E44: Trailblazers, Heroes, and Crooks with Stephen Foerster

This podcast is brought to you by Gensler Wealth. The information discussed today is meant to be general in nature and not tailored to your specific investing circumstances. This means that you should talk to your regular Gensler wealth advisor or your own advisor before acting on any information we discuss today. Nothing in this podcast is intended to be a solicitation, and past performance does not guarantee future returns. Forewarning I have a bone to pick with today's guest as he is to blame for my entire career. Today on the Unlimited podcast, we speak with Steven Forrester, a professor of finance at the Ivy Business School. We're going to talk trailblazers, heroes and crooks stories to make you a smarter investor. Let's go. Foreign. Welcome everyone to another episode of the Unlimited podcast. I often say this and I feel like it's, you know, maybe oversaid, but I seem to say a lot. This one's very special to me. Well, this one is very special to me, too, and I'll explain why. My career in the wealth space started 2004, 2005, but prior to that and in school, I really didn't know what I was going to do in university. And a good friend of mine, I'll give a shout out to him because I know he listens to every episode. Jeremy Grafstein was in the HBA program at Ivy and he said to me, you got to go into this program. It's a great program. You'll love it. So I did. So thanks, Jeremy. And and then in my first year, first semester, you do a bunch of required courses and I ended up thinking I might be an accountant. So I got a job in an accounting firm over the summer. And that happened very early in the journey in the first year and then in the second semester. That's where in your finance class, finance and investing introduction comes into play. And our guest here, Professor Steven Forrester, was my first year finance professor. And as I said to him just before we started this podcast and hit record, basically he's to blame for everything that's happened in my career since because I loved his class. I loved him and his class so much that I said, well, I don't think I'm going to be an accountant, although it's a spectacular designation. I'm going to go into finance and investing. So this one's special to me because this gentleman here really was a major impact or had a major impact on path that I've taken for the last 25 years and will continue to take. So Professor Forrester, thank you so much for joining us today. This is really, really nice.

Well, Brian, it's a great pleasure and wonderful to reconnect with you and apologies for any damage I might have done throughout your career. But I'm always glad when former students succeed in spite of my classes.

So let me give a little bit of an intro to Professor Forrester or Steven Forrester. One of the reasons why we're speaking with Steve today is because he's written a fabulous book and I want to dive into that with him. But I'll give you a little bit of background. Stephen Forrester is a professor of finance at the Ivy Business School where he has taught since 1987, although again, his most famous was teaching me. In 1999, he received a BA Honors Business Administration from the University of Western Ontario and an MA and a PhD D. From the Wharton School, the University of Pennsylvania. He obtained the Chartered Financial analyst designation in 1997 and has taught financial management, investments and portfolio management courses in the HBA MBA and Executive MBA programs. He has been honored to have won numerous teaching and research awards and he was the founding co director of Ivy's Women in Asset Management program. He is the award winning author of a number of finance and investment books, including the latest one Trailblazers, Heroes and Crooks, stories to make you a smarter investor, which we will discuss today. And his full bio in the Show Notes will have much more details on all his publications, textbook and numerous articles. So there's a quick intro. As I say, the Show Notes will have more. But again, thanks for being here and look forward to the discussion.

Likewise.

So first of all, what I always like to do is we're going to dive into some of the great stories that you've written about. But can you just give a little bit of background on yourself, how you became what I would describe as an investment historian in addition to being a professor. And what's the goal of the work you do in this area?

Sure. Well, as you know, Brian, longtime finance professor, my research is generally in capital markets and more specifically in stocks and investment. So I've been doing that for almost four decades, going back to my PhD studies as well. There's sort of an arc in terms of my writing. I started out mainly writing textbooks and that's for sort of a narrow audience, as you know, people like yourself then taking a course, you, you have to buy the book.

Captive audience.

Exactly, exactly. And, and that was, that was fun. My previous book with, with Andrew Low, In Pursuit of the Perfect Portfolio, that was a fun project that came out in 2021. It was actually a very long process in terms of writing that book over quite a number of of years. I would say that that book, its target, was aimed at informed practitioners. It's sort of a history of modern portfolio theory, starting with Yuri Markowitz. And we interviewed 10 luminaries who contributed to that particular space. The current book, Trailblazers, Heroes and Crooks, is aimed at a broader audience and a little bit of background in terms of where I got the idea for this book. Some of it came from the research in the previous book where we had a chapter on a very brief history of investing going back thousands of years. And so that really piqued my interest in terms of the whole history of investing, but more of a focus on the last 60, 70, 100 years. And so that's where I've been focusing in terms of the goal. Part of it is simply to record investment history and uncover some interesting stories and learn lessons from it. And what I found is often there's this theme of everything old becomes new again. And some things that we think of are modern techniques have been around for perhaps century. So that's sort of my story.

Okay, great. Well, let's dive in, I think. So it's called Trailblazers, Heroes and Crooks stories to make you a smarter investor. So it would be great, I think, to maybe talk about one or two of each of those categories. The Trailblazers, the heroes and the crooks. You know, and I've read the whole book already. It was great. The first trailblazer I think you talk about is maybe the trailblazer of doing nothing, Quintus Fabius, which I've never. Who I've never heard of before on the subject of masterly inactivity. So maybe share with our listeners, who is Quintus Fabius? What does masterly inactivity mean? And then later on you talk about a really interesting and historic fight that Muhammad Ali had. Maybe you could loop that in, because I think folks may find that interesting.

Absolutely. Happy to. And this is the oldest story in the book, going back to 3rd century BCE with Quintus Fabius. He was a Roman dictator, and this was around the time when one of the greatest military commanders in history, the Carthaginian Hannibal Barca, was making his way through Northern Italy, plundering and pillaging and causing a lot of destruction, famously crossing the Alps with his war elephants. So he really seemed unstoppable at the time. And Fabius was appointed a dictator with the goal to stop Hannibal. So not an easy task that. That he had. And so the story picks up where he is sent to an encampment nearby where Hannibal and his army are. And Hannibal knows this and so tries to entice Fabius into, into a battle. And this is where it gets interesting. And this is what Fabius is, is known for. His reaction at the time was to do nothing, to not engage in this war with, with Hannibal, because Fabius knew that they were not in a position, they didn't have the strength of the army at that particular point in time to defeat Hannibal. And so his strategy was to just bide his time, get a bigger army, get restocked, and then be in a better position. And that's what he did. And so he had later on a surprise victory over Hannibal. And so he became known for this notion of masterly inactivity, which essentially boils down to the art of knowing when not to act. And so this is where then the next related story in this chapter picks up on, as you mentioned, Muhammad Ali. And just to give some context for those who aren't as familiar with Muhammad Ali, sometimes considered, not all considered, not only the greatest boxer of all time, but, but one of the greatest athletes of all time. He had this, this flair to him, this, this Persona, this charisma. And extremely talented in the, in the boxing ring as, as well. Ali became heavyweight champ back in 1967, but then this was the time that the Vietnam War was going on. And as a conscientious objector, he refused to serve in the army. And so he was stripped of his title. And it wasn't until later on that he got back in the ring. It wasn't until 1974, when he was 32 years of age. This is now seven years after he was initially the heavyweight champ. A lot had happened since then. He was well past his prime. But he got another shot at the title. And he got the shot against the reigning world champion named George Foreman. Now, many of your listeners might recognize the name George Foreman through his famous grill. And actually, George Foreman probably made more money out of his association with this George Foreman Grill than he did in the boxing ring. But that was to come later.

Good investing, good investment.

Absolutely. Absolutely. So in 1974, there was this, this fight set up in zer. And subtle odds makers had Ali at 40, 40 to 1. Long shot he was against a much younger opponent. Foreman was just 25 years of age. Foreman was heavier. Foreman had a longer reach. So it seemed like that this was going to be really no contest except for the strategy that, the surprising strategy that Ali came Up with it became known as rope a dope. And his strategy was just to try to protect himself, stand against the ropes and let the ropes absorb a lot of the punches that Foreman was landing or trying to land on Ali. So this went on, this strategy went on round after round after round. Occasionally obviously Ali would, would, would throw some punches back. But by the seventh, by the seventh round, Foreman was exhausted. And that's when Ali had a left right combination. And it was a stunning knockout. And so really attribute it to this whole notion of masterly activity, knowing when to not act and then when to act. And so the investment tie into all of this. We, we also tell the story of Jack Bogle, who we had the pleasure of interviewing for my previous book. Jack Bogle, as of your listeners will know, was the founder of Vanguard, grew it to an asset management company with over $4 trillion in assets under management by the time he passed away in 2019. And his strategy really was one of masterly activity inactivity as well. It was to create this low cost index mutual fund and have investors buy it and hold it and do nothing. And so that's a lesson, I think that's really important when it comes to investing. Yes, there are times to take action, but not in a knee jerk reaction. And sometimes we're better off by not doing anything.

Right. And I saw a similar lesson, maybe you talked about penalty kicks in soccer and I think about active trading, I. E. Taking action versus Maybe not taking action. I found this surprising. Can you, and, and we'll move on from this topic of masterly inactivity in a minute. But I, I think for listeners this could be interesting knowledge or interesting fact. So how does this relate to soccer or football as they call it, you.

Know, overseas across the pond? Yes, absolutely. So this was a, a fascinating study. Study. This was quite a number of years ago and this researcher looked at professional goalies that were facing penalty kicks and recording what it is, what kind of action they took or didn't take. And you can clearly tell after the fact whether the goalie should have jumped to the left or go to the right or whichever, whatever might have been the winning strategy. And what the researcher found surprisingly, was that the winning strategy was for the goalkeeper to do nothing, to just stand there and that would stop the greater percentage of shots. And yet there is this tendency for goalkeepers to do something. And when you try to get to the bottom of what it is, and I think this relates to the investment stories as well from the goalkeeper's perspective, there's A lot of psychology going on. You know, imagine you're a goalkeeper and you dive to the left or you dive to the right and you, you went the wrong way. You know, the fans aren't going to be extremely upset. You know, that's just, you got unlucky. You chose the left and the shot was to the right. But imagine just standing where you are and not doing nothing. Then, then the fans would be in an uproar if you get scored on, why didn't you do something? Why didn't you act? So we really feel this, this pressure and that's where we have to often resist it. And you mentioned there have been studies about excessive trading. And by the way, men are much worse at this than women and trade more excessively. And over the long run that tends to hurt performance.

Yeah, amazing. We manage investments for families. A component of that is an equity allocation, as you can imagine. And the first allocation we tend to make for clients is in exchange traded funds. You'd think, yes, we're getting paid. You'd think that everyone would expect us, well, you better be trading and buying and doing stuff. But the reality is, and you know this better than me as an investment historian, you know, most active managers can't beat an index. And the index is cheap and almost free, but not free, but close to free. So that is typically our first allocation. And then we supplement that with, you know, more active or concentrated or alternative type of equity managers. I'm just talking on the equity side, but I agree the psychology of people expect you to do something or you're getting paid, so you better do something. We actually think we're getting paid to do the right thing here. Speaking of investing and good investors, not that we necessarily say that we're good investors, but I think we're not bad. But no one is good as Warren Buffett. You talk about your investing heroes in the book. There's a few, but you gotta single out Buffett maybe. Can you tell the story of Warren Buffett? And I think in your book you talk about Buffett as relates to American Express and something called the Great Salad Oil swindle. So how did Buffett save the day like he often does?

Absolutely. This is, I think, a lesser known Buffett story going back to really starting in around 1960. And as I describe it in the chapter, it brings together a tipster, a villain, a visionary, and as you mentioned, Warren Buffett, arguably the greatest investor of all time. And it's all mixed with salad oil. So to put some perspective on it, the villain in the story, or the crook, if you will, is a fellow named Tino de Angelis. And he was a really unsavory character who owned a vegetable oil refining company. So this is. Think of the so called salad oil. You have to store it somewhere. And picture these huge containers almost similar to what you would imagine in terms of storing oil, as in oil and gas oil, so these big outlets. And that was his job. He had associations with some unsavory characters who had some direct connections to the Mafia, allegedly. And colorful names like the Mouse and Donkey Ears were some of the folks that were some of the associates. So the connection with American Express is that DeAngelis was renting some space from a subsidiary of American Express. So we think of American Express and at the time, it was just starting to really make its mark as this iconic credit card company. And credit cards, those were in the early days in 1960s. And something I might need to explain to your, your listeners who are younger than. Than me, Travelers Checks, I don't know whether, Brian, in your early years, when you went on trips, whether you ever used Travelers Checks.

For sure, for sure, of course, absolutely.

So the idea was where cash in another country or credit cards in another country was not commonly available. And so the service that American Express provided is you would pay them a small fee, but then you would get this quasi money in the form of travelers checks that would be accepted in other countries. So your hotel, when you went overseas, would generally accept these travelers checks. If you lost them, that was okay because you had some protection as well. So they were extremely popular for travelers. So this was the business that. And this emerging credit card business, but really tangential was that American Express also had a subsidiary that had these storage units that de Angelis was, was, was renting. The other quirk in terms of what was happening with American Express at the time, very unusual. It was probably the last large US Company that was structured as a joint stock company as opposed to a corporation. They were actually, in the process, they were about to convert to the usual structure of a corporation, limited liability. But in the current structure, they actually had unlimited liability. And so when this scandal emerged, and so what happened when with DeAngelis is instead of storing oil, salad oil, in these big containers, he was primarily just storing water. And so he was fabricating that. He had much more oil than he actually did, and he was borrowing against water, which was supposed to be salad oil. And the whole, as with many of these kinds of schemes, eventually it's going to, it's going to collapse. And so here you have now this, this dilemma where you've got this relationship with American Express and this subsidiary. And it wasn't clear whether or not American Express was even liable for the subsidiary. Probably they were not liable and they could have just disassociated and walked away. But they made a choice to back up any losses that this subsidiary might have. And this is pretty substantial because some of the claims on the losses were something like $115 million. And yet its market capitalization after this scandal broke was only around $130 million. So literally this could have wiped out American Express. The other quirk in terms of history is all of this was happening. The scandal really came to light on November 21, 1963. And as anyone in American history is aware, the next day, November 22, 1963, John F. Kennedy was, was assassinated. And so that was a huge market event. In a rare case, the New York Stock Exchange actually closed early that day, having lost billions and billions of dollars. So this is going on and you've got this scandal going on. So specifically, American Express stock is going down independently. Then you've got the market going down and Warren Buffett is sitting back and watching all this. He was a very young investor. He had just consolidated his partnerships and he had something like $45 million in terms of investments when he took a look at what's happening with American Express. After trading resumed on the New York Stock Exchange, stocks in general rebounded pretty substantially, but not American Express. And American Express kept going down farther and farther and farther. And so this is really was really intriguing to, to Buffett, the, as we know, the value investor king, if you will. So he made a really bold move and took about 17% of all of the assets in the partnership and put it in this one stock in American Express. So it was a really bold move. And as the story goes, it was probably one of his best investments ever. Over the next, over the next year and a half, the Dow Broad market was down around 6%. American Express stock was up 124%. So it was a huge win. So he had this ability to. Again, we talk about fear and greedy. Others were greedy and Buffett was fearful. But when others were fearful, Buffett became so called greedy and made this great investment.

Amazing. Warren Buffett. Yep. And he still holds AMEX today, if I'm not mistaken, one of the largest holdings in his portfolio.

Absolutely. And that says something to his long term perspective as an investor.

Yeah, we already talked a little bit about crooks or villains in that story. But let's talk about crooks. And dare I need to even guess who the crook of the century is? Ernie Madoff. And this is a name that a lot of people know, but I specifically wanted to ask you about this because sometimes, you know, these names are out there and people think they know a little bit of the story or they've heard of it, but you know the details obviously. So I thought it'd be nice to tell, nice, it'd be good to share with folks who this guy was, what did he do? And I think there is a sort of a hero in this story as well, or someone who tried to be a hero. So can you tell a little bit of story about Bernie Madoff and then maybe the ending pieces. And now what do investors need to look out for when they're trusting someone to, with their money, to manage their money, etc. What do we learn from the Bernie Madoff story?

Sure. And absolutely. So there's the crook and the hero, and Bernie Madoff clearly is the crooked. And a fellow less known Harry Markopolitz is the hero who figured out one of the first, probably the first person to figure out what was going on with Madoff and tried to blow the whistle and was unsuccessful even after a decade. So just to put things into perspective, Bernie Madoff is sort of a Dr. Jekyll and Mr. Hyde kind of character. On the one hand, he was a very well respected business person in the investment industry. He was a pioneer and in some ways a trailblazer in the true sense of the word in terms of, in the early days of what is now known as the NASDAQ market, when electronic trading was just starting to happen and he had a legitimate business made off securities which played a big role in this market making function. At one point, Madoff securities was handling up to 10% of the volume of the New York Stock Exchange. So really substantially he had hundreds of people working with him and that was all a legitimate side of his business. He also had this dark side and this was where he had created this, this fund, Bernie lmadoff Investment securities. And this was the scam. This was a pure classic Ponzi scheme where you are able to attract money coming in. You claim it's going to a certain type of investment, you provide investment returns and in heavy quotation marks, investment returns, because it's nothing more than giving money out to those who put money in in the early years. And so the Ponzi scheme can work for a long time as long as you have new investors coming in who aren't looking to take out money. But eventually all Ponzi schemes are going to collapse. It's just inevitable. So he claimed to be having this strategy and it was actually, on the surface it was a legitimate strategy. It was called the split strike conversion strategy, which essentially is buying a well diversified portfolio of stocks and then buying some kind of portfolio insurance through derivatives. That's a legitimate strategy. But he wasn't investing in that way. He just claimed that he was making those kinds of investments. And it's not clear how long this Ponzi scheme was going on, but it might have been as long as four decades. When he was finally caught, he admitted that it went back, I think it was about 20 years, but every indication is it went back even further than that. So we're talking here billions and billions of dollars. And he had this, this way of making it seem like this fund that he had was a very exclusive fund. He targeted it to certain communities. And so it was a badge of honor if he would accept your money. So there was this whole prestige to it. And that's in terms of one of the takeaways, is one of these lessons in terms of you have to be looking out for these things. So enter in our hero, Harry Markopoulos, who was in the investment business. This was in the late 1990s and he was made aware of this particular fund by Madoff. And someone at his firm said, look, here's this guy who is providing these. They weren't spectacular off the charts returns, but we're talking about 10 to 14% every year. But what was so surprising is that occasionally there might be a month with a slight loss, but every quarter had positive returns. So you've got this classic upward sloping, 45 degree line of investments and returns. So Harry was asked to then, look, here's this strategy, he claims it's this split strike conversion strategy. How can we do this at our firm? And it didn't take Harry very long to figure out, this is bogus, this can't be. You just can't get these kinds of returns.

Wasn't it also, though not only couldn't get those returns, it was in order to do so, based on the size of Madoff's fund, he would have to have bought every derivative on the market and then some or something along those lines. It wasn't even possible.

Absolutely, you're absolutely right. So that was the other thing that after this initial revelation, then he did more digging and, and over, over the decades he came up with all these other additional red flags. He wrote this up and submitted it to the sec, the regulatory body in the US and he said in his initial submission, he said, look, there are three possibilities of what's going on here. Madoff is extremely talented or lucky. He's got this great strategy and I'm wasting your time, or Madoff is getting these great returns, but they're coming from somewhere else and you need to investigate where they are coming from because it doesn't seem to be this particular strategy claims or alternative number three is this is the biggest Ponzi scheme, Amber. And it was. And yet through the next decade, he had five submissions to the sec. There was the occasional follow up, but unfortunately it wasn't until the financial crisis of 2007, 2008, when his investors were starting to withdraw money because they had their own liquidity needs. And that's where the Ponzi scheme collapses.

Right. And so not only were Bernie Madoff's investors duped, it sounds like even the regulator who was there to protect investors, I guess they must have been duped as well. How does that happen?

They, they took Madoff at his word in terms of when they would say, okay, so what's in this portfolio? And he would provide them with information. Here's what's in this, this portfolio. But they didn't do their, their independent check. They could have easily looked at third party providers of security information to map what he was saying versus what was really happening. And that's where they, they missed the boat on this. So there's a lot of important takeaways here. And I give the analogy with one of Ronald Reagan's famous sayings when, when he was preparing for talks with Mikhail Gorbachev and eventually we know what happened, what happened there, and the success that they have and the Berlin Wall coming down and the opening up of the USSR at that time. But one of Reagan's favorite sayings was a Russian proverb which translated says, trust but verify. And this is where Marcopolis didn't trust the numbers, didn't trust Madoff, and he did try to verify and he couldn't verify. And so this is where we have to be very careful sometimes it's really difficult to catch some of these perpetrators. There were some tells, there were some things, some of the things that Madoff had said publicly, like implying that he was a lawyer, were simply absolutely not true. There was also this secrecy that he had and this lack of transparency. So this is where you have to be really skeptical. And of course, if something seems too good to be true, it probably Is, yeah.

And you know, on our side, speaking of a lawyer who wasn't the lawyer, whatever part of our due diligence when we are looking at strategies or managers is there are websites that will show sanctions and penalties, usually from the regulators. We look at those, we always want to see the portfolio, get proof. There's one strategy out there that they have a tendency or a whatever. They just don't tend to share their portfolio in an easy way. That for us, those are just easy passes. It might be the greatest thing in the world, but we do a lot of work before we get comfortable. And it's hard for folks who are not in the business, who are not experts here to do this level of work. But this Madoff is certainly an important story to know and interesting. You mentioned Reagan's quote, trust but verify. It sort of reminds me of there's some cryptocurrency mantra, actually. I don't even know if it's. I, I can't recall it exactly, but it's, you don't need to trust because the cryptocurrency thing does the verification for you. But you talked right at the end of that chapter very, very briefly about Sam Bankman Fried, who obviously was a crook as well, essentially doing well. Actually, I don't know what he was doing in a similar or different way than Madoff. Probably a little bit different, and we don't need to go into that story. But as a professor and obviously you're the finance expert, any words on cryptocurrency? I'll ask you later about what the future of finance or investing might look like. This is a relatively new thing, let's just say. Any views from your side on digital assets, Bitcoin, crypto. And again, we don't need to go into huge detail here, but just curious.

I guess, some personal headlines. I'm not a big fan. It's not clear to me in terms of use cases. Certainly the underlying blockchain technology has had a lot of promise and right along the lines of this whole trust notion where you have this ledger and it's publicly available in terms of tracing some ownership. But cryptocurrency per se, I'm not convinced of use cases. I think, and this is being charitable, the closest analogy is something like a gold investment. The parallel there is like gold, you have some kind of asset that, unlike an equity investment, doesn't have a promise stream of cash flows or an expected stream of cash flows, I think, from it. So what gives something like bitcoin value? Because people think it has value. So one has to be really careful if that's the underlying premise of a so called asset.

Okay, there we go. Following on Madoff again, obviously there was some money lost there. You have another story in your book about really that revolves around tennis and listeners. I think. No, I'm a huge tennis fan. I've myself written a piece that compares investing to playing tennis and tennis strategy. So I loved seeing that chapter on basically how a tennis book influenced one of history's best investors and actually might have been the best takeaway from your book. Of the various things I read. Can you make me happy here and tell me the tennis story and my listeners can enjoy too?

Absolutely. And so taking that particular chapter to heart perhaps as an amateur tennis player, it does have some key lessons, but the real lessons obviously are how this applies to investing. Really focuses on two best selling authors who are in totally different fields. One is Sy Ramel. Quite an eclectic entrepreneur. He was a co founder of a major aerospace company. Past his 100th birthday he became the oldest person to receive a patent. He wrote many bestselling books including a a technical textbook. The one featured in this chapter is one he wrote called Extraordinary Tennis for the Ordinary Player. So I'll get into that in just a minute. The other best selling author that we have is Charlie Ellis who we also interviewed as part of our In Pursuit of Perfect Portfolio book. He started his own financial services consulting firm. He was dubbed by Money magazine as the wisest man on Wall Street. And the connection between the two is Charlie Ellis read and was fascinated with Remo's book on tennis and saw where there were really some clear parallels and applied it to investing and wrote his own best selling book called Winning the Losers Game. So let me tell you a little bit about what was in the original Extraordinary Tennis for Ordinary Players. What Rabo identified is that there's really there are two types of games of tennis game of tennis played by the professionals that we can observe on TV or in person. And it's a beautiful game to watch how they're battling it out and how they have the long volleys. And the way that you win at this professional game is you hit the ball in this precise location and you earn a point. Ordinary tennis. And now Brian, this might not apply to you. I don't know your tennis skills but the ordinary tennis players, and I have only historically been a casual tennis player, don't really play now. But I would be more the example of this. I do all the things that many amateurs do and, and that's make mistakes. I hit the ball into the net, I hit the ball wide. After I hit, I start to run to the net, but then I get caught in between. And, and so the way that, that I play tennis is I just lose point after point after point. And, and so the point that Remo was trying to make is many amateurs try to play a professional game and try to win points. And rather what you should be doing is trying not to lose. And that's the way that you can succeed or improve as an amateur tennis player. So this really struck Charlie Ellis because he saw the clear parallel with investments and that became his big mantra. If you want to win on investing, try not to lose. When Ellis was writing, and to put this into perspective, this was in the mid-70s. We were just at the cusp of Jack Bogle was just about to come out with the first index mutual fund. And so this was when Ellis wrote an article that then became the starting point for his book, talking about how investing was often the loser's game. Trying to actively manage a portfolio, you end up losing. And so he really made the call. And this was a bold call in the mid-1970s for passive management. And this was one of the reasons that Bogle went in the direction that he did to create this particular fund. So it's really all about trying to avoid mistakes, both in tennis and in investing. Don't. Don't invest based on emotions or haunt tips. Don't be overconfident in terms of your abilities. We talked about this one as well. Don't trade excessively. So that's the connection between the two.

Yeah. And then maybe I'll take, I don't know if you mentioned in your book, but I'll take it one step further. Like in tennis investing, if and when you lose, whether it's, you know, your returns go down, some of your money goes down, etc. It's harder to climb back out. So if you can try not to lose money and investing, of course everyone's trying not to, but when you take big risks, that is try for winning points, you have to be willing to accept losses. If you're striving for very high returns, you have to be willing to have some pretty bad returns at certain points in times. But losing and investing is very hard to come back, you know, to par and then some. Not losing and doing fine along the way may, may often prove to be better. Okay, so we've, we've covered a number of stories in your book. I'm not going to make you tell Every story and then no one's going to go buy the book. So we'll have the link to where you can find this in the show notes. And as I said, I've read it. Stories is a great way to explain and tell history. So really enjoyed it. Let me just ask you a few final questions here, maybe more general. So as I said, you're an investment historian. We're in the investment world here. Collectively there were some big market crashes in history. You know, October of 87, the dot com bubble burst in early 2000s, the financial crisis in 2000. You know, I won't repeat all of them, but from your studying and your research, are there warning signs that investors should look out for? Can these be predicted in some way? I don't know if you could have predicted Covid for the five minutes that the market collapsed. And most importantly, what should investors do when they wake up one day and the market's down 20%? What does history tell us we should do?

So to your first question in terms of can you predict crashes? It's really, really difficult. I would be, I probably wouldn't be writing a book. I'd be just very, very rich. I could predict crashes. They tend to have unique features. I do talk about in the book the October 1987 crash. And it was a whole series of things. And even after the crash in the following year, there was a huge commission trying to uncover what just happened because it was and remains the single worst day in investing history. In most countries, Canada and the U.S. u.S. Stocks went down by over 22%. That's the market average. Obviously some individual stocks did even worse. There were some psychological factors. We like nice round numbers. This was at a time when bond yields had just gone over 10% so to, to double digits. And so that caught a lot of investors attention. You know, why am I in riskier stocks? Why not go into government bonds? On the Friday before the major collapse, the well followed Dow. Now again putting it into perspective, the Dow, we're talking at a level, level of around order of magnitude of around 2,500 versus 41,000 where we're at right now. On the Friday, the dow had fallen 100 points, which is the most points that it had fallen ever. It was about to fall over 500 points on the Monday. So that was the worst thing that happened. So there were some of these psychological factors that were happening. But it's really hard to tell and to predict what's going to happen now I would go back to masterly inactivity in Terms of what should should investors do? In many cases we can never predict the future. So I can't promise there'll never be an Armageddon, but markets have a tendency to bounce back. And after some of the worst individual days, I've taken a look at this, I talk about this in the book. If you have this knee jerk reaction and say, oh, this is crazy, I'm selling out. If you follow the next 10 days. In the vast majority of cases, not everyone, but in I want to say something like 80% of the time there is a pretty substantial bounce back. So often doing nothing. Not always, but often doing nothing is the best strategy in those cases.

Okay, I would agree. And also assuming you know what your portfolio is, you've done the research, you're comfortable with it, et cetera, that goes along as well. So speaking of some of the crashes in history, you know, more broadly based, you've been studying and teaching finance and investing for decades. Any predictions or views on how. And you've seen a lot of things evolve and change. Any predictions or views on how investing might change in the next number of decades, if at all?

Yeah, I think we've already seen this trend to robo advisors and I think there's a lot going on which has an uncertain outcome in terms of the whole generative AI, most famously with ChatGPT, which is a potentially incredible tool. How it will be used in investments, I don't know for sure. It is probably being used now to assist in certain investment strategies. How might it be used in terms of investment advice? I think that's to be determined, but I think the potential is there to at least have these AI tools as being some kind of a disruptor in the investment industry going on. That being said, I don't foresee any time in the near to mid term that will do away with human interactions. I think there's still this important element that you can't get from an AI perspective.

Yeah, we call it over here ri, real intelligence as opposed to AI. And I think I agree with you. You need the people and the interactions and that's critical. Okay, last two questions, maybe the first one, to sum up everything we've talked about and everything you've done over the last many decades of your, of your life and career, if you could give one piece of advice to investors based on all your research and all your work, what would it be?

I would say develop an investment philosophy. And that's really what the book is trying to assist. I can't tell you what your investment philosophy is I have an investment philosophy. And it's come through a lot of the mistakes that I've made in terms of investing, but it's important to develop one. And if you are using a wealth advisor to make sure that your philosophy is aligned with their philosophy as well, learn from history, learn from the mistakes that others have made so that hopefully you can avoid those mistakes and be open to new ideas.

Okay, great. So the last question that we asked everybody on our podcast, and I'm looking at the screen behind you or you on my screen, I see a hockey stick, I see a golf club, I see a lot of stuff. You know, our theme around here is unlimited. The podcast is called unlimited. Our tagline is your wealth unlimited. Because we as an independent firm are able to help families with anything they need. On the financial side, we are not limited, like maybe other folks or other places, I should say. So I always ask my guests, the world is your oyster. It's unlimited. What you could do or could have done or could do in the future with your life. If you weren't Professor Stephen Forrester for many decades at Ivy, if you didn't teach me, that would be very sad. But if you didn't teach me, if you weren't an investment historian, anything else that you would be doing that you'd love to be doing.

So what I would love to be doing, but am totally. And I've never been qualified, I'd love to be a professional golfer, row. So that's not going to happen. That was never going to happen. But I can enjoy the game all the same. I love hiking, going for walks in the woods, and actually the golf and the hiking are connected because both for me often involve walks in the woods.

Great. All right, well, listen, thank you so much for your time. Thanks for the enlightening book. I really enjoyed it. And thanks for the little spark that you, you ignited in me, I guess, 25, 26 years ago in first year HBA, which has resulted in in all this stuff over here. So thank you very much, great speaking with you and look forward to speaking with you soon.

It's been a pleasure, Brian. Thanks for the opportunity.

Okay, bye. Bye.

The Unlimited podcast is hosted and produced by Brian Gensler and is edited and mixed by myself, David McMillan. This podcast is not to be taken as investment advice. If you like what you heard, don't forget to rate the podcast and follow us on social media. Inslerwealth. Thanks for listening and see you next time.

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