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Hello and welcome to What Goes Up, a weekly markets podcast. My name is Mike Regan. I'm a senior editor at Bloomberg.
And I'm Vildana Heierk, a cross-acid reporter with Bloomberg.
And this week on the show, while the headlines coming from the banking sector have been nothing short of terrifying this month.
Yet, the stock market just keeps chugging along, especially the tech sector.
In fact, the NASDAQ 100 index is about to snap a streak of four straight, quarterly declines.
That's its longest losing streak in more than 20 years.
So what's going on? Is it just a return to the days when growth stocks would reliably outperform after value had its brief time in the sun?
Or is it something else going on? We're going to get into it with a quant who also has some very interesting thoughts on a topic we hardly ever talk about around here, microcaps.
Which Vildana leads me to put you on the spot and ask, what's your favorite microcap stock?
My favorite microcap, well, I was going to say you missed an opportunity to make a great pun. You could have said like a small topic, you know?
That's a-ha, good, darn it. Oh my gosh.
That's my favorite microcap.
Oh my gosh, you really aren't going to be in a spot. Do I even know anyone?
I got to admit, I didn't know any. I looked them up and now I know all the bookers.
So what's your favorite one?
Well, I'm going to not reveal that, but I will say it's a fascinating field and there's a bunch year to date that are up like 200, 300 percent if you look at the Russell microcap index.
I'm glad we've got the perfect guess to break it down for us.
Oh my gosh, is it a lot of biotech?
A lot of biotech. Yep, a lot of biotech.
Oh my gosh, okay. Well, then let's bring our guest in. It's Patrick McDonough, managing director at PIGIM Quantitative Solutions.
Thank you so much for joining us.
Thanks for having me. Glad to be here to talk.
Before we got started with today's interview, you and I were chatting and you said you would keep equations to a minimum during our podcast recording.
So I wanted to ask you to just lay out your role for us.
Sure, sure. I'm a portfolio manager on the quantitative equity team and PIGIM Quantitative Solutions.
I know everybody loves to talk to Quant portfolio managers.
Those maths, all the regressions and interactions across factors.
So I'll make sure to lay it out awfully thick today.
Absolutely.
Well, Patrick, let's get started just with a sort of overview of what we've seen in the market so far this year.
I mean, I mentioned in the intro that strong rally in tech, I think the NASDAQ 100 is up like 14, 15 percent this year.
What do you think is going on? Is it a growth value thing or is it, you know,
tech's the best place to hide out from the troubles in the banking sector?
How are you sort of explaining this action we've seen in the market this year?
I think it looks like a value versus growth on the surface.
You're seeing tech go do really well.
You're seeing, well, actually it almost happens in today, in some cases.
But by and large for the year to day period, we've seen tech do really well.
We've seen a reversal of the cyclicals that drove value last year.
So the first glance is just nice, simple value versus growth story with growth coming back.
But I think if you peel that back a couple layers, what you're actually seeing is fear,
or at least uncertainty driving the equity market.
And that's being played out with these larger tech names that have done well in the past.
But I don't necessarily think you're going to do all that well going forward in this space.
So I actually think it's a little bit more of a size effect that we're seeing at this point
rather than actual growth.
And if you believe the names that are doing it, you know, it's Apple, it's Microsoft, Salesforce, NVIDIA,
these are really big companies.
These are also really, really expensive companies.
NVIDIA, it's more than 50 times forward earnings at this point.
So it's hard to see how these are really growth companies.
They've already come, they've already grown,
they've been growing for, you know, in fact, you could argue they haven't really grown
for half a decade at this point.
They're just so big, if anything, they're very profitable companies at this point.
But it's kind of hard to see them as actual growth companies.
And from a factor, I can't help but I'm a quan.
I have to worry a little bit.
From a factor perspective, these aren't really growth companies.
If anything, they show up a size, of course, larger cap names, even within, say, the S&P
or the NASDAQ, or they show up as quality names.
These are companies that are very, very consistent and persistent when it comes during earnings
perspective, really not growth at this point.
I think this is a place to hide for equity investors at this point.
Yeah, just what we've forever considered growth have grown into becoming, I guess, the blue
chip, defensive stocks almost, that, you know, if you have to be long something, these
are the names you go with.
Exactly.
In a lot of ways, this reminds me of sort of the 2008, beginning of 2019 period.
So it's not 2008, at least, which is a good thing.
It's not a banking crisis.
Governments around the world have really stepped up and put a floor under financials.
But it is a little bit, I think, of the market hoping that the Fed rising rates isn't going
to last.
And we're going to see a reversal of that in the short term.
If you remember going back to 2018, the Fed started to raise rates.
The market kind of freaked out a little bit.
You saw sort of the re-emergence of the fangs, fangs 2.0 at this point coming back and everything
else in the market maybe just hover there or rolled over a little bit.
COVID put an end to that particular trade at this point.
But it was the last gasp of what had been almost a 10-year bull rally at that point,
people looking for those companies that would be economically insensitive or at least agnostic
to any downturn in the markets.
You compare that to the fixed income market.
Wow, it's two very, very different messages that we're seeing right now.
The fixed income market right now kind of looks like space mountain at Disney World, right?
You kind of ride up the curve a little bit going up to the sixth month and then it rolls
on down until the 10-year, 20-year, get a little bit of a bump going into the 30-year.
But that's not posed for sort of a growth market.
That's not, I think, signaling happy landings or at least anything other than volatility
going forward.
Where the equity market right now is like, oh, it's fine.
Or what's linked past this particular graveyard and hoping that continues forever, I guess,
at this point.
Hard to see that with rates in the short-term, ripe below 5%, but maybe people have forever
forever perpetual growth, but that seems unlikely.
Mike, I don't know about you, but I love roller coaster rides.
Not me.
Especially in the market.
My kids get the season passes to six flags.
I can't even watch them go on.
I'm too...
Sipswax is really fun.
Yeah, so they say...
New Jersey staple.
Patrick, I have a follow-up question about what you were just saying about the fixed
income market because a couple of weeks ago, what a lot of people were saying was that
there was a short squeeze in the fixed income market and that's why we were seeing all those
moves.
I think, can we even trust the signals that the treasury market is sending us if we did
see some of those moves happening because of the short squeeze?
That's a tough question, right?
It depends on what as an asset owner, your time horizon is.
It's been a really nice trading signal if you've been a high-frequency quant and you've
been moving in and out, sort of millisecond trading and taking advantage of the volatility
we saw up until the last week or so.
I think at the very least what it does give investors though is an opportunity that we
haven't had in a long time.
People aren't really necessarily pulling out of these large-cap tech trades that we were
talking about.
There hasn't been a rebalance in to say staples or something like that, which is more negative.
But people are sitting on cash and you can actually get a yield for the first time in
a decade, decade plus.
That's really, I think, going to have an opportunity.
Well, you have a rising opportunity set now, so that's going to have a big impact.
I think how more markets go.
That marginal dollar, that next investment dollar, you don't have to chase the current
trends.
You can actually sit there in a money market fund at close to 5% and kind of not panic
and maybe just kind of cool your jets and rest for a little bit.
That's a nice option I think for people to have.
Whether it's a pure signal of an impending recession or not, we'll see.
It's kind of hard, in my view, my personal view to see where this goes, have this not
end and at least some sort of pullback.
The consumer keeps proving me wrong.
There seems to be this interesting fight going on now between the Fed and the American consumer.
But it's rare, I think, to have to go from basically zero to, let's call it, 5% interest
rate and not just break a few relatively small obscure banks.
I would expect to see people start pulling back.
And anecdotally, I'm starting to see it just amongst my friends, my family.
They're getting awfully expensive out there and it's hard to see how that doesn't have
some sort of consequences for the economy going forward.
Patrick, the one thing you hear so often is, well, yes, the Fed is raising rates.
Jerome Powell pretty much signaled that he does not see any environment in which they'd
actually cut rates this year, regardless of what the short-term interest rate market
is saying.
But on the other hand, that Fed balance sheet that everyone keeps a close eye on has really
ramped up aggressively.
And obviously, to me, there's a big difference between quantitative easing, where they are
expanding the balance sheet by buying assets from banks, buying treasuries and mortgage
back securities.
And this version of it, where they're just extending loans through the discount window
and through this new term loan facility for banks that are struggling.
And yet, there's this almost this knee-jerk reaction that, hey, the Fed's adding liquidity,
the balance sheet is expanding.
This is unabashedly good for risk assets.
How do you think about that?
I mean, that to me seems like kind of a risky interpretation of what the Fed's doing.
And I'm just curious how you view it.
I think that's, I would agree with your view that that's a bit of a risky way to do what's
going on with the Fed.
And maybe we can kind of flip that and see what the impact has been across the quote
on risk-free, quote unquote, risk-free asset class over the last, even just here to date,
right?
I mean, suddenly duration has really mattered.
And suddenly, if you just looked at the whipsawing of the two year, much less anything longer
dated, duration matters again.
So even risk-free, hold to maturity, government securities aren't exactly risk-free if it
doesn't line up properly with the liabilities on your balance sheet.
So trying to kind of time this from a risk-asset perspective is, I think a bit of a fool's
game at this point, probably better to take advantage of that yield rate you can get it,
play the defensive at least a little bit.
And again, even if you look at the tech names that are doing well in the equity market,
they're not really the risky end of the spectrum.
This isn't the startup end.
This isn't sort of the aggressive, well, perhaps maybe 50 times for, as I've mentioned, is
a bit on the extreme end, but very big, very stable, very safe companies.
I don't really think we're going to see much of a risk-on market in the foreseeable future.
And we started to some of those wobbles across more risky ends of what's called CTA's or
hedge funds.
People getting kind of wiped out a little bit in that space and even across private equity.
And maybe I'm a little bitter as a public sky and having a daily mark to mark rather
than being able to kind of hide on my multi-year contracts there.
So maybe we should all take this with the grant of salt, but it is interesting to see
some of the news breaking on some really big PE players having to finally, again, finally,
you can tell my bias there, but that mark to mark across some of these other asset class.
So I'm not really sure the market is digested on this free capital that we've had it from
the let's call it the Fed round one.
If this is round two, I don't know where that goes in a safe manner.
I'm wondering, Patrick, what you think the market should be pricing in or the stock market
should be pricing in at this point.
I read this interesting note from City this week that said something like stock neither
stocks nor bonds have priced in a recession.
And as Mike just mentioned, the market is expecting some cuts later this year.
What should the market be pricing in?
I think what the market should be focusing on is actually earnings at this point.
And I think that would be kind of the way to adjust the pricing going forward.
We kind of had a little bit of a reset of the PE ratio the last year or so as markets
came down last year, but earnings haven't moved much.
And there hasn't been that resetting of future expectations of what companies can be doing
and what companies can be doing, I think, really realistically.
I'll keep picking on the big tech names because they've been the winners space.
If you've got hundreds of billions of earnings coming in a year, how can you really be priced
at 20 or 30 or whatever the multiple is going forward?
You're so big, that seems really unrealistic unless there's some sort of new product or
new area for growth.
That's hard to see.
We're seeing it now, I guess, if we want to pick on the AI approach where we're considering
consumer-focused, big tech companies have been going, that hasn't exactly been fun.
We've been hearing all sorts of crazy news stories about people falling in love with chatbots
or chatbots suddenly becoming aware and threatening to destroy the world.
I think that was an 80s movie I grew up on.
But the actual impact of that from a revenue perspective seems premature at this point,
I would say.
So I think we need to, as a market collectively, start reevaluating what more reasonable growth
expectations are.
And I think that will help reset the P. That's going to mean the prices down.
That's going to, I think, reawaken what more realistic upside or quite honestly downside
would be in the markets.
And that's not to say that markets are misidentifying, quote-unquote, good companies.
I think what they're missing, though, is where companies go from here.
So where's the upside?
If you think back to Microsoft, right?
Good company has been a good company for decades, really got hammered at the end of
the tech bubble.
But wasn't going out of business.
There was no fear of Microsoft going out of a season to exist.
It was still a good company.
The price just didn't move for well over a decade.
So it wasn't necessarily a good investment at that point.
And I think that's where we maybe need to start thinking about redistributing capital
for that actual upside potential rather than just kind of seeing the companies and staying
famous.
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Thanks, Bigger.
Patrick, let's get into that notion about microcaps.
I know you've been looking into them a bit lately.
Talk to us about what you've researched, what you've found, how we should think about
microcaps.
Part of this started out with trying to identify companies for that actual upside potential.
If you think about it from pure economic growth, almost an academic study of getting back into
this day, like, hey, where are these companies with new ideas that have been overlooked or
can come in and disrupt markets and actually disrupt?
We're not going to pay for the Ubers and, again, the Microsofts or the Apples who have
already come and disrupt them and are now the established players, where can you find
some of those new places?
It started with tech.
It started with tech and biotech.
It was looking into what are the structures of those names and is there an opportunity outside
of the VC or private equity space?
Really realizing that the microcaps have been very overlooked.
There's a lot of choppiness down there.
There's a lot of noise down there.
You have to be very, very careful.
You have to be very systematic or structured.
I, of course, think, want to do best in every answer to the answer to every question, but
you really do have to be diversified and clean and structured in the way that you do it in
the microcaps space.
But you also have the opportunity for other segments of the economy that aren't really
necessarily in-bogue.
Things like banks, you could actually diversify in financials.
You can look at industrials that are actually down the real end of the economics spectrum,
if you will, and get into that space in a more diversified way through microcap.
It's also something that is not really played in from a traditional institutional vester
space.
It's something that people have historically avoided, whether that's governance.
You need to give another manager who gets into space or look at it, or you could get
your growth from other, or at least you assumed you could get your growth from other segments
of the market, which means it's not crowded.
It's an area where we can go in and get a lot of upside, even above just the pure beta
in the microcap space.
So very exciting, I think, from an opportunity set, at least in the long term.
I feel like individual stock selection would be tough in that space, though.
Is there a systematic way to do it?
Would you buy an ETF?
Just buy everything?
I'm thinking of PJM with a trillion and a half dollars to work with.
And Quads in general tend to have billions and billions of dollars to put to work.
How do you approach microcaps systematically?
I think you hit one of the nails on the head right there with knowing your limitations.
This isn't a space where you're going to have billions and billions of dollars to be
able to plan.
If you do so, you're just going to completely overwhelm the space.
You're doing very, very tailored in what you're doing.
So in the US microcap space, we probably want to put in a billion or so at a maximum level
at this point.
So you're limiting the upside that you can from an AUM growth.
But you're doing that so you can preserve the actual ability to do stock selection, ability
to actually add value in the space.
You have to come at it to a certain extent from a philosophical perspective of, hey,
we still want to harvest the same underlying economic principles that we do as Quads in
the larger cap space.
But you can't just take the same old model and slap it down there and call it a solution.
You have to look and see what actual works.
So you have to understand that there's going to be more sentiment driven trades that go
on there, a little bit more volatility or in some cases a lot more volatility.
You have to be really clean.
You have to be very efficient and you have to be really, really experienced to trade
in that space, particularly for doing it across multiple names.
So the benefits of that are diversification, a lot of upside potentials, as I said, both
in the space.
So you think of the beta, but also in the name selection that you're doing, but you have
to be really, really disciplined from a risk perspective as well.
This is where you have to have multiple, multiple holdings.
So you're just not putting all of your eggs with one basket.
Do you go so far as to go to the OTC, pink sheet type of markets or are they too risky
to get involved with?
It's a little risky, I think, in that point.
If you're going to start doing OTC, you would need some sort of information advantage to
really want to play in that space.
I don't think you need to.
That's the fun part though.
You don't actually have to get in that space to add value.
You can do it with the liquid names.
And that's really where I think being systematic, my body's not expanding, but being systematic
in the way that you're trading.
So you have to be able to go out and make sure as you're picking the name, you can actually
harvest the, we use the AGV measures, for example.
We're looking at the average daily volume of certain names and making sure we don't get
anywhere near max AGV across any of these names so that you actually have the space
to come in and harvest the VV upside of that name without driving that name up on your own.
If you come in, you drive the price up as you're buying it, there's no room for it to
grow.
So it's just bad business to do that.
The other is you have to make sure you really have good relationships with your counterparts.
It's not as liquid, although the AGV and liquidity as a rule has been going up significantly
in microcap.
It isn't 20 years ago, 10 years ago even.
This is very, very liquid markets, but you have to make sure you have good relationships
with your counterparts.
You might want to cancel a trade halfway through if someone else is jumping up on that name,
be a little bit more comfortable having a little bit more cash, not canceling your,
you know, not filling out a full order, for example, if it starts to move away from you
and then rebalance it across other names in the portfolio.
So there's a lot of science that goes into it, but you still have to have that art as
an experience PM to make sure that you can leverage the information flow that you've
got.
Okay, Patrick, I have a two part question, which is typically something that Mike would give
guests like a multi part question.
So I'm stealing from him.
Two parts is amateur hour.
Amateur, yeah.
But I'm trying not to scare the guests away.
Anyway, you, so Mike and I might not have our favorite microcaps, but maybe you can lay
out some names that you guys are looking at.
And then the second part is you said you have to be very experienced to be trading these
names.
So I'm wondering who your advice is for, like, is it for the professional or is it something
that, you know, retail investor and ad home investor should also be looking at?
I'll take the second part of that first.
I think it's probably not a space where you want to be doing a lot of day trading per
say, simply because you names can move against you really, really quickly.
There's a lot of information flow that's going on there.
And also, I think you want to be diversified.
So I don't think you want to be necessarily researching five, 10, even 15 names in the
space and putting all your capital across those names.
You really want to be diversifying away from any single name.
There's a lot more what I would call sentiment or the underlying upside potential for individual
names, less of the more traditional say valuation or quality signals.
So those do exist in the space and you want to make sure that you can harvest that systematically
because you're going to diversify those single name risks away by having, say, 150, 200 names
in your portfolio.
That's harder to do is a retail investor, individual investor.
You can still do it, but it's a lot harder to do.
The other is tea costs.
It's a lot more expensive to trade if you don't already have those big existing pre-existing
trading relationships where you can keep those costs down.
So it's a lot harder for, I think, your average person to do it in the space.
I don't know if I have this done before.
It has an individual investor.
They'll be quite honest with you.
But it's a lot easier to do to leverage it across a partner like us with Peach and Quant.
So I think it makes a little bit more sense to leverage some sort of institutional help
as you're doing that.
So a little bit more limited.
As far as individual names, one area that I'm interested in, and it'll be interesting
to see what happens given some of these regional banks that we're providing liquidity in the
space is biotech.
Biotech, as you know, a lot of these companies are just not profitable.
They're just generating costs as they're out chasing.
They've usually one or two ideas.
It's usually one idea as they're doing.
It's really, really exciting because it ends up being a lot of individual R&D types of
companies that could come out with the next greatest breakthrough on an individual drug
or something along those lines.
And I think it's really, really cool and really exciting and just from a personal perspective,
it's kind of a nice thing to deploy some capital to.
But with interest rates going up, which is a big part of it, and some of these, you know,
you can think of Silicon Valley Bank, for example, or some of the more VC-like banks
that we're providing the capital for these companies, it's been a lot harder for them
to make payroll, to make costs do this going forward.
I think there's a big opportunity for some of the biggest names in the pharma space to
go in there and kind of bottom fish and pick up some really nice external R&D as it were
in the space.
So I think there's some opportunity for some takeouts there across biotech, in particular,
in the space.
Potentially in a little bit less likely, but maybe more interesting is with Silicon
Valley, the major bank being bought out and some of the potential for M&A across financials,
a little bit more of a risky bet, but it could be interesting to see if some of these smaller
regional banks get swept up by some of the bigger banks now, since we've seemed forgotten
too big to fail.
And by now almost more encouraging, it'll be interesting to see if there's any M&A there.
Not necessarily sure I'd put on my X enough, but there's some opportunity in that space.
Now if there's a little bit more of a recession environment, we could see microcap slow down,
so it's a little bit more of a longer bet or at least a risk on that in the space.
We've already seen valuations come down from the end of last year, including up through
your debate, the valuations across the public, smaller startup come down.
So I think it's the potential for an entry point, or if we're not there yet, we're getting
there soon in much the same way we're seeing across even the privates in the PE space.
I wonder you mentioned the higher interest rates, and I wonder from a macro level, what effects
a microcap trade?
My guess is there's a lot of beta involved.
If the S&P is going up, X% the microcap index will go up at a percentage greater than X.
If it goes down, Y% it's going down at a rate greater than Y.
Do you need a bull market to really fully embrace microcaps?
Or is there a potential for some non-correlated returns?
Large caps per week, but you can still get some good returns in microcaps.
The beta of the asset class is very, very similar.
So you're 100% right.
When there's that risk on environment for equities, you tend to get a little bit more
juice in microcap, and then when it's risk off, you get a little bit less than what
you're seeing market.
But the alpha, the upside potential, the security selection opportunity set is much higher in
the microcap space.
You get a little bit more of that alpha buffer, which gives you that opportunity to do so.
What actually might be more interesting is sort of a typical portable alpha to use a marketing
term from a long time ago.
I don't know where I dread that one.
I was.
You can kind of hedge out the beta or short the market in the space and just use the upside
potential stock selection as a pure alpha.
And that's an interesting overlay perspective, even in a downward market, even for a reasonable
sizable institution that doesn't normally plan the space, you get a little bit of that
flexibility.
I think that shows the creativity that you can do in the space.
It doesn't have to just be that pure long only.
But that's something that you can see the blue lever in the space with the right risk
on.
So, let's get started.
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What's the time horizon you guys are dealing with?
As Mike mentioned, there's a couple that are up like 200 or 300 percent so far this year.
Is that something you're looking at and expecting?
Actually, we can expect even more from some of these names or what does the time horizon
typically look like?
It's a lot shorter.
It's a lot shorter in microcap than it is even in smallcap and it's significantly less
so than you get up to cap space in the larger cap.
You have to be willing to take profits a lot sooner in the space.
You have to be much more of an active trader in the space.
For exactly as you said, if you're up 200 or 300 percent today, it could be on a news
flow.
It's one of those biotechnics we were mentioning.
They're up for a stage two trial, for example, on a particular drug.
That's a nice profit and you should be willing to take it at that point and then you can
reevaluate it and decide if you want to read a quick capital.
But you have to be a lot more active in the space than you would be in your particularly
in your larger cap.
Patrick McDonough, Managing Director at PJM Quantitative Solutions.
Thank you so much for joining us.
I'd like to segue us into our favorite part of the show, which is the craziest thing we
all saw in markets this week and I'd like to kick us off.
Okay, I know last week I had a weirdest thing that had absolutely nothing to do with markets.
This time around, I'm sticking with something tangentially related to markets.
There's a champagne 50 index, the Live X champagne 50 index.
And I saw this as part of a Bloomberg story about how champagne prices for certain champains
they've just skyrocketed and this index is doing or has beaten the FTSE goal, the S&P
500 over the last couple of years.
That's a pretty good one, Patrick.
How about you?
You see anything crazy this week?
That's hard to talk.
I guess what I'm confused about where I think is crazy is why is Bitcoin aging like a fine
blind?
I'm not really sure why.
I'm fine.
I'm sorry.
I'm sorry.
I don't understand why Bitcoin went from what was it?
27,000.
I'm a quant.
I love tech.
I think anything that has to do with computers is inherently cool.
But I just don't understand why we're kind of refighting a battle that I thought we'd
already won at this point with Bitcoin.
So seeing Bitcoin alone, it wasn't the other crypto's.
It was particularly Bitcoin, which I know I guess is biggest and the most established.
But I thought we already proven that it wasn't inflation.
I'm just not really sure what the base case is for that.
So I'll have to drink some of that champagne and it'll come to me.
It's a moving target, the base case.
The rationale for buying Bitcoin is, I think, read the headlines, put your finger in the air
and see which way the wind's blowing and pick an narrative and go with it.
But it is a really interesting topic because Bitcoin is having a fantastic quarter.
It's up something like 65%, 70%.
But at the same time, we're not seeing the typical stuff, the typical animal spirits that
come with huge price surges for cryptocurrencies.
You don't have people coming out and giving huge price predictions as you might have seen
in 2020 or 2021 or people going crazy on Twitter with shilling some weird crypto coin
you've never heard of.
To be fair, if you go back to the origin story of Bitcoin after the financial crisis, 2008,
2009, the whole thinking was, you can't trust your money in a bank.
You can trust it on the blockchain.
So I don't know if that's really it.
Other people have said all the liquidity being added to the market by the Fed.
A little from column A, a little from column B, all the above.
But it's fascinating to watch.
I agree.
I agree.
It felt like it was left for dead there.
But always those laser eye traders always give us something to talk about.
I like it.
Anyway, I'll give you a mind.
And some a Bloomberg story sounds like the beginning of a joke, but an investment advisor,
a financial planner, an NBA agent, and a former stockbroker all walk into SEC complete.
So stories about how there was these schemes to cheat a handful of NBA players out of something
like 13 million.
And that in the face of it is not that crazy.
Unfortunately, these guys are kind of sitting ducks for scam artists out there, NBA players.
In fact, that's what gets me to what I thought was the most interesting thing in the story.
And I'll just read out this one paragraph to you.
The case comes amid a rising trend of frauds on the pros marked by their fame, financial
inexperience and high net worth.
According to a 2021 report by Ernst and Young, professional athletes have reported, and I'm
not going to give you the number.
I, here's where we play the prices precise.
Between 2004 and 2019, Ernst and Young went and tallied up all of the money that was scammed
off of pro athletes based on publicly available criminal, civil and bankruptcy pleading.
So 2004, 2019, the data Ernst and Young accountants did the math.
How much money were pro athletes scammed out of?
I'm going to go with 5.4 billion.
5.4 billion.
Yeah.
All right, Patrick, prices, right rules are in effect.
Remember, so you can go a dollar over a dollar under.
You have a good poker face right now.
How did I do with 5.4 billion?
I was getting a 1.2.
Oh.
No, I've got, that just popped in my head.
I'm not sure why.
So it's enough of an under.
So I'm hoping that I play the odds there.
1.2.
Well, you're under.
It was 600 million.
I thought that was a lot.
That's way too low.
Bigger than most wiker cap stocks.
It's not worth the effort.
600 million.
If I'm going to scam a bunch of basketball stars, I want like a couple of people.
A couple billion dollars.
All right.
All right.
All right.
You've got big ambitions, I guess.
600 million.
Yeah.
It's not enough.
I thought that was a lot.
You don't think that's a lot?
5.4 billion.
Well.
Josh Allen has a $500 million contract.
Yeah.
Well, but the other thing is I bet there's a lot that they don't even realize they got
scammed out of.
Or put into lousy investments or otherwise, you know, but wow, I thought 600 million was
a lot.
You guys are tough audience.
5.4 billion.
We're cynical New Jerseyans.
I think that's what that is.
That's right.
Anyway, Patrick McDonough of P.G.M.
So great to catch up with you and hear your thoughts.
You got me thinking about micro caps more than I ever have now.
I very overlooked but fascinating asset class.
So I gave us plenty to think about here.
Hopefully we can get you back again in the future.
I've got down to my thank you.
This was so much fun.
I really appreciate you guys taking the time to travel today.
I'm going to go back to the server room with the other quants now.
Thank you, Patrick.
What goes up will be back next week.
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