Charles Schwab Chief Investment Strategist Liz Ann Sonders Talks the Rise of Casino Culture in Markets

**Tom Keene** (0:02)
Bloomberg Audio Studios.

**Scarlet Fu** (0:04)
Liz Ann Sonders of Charles Schwab joins us today, and I'm supposed to say, how do I stay invested? What sectors look like? What's momentum like? And then you stopped me cold three days ago on LinkedIn with a clearing call. What was the catalyst for you to say betting's a drug?

**Liz Ann Sonders** (0:22)
How increasingly casino-like the market looks. I was thinking about this the other day. It reminds me of one of the famous Benjamin Graham quotes about in the short term, the market is a voting machine, in the long term, it's a weighing machine. But we now have this entire infrastructure associated with short-term trading, that now is the ecosystem in which these traders live, and it's geared to the voting machine, and many of them haven't even met the weighing machine.

**Scarlet Fu** (0:50)
But the hallmark of your work over the decades, if you can bring it up right now, guys, give me the money mustry. This is terse Liz Ann Sonders. This is different than talking about the markets. The gambler hopes, the investor owns this distinction, has never been more important to articulate clearly. Here's the key line for me and Scarlet, the youngest generation of investors inundated with a message that investing and gambling are essentially the same thing.
Every single mail I get, people are furious. Who's the regulator?

**Liz Ann Sonders** (1:25)
That's a good question. It's not being terribly regulated right now, not in the betting markets, not even in sports betting. Although states do regulation to a large degree in sports betting at the outset, clearly just the legalization thereof, which increasing number of states are doing that. But I think we're gonna have to see some self regulation here and an emphasis on the part of firms like ours that have been around for five and a half decades doing what we do for purely the individual investor and making sure that the financial literacy component is front and center. And I think that's what's lacking in some of the marketing associated with this is that financial literacy, that education component. So I'm happy to be one of the voices alongside even our founder, Chuck, who has just passion about this subject.

**Tom Keene** (2:17)
Let's talk about some of the investors in the market, because more people right now own stocks than at any time in history. The pros who are seen as a smart money, used to belittle individual investors as a dumb money, yet it's often the so-called dumb money that's leading the way here. So is that a distinction now?

**Liz Ann Sonders** (2:33)
I think it is. And I think that the labeling has always been unfortunate, smart money, dumb money. I've often quipped that maybe sometimes it's considered the dumb money because they tend to be the contrarian indicators, or leaving aside the Schwab client base who are all the smart money.
But you're right, that contrarian indicator nature of what retail investors used to be seen as, they've been more right than not.

**Tom Keene** (3:02)
Right.

**Liz Ann Sonders** (3:04)
What's interesting right now is they just represent one, and now I'm speaking specifically of retail traders, not long-term individual investors, but a very important distinction between those two. But now you have other short-attention span money that's dominating day-to-day trading, the commodity trading advisors and the systematic funds and the long-short hedge fund community, and they're keying off each other and the positioning associated with it. That's why there's so much more research out there now on how everybody is positioned. And then social media has added volume to that kind of conversation.

**Tom Keene** (3:40)
And then you add prediction markets to the mix. I know that Schwab, along with other firms, is considering launching prediction markets tied to financial events, as opposed to sports and pop culture, right? Staying away from that part of it.

**Scarlet Fu** (3:51)
How is that different? How is... Help me, I'm the dumbest one in the room. Oh no, Cortland's the dumbest one in the room. Help me on this. This is important stuff.
How do we separate, what did you call them?

**Tom Keene** (4:05)
Prediction markets?

**Scarlet Fu** (4:06)
Prediction markets for betting on GameStop.

**Liz Ann Sonders** (4:09)
It's a good question. I can't weigh in on what we eventually will do with prediction markets because it's still early in the thought process and that's not something I'm involved in on a daily basis. But I will say that as a market strategist, I am often interested in what the prediction markets are saying about certain types of events.

**Tom Keene** (4:34)
The wisdom of the crowds.