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Hi, I'm Jim O'Shaughnessy and welcome to Infinite Loops.
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Sometimes we get caught up in what feel like infinite loops when trying to figure things out.
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Markets go up and down, research is presented and then refuted, and we find ourselves right back where we started.
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The goal of this podcast is to learn how we can reset our thinking on issues that hopefully leaves us with a better understanding as to why we think the way we think and how we might be able to change that to avoid going in infinite loops of thought.
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We hope to offer our listeners a fresh perspective on a variety of issues and look at them through a multifaceted lens — including history, philosophy, art, science, linguistics, and yes, also through quantitative analysis.
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And through these discussions help you not only become a better investor, but also become a more nuanced thinker.
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With each episode we hope to bring you along with us as we learn together.
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Thanks for joining us, now please enjoy this episode of Infinite Loops.
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Disclaimer: Jim O'Shaughnessy is chairman and Co-Chief Investment Officer of O'Shaughnessy Asset Management, where Jamie Catherwood is an associate.
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All opinions expressed by Jim, Jamie and podcast guests are solely their own opinions and do not reflect the opinions of O'Shaughnessy Asset Management.
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This podcast is for informational purposes only, and should not be relied upon as a basis for investment decisions.
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Clients of O'Shaughnessy Asset Management may maintain positions in the securities discussed in this podcast.
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Jim O'Shaughnessy: Hello everyone, it's Jim O'Shaughnessy with yet another episode of Infinite Loops.
1:44
Today, I am very excited about my guest Perth Tolle, who has been a friend of mine for several years when I met her at a really geek fest, wonk fest, which we'll get into later because the presenter there is actually helping you. Welcome Perth.
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Perth Tolle: Thanks for having me, Jim.
2:03
It's a pleasure to be here.
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Jim O'Shaughnessy: I love your story.
2:04
You went to Trinity University in Texas, you moved to Hong Kong and you got bitten by the freedom bug.
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Why don't you tell us a bit about how you got from there to here, and all about your indexes and everything else? Perth Tolle: Sure.
2:21
I was born in China and then I came to the US at around age nine, and then grew up in Texas after that.
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After I came to the US, or sorry, after college, I did go to college in the US and then after college, I went and lived in Hong Kong for about a year.
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I was there to spend time with family, and also to see if I could learn about working in China and Hong Kong.
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I did travel a lot to the mainland, to Beijing, Shanghai, and throughout, Hong Kong, Shinjin.
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That's where I really realized how different my life would have been had I stayed in China.
2:50
Some of the things that hit home for me.
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I had a friend who I called Maggie.
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She was the same exact age as me and I was 23 at the time.
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We were exactly the same in most, every way, except she had no birth certificate, no school records, no hospital records, no social security, so she doesn't really exist on paper because of the one child policy, and her parents chose to register her brother for school and for existence and all of that stuff. She was my same age.
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I was born at the beginning of the one-child policy.
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That made me realize, “Hey, policies matter."
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This policy, its legacy is changing the whole demographic landscape of the country, and we're dealing with the ramifications of that, beginning of the ramifications of that now.
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There's 30 million missing women in China by official estimates.
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By other estimates it's as high as 60 million, and that's generations of people that you just can't just replace.
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Also, there's 30 million men who are in my generation who couldn't find, had no prospect of finding a wife.
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Things like that really changed the way I thought about freedom and governance and how this may matter.
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Also, I saw the difference in the markets between the Hong Kong market, the US market and the China market.
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It's interesting that we're talking today because we’re seeing some of those things happening now in China, like the crackdown on today Didi, and other tech companies that has been going on recently.
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That's an interesting topic that maybe we'll want to delve into as well. Jim O'Shaughnessy: Sure.
4:21
It's, as an American I listen to these stats, and I honestly can't believe that, why are we not calling them out?
4:24
Is it because of cheap labor?
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Is it because of our own business interests? What's going on?
4:36
Perth Tolle: That's a great question.
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I don't know the answer for everybody, but everybody has different reasons.
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We recently, unfun to it, we've seen circulating a lot of things where Wall Street Titans have been doing China's propaganda work for them.
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Jim O'Shaughnessy: Charlie Munger.
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When I saw Charlie Munger, I was like, "Oh my God, I can't believe Charlie Munger is saying that."
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Perth Tolle: But if you pay attention, he has always been very pro China because he's made money there.
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He has business interests there.
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When Joe Tsai of the basketball team spoke out recently, he did even say in his article that he was being quoted in, I have a lot of business interests in China.
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It's like these businessmen, they almost have to speak in code.
5:16
They had to say, “Okay, blah, blah, blah, propaganda line.
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By the way, I have a lot of business in China. Hint, hint, wink, wink. I have to say this."
5:25
After you see enough of it, you realize some people are talking in code.
5:30
Charlie Munger, probably it doesn't look like to me, he was talking in code, he seems like a true believer, which is pretty scary.
5:38
But also, he's definitely not the only one.
5:38
He's the only one who came out recently, but Larry Fink is a huge China apologists.
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There's a lot of them out there, especially on Wall Street.
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I think for Wall Street, it’s easy to understand, I guess, because there is, if you think about it, with that many people in China, there is a lot of potential for money to be made.
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With the aging population in America, when we had the boomers retiring, that was a huge deal for us in the financial services industry.
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I think that maybe they’re looking at China in the same way.
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That is a huge market that maybe they don't want to miss out on, and that's very difficult to turn down when you're being offered access, special access even.
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Because these authoritarian countries don't grant access to just anybody.
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They'll only give it to their top few most favored companies or people or industries.
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The tech industry, for example, has enjoyed this favor for a very long time in China, and now you're seeing that favor pendulum swing the other way.
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Jim O'Shaughnessy: I used to think when I was much more impressionable and younger, that by doing business with these kinds of countries, that we could perhaps open them up a little bit.
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You know what I mean by that? Perth Tolle: Yeah.
6:52
Jim O'Shaughnessy: That if they saw the fruits of a freer market, I always use Korea as my example, because as you know, I'm sure Korea, South Korea used to be a very authoritarian state.
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Some would argue that it still is a little bit, but it's certainly a lot freer than it was say 30 years ago.
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Why do you think that hasn't happened in China?
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Perth Tolle: The freedom wonks will tell you that economic freedom is a necessary, but not sufficient condition for personal freedom.
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Personal freedom meaning civil and political freedom.
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You have to have first economic freedom, and China did open up a little bit on that front, since the Mao times.
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Since Mao, they with which had really abysmal policies that were millions of people died of famine. It was that bad.
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They reformed and opened up liberalized on the economic freedom side over- Jim O'Shaughnessy: For quite a while. [Crosstalk]. That was a long time.
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Perth Tolle: For 30 years.
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Only recently with She did that, go back, swing the pendulum, swing the other way.
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I think the telltale sign for me was when he made himself emperor for life.
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When that happened, I was like okay.
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Jim O'Shaughnessy: Always a bad sign. Always a bad sign.
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Perth Tolle: But at the time, I don't know if you saw this.
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Probably not, but I, on Twitter, I think Tim Seymour of CNBC said, “Oh, this is a good sign. This is stability. Market likes stability."
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I was like, you want to bet on that?
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We took a bet on how China would do.
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He was like, "All right, eight shares.
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A year from today we'll see how it does." I won the bet.
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He forgot about it though, or maybe he pretended to forget about it because I won.
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Jim O'Shaughnessy: Don't let him.
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Hold his feet to the fire.
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Perth Tolle: Then he asked for more time.
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I did give him more time, and I think after that time that I gave him, he did win and then he lost again. Now I'm winning again.
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This is like a never ending bet.
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Now I don't know when I actually get my lunch or whatever. I don't even remember.
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Jim O'Shaughnessy: When you're next in New York, I'm taking you to lunch for no bet, so come on. Perth Tolle: Awesome.
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Jim O'Shaughnessy: Spell out a little bit, let's talk about your indexes.
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Tell our listeners what they're all about, how they're put together, etc.
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I think they're fascinating.
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As you know I've been a big supporter. Perth Tolle: Thank you.
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As you know, with emerging markets index funds, most of them have very large allocations to autocracies, and that's due to one, emerging markets, country classifications, and two, market capitalization weighting.
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With market capitalization weighting, the highest, or the largest market gets the highest weight.
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China has a 40% weight in most emerging markets index funds.
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Then you have additional allocations to Saudi Arabia, Turkey, Russia, Egypt, and so forth.
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You have definitely over 50% direct allocation to securities in autocratic countries.
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Not even counting the trade or countries that do a lot of trade with China, and do all of that indirect exposure.
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There's just a lot of exposure to the biggest autocracies.
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We solved that problem by doing freedom waiting instead.
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Instead of market cap weighting, we freedom weight.
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That just means the highest freedom countries get the highest weight.
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As a natural result of freedom weighting, the worst autocracies are excluded from the index, but not because we exclude any country arbitrarily, it's just a natural result of the freedom weighting methodology.
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Jim O'Shaughnessy: Can you walk me through the methodology on how you rank freedom?
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Perth Tolle: We get the data, the freedom data from third-party independent think tanks.
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We do use all our data with permission, and there's 76 different variables that go into these metrics.
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I categorize them into three categories, rights to life, rights to liberty, and rights to property or civil political and economic freedom.
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The data providers categorize them into two categories, personal and economic freedom.
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These include things like terrorism, torture, trafficking, women's rights, rule of law, due process, criminal procedure, civil procedure, freedom of speech, freedom of media, freedom of religion, freedom of assembly, private property rights, business regulations, tax rates, trade.
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The more trade, the better and so forth.
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All of these combined give us a composite score for freedom level in 162 different countries, and we just take the emerging markets data set, and the country set out of those countries, which is about 26 countries right now, and we weight them according to their freedom levels.
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We do have minimum size and liquidity requirements on the country level, as well as the security level.
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Some countries like Czech Republic are very free, but too small, so we don't include them.
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And Peru, very free, but to illiquid.
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For it to be tradable in an ETF, which is the ETF is based on the index, we've always knew this would be an ETF, so we had to make it very tradable.
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Jim O'Shaughnessy: Just out of curiosity, what is the freest country of all on your matrix?
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Perth Tolle: In the emerging markets, the freest country is Taiwan.
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Jim O'Shaughnessy: Taiwan, that doesn't surprise me. How about all countries?
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Perth Tolle: New Zealand is number one.
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Jim O'Shaughnessy: See, I love New Zealand.
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I try to stay out of politics except for the one thing that animates me, is I'm fiercely anti-authoritarian of either the left or the right.
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I don't care what they're selling.
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New Zealand, that does not surprise me at all. Where is United States?
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Perth Tolle: United States is 17. 17 out of 162.
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Jim O'Shaughnessy: That's just disappointing.
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Perth Tolle: It has declined.
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It has declined in recent years, I think because of the war on drugs and so forth.
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Jim O'Shaughnessy: The thing that we do have in our back pocket though, is we have this little thing called the bill of rights, and pretty difficult for, as much as, it is my opinion that if we did not have the bill of rights, we would have speech law here.
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We would have all sorts of curtailment of freedom of speech, because politicians just love to get around.
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They want to make all the rule and call all the shots.
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I think the world is changing so much that the governing institutions are so far behind the market, that they're going to have to do something really radical to rethink and reinvent the way they try to govern.
12:56
Because, it seems to me that they’re literally being ignored.
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When you look at the hi-jinks of certain individuals who will remain nameless out there, 15 years ago they would have been in jail, and now they can openly taunt government officials and nothing seems to happen.
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That's neither here nor there, but it’s good that we have this bill of rights and this constitution.
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Perth Tolle: That's amazing actually, because without that, without rural law and without this constitutional institution in place, we would be in a lot of trouble.
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That is what makes the difference between us and a lot of these emerging markets that don't have that.
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Some of these markets they have a constitution, but it's very, it’s rule by law, not rule of law. That's a big difference.
13:38
Yeah, you're absolutely right in that, that is a very important institution that makes up the foundation of what gives us our freedom.
13:48
Jim O'Shaughnessy: I think it's also the reason, another one of my little soap boxes that I'm always on, is that despite all of our woes, for the most part, at least to the people I talk to, the smartest, most ambitious, most interesting people in the world, they want to live here in the United States.
14:05
My attitude is, we should let them.
14:05
If they're getting degrees here, particularly let's start small and say they get a stem degree, we should staple a green card to their Diploma, because that's what made this country great.
14:14
This country was great because we let people come here from all around the world and try, and there you go.
14:27
Perth Tolle: There's a reason why Steve Jobs, that didn't start Apple in another country.
14:28
Google, the founders of Google are from Russia.
14:32
Could they have done that in Russia?
14:32
No, because That's just not even allowed.
14:36
It's too much free speech.
14:36
No, I absolutely agree, and the BNO situation with Britain, how they're getting citizenship to Hong Kong'ers fleeing to the UK right now, they're going to get a huge influx of human capital from that, and [inaudible] freedom loving human capital, and the younger generation as well.
14:54
It’s going to be a huge advantage for countries I think, that are taking advantage of people just following where the freedom is.
15:03
I think it's Walter Wriston that said, talent goes where it's welcome and treated well.
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I would change that to where it can be free as well.
15:13
Then he goes, talent is not only people, it's also ideas, it's also money.
15:19
That all follows where they can be free and well treated.
15:19
I think these countries, and typically it's the countries that are freest that take advantage of migration from the less free countries as well.
15:28
That's something that the freer markets do have an advantage of.
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Jim O'Shaughnessy: I think it's just a massive advantage that we should try to maximize, rather than try to minimize.
15:37
I think there is a reason why the majority of patent holders are out of the United States.
15:43
It's not because they're all of certain nationality, they're not.
15:43
They are a great disbursement of nationalities, but they're in a country devoted to freedom.
15:54
Perth Tolle: Also, you know that those patents are going to be honored.
15:56
That there’s repercussions if you are to infringe upon them.
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Jim O'Shaughnessy: The rule of law.
16:02
Perth Tolle: Whereas in China if you have a business that's mostly based on IP, that business is going to be valued a lot less than if that same business were in the United States, because people know that IP is not protectable.
16:13
Jim O'Shaughnessy: It fascinates me that I guess I get the metrics in terms of some of these massive tech companies.
16:17
But, I just think that the more we play to our strongest suits here in another free countries, the better off that we're going to be.
16:24
Let's talk a little bit about our friends at Alpha Architect.
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Wes Gray and his great team.
16:30
They are the sponsors of this? How does that work?
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How are you working with them?
16:41
Perth Tolle: No, I'm the sponsor, so I cover all the expenses of the ETF, and I have most of the upside of the revenues, and also I am the index provider.
16:51
I provide the index for that as well.
16:51
Wes and his group at Alpha Architect are great.
16:55
They were a natural partner for me because they're obviously freedom fighters, and also ninja quants.
16:59
Jim O'Shaughnessy: Shout out.
17:01
Among my favorite people.
17:01
Perth Tolle: Wes has been very much a mentor to me throughout the years.
17:04
They were my first choice when it came to, if I have to launch this on my own, who would I do it with?
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I'm the one who convinced them to start this business, where they help other people launch their ETF.
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If you have an ETF that Wes is helping you with, you can thank me for that as well.
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Jim O'Shaughnessy: That’s terrific.
17:24
Perth Tolle: I'll take credit for that.
17:25
Jim O'Shaughnessy: How does it work?
17:25
Tell me about the mechanics.
17:27
Perth Tolle: They are basically a white label of the ETS.
17:30
They’re providing the back office operations for the ETF itself.
17:30
They're running all the ops on the ETF.
17:36
They're doing the trading, the sub advisory, they're quarterbacking the service providers.
17:41
The custody admin, all that stuff that is done by different providers, they quarterback all of that.
17:47
Instead of dealing with multiple service providers, you're dealing with one person, or one firm, and that just simplifies the process for me also.
17:52
I have full confidence that they can execute trades and do it right, and in the way that's best for clients, tax wise and all of that.
18:04
That gives me having them work on that side of it, gives me full competence.
18:09
Every time I get a create, or we haven't had any redemptions, thank God.
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Until we get to create, I know it's going to be done, so I never worry about any of that.
18:16
That was important for me because this was my first ETF, and I didn't want to set up my own REA just for one ETF.
18:21
At the time I wasn't considering a second one, and now we have all kinds of things in consideration.
18:27
But at the time, this was the way that I wanted to do it because, and also I'm a one person shop, so I don't want to be doing all the operations and be out there promoting the index and things like that.
18:41
They're great for, if you want to make sure that the fund is operating efficiently and accurately, that's what I'd recommend them for.
18:51
Jim O'Shaughnessy: That's great.
18:51
What are assets under management now?
18:53
Perth Tolle: We have just under 60 million.
18:54
Jim O'Shaughnessy: That’s pretty decent for just a one person shop.
18:56
Is that mostly you out marketing this and talking to people about this?
19:01
Perth Tolle: The ETF is two years old, so that was my goal for the two year mark, was 50 million.
19:06
Jim O'Shaughnessy: Great.
19:07
Perth Tolle: As you know that.
19:07
Actually, a week before we turned two years old, the ETF turned two years old, I thought we weren't going to hit it, because we were at 44 and the market was crap.
19:11
I even told our, I did recently hire some PR help and I told them, “Hey, let's hold off on the press release because I don't think we're going to hit 50."
19:18
Then that week, we got 13 million in flows.
19:18
We blew past that 50 million mark.
19:25
I can't take credit for any of this.
19:25
Not that week, not anything before that, for any of the 60 million.
19:30
I'm telling you, this is an idea that is always been bigger than me.
19:34
There's no way I could have done it on my own.
19:34
Yes, I am the only one out there promoting it, but I can't take credit for the way that this has caught on with investors, or the way that people have been willing to come alongside and support us, like you.
19:49
The way that I met Rob Arnott, who is not only an investor in the fund, but an investor in our company.
19:53
That's not something that I could have orchestrated.
19:53
This is something that I think people resonate with instantly because they understand freedom.
19:58
As freedom is declining around the world, people are understanding it even more.
20:03
I think the demand for something like this, it's just out there, and I wanted to give it its day in the sun.
20:14
As you may have noticed, I stripped out any other factors.
20:14
I have no other factors in here except freedom, because it's never been done before, and I wanted it to be something that existed in the market for people to be able to invest in, who value freedom, and want their investments to reflect that.
20:26
Jim O'Shaughnessy: It's a pure play on freedom, which I think is great.
20:28
I would argue that this should also fit into an ESG category, right? Perth Tolle: Yeah.
20:35
We actually, as you may have noticed, I try to distance myself from emerging markets- Jim O'Shaughnessy: I have noticed. Perth Tolle: ...
20:41
ESG especially, because if you look at emerging markets, ESG funds in the US, they all have 40% in China, additional allocations to Russia, Saudi Arabia.
20:48
I think freedom is the basis of all other ESG, and without that basis of freedom, all these ESG metrics in these countries, you can't even verify.
20:53
If you don't have free speech, freedom of the media, rule of law, there is no mechanism for accountability and independent verification of ESG data, or any other data for that matter.
21:10
Without that basis of freedom in place, and I don't believe you can effectively do emerging markets ESG.
21:16
Jim O'Shaughnessy: Do you publish a list of your holdings?
21:17
I'm sure you do, obviously you have to, but how often and how often is that updated?
21:21
Perth Tolle: The holdings are published on any place you get your information, including our fund website, which is freedometfs. com.
21:29
But yeah, it's published every day.
21:29
It's all fully transparent.
21:29
We do every balance once a year.
21:34
In January of every year, third Friday is when we do our, rebalance.
21:40
That's because the freedom data comes out once a year.
21:44
Jim O'Shaughnessy: Does that change very much?
21:45
Perth Tolle: It can, or sometimes it doesn't.
21:45
In the first year, we two years old.
21:49
First rebalance of the ETF, no countries changed, and we just went back to target weights.
21:52
When I say back to target weights, I mean back to just the freedom weights, not back to the previous years, but current years freedom weights.
22:00
Then the past, the second year, we had two countries dropped and two countries added.
22:06
Sometimes it can be a very high turnover rebalance like that one, or sometimes there can be no changes at all.
22:11
What I have noticed is that when countries decline in freedom, that that's a very fast movement, versus an increase.
22:16
It's based on relative freedom levels, to your peers.
22:23
You just have to be freer than your peers to make it into the index.
22:25
There is no line in the sand, and there is no 100% free country.
22:31
There's no 100% oppressive country.
22:31
Even in Saudi Arabia, there are things you can do that are, you can engage in trade with your neighbor or whatever.
22:36
There's no 100% either way, so we don't draw a line in the sand.
22:41
You just have to be- Jim O'Shaughnessy: Wait a minute, wait a minute. What about North Korea?
22:45
Perth Tolle: That's pretty bad. That one is pretty bad.
22:46
Jim O'Shaughnessy: I think maybe they might get 100% on free.
22:49
Perth Tolle: That's pretty close, like 99. 9.
22:52
That, you just have to be freer than your peers.
22:52
Sometimes the ads and drops are not due to one country score increasing, but due to another country score decreasing.
23:03
Jim O'Shaughnessy: The quant in me just has to ask this question, are you seeing any analogs between takeovers, between cheapness based on normal factors like price to book, price to earnings, price to sales, etc, are these pre countries that you are indexing to, are they materially cheaper or materially more expensive, or no difference?
23:25
Perth Tolle: Most of the time we've looked at it, they're insignificantly a little more expensive, but it's insignificant.
23:32
I think that can be attributed to the premium that people put on rule of law and things like that.
23:37
Just like in the United States, SMP, we’ve done better and have been more expensive than other markets for all kinds of reasons, but including that.
23:47
Including that we have that predictability of rule of law.
23:47
But one thing I would say is that, I think Larry Fink recently came out and said markets like authoritarianism because they like the stability or predictability or certainty, sorry.
23:56
Certainty was the word he used. Markets like certainty.
24:00
But he's conflating that certainty of restraints under an authoritarian system, versus the certainty of, I know my contracts will be honored.
24:12
That's a different certainty.
24:12
Also, I would even go one step further, that markets don't like certainty.
24:16
That's not where the alpha is.
24:16
The alpha is in the surprises that arise from uncertainty.
24:20
That's where you get the Amazons and the Apples of the world.
24:20
It’s not in the things that you can predict, and what you can not predict.
24:25
We want to invest in the markets that have the conditions in place for that uncertain outcome to take place.
24:36
We want the innovative, the flexible markets that have the feedback loops on the ground level, to be able to take advantage of market trends and so forth.
24:45
Jim O'Shaughnessy: I think people maybe like Larry Fink are to be, let's be charitable and say that maybe they’re conflating it with certainty of operations, etc, that type of thing.
24:55
If we're going to be uncharitable, they've made their pile and now they want everything to happen their way.
24:59
I always try to apply those litmus tests to myself.
25:05
By that, I mean would I feel, would I be comfortable with the government being able to come in and do whatever they wanted to my business?
25:10
The answer is absolutely not.
25:16
Why should I try to infringe upon your, or anyone else's ability to do that?
25:16
I'm always amused by the people who want to be the real authoritarians, who let's put tax rates up all the way.
25:27
Often I'll say something about, this is why people get confused about my political views, because on a lot of things, I would sound like a real lefty, and then on other things I would sound like a real conservative, but I always just try to be objective.
25:40
People will often say to me, "Well, of course you're going to say that. You've done well," etc.
25:45
I'm like, you're missing the point. I'm 61 years old. I can just stop.
25:50
The people I care about are you, are the young people, who if you put these incredibly horrible benchmarks in place, they stop you, they stop the young people from creating, and that would be a disaster.
26:06
Perth Tolle: No, you've absolutely been a voice for freedom out there, so I appreciate that very much.
26:09
But going back to your valuations question, I think lately though, the overvaluation in the China market has been noted.
26:12
There's been a huge overvalue.
26:17
That one is an exception.
26:17
There's been just huge overvaluation there, and as you can see, by days like today, which are more and more often now, investors are realizing that, and taking their gains off the table from years past, because they're thinking, I think that, and I agree with this, that China is a growth story of the past.
26:35
Jim O'Shaughnessy: Interesting.
26:35
I'm a true OG Quan, so I don't look at the market day to day, so I have no idea what's going on in the market today.
26:44
Perth Tolle: China tech is down like 6%.
26:44
If you like China tech ETF, they're all down like five, 6% today.
26:51
Jim O'Shaughnessy: Let's use that as a springing off point for you said you’re investigating some other ideas.
26:59
Will you tell me about those [inaudible]? Perth Tolle: Yeah.
27:02
There’s lots of ideas that people have brought to us like frontier, like fixed income, like US or developed market.
27:07
I'm not as interested in developed market, just because the value add there is very limited, because most of those markets are pretty free, and when you have the free and transparent information that's out there, it's available for everybody, the data is all pretty reliable, then the market cap isn't terrible.
27:24
It's not a bad way to invest in those markets.
27:29
It's only when you have the inefficiency of unfree markets like in emerging markets, that freedom makes a huge difference for the growth environment going forward.
27:40
I'm not as interested in developed market just to be honest, but some people have requested like an all world solution including developed market.
27:49
If I did something like that, I would just probably put, you could easily make that yourself, is my opinion.
27:53
You could buy like IDEV and FRDM, and you're done.
27:53
I'm not as interested in that, but the others are very interesting to me, like frontier and fixed income.
27:58
But really what I'm doing right now, because as I mentioned, this is a two-year-old fund.
28:07
We just hit just under 60 million right now.
28:07
60 million right now, and this is a point where I do want to slow down a little bit and think, where do we want to go next?
28:09
Because we launched something that's totally never been done before, and up to now, we just try to survive.
28:21
Now we know that we've survived and the fund is successful.
28:26
It's, I think a time that I really need to reflect, do some soul searching and see, what is our purpose in the world now, that we've brought this to market, and what's the next thing, if there is one, or maybe we just grow this.
28:36
I'm really taking a step back this summer and just saying, do we need to launch another one right now?
28:41
Or what is it that we should be doing?
28:46
Jim O'Shaughnessy: Do you get any blow back?
28:47
You're very vocal, which I really think is great. I applaud it.
28:52
You put yourself into the arena, and my friend Tren Griffin convinced me that, that takes a lot of courage.
28:57
Congratulations to you on that.
28:57
Are you hunted by bots on social media? Perth Tolle: Sometimes. I'm used to it now.
29:04
At first it did surprise me.
29:08
When we first launched, and people were talking about it on Twitter, I did get a lot of weird flack from mostly pro China investors in Asia, and mostly in Hong Kong.
29:20
That was weird to me in the beginning, but then I realized, "Oh, this is expected now."
29:25
Once you have something in the public arena, like you said, that comes part of the course.
29:38
I've gotten more used to it.
29:38
I think in the beginning, you were one of the people that were like, “Hey, just ignore."
29:39
I've learned to do that better.
29:39
I think thanks for that advice.
29:40
Jim O'Shaughnessy: Of course. That's my pleasure.
29:41
Perth Tolle: Also, just I think in America we do have freedom of speech, so in all of these, a lot of these countries don't now, and you could see it getting taken away in Hong Kong.
29:45
Those of us that have it, I do feel like we almost have a duty to use it for those who can't, because they really can't now.
29:55
If we don't, then there is no one left.
29:55
I do want to use that freedom of speech where I can.
30:01
Jim O'Shaughnessy: Which I think is excellent, and I applaud because that's what people need to hear. They need to understand.
30:08
It always dismays me when I listen to people who I think they're not being disingenuous.
30:17
I honestly think that they believe what they're saying.
30:17
But they don't understand, for example, that some of the worst places for women, for example, are the most authoritarian.
30:28
You mentioned Saudi Arabia, the one child policy in China.
30:28
These are really noxious, horrible rules, and they probably disproportionately affect women over men I would think.
30:42
Although you've mentioned that they're also affecting men, that men in China can't find a woman to marry.
30:45
Perth Tolle: It's three child policy now, but two child made no difference, and neither will three, because the whole culture of our generation changed because of the policy.
30:52
That's just pretty much irreversible at this point for maybe a few generations going forward.
30:57
It also affects, it has driven trafficking in and around the region.
31:01
As far as Columbia, women get traffic to China because of the shortage of women i guess in China.
31:07
It's definitely in a lot of these authoritarian countries, when we criticize the United States, it's nowhere close to what goes on in some of these other markets.
31:17
That's another reason why I think Wall Street has been so enamored with some of these authoritarian countries, is because they just don't know.
31:26
Most people that work on Wall Street are privileged people in the United States.
31:30
We do have some level of privileged to be working on Wall Street, to be working in finance.
31:34
Most of us do come from upper middle class backgrounds.
31:39
We lived in the suburbs very comfortably all our lives, where our entire life is packaged for us within a certain radius, so we don't know what's going on in these other markets, and we can't imagine the horrors that are happening there.
31:50
We are also more susceptible to be falling trap to some of these narratives.
31:55
Like Luckin, it's going to be the next Starbucks to China.
32:03
Here we're like, "Oh, Starbucks." Starbucks is great. Starbucks is everywhere.
32:07
It's going to be the next Starbucks. Great.
32:07
Then we all know what happened with Luckin.
32:11
I think if we project our optimism onto these other very authoritarian countries, that's a good way to get trapped by those narratives.
32:16
Jim O'Shaughnessy: I think that's a really good point, and I think that that's actually really insightful because you're right. A lot of people ...
32:24
And I used to joke that younger people who maybe didn't pay as much attention to the fact where like the old USSR and Maoist China, and all of those types, and Cambodia under POL pot, they were horrible, brutal places where millions of people were executed.
32:43
Suddenly I teased them when they are tweeting, "I hate capitalism."
32:51
I always upended saying, "Tweet it from my iPhones while getting a Starbucks."
32:55
I honestly, I think that they don't stop and think about that.
32:55
It's like, the only reason you can do that is because you live in one of the freest countries in the world, and nobody can take that right away from you.
33:07
I just think it's like when I was a kid, they used to have these scared straight programs, where if you were a juvenile delinquent, they would take you into the prisons and they, no seriously.
33:15
The prisoners would volunteer.
33:22
I was never taken into one, but I did have a friend who got taken down as a JD.
33:22
It was called scared straight.
33:28
What they would do, is they would bring kids who were getting into trouble, at a young age, they would bring them in and the prisoners would tell them, "Here's the reality.
33:39
Here's what's really going to happen to you."
33:42
Perth Tolle: That's cool.
33:43
Jim O'Shaughnessy: It is, because the friend I had who that happened to, man, that was the end of his juvenile delinquency.
33:49
Perth Tolle: It [inaudible] him out. Jim O'Shaughnessy: Yeah.
33:51
I just wonder sometimes though that, like, what would happen if we sent these kids to Cuba for a month?
34:00
Perth Tolle: You can't do that, because look what happened to the kid that got sent to North Korea?
34:02
He came back in a coma and died.
34:02
You just can't do that with these countries, unfortunately.
34:07
Jim O'Shaughnessy: No, no, I know, I know.
34:09
Perth Tolle: Look at Hong Kong right now.
34:11
The biggest story on Bloomberg terminal today, was that this American lawyer who stood up- Jim O'Shaughnessy: Yeah, I read that. Perth Tolle: ...
34:18
he's now in jail for standing up for a kid that was getting beat up in the subway by cops, and the cop didn't identify himself as a cop.
34:21
That American lawyer now in jail, in Hong Kong for standing up for a kid that was getting beaten up.
34:31
Jim O'Shaughnessy: Will there ever be a time, or is this just pie in the sky thinking, where the people of these countries, and it's demonstrated they've tried the green revolution in the middle east, Hong Kong, my God.
34:40
I made a remark once- Perth Tolle: They did really try in Hong Kong. They really did.
34:48
Jim O'Shaughnessy: They really have.
34:49
Perth Tolle: They really made a showing.
34:49
Out of a city of 8 million people, 2 million were on the streets.
34:55
Jim O'Shaughnessy: Amazing.
34:55
Does that ever tip, do you think in your ...
34:58
You're too young, but when the Soviet Union collapsed and Romania and all of the other, like Ceausescu got executed by the people.
35:05
Is that even a possibility anymore?
35:10
Perth Tolle: I can't imagine it.
35:12
I think things have changed so much, because now it's a digital, it's an information war, and people are always, and by the way, just to go back for a second, totally random.
35:22
Otto Warmbier is the kid's name in North Korea.
35:22
I just wanted to say his name because he died.
35:24
Jim O'Shaughnessy: Thank you.
35:25
Perth Tolle: He's the kid that went to North Korea as a tourist and then came home and died as a result of being in jail and tortured there, for I think taking a flag off a wall.
35:31
I think things are more of an informational war these days and things are more digital.
35:35
That's why you see hundreds of bots coming at me for doing a freedom fund.
35:41
That's why you see from China mostly, but I have tweeted about my friends in Saudi Arabia and things like that, and gotten Saudi Arabian bots too. So, it's not just China.
35:51
I think China and Russia and Saudi Arabia are the biggest, I think actually China and Saudi Arabia are the biggest on Twitter as far as bots go, the bot machines armies.
36:00
They all have their own names, like Chinese bots are called [inaudible], which means 50 cent army, in Chinese.
36:05
Then the Saudi Arabian is something like, there was a hashtag like do you know about the bees?
36:11
It's like the bees are either the ones that are fighting the bot army there.
36:15
I think mostly it's going to be an informational war and China knows that, and Saudi Arabia knows that.
36:20
They're going to mostly try to shut down information.
36:25
I don't know if you noticed at the Centennial, right before the Centennial of the CCP, which was last week.
36:29
jolly Jan, who is a spokesperson for their ministry there, blocked a lot of, he just mass blocked all the pro-democracy people on Twitter.
36:40
People on Twitter were like, "I never interacted with this guy. Why is he blocking me?" It was everyone.
36:45
All of China Twitter was getting blocked by Jolly Jan, the spokesperson there for the Centennial.
36:49
What they do is they silence opposition.
36:53
That's why they're silencing, that's why media freedoms are being killed off in Hong Kong right now, because they want to silence that opposition.
37:00
That's the way that they're fighting this.
37:05
I think it's mostly going to be an informational war, and they're going to try to put out their own narratives and anything that comes against their narratives of both history and what's happening in the present, it's going to be silenced and that's why they don't have Twitter in China.
37:17
That's why they don't have Facebook and all of this stuff, because for them, it's an informational war. It's a war of the mind.
37:26
If you can control information, you can control minds.
37:29
Jim O'Shaughnessy: That's George Orwell, right there in 1984.
37:33
He who controls the present, controls the past.
37:33
He who controls the past controls the future.
37:38
Propaganda is as old as nation states, I guess, maybe even predates nation states.
37:45
Don't you think it's odd that in so called free countries, like the United States, you have this collapse of the mainstream media's credibility because they have just so bought into the narratives that their masters tell them to talk about.
37:57
It’s almost like I had a friend joke that Pravda, which is the old newspaper in the Soviet Union, while they were still the USSR, and Pravda means true.
38:08
Which of course all my old Russian friends say everyone knew it was the opposite.
38:14
But isn't it weird, don't you think, that here, where we have all this freedom that they're just like, are they just trying to do this to survive, or what do you think is going on with them?
38:27
Perth Tolle: With our mainstream media? Jim O'Shaughnessy: Yeah.
38:29
Perth Tolle: I don't know, but I think that, just from a freedom econometrician standpoint, not that I'm a freedom economist, I'm from the daily standpoint.
38:38
Jim O'Shaughnessy: I understand. I get it.
38:39
Perth Tolle: We still are very free as far as our media.
38:40
I know that there's a lot of issues, and I can acknowledge that there are certain media networks that I refuse to go on, for those reasons.
38:51
Sometimes I feel like maybe I should.
38:51
Just because why limit myself?
38:51
I think people are, as that happens more though, as these media outlets become more tainted I guess, people will become more, I guess I'm using the word woke, but in a different way.
39:04
They'll be more awakened to what propaganda looks like.
39:08
Right now, or even before 2016, we had Americans were very, I guess, spoiled in that we didn't know what propaganda really looked like.
39:20
It didn't really hit our soil as much.
39:20
Because propaganda now doesn't look like propaganda.
39:26
I think the free media here in the US and in other countries that are more free, still have a responsibility to get the word out, to get the truth out for people who don't have that privilege now.
39:37
If we were to continue to be, that's another reason why we have to be very independent and try to maintain our freedoms because we're the only ones left.
39:46
Jim O'Shaughnessy: Let me ask you, where do you think that you've gotten the greatest impact from social media, Twitter, we mentioned mainstream media, CNBC, or Bloomberg?
39:56
Where do you see a correlation if you do, like an appearance on XYZ or a podcast even, where are you getting the most bang for your buck?
40:05
Perth Tolle: It's a combination because when you're on social media, you get followed or noticed by other types of media, and then you go on their media.
40:13
It's really like one thing leads to another, and it's a combination of all of those.
40:18
I don't think it's one particular thing.
40:18
I think though that for people launching funds and trying to figure out their marketing plans, I didn't have a marketing plan.
40:24
I just did what I could do, because I couldn't afford big Ad campaigns.
40:29
I just went on Twitter because that's what I could afford.
40:34
Mostly Twitter and LinkedIn a little bit is what I did, but 90% of my marketing on social media was Twitter.
40:39
I don't have Facebook, I don't have Instagram.
40:45
But if you put your whole self-out there, if you make clear and transparent what you're about, people that are interested in either writing about that, or having you on their platform will find you and get your message, help you get your message out.
40:56
Again, this is not anything that I could take credit for, but early supporters like Eric Balchunas had me on his show, ETF IQ before there was an ETF.
41:06
I don't know if that's ever happened at that point.
41:10
It was just an index then.
41:10
Then I've been on the show after that.
41:10
Also, others like Josh brown, who was on Twitter a lot more than he is now, but he tweeted about us when we first met and this was years before the ETF.
41:23
I think that social media, when you only need one person to really resonate with your message, to get a groundswell going.
41:36
You never know where that one person's going to come from.
41:38
Jim O'Shaughnessy: Do you ever just have a day where you're just like, "Ah, I need some resupply troops here."
41:41
I'm the only one out here fighting for- Perth Tolle: Everyday.
41:48
Jim O'Shaughnessy: How do you deal with that?
41:48
I'm actually asking that as an honest question because you're indefatigable, how do you do that?
41:55
Perth Tolle: I don't know what indefatigable means, but I don't think I am.
41:57
New Speaker: It means you don't tire. You just keep going.
41:59
Perth Tolle: No, that's not the case at all. I'm a mom and I do tire.
42:04
Jim O'Shaughnessy: I know you are.
42:05
Perth Tolle: I'm tired right now.
42:06
Jim O'Shaughnessy: Does your daughter Olivia, can make you more tired than these crazy authoritarian states?
42:10
Perth Tolle: Much more, much more. No comparison.
42:13
No, I think again, I'm not doing this on my own, and that's something that I'm so thankful for.
42:20
So yes, I'm all the time like, "Oh my gosh, I need reinforcement."
42:23
But also, everything I've needed has been there.
42:23
This is something that I felt called to do when I left Fidelity.
42:30
It is one of the reasons I left, but also mainly I just wanted to stay home with my kid at the time as well.
42:34
But it's an idea that always pummel me and would not let me go.
42:37
I think that it was, when I actually decided to do it, it was very clear that it was now or never time.
42:42
Being a mom is a big part of it because I didn't want to, even though Fidelity was great and I loved my team, I loved my clients, i loved my boss, and I found a lot of my personal satisfaction and identity in working there, because I was there for 10 years, and had a lot of success.
43:01
I'm very thankful for that.
43:01
But when I became a mom, I just felt like, I need to do something that is, that I will only do something if I can't not do it.
43:06
For this, I felt like I would rather try it and fail, than not try it at all.
43:11
There are very few firms that can bring something like this to market. [inaudible].
43:16
I tried to talk to them into it, but they couldn't do it because it's too political.
43:20
All the big ones are like that, so it takes a smaller firm who has no interest in business in China at any point, that can be more flexible on this front to bring something like this out.
43:31
I'm just so grateful every day that we were the ones that got to do it.
43:37
Jim O'Shaughnessy: I have great admiration for you in doing this.
43:38
Tell us where they can find your funds, and what the tickers are, and what's your handle on Twitter?
43:47
Perth Tolle: If I say the ticker then anyway ...
43:48
Jim O'Shaughnessy: We'll put them in the show notes as well.
43:50
Perth Tolle: The ticker is FRDM, it's the Freedom 100 emerging markets ETF.
43:54
Index ticker is the same FRDM, and I'm on Twitter at Perth_Tolle.
43:54
Our website is Lifeandlibertyindexes. com.
44:01
That's for the index, and the fund website is freedometfs. com.
44:07
Jim O'Shaughnessy: I love it. I love it.
44:07
As another part of our show, we always ask this final question.
44:11
Because the answers are really interesting from my perspective, and you really can tell a lot about a person when you hear their answers.
44:20
You're not going to like the way I'm setting it up, because we are going to make you the Empress of the world for one day.
44:24
I knew you wouldn't like it.
44:24
I was actually thinking about [crosstalk] when I was contemplating this, I was like, "I know Perth is going to just hate the way I put this question."
44:37
Perth Tolle: I love that you knew that I would hate that though. Jim O'Shaughnessy: Yes. Yeah, yeah.
44:41
But here's the good news. Here's the good news. Only one day.
44:44
You can't kill anyone, you can't put anyone in a camp or reeducate them, but you can do two things. You incept them.
44:50
You can whisper something to them in their sleep, and they're going to wake up thinking, "You know what a good idea is, I think I should do X." Give me two X's.
45:02
What would you get people to do of their own free will?
45:08
Perth Tolle: Incept them of their own free will.
45:10
Jim O'Shaughnessy: They think it's of their own free will.
45:15
Perth Tolle: I would say that you are powerful and you have the power and the responsibility to change outcomes, because I think for our investors, a lot of investors act out of fear, of either deviating from benchmarks or underperforming benchmarks or getting fired or whatever.
45:31
I think that if more investors realize that they have the power to change outcomes, if you're in a position to direct assets, that's a position of power, and that's a position of honor and privilege.
45:46
This is an honored profession.
45:46
We have a responsibility to that and to our clients, not just fiduciaries, but also we have the power to affect outcome by the way that we invest.
46:01
Whether you're investing your own money or other people's.
46:06
If we know that, then I think a lot of us would invest differently.
46:09
Jim O'Shaughnessy: I love that.
46:09
Know your power and use it, and exercise your power. I love it. Number two.
46:13
Perth Tolle: I think number two, I don't know.
46:17
I think number two, I don't know. I guess you're not alone, because there’s more, and I'm not as confident in this answer, but I think one thing that as an entrepreneur, sometimes, especially a one person entrepreneur, sometimes we do feel alone, so we feel like
46:26
we have to defend ourselves, or we have to do everything ourselves, but if you realize you're not alone, and I think that having a publicly traded fund out there is one way to really realize there's a lot, is that, “Hey, there's 60 million other dollars in this fund." You're definitely not alone in the way you're thinking about this, and you
46:39
You're definitely not alone in the way you're thinking about this, and you don't have to be out there every day striving and making things happen because it's not about you.
46:48
Instead of you're not alone, I'll change that to, it's not about you.
46:48
Because that changes your perspective.
46:54
Jim O'Shaughnessy: I love it. I love it.
46:55
I have such tremendous respect for you and what you have done. I really do. I'd love to clone you.
47:02
I wish there was 1,000 people who were thinking and acting like you are, the world would be a much, much better place.
47:08
I want to say thank you for that. Perth Tolle: Thank you.
47:15
Jim O'Shaughnessy: I do greatly admire you, and I can hardly wait to take you to lunch.
47:19
Perth Tolle: I can't wait either Jim. Thank you so much.
47:20
It's such an honor to be on your show.
47:20
Jim O'Shaughnessy: Thanks for joining me.