(audience applauds) - Right now, I am so excited to welcome Victor Hagani to the stage. Victor is the co-author of a book called The Missing Billionaires, A Guide to Better Financial Decisions. We had Victor on our Morningstar podcast earlier this year and had such a great conversation with him.

He founded Elm Wealth, which is a very low-fee investment advisory firm for high-net-worth individuals. He started his career at Salomon Brothers in 1984, where he became a managing director in the Bond Arbitrage Group. And in 1993, he was a co-founding partner of Long-Term Capital Management, and we'll talk a little bit about that.

He graduated from the London School of Economics with a bachelor's degree in economics. Victor, if you can come on up here, and please welcome Victor. (audience applauds) So just pick up a mic of your choice. Maybe I'll sit here. - Great. Hello. Turn it on, right? Okay. - Yeah.

Victor, thank you for being here. - Thank you so much, Christine. - So let's talk about your book, The Missing Billionaires. You did a calculation that there should be about 16,000 old-money billionaires alive today, but there are virtually none on the Forbes 2022 list of 700 US billionaires. So can you talk about what went wrong for these individuals so that they did not hang on to their fortunes?

- Sure. So we start off the book by talking about this example of there were so many, quite a few wealthy families, 125 years ago in 1900, and if they had just invested and matched the return of this US stock market and paid taxes and spent some of their money in a reasonable way, and had children at a reasonable sort of normal pace, there would be all these billionaire families today from those early families, but they're not.

And we don't know exactly what went wrong or what went right from a societal point of view to not have so many of these billionaires, but our feeling is that the mistakes that people made, the financial mistakes that people made were mostly around risk and spending, and that they took more risk in their investments and didn't match their family spending policies with the risk in their portfolio.

So a lot of concentrated portfolios, a lot of these wealthy families made their money in some particular business, like the Vanderbilts in transportation. And by 1950, the Vanderbilts still were mostly invested in railroads and transportation, which didn't go too well for them. And we have this little toy example that we like to talk about that really illustrates how this mismatch between spending risk and investment risk can really go wrong and how risk eats into compound returns.

In our example, it's very simplified, and it's only got two numbers in it. Imagine that you build an investment portfolio where you feel that the expected return of your portfolio is 5% above inflation per annum. That's the average annual return, not the compound return, but the average annual return.

And then you decide, okay, let's say I have a million dollars. I'm gonna spend 4% of that for the rest of my life, but 4% adjusted for inflation from that starting point. And you're like, well, that doesn't sound too bad. I mean, my expected return is 5%, so I should be able to spend this 4% number to begin with, $40,000 for the rest of my life adjusted for inflation.

But let's say that that portfolio is a really risky one because you picked a small set of stocks that you really like, but it's risky. Maybe it goes up and down by 30% a year, twice as risky as the stock market. Well, now the question is, after 25 years, what's the most likely amount of wealth that you will have?

And the answer to that is zero. You're expected to go bankrupt. You will not make it 25 years on, you know, in more than 50% of the cases, you're bankrupt because the volatility, that 30% volatility is just killing your compound return. And you just keep on spending that $40,000 each year.

So, you know, we think that that's a really big explanation for what happened over time to many of these wealthy, dynastically wealthy families. - So let's talk about the key lessons that Boglehead should take away from that history lesson. What lessons should we internalize as investors? And also, what are the key mistakes that we avoid, should avoid?

You mentioned excessive risk-taking, profligate spending, I'm sure factored into many of these losses over time, but maybe talk about those things. - Yeah, well, I think that we, Bogleheads, I'm really glad to count myself in there, that we're avoiding, you know, as part of our central thinking, we're avoiding most of the big mistakes.

So, you know, being really thoughtful about risk by being sort of maximally diversified, being really conscious of costs, the cost matters hypothesis, really important. So those are the, you know, those are the things that we all know about. I think some of the extra things that are really important are around thinking about spending, where I think that we need to have spending policies as individuals and families that are connected to our investment policies.

So I don't think that we can have 70% of our money in equities and then have a spending policy where we're trying to spend a fixed amount of money adjusted for inflation each year, that our spending policy is inexorably linked to the risk that we're taking in our portfolios.

And, you know, this isn't any kind of original thinking, you know, it's something that's been, you know, in the literature since the late 1960s. - Yeah, I wanna follow up on some of what you just talked about, Victor, but while we are still on these individuals and their families who lost their fortunes, I think a real life question that a lot of individuals in this room grapple with, they have children, they have grandchildren perhaps, and they want to try to pass wealth to them the question is how to do that without spoiling the kids, how do they inculcate their kids in being sensible about money?

- Sure, so I think as is often the case, Warren Buffett, you know, has a really pithy statement about it where he says, you know, I wanna leave my kids or give my kids enough money so they can do anything, but not enough, but not so much that they can do nothing.

I don't think he actually followed that advice, but okay. But I think that's a good way of thinking about it, and, you know, I mean, I'm a parent, I have three kids, 30, 28, 25, and, you know, my wife and I, you know, our number one priority in our lives has been devoting ourselves to the upbringing of these children, and I think that it's really kind of, would be weird if somehow we just decided to stop helping them or wanting to help them, you know, once they become 18 or 22 or whatever.

So I think it's natural to wanna help your kids through life, but, you know, I think that, you know, definitely too much financial help, you know, can really be destructive. Now, luckily, you know, I think that, you know, if, you know, luckily in some ways that, you know, passing wealth to our kids is really expensive between, you know, taxes and, you know, the fact that the, you know, rate of return on safe and risky assets is not that high these days.

So, you know, like if you wanna try to help your kids and maybe grandkids, you know, to the tune of, say $50,000 a year of help in some ways after tax, like that takes a tremendous amount of wealth to support that. So anyway, but I think that, you know, good question.

I think that, yeah, I think, you know, as I say, I think that one statement by Mr. Buffett is pretty good in terms of how I and my wife like to think about it. - That's helpful. So I want to switch over to portfolios and planning because you were involved in that in your day job in managing people's portfolios.

Most bogleheads, I would say, use a strategic buy, hold and rebalance approach to their portfolios. They keep things pretty simple. Yet at your firm, Elm Wealth, you do use a dynamic asset allocation strategy. Can you talk about that? How you decide whether to make changes in client portfolios? - Yeah, I think that's a, you know, it's a really interesting question.

Actually, when we started Elm Wealth, we applied to the patent office for the term dynamic index investing to get a trademark for that. And we heard back from the patent office and they said, we're gonna give you that trademark because it just doesn't make sense. You know, index investing is passive.

You know, it's sort of, it sounds like an oxymoron to us here at the U.S. Patent Office. Isn't index investing meant to be passive and not dynamic? So in order to make investment decisions, we need to know the expected return of the different things that we're investing in and the risk of them.

And we also need to have an idea of our own personal degree of risk aversion. So that's really the only way that I can think of of making portfolio decisions. You know, what's the expected return of the different things we can invest in, their risk, and our personal risk aversion.

So we need those things. Now, if the expected return and risk of the different things that we're investing in never change, then you would have a stat, you would decide what those numbers are and your risk aversion, I'm gonna assume, is stable. Then you would say, okay, the expected returns are constant, the risk is constant.

I'm just gonna figure out the optimal portfolio allocations for me. I'm done, and that's it. And then they stay the same forever because the expected return is staying the same and the risk. But nobody believes that. I don't understand that nobody believes that the expected returns of all the different things are constant through time.

For one thing, we see interest rates changing every single day. Real interest rates on tips go up and down, up and down. I mean, we know that the expected returns are changing. We also know that risk is changing. That the stock market in early 2020 was wildly risky. And at other times, like right now, it's not very risky at all.

It's not bouncing around a lot. It's in a more sedate mode. So we know that the risk is changing. And we also have a view about the expected return of equities, and the expected return of equities is also changing over time. And it is possible to observe it and to estimate it.

We'll talk about that, I think, in a moment. But you could go to Vanguard's website and they have a page called Capital Market Assumptions. And right there, you just go there and it says expected return US equities for the next 10 or 30 years is whatever, 6%. Expected return of non-US equities for the next 10 or 30 years you choose is whatever, 8%.

Expected return of bonds, 4%. And those numbers are changing every six months. So why shouldn't they be part of our asset allocation decision? Now, it might be that people say, I just don't have time for that. And I think that's reasonable. That's a reasonable response to say, I don't have time for that.

I'm just going to go with something static. Maybe I'll revisit it every five or 10 years. But I think that, from a logical point of view, that you have to-- that it makes sense that it should change if you're willing to spend the time chasing down these expected returns and risks.

So just a quick follow up on that. If I don't want to spend a lot of time monkeying with my portfolio, would just a simple annual rebalancing address some of the things that you're talking about where I'm periodically stripping back what has performed really well and adding to the things that haven't performed as well?

Yeah, absolutely. I think that there's a spectrum of things that we can do with our wealth. And what most people are-- not in this room, but what most people in the world are doing is over here. And it's not very good. And then over here would be a static asset allocation, maybe rethinking things over once a year, or even once every five year, that's over here.

And then what I'm saying-- I don't know if you remember where that hand was. And I'm saying that maybe over here is the best that you could do if you really feel like it. But it's so close. We're really close in here. I mean, the main thing is be diversified.

Keep the costs down. Keep the taxes down. Spend appropriately. And then you're all the way over here. Now, whether you go here or not, I don't think that's where the juice is. It's getting from over here with all this crazy stuff and getting over here. OK, so stay away from over here.

Yeah. Yeah, OK. So I wanted to ask, you alluded to the fact that you think about where the long-term real return of the US market is. And to arrive at that, you use cyclically adjusted earnings yield. I'm wondering if you can talk about, A, what that is, and B, where that puts us today in terms of the broad market.

So cyclically adjusted earnings yield is-- well, it's an idea that goes all the way back to Benjamin Graham's 1940s book. But it was really repopularized by Bob Schiller and John Campbell in the late '80s, just saying that, look, if you're buying equities, it's like buying an apartment building or a commercial building.

You're looking at your income and dividing it by the price that you pay. That's your earnings yield or your rental yield. And that's as good of a long-term predictor of the real return on that investment that we can come up with, at least in terms of a simple and decent expected return estimator.

It's like, OK, I'm putting money into the stock market. If companies paid out all their earnings as dividends each year, which they don't, but if they did, then the belief is that companies in aggregate would be able to keep the earnings constant in real terms. And that gives us this tie-in between earnings yield and the long-term expected real return of the stock market.

Today, the cyclically adjusted earnings yield, which is basically just looking at the last 10 years of earnings adjusted for inflation. We could also adjust it for payout ratios to get a slightly better estimate, but not a big difference. So right now, for US equities, broad US equities, the cyclically adjusted earnings yield is around 3 and 1/2%.

And of course, tips are around-- tips are just under 2%. So the expected excess return of US equities relative to the safe asset of tips is about 1 and 1/2%. Not very high, not very exciting. For non-US equities, that spread between tips and the earnings yield is closer to 5%.

And actually, Vanguard, on Vanguard's website-- and everybody, all the big investment firms have a capital markets assumption page. You could go to BlackRock's, Goldman Sachs, whatever. But we love Vanguard. And Vanguard's numbers are pretty similar to what you would get from earnings yield. They do a much more complicated analysis, much more opaque, maybe better.

But the numbers come out almost the same as just using cyclically adjusted earnings yield. OK, thank you. You alluded to this gulf between US, non-US. It's been kind of persistent where most firms do believe that the return expectations for non-US look better over the next decade than US. So what kind of international allocation do you think makes sense for the average investor?

And I'm wondering, is the global market capitalization like using a Vanguard total world stock index? Is that a good way to think about it? Or if not using the fund, at least using it to set my US, non-US allocation? Or how should people approach it? I think that's a really good starting point.

I think using these-- they're adjusted market caps, actually, because FTSE and MSCI really haircut the market cap of a lot of non-US markets for investability and values and so on. So yeah, I think market cap weight isn't too bad. That's around 60-40 right now, 60% US, 40% non-US. There's lots of arguments out there.

I heard Rick yesterday talking about US versus non-US. There's all kinds of arguments you can make about what's better or not. Some of the arguments, one in particular of the many different ones that I think is interesting is probably like 20 or 30 years ago, both Mr. Bogle and Warren Buffett said to US investors, don't worry about the rest of the world.

Who cares? Just invest in US stocks. After all, the S&P 500 gets 30%, 40% of its revenue and profits from outside of the US. It's international. And that was a good point. But things are so different today in the sense that now if you own the S&P 500, that 40% of earnings that's coming from the rest of the world, you're paying a US multiple for that.

And for non-US companies, they're making 30% of their money in the US. And you get to buy that earnings stream at the non-US multiple, which is much lower. So the arguments of Buffett and Bogle from 20, 30 years ago are actually now arguments against investing in the S&P 500 to get your international exposure.

You referenced TIPS, Treasury Inflation Protected Securities, earlier. And you think that they should be investors' minimum risk asset in lieu of cash and other cash-like investments. Can you discuss the thesis there and also kind of the practical implications if I were to do that? What we've seen in periods of equity market volatility is that TIPS have been more volatile, certainly.

I mean, they have risk, and cash does not. So maybe just follow up on that. So I think we should measure our wealth not as the present value of our wealth, but as the long-term real consumption that our wealth can support. And going back 150 years or so, that's how people used to talk about how wealthy somebody was.

Like in Jane Eyre or whatever, they would say, oh, that Mr. Darcy, he's worth $10,000 a year. They didn't say he's worth whatever, $200,000 of present value in his brokerage account. He was worth $10,000 a year or whatever. And I think that's the sensible way. I mean, counting our wealth in our brokerage account is not a valid use of our wealth.

It's just spending it or giving it away over time. So if the real measure of our wealth is the long-term spending power that it can generate, then it's kind of clear why something like TIPS is going to be the minimum risk asset. Now, just because it's the minimum risk asset doesn't mean that you need to own any of it.

So when TIPS were trading at minus 1 and 1/2% real yield, where you were locking in a minus 1 and 1/2% or you were locking in a loss of purchasing power of 1 and 1/2% per year, you might have said, OK, it's my minimum risk asset. But I don't want to own any of it because it stinks.

And so I think that it still is reasonable to say, that's my minimum risk asset. But I'm going to take some more risk and own treasury bills. So now treasury bills are riskier than TIPS because TIPS is the minimum risk asset. But it's like, OK, you know what? I'm going to own treasury bills because I think that treasury bills are going to do a lot better than TIPS, for instance.

So just because it's our minimum risk asset doesn't mean that we have to own them when they're trading at minus 1 or 2%. I want to just remind everyone, if you have a question, please do put it on a card. And we will have people coming around to pick up your questions and curate them for us.

So Victor, I want to follow up on TIPS as a component of retiree portfolios because you have said that for people who don't-- if ideally you're spending in retirement, you write, it should change proportionately as your portfolio grows or shrinks. So you should take less when it's down. You can take more when it's up.

But if you don't want to do that, then you should go to TIPS as your main bulwark for retirement spending. Can you discuss that point? Sure, so that's what we were talking about earlier on, is this connection between spending policy and investment policy. And so if you are just dead set that for the rest of your life you're going to just spend a certain amount adjusted for inflation or cost of living, and you're planning on exhausting your wealth by the end of your life-ish, then it doesn't make sense to own equities at all.

That now you're disconnecting your retirement savings with your spending plan. And that's how you can go bankrupt. That's how you run out of money, is by having risk in your portfolio and then a fixed spending policy. So you just have to adjust your spending. And you don't want to wait until you're almost out of money.

You have to adjust your spending. So if your portfolio value goes down, you're going to reduce your spending. But if you're not willing to increase your spending if your portfolio goes up, then what was the point of taking that risk to begin with? If it's like, well, I'm just going to die with that money.

It's not going to any use whatsoever, then-- now, if you have intergenerational transfers in mind, well, then things are different. And now your kids or so on are taking that residual risk. And it may not be a fixed spending policy anymore. But in that really simple case, a fixed spending policy-- you shouldn't be taking any risk away from that, I think.

Some of the academic researchers in retirement planning would say an annuity would be a fit in that context for the person who wants-- granted, you can't get a CPI-linked annuity. But for someone who wants that stream of cash flow, what do you think about a very simple annuity in that context?

I think that annuities make so much sense for so many people that one of the great puzzles in finance is why there's not so much more take-up of annuities. You're getting rid of a really big risk, longevity risk, kind of for free or close to for free. I mean, there's not a risk premium on this risk.

You're getting rid of longevity risk through risk sharing. There's not necessarily a risk premium involved there. Now, annuities, just straight annuities or deferred annuities that don't involve any equity risk, the market prices them pretty reasonably altogether. And if you're feeling pretty robust and healthy, they can even be cheap, because the insurance companies don't even ask, so how are you doing?

They don't even ask if you're a smoker or whatever. They just figure that, well, anybody that wants an annuity is in OK health. And so they're reasonably priced. There's more tax-efficient opportunities now to put them into our retirement accounts. And there just seems like a tremendous undertake-up of annuities for many, many people.

If you're very, very wealthy, an annuity may not make sense. But if you're sort of thinking about, jeez, I need to really preserve a lot of my wealth because I might make it into my 90s, well, then an annuity could be really good. Now, it's weird. Variable annuities, these annuities with caps and floors and equity, these things seem terrible.

And it's kind of interesting that you've got these terrible things sitting side by side with products, simple products that are really pretty useful and well-priced. While we are queuing up to take some audience questions, I wanted to ask about direct indexing, building these custom baskets of individual stocks as a matter of taking tax losses regularly.

They seem to be getting sold to a lot of people. I'd like your take on them, whether you think they're worth the complexity. Sure. So yeah, I mean, the direct indexing, tax-loss harvesting programs have really mushroomed recently. Maybe there's $300 billion or more. I think Morningstar said there was almost $300 billion of this a year or two ago already.

So maybe we're a lot bigger than that. You know, it's Goldman, Morgan Stanley that bought Parametric, JPMorgan. And the basic, the impetus for all of it is like, oh, I'm going to get all this tax-loss harvesting, because tax-loss harvesting, the amount of tax-loss harvesting you can get is proportional to how volatile the things are that you own.

So let's own individual equities, because individual equities, on average, are twice as volatile as the indexes. Now, that's true. However, the tax-loss harvesting is subject to the wash/sale rule, so whatever you sell, you can't buy it back for 31 days. And so as a result, if you do one of these direct index programs with one of these providers, there's going to be a certain amount of tracking risk, because you sell Apple, because maybe Apple goes down.

I don't know if it ever has gone down. But if it went down, you could sell it. But when you sell it, now you don't have Apple, and you're going to buy something else. So you have this tracking risk, and they're going to tell you, the provider of direct indexing is going to say, we're going to limit your tracking risk somewhat, because we don't want to have too much tracking risk.

Well, then you're not getting as much tax-loss harvesting as you could from those volatile equities. And it turns out, from some analysis that we've done, that you could get just about as much tax-loss harvesting from having a portfolio of ETFs, managing those, or having them manage for tax-loss harvesting, which is a freebie for anybody that manages ETF portfolios.

They just throw in tax-loss harvesting for free, rather than paying 50 basis points to Goldman or whatever. And it's simpler. And then three or four years down the road, your portfolio is all appreciated. And now you've got this weird portfolio of 400 stocks, not exactly matching the index. You're still paying fees.

Your brokerage statement is like 20 pages long, and you're going to pull your hair out. And it's like, what am I going to do now? Now I'm just locked into this thing forever. So I think it's really being massively oversold and not a fan of the direct indexing at all.

And then now they say, oh, here's this other benefit of direct indexing. We can customize for you. And it's like, oh, you customize. Well, we're index investors. We don't want customization. We want the market cap portfolio. We don't want to just be like a long-sum portfolio, where a company-- where it doesn't have any companies from Texas in it or something like that.

So I think, yeah. Here's a good question from the audience. For simplicity, can someone allocate, say, 15% of portfolio to a short-term tips fund at, say, Vanguard? And Vanguard has a good fund like that. And call it a day versus buying individual tips and laddering, like your take on that.

Yeah, I mean, I love using index funds and ETFs for everything and not buying any individual things. I mean, there's a lot of discussion about, well, is a tips ETF not as good as buying a ladder of tips? And overall, I think they're-- I don't feel there's such a big distinction there.

Like, if you're really trying to match out your spending for the rest of your life, maybe you want to buy or construct a ladder. But I think just owning these ETFs is such an unbelievably convenient way of owning fixed income. I like using fixed income ETFs in general. OK.

Here's a question about retirement decumulation. When paying yourself once a year, what should I sell? Stocks and funds that are up or just equally across the board? So if I'm pulling from my portfolio, where should I go? I think the starting point is equally across the board. And then kind of just thinking about taxes.

Well, if you're going to be doing some kind of reallocation, you're going to use that as a way of changing your allocation. But assuming that you have these target weights that you're shooting for, and you're there, and you're doing your rebalancing separately, then basically just using that-- just taking a slice out of the portfolio is the simplest thing.

Maybe thinking about taxes a little bit might skew you. But in general, I think just go for the portfolio that you want to have and do your stuff like that. So is it an elegant idea, though, to link my rebalancing with my retirement spending? I kind of like that idea of, if I've got to sell something to get my asset allocation back in line, that's my cash flows?

Yes. I agree, very elegant. Sort of separating the two, but putting them together is the way to do it. OK. So what tools exist for passing wealth to a child that is not, and probably will not become, financially literate or savvy? So children who you want to take care of where you feel like they don't have the ability to manage their funds going forward.

I mean, I would sort of challenge the premise there a little bit. I mean, I think investing is something is easy. I think that-- so I don't know exactly what the scenario is for this child. But I think that most people can learn really well about investing. If that's just not possible with a particular person, then trying to really think about a trusted advisor and thinking about the incentives of the advisor, the fees, maybe getting an advisor that's a fee-only advisor that charges a relatively low fee, to get that kind of advice.

I mean, I think finding a trusted advisor that's young and that the person can work with for a long time is the way to go. How do you personally invest your money? You know, I have all of my family's liquid assets away from houses, whatever, are managed by Elm.

It's all in low-cost ETFs. I don't own any individual stocks at all. I just have been doing a lecture series on why I don't pick stocks. And yeah, and that's really where my business of Elm Wealth really came out of doing it for myself and then some friends saying, well, if you do it as a business, we'd like to invest in that way, too.

So sort of drawing more people into investing in low-cost ETFs. Yeah, I want to follow up on that, Victor, actually. You have a minimum account size of $1 million for potential clients. And I'm guessing a lot of people in this room would meet that threshold. What made you decide to target that segment of the market versus the more rarefied people with a lot more in assets?

Well, we would like to help people with as little money as possible, as many people with a lower limit. But we needed to start somewhere. And we really wanted to keep our fees really low. So we charged 12 basis points. And we felt that, well, actually even-- and when we started the business, trading was not commission-free yet.

So we needed certain account sizes back then to take care of the $5 per trade at Fidelity and Schwab and so on. But actually, we'd like to be able to help smaller accounts. And it's really sort of a technology race, how we can manage lots and lots of accounts individually at a low cost.

I think that-- oh, more directly to your question, really, really wealthy people are just totally unsensible, in my experience, with their money. Like, you're just not going to find any-- I mean, you're going to find almost no super wealthy person that's invested sensibly in a diversified portfolio of index funds.

It's like, I'm wealthy. I'm entitled to extra returns by doing all of this weird, complex, crazy stuff. So we don't want to spend a lot of time in that space. So 12 basis points versus a 1% industry average for $1 million accounts. So I'm curious why you think it is that we have not seen more downward pressure on investment advisory fees.

So Vanguard, I think, charges around 30 basis points. I mean, maybe it scales down. And we know that Vanguard is doing it at break-even. So normal financial advisory is expensive. There's not super high margins in the space. And it really is just a function of what is that advisory looking like.

So I think when somebody is charging 50 basis points, they're probably doing a lot of touch. There's probably a lot of touch involved in that. And again, Vanguard, they're charging 30 because they're like, OK, this is what it looks like. This is what our costs are. Now, for us, we've tried to build our business in a way that's lower touch.

I mean, we're there, and we're there to talk to people. But we're lower touch. And the clientele requires less touch, our clientele. We don't market, for instance. So we're not selling our stuff. People are coming to us, and there's an easier fit. And so we're able to charge lower fees because we're doing less for people.

And then people know that. They're like, well, if I'm paying you 12 basis points, I don't expect that much from you. And it's a really good signal. And so I think there is a place for this really low-fee, low-touch model. So by low-touch, you mean if I were to call up Elm Wealth and say, I want some guidance on whether to pay off my house versus invest in the market, you can't put a CFP-- or you wouldn't put a CFP on the line to help answer that question?

Yeah, we would try to have a brief conversation about it. But it wouldn't be as deep as a real financial planner. A real financial planner would go deeper, deeper, deeper. We can have a couple of conversations with each of our clients each year. We probably don't have that many.

But that's right. I mean, it's just a higher level, shallower take on things. So I wanted to ask about long-term capital management, which was fairly early in your career. I think most people will be aware of what happened there. But you have written that that was a life-changing event for you, having worked on long-term capital.

And it really influenced the way that you think about the world, that you think about markets, and your career, and everything else. Can you summarize your key takeaways from that? We could do this whole session on that, but from that experience? So in terms of my takeaways about how markets work, and investing works, and so on, I think the most salient thing that I could say about-- the most salient thing that comes to my mind is just, what a great reminder or illustration of how incredibly efficient markets are.

So we were finding all of these things-- asset A versus asset B. They were almost the same, but they were trading at a different price. And we would buy the cheap one and sell the expensive one. And you could see that those prices were not the right prices-- same cash flows, different prices.

This was like-- we didn't call it arbitrage, but this is kind of the idea of arbitrage. But the markets are so efficient that the amount of that disparity is so small-- I mean, it's identifiable, but it's so small-- that it doesn't really pay people to do it unless you use leverage.

Well, now as soon as you use leverage, you're subject to the spreads widening out and needing to reduce and becoming riskier and more volatile. And so what seems like a kind of a free lunch being offered by the market, in reality, is not a free lunch. There's risk involved.

You're getting compensated for risk. And then it turns out that a lot of these things that kind of look like alpha have this tendency to lose a lot of money when the stock market is down huge. And so you're doing these things that kind of look like they're alpha because in normal times, you're making money.

It's not correlated with the ups and downs of the stock market. But you go into a really big financial crisis like 2008. Now, our thing was in 1998. Thankfully, it was in '98. It saved me 10 years. Otherwise, I would've been working for another 10 years and hit 2008, and it would have been a disaster.

But in 2008, the financial crisis caused all of the banks and lending institutions to pull back balance sheet. All of these relative value opportunities blew out, became riskier. People had to reduce. It was a disaster. And so my LTCM experience, lots and lots of life-changing lessons. But I think that it's just such a great reminder for me or illustration of how efficient markets are.

Last question. I'm hoping you can answer really quickly, Victor, before we take a break. You end your book with a quote from Milton Berle, which is that money can't buy you happiness, but it helps you look for it in a lot more places. Can you talk about how your perspective on money and happiness has changed since you started your career?

Sure. So when I started, I don't know, I was just so happy to have a job. I was so grateful to have a job. And I loved my job in Wall Street. I started off in research in 1984 at Salomon Brothers. It was amazing. And every day, I just couldn't believe that this was meant to be work.

It was so much fun. And I just wasn't thinking about money. But wow, the money was just out of control. I mean, it was-- I don't know. Every year, they were just paying me so much more than they should have or I thought I was worth or whatever. And it went up and up and up.

And then I left Salomon and went and joined my partners to found this hedge fund, LTCM. And then the money just kept going on up. And it felt really good, but I wasn't really spending it on anything because I was really busy. So it was like it was this counting thing.

So it was like, wow, it's nice to have a lot of money. I wonder what I'll-- I just was so busy, I just wasn't thinking about it. I don't know what I was thinking about. I was just so strung out between kids and work and family and everything. And then LTCM came, and boom.

I took a huge-- I don't know. My family, we lost 80% of our wealth at that time. And then I really paid attention. And then I really thought about-- I started to really think about wealth and so on. And that's when I started to really think about this idea that's just very basic in economics, that there is a decreasing marginal utility to more and more wealth.

The more wealth we have, each extra dollar is just worth less for us. It's like how many-- with almost everything in life, there's a marginal decrease in the joy that we get from things as we get more and more of it. And when I started to realize that, I realized that wealth has to be a means to an end.

It can't be an end in itself. And it had me-- at that time, I really re-evaluated my life. I took a 10-year sabbatical to reboot, re-educate, where I wasn't working. My kids were young. I was an at-home dad for 10 years before I started Elm Wealth. And so LTCM was like a shock therapy for me that got me, hopefully, to look at things in a more holistic manner.

Well, Victor, we are so grateful to you for being here today. Thank you so much for joining us. Thank you, Christine. Yeah, it's a pleasure.