The Ledger, every show

“When you take a look at the economic profit, so return on capital, less cost capital spread times invested capital, the economic profit Of the Magnificent Seven, it's actually larger than their market cap representation.”

“If you look across asset classes, the asset class that continues to have high persistence is actually venture capital.”

“That persistence used to have to happen in buyouts. But that effect is mostly melted away in the last 20 years, and it's very difficult to find persistence in public markets at all.”

“Even there's some evidence if you ask portfolio managers to write down Ex ante, what rules they should follow to size their positions. A, they don't follow those rules, and B, there's evidence that they did follow their own rules, they would do better than the…”

“What it was found was that the funds that delivered the most Alpha were actually funds with three portfolio managers and better than single managers, and by the way, better than two and four.”

“The NBA is the sport that's furthest from randomness, furthest from pure luck configuration, and sports like actually ice hockey and baseball are actually quite much closer to being random.”

“The cumulative gross profit, I think we have 35 years of numbers, is about a trillion, trillion net positive gross profit. So gross profit positive more than, you know, ok, is a trillion dollars. Now, that also happens to be about what the fees were in that ti…”

“They found that in markets where the Explicit indexing was highest Active managers often did the best”

“Study after study demonstrates that if you bought the funds that were fired and sold the ones that were hired, you actually, just because of regression toward the mean, you do much better.”

“I don't suspect leverage is going to be the next big challenge, I do think liquidity might be the case.”

“And so what we know, and this has been extraordinarily well documented by folks like Phil Tetlock, psychologist, University of Pennsylvania, and others is that in quotation marks, expert forecasts, they tend not to be very good at it. In fact, typically simple…”

“What's remarkable is if you distill that even one step further, the top two percent of that 28,000 created 50 trillion dollars. Of the 55 trillion in total. So just two percent of all these companies are essentially 90% of the total wealth creation.”

“The ROICs for the top quintile of public companies has distanced itself from the next quintile and sustained at a very high level”

“The other thing he pointed out technology companies, they're not overrepresented actually.”

“He documented that almost every one of these great compounders had massive drawdowns at some point. And it was common to have drawdowns of 75% or more, but some were 80, 85% drawdowns.”

“What we know is that there's huge dispersion in returns in venture capital. So if you own the top decile or top Quintile type of firms you do spectacularly well over time, but if you own the median firm or a bottom quartile firms, the results are actually quit…”

“Work by Hank Bessenbinder demonstrates that in public markets over long periods of time, most companies, public markets earn Returns less than the treasury bill rates. And it's like a handful, less than five percent of companies basically drive all the value f…”

“So I think that it was not too many years ago that, that Tesla was sort of skating on thin ice in terms of finances and so forth. And then as a stock took on a life of its own, the stock went up a lot that allowed them to raise capital and get themselves on mu…”

“One of the ways we can measure that is to look at the standard deviation of excess returns, right? So alpha, right? So excess returns. So, so you'd imagine and if you'd imagine If you're an active manager, what you want is a big fat bell shaped distribution, r…”

“What they found was the training did improve people's accuracy of their forecasts, and it turned out they found the thing that was most important in that training was basically this, is this idea of teaching them about base rates, and reference classes, and ju…”

“We saw some people get a little bit of money, often just from the government and going into the stock market and trading, you know, options and stocks and so forth. You know, that movie hasn't ended yet, but we've seen this movie many times and that movie tend…”

“After a drawdown of 20% in the S&P 500, you wait three months. So now from the beginning of March through early June, and then you get involved. And then they looked at small cap and large cap value, small cap and large cap growth. And what they found essentia…”

“The punchline of this, which was, I think, really the key lightning bolt, was that when they decompose this, they found that the difference between the best and the rest was 50% attributable to noise, 25 to bias, and 25 to information. So saying this different…”

“The challenge in these things are things like venture capital is a good example where there just aren't really reliable data. You and I can look at the S&P. 500 returns or the Russell 3000 returns. We can agree pretty much that the numbers are right. Venture c…”

“There's only one paper that I've ever seen that attempted to tackle whether it was cognitive diversity or social category diversity that added value, and what that paper found, and it was a couple thousand mutual funds, and it's hard to tag these things really…”

“The research shows that as you give people additional pieces of information about something, the accuracy of their forecasts don't improve at all, or their bets don't improve at all, but their confidence tends to soar.”

“Let's look at every company that had initial revenues of one hundred billion or more, so obviously adjusted for inflation, and look at how they did in their subsequent growth rates for the next 10 years. And by the way, because this is such rarefied space, you…”

“January first, 20, 24, expected equity returns are eight and a half percent nominal. You take out the inflation expectations. Your real equity returns are from the mid sixes, low to mid sixes. Not great, not compelling, but a heck of a lot better than Real thr…”

“In 1996, we reached the apex, which is a little over 7300 companies. Today, we don't have the 20, 23 numbers yet, but it's gonna be around 4200. So we're not only way lower than the peak, we're lower than we were in the 19 seventies.”

“The main way companies get added are initial public offerings, and what we've seen is IPOs from 76 to 2000 averaged about 280 per year. They're a couple years way above that, and since 2001, they're about a 120. And by the way, the last couple years, Have been…”

“Obviously the number one technique for buyouts to exit was selling to other buyout firms.”

“What did companies actually do? None of that stuff. They actually didn't invest more. And so what capital structures got more conservative cash balances. Built up on balance sheets is excluding financial services companies.”

“Three is better than two. That's a best practice. And by the way, five is, is not five is better than four. For instance, these odd numbers tend to be good things in terms of, and there's good data. Pardon me. There's good data to back all that up”

“If you look at long-term public market equivalent, so, so this is how academics are measured is public market equivalent for venture capital. It's actually been pretty good over long periods of time, but it's extremely episodic. So almost all the returns are e…”

“Buyouts, by the way, have consistently been a little bit better than private equity have been a little bit better than venture. They're much less episodic or dramatic, and they tend to chug along a little bit over one PME.”

“So there's gonna be a bottleneck at, in terms of how many firms can actually do that at a very successful level. And this is sort of Series A really adding value at the Series A level. So I think when, the more the scattershot philosophy can be later rounds pr…”

“There is a large literature demonstrating that people are not good at forecasting those things.”

“And then I would encourage you now to look at a long-term stock price chart and go find the crash of 1987 on there and look at it and see like how significant it is. Right. So the, at the time it seemed to be very profound at the time it was earth shattering. …”

“Go back and look at volatility. And, you know, you see that the volatility we've seen in the last 10 or 15 years, even including the financial crisis, really doesn't hold a candle to the volatility we saw in the 19 twenties and thirties in the United States. T…”

“When you look at even 20, 22, Expected returns for equities have gone up a lot. I don't know if the markets are going to be good the next month, three months, six months, but I think expected returns look pretty good.”

“Back in 2001. So the year the first book came out capital expenditures and intangible investments. And this is for like called the Russell 3000. So basically us public companies Was about the same amount, 636 hundred and forty billion, something like that. So …”

“Walmart for the first 15 years that it was public had negative free cashflow for each of those years. Walmart was profitable on the income statement, but they were investing like crazy.”

“Basketball is a sport that's furthest away from randomness. So the most essentially skilled dictates the outcomes.”

“And so it turns out if you look at venture capital in particular by the way, in public equity markets, very limited persistence, right? So if you did really well last year, your expected value is closer to the average the following year. Buyouts. They used to …”

“Bill Miller beat the S and P 500 for 15 years in a row. I think that's going to be very difficult for anyone to do again for the same reasons we talked about.”

“So if you took Microsoft out, so you bought the other nine turns out their market capitalizations are down It's about four hundred and sixty billion dollars in the 20 year period.”

“Interestingly, by the way, three of the top 10 companies today were not public in 2001, and two of the top 10 were not founded, had not been founded yet.”

“The only time we've ever seen sort of perpetually elevated Volatility was back in the 19 thirties. So right after the crash of 1929.”