The Exchanges

Q 30. Everyone's looking to invest in the market, trade the market, start a business, Building something from the bottom up. So we are speaking to them. So most of today is around that. Can we start with a little bit about you and how your own journey began from Queens to Wall Street? Maybe like a, how do you describe your story in your words? Your story, your origin story.

A Well, um, you know, I was born in Queens, New York, as you know, one of the, one of what are called the outer boroughs, uh, middle-class upbringing. Uh, neither parent, uh, went to college. Um, but my father was a very intelligent man and, and, and an accountant. And I think he did His job well. And so we lived a, uh, comfortable middle-class, uh, existence. Um, I went to the public schools of New York at a time when you could get a good education in the public schools of New York. Uh, and I think I got one. Uh, and, uh, oddly enough, uh, uh, Ended up taking courses in business law and then accounting in high school and really connected with accounting with the orderliness and the symmetry. Uh, it, it just clicked for me. So I decided to go to a business school. I applied to Wharton as the best business school for undergraduates in America. Uh, I was told I wouldn't get in, but I did. Uh, went to Wharton as an accounting student, switched my major to finance. Uh, uh, then went on to get a, an MBA in accounting from the University of Chicago business school. Uh, and, uh, between years of business school, I had a job in the investment research department of Citibank. Liked it, went back. That's my, that's my background.

AI assessment note: “I was born in Queens, New York... went to Wharton... That's my background.”

Q Wouldn't you benefit from calling it junk so you have a higher Margin because more people would stay out of it?

A Yes, if they listened to me, if I was that influential, but, and, and that's the right kind of, kind of, uh, counter thinking, but, On the other hand, a big part of our business now is making loans to companies that need what we call rescue loans. They don't like to be associated with the word distress. So we're more likely to get their business if we call it opportunistic. So, uh, you know, in the performing credit area, we lend money to companies that the world thinks has a, let's say three, four, five, six percent of not paying us. Probably three, four, five, six percent probability of not paying us. We lend them money if we think it's one or two percent. So if the world thinks they're five percent likely to not pay us, and we conclude that they're only two percent likely to not pay us, then the world requires them to pay an, a rate of interest which is commensurate with their five percent probability of non-payment, which means if we're right, and it's only two, we're getting something for nothing. And that thing is called excess return. So, So that's what we do. That's the essence of lending money. I mean, why would you lend money to a company that has a non-zero probability of paying you back? And the answer, Mike Milken's answer was you can demand the rate of interest, which is compensatory or more than compensatory. And when you get, when you get payment in life for doi…

AI assessment note: “Yes, if they listened to me, if I was that influential, but”

Q So in a way, are you saying the psychology of people, mass mentality in a manner remains the same, and that can be modeled for more so than events can be?

A Well, of course, events are largely The things that people do, which is largely the result of their psychology. But I do think that, that events in the future are somewhat predictable because B, because The implications of past behavior are somewhat predictable, and future behavior is somewhat predictable. The things that have happened, for example, in the economy and the markets are likely to induce certain behavior in the future, and you can know a little bit about that. And, but when, when the history and the past behavior has been extreme, the ability to infer from that rises. In other words, I wrote a book about, uh, cycles, and that's the one where I refer to my experience traveling in India. And, uh, Cycles are induced primarily by behavior. By, you know, uh, uh, the upcycle is exaggerating, overgeneralizing. The upcycle, there's a trend line. Let's say it's GDP growth. There's a trend line. But sometimes, uh, the economy grows more than that. Why? Largely, I think because of optimism. Because people are optimistic, so they spend a lot of money. Producers are optimistic about demand for their product, so they build new factories and hire labor and buy machinery. And the sum of these things produces a period of above trend growth. But then when Producers have more than prepared for the coming growth, and consumers have been sated by consumption than The, then things will …

AI assessment note: “events are largely The things that people do, which is largely the result of their psychology.”

Q Any last words, Howard, to our audience? Any piece of advice?

A Well, I, I, what I, what I always say to people about investing, Nikhil, is that investing is a puzzle. Challenging puzzle investing. I define as positioning your capital to take advantage from few of future developments. But I also say that future developments can't be predicted accurately. So you need superior insight to get it more right than most people, but you're not going to get it right all the time. If you have to be right all the time, if there's something in your makeup that recall, that says you're going to be unhappy if you're not right all the time, don't become an investor. Uh, Taleb in his book fooled by randomness, uh, talks about the difference between investing and dentistry. He says, if you go to dental school and you learn how to fill a cavity and you fill the cavity that way every time you'll be successful every time. So if you have to be successful every time, become a dentist or, or an engineer. A civil engineer, you say, I want to build a bridge from here to there. He does his calculations. How much steel? How much concrete? Every time the bridge stands. But, but, but it's not that interesting in my opinion. And so investing deals with this fascinating puzzle that you're trying to solve To a better degree than others, even though there are no laws that work absolutely. Fascinating. And I love it. Um, it's still a puzzle. It's still a puzzle. I'm trying …

AI assessment note: “if you're not right all the time, don't become an investor.”

Q Have you even to, have you been able to ever pull that off? Like I've been fascinated with the idea of going to a mountain and arriving at some kind of evolutionary thought in my mind, which makes me actively Transition into something. Have you been able to touch that?

A Well, I, I, I, I haven't physically gone to the mountain, but I, I think the key, uh, I've done, I've written the first pages of a book. Uh, I think the, I think the, the, the key to all of this, to all of life, Is to behave thoughtfully with your mind engaged, not just, uh, let the river take you, but give thought to what's going on. Why is it going on? What does it mean? Why did it happen? What does it imply for me? What should I do about it? And, uh, it's the, that's, that, that is, I think, uh, going through life with your eyes open. Uh, and that's how you can intentionally get to a higher stage in life by doing that. And, and the, the, the, uh, The image that comes back to me is the image of whether you let the river take you or whether you, uh, try to figure out a better place to get to and then try to get there.

AI assessment note: “I haven't physically gone to the mountain, but I've written the first pages of a book”

Q So where's the 10 dollar bill nobody's picked up right now?

A Well, I think it's in, it's, it's around AI. But, but everybody's excited about AI. So if, if your excitement level, and by that I mean your insight level, is average, you don't have an edge. Your, and you get involved in AI, your performance will be average. You will go along with the tide if it works. You'll be schmeiced if it doesn't work. Superior. It all comes down. You boiled down our conversation to this point. It all, and the things Charlie said and, and, and so forth, it all comes down to superior insight and Not, you know, we have an author in America, a guy named Garrison Keillor, and he wrote a book called Lake Wobegon. And Lake Wobegon was a fictional community in, uh, I think, uh, Wisconsin, if I'm not mistaken. And he said in Lake Wobegon, all the children are above average. Well, we know that there is no place where all the children or all the investors are above average. So I think my, my own vision of the world, which is not a scientific vision, is that in fields where human nature is involved, and the future is unpredictable, and things don't operate according to mechanical rules, there is still a place for superior insight, But you will not have success without superior insight.

AI assessment note: “Well, I think it's in, it's, it's around AI.”