know they they uh uh charge you four basis points that's how it should be done well I was never on the other side and I remember once I was with my business partner we were going through all the fees The Exchange fees the filing fees the lawyer fees the custodial fees and so the companies weren't just being greedy but there's a lot of a lot goes into it and Vanguard
has a trillion dollars so of course they can George you know uh four basis points and they can be fine with that and so I I I didn't realize um how difficult that was it was much harder than it really was an education understanding that there's a lot that goes into it so if people want a perspec this from me I have one we can send you one but that's um all lot of legal Le a lot of lawyers look over to I don't know anything about
that type of language you you don't certainly know what I'm talking about so th those so my complaint about the fees I uh I uh real world came into contact with that any plans for a second uh second ETF or are you just happy with with what you've got now I'm for now I'm happy with what I have now my friends always J Josh Brown says he wants to open up a a short uh CWS ETF but uh so I have to take the teasing kind mention a a quick aside
that in the 1990s I had a micro cap newsletter and not only did I have one but I was uh featured in an article by Jim Glassman in the Washington Post and in that article I think it was August 1997 Jun know who else was written about in that article I think I have a vague memory but lay it on me ex how was you and and your and your book what what works on Wall Street which probably was maybe still at its H first printing so
that was uh uh 26 and a half years ago that uh that we were uh we were in the post back then reading the Jim glass's article was a big thing uh that you would actually buy paper and and read the uh the article so yeah no no kidding
what why why did you uh uh get rid of the micro cap uh newsletter um what the the I thought it would be a great Niche to have the the only person who talks about micro caps um I I ran up I I I the reason why I started was I
looked at the academic data as you'd mentioned I said wow this has tremendous result results and then I realized once you know actually having a bu you know listing what I liked in a newsletter it's it's much harder to do than I
thought and I think you know that that micro cap premium is is uh not quite what it appears to be and I just couldn't uh sell as many newsletters as I could I was literally working in my uh my uh my basement uh trying to get these
newsletters and I mean I sold a couple hundred copies but it just wasn't very uh profitable for me so I shut it down very entrepreneurial and what do you think's next we mentioned how uh you know blogging has now been overtaken by the uh substacks of the world um what what do you think about uh what do you think the next chapter is for uh people offering Market intelligence like you do through your newsletter oh yeah I I
think I think substack is still going to keep on growing and I think we're going to also see journalists going over to substack and I wouldn't be surprised if we see uh companies and investment Banks having some sort of model that way that that they're trying to monetize their own um uh their own people their own research staff what really I think the larger theme is that The Gatekeepers no longer play the role that they used to
be so you know if unless you were in The Washington Post and New York Times wal Street Journal or Barons you just didn't have a voice I mean there were some you know fun newsletters that were out there that that people read but uh that that sort of you know just now you can just set up a substack and uh write down your thoughts if people like it and you and you keep at it you can get nice audience and I I think that will continue to grow
it'll be interesting to see as more journalists merge over into that sphere maybe there will be other competitors to substack I I don't know so the the challenge there is like you mentioned Moes earlier when you're talking about your your criteria for buying or putting a name on your list like you've got a you've got an incredible Mo really you you you have a record going back uh to 2006 uh what what what do you think will
be some of the strategies for the Young Guns who want to come on and say hey Eddie time for you to move on WE we've got we we've got this killer app over here is there one well I mean sort of like uh what What's the invention that will come along that I don't know about it's it's hard to answer but I just don't don't know I I suspect that I'd be curious to see if Big Data can actually get to a an easily digestible and usable product or realm
of products that that I I'll think I think would be very interesting if it involves AI or just huge amounts of data crunching that we're not able to do yet can that not just be sort of a neat toy but actually um think of like automobiles they start off as these kind of toys and then hry Ford said well no this is so we can build one for the masses that that's what I I would be interesting to see how that space evolves yeah that's one of the things
that we are looking at at oasi ventures I sort of thought that um you know traditional Quant had kind of reached the end of the road because uh you know they we were all using the same data set primarily um and uh that's when I
started getting very intrigued in machine learning and uh those types of things jury's still out but we are seeing a ton of really interesting stuff uh in in the AI and machine learning uh uh part of the universe actually had a
couple of portfolio managers who are pioneers in that space were using Ai and and the results they're short in nature I think uh the one of the longest track records I've seen for an explicit fund using explicitly AI uh because of course there's Renaissance Technologies and and a lot of very uh longer term track records that that are using bits and pieces uh but yeah I'm I'm very very intrigued uh by that area of the market
going forward so um what we do our gu I like the the exploration of it so it would cut you off but I really enjoy just digging in and finding something that nobody else knows about that's I I really enjoy that sort of almost like private investigator level I think it's just thrilling the you know it's the oldest way and I still think it's a it's a it's a lot of fun and you know some people say oh it's not like how Warren Buffett was in 1958
because there's all these you know stock screeners there are plenty of opportunities you maybe you can't build a $600 billion dollar fund off that but I think there there are plenty of ways you can find on my buy list we have um
Miller Industries it's a tow truck company in tennis see nobody follows it and it was just it was such an obvious bargain for us we held on and it's done superbly well so you know I that's that level of the market that's what I'm
interested in and that's what I I just find it's a thrilling mental exercise because you're going against the masses and everyone's telling you you're wrong and you are lay planting a flag and saying no I'm right and I'm gonna put my money behind it or the the the money of uh our investors that was always the one of the things that drew me towards uh uh Wall Street it was just such a wonderful puzzle that uh that you know I I when
when I was getting interested in it uh of course uh that was not too shortly thereafter the business week death of equities and all all all of my contemporaries if you remember like when I was 22 in 1982 beginning of the biggest Market in US history like my friends were like you what are you insane you're interested in the stock market how old are you man are you like 70 like the stock market it's all hard assets it's all Commodities and real
estate and again it's just a one gold exactly and and it's just a wonderful story of how the short term can blind us uh to to the longer term opportunities of uh inves in equities um well it has been absolutely a tremendous pleasure on my part to hook up with my with my uh old Wall Street buddy uh who is very very funny um and one of the things that we do on the podcast is we make you the emperor of the world um but uh you got
to play by a couple of rules you can't kill anyone and you can't put anyone in a re education camp but what you can do you're going to hand you a magical microphone and you can say two things into it and the entire population of the Earth is going to wake up whenever their next morning is and they're going to think think to themselves I just had two of the greatest ideas and unlike other times in the past I'm gonna actually act
on both of these ideas what are you going to incept to the world's population Deddy well first I'm going to get rid of the DH rule I don't know what I after that that takes care of so many problems I don't know what else uh I mean can it be peace and love for the for uh for the whole world am I allowed to see you are allow this is an anything goes kind of podcast deddie so you can say whatever you want get rid of any any tax on share BuyBacks
that's just stupid ah now there you that's music to my ears so where then uh people find you Eddie other than Twitter where you are a uh the B Be Vault of fin TT uh well my substack so that's a CWS uh the substack uh so that that's two newsletters each week um one is free One is paid and then the uh the ETF uh so it's the advisor shares Focus Equity ETF and the ticker symbol is CWS there there's a website a web page at advisor
shares all the information about the fund is all the all the performance statistics and whatnot you can see there and as as like you said I'm on Twitter um I love to interact with people there so those are the uh the main ways that uh that people can get in touch with me terrific well Eddie this has been great you are one of the ogs uh and uh delighted uh that you took the time to chat with me today thank you all right cheers bye