Krishna Memani on Wall Street's Very Expensive "Free Lunch"

Joe Weisenthal (0:00)

Hello, Odd Lots listeners, I'm Joe Weisenthal.

Tracy Alloway (0:02)

And I'm Tracy Alloway.

Joe Weisenthal (0:03)

Tracy, we're doing another live show, and it's right here in New York City.

Tracy Alloway (0:07)

Yeah, this one should be our biggest yet. And we're gonna have a bunch of Odd Lots favorites and do something maybe a little different to some of our previous live podcast recordings.

Joe Weisenthal (0:18)

When the guests are revealed, the show is gonna sell out right away, so you should really just go get your ticket right now. It's June 26th, it's at Racket NYC, and you can find a ticket link at bloomberg.com/oddlots or bloombergevents.com/oddlotslivenyc.

Tracy Alloway (0:34)

We hope to see you there.

Krishna Memani (0:38)

Bloomberg Audio Studios, podcasts, radio, news.

Joe Weisenthal (0:54)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Joe Weisenthal.

Tracy Alloway (0:59)

And I'm Tracy Alloway.

Joe Weisenthal (1:00)

Tracy, this has come up a few times on the podcast over the years, but you could really feel dumb as an investor over the last, I don't know, 15, 20 years, if you literally bought anything else besides big tech stocks.

Tracy Alloway (1:15)

Big US tech stocks.

Joe Weisenthal (1:16)

Yeah, big US tech stocks.

Tracy Alloway (1:17)

Yeah, that's exactly right. And the funny thing is, investors have been encouraged to diversify, right? Like, this is the mantra of markets, is that you shouldn't put all your eggs in one basket, etc., etc. And so you've heard for the past 10 or 15 years that you should diversify into international stocks. You should diversify into small caps.

Joe Weisenthal (1:38)

60-40.

Tracy Alloway (1:38)

Yeah, 60-40. And a lot of those things have turned out to be duds, or at least 60-40 was a dud for a couple years. Kind of.

Joe Weisenthal (1:47)

Kind of. I mean, it mostly did well, but it had some rough years, particularly out of the pandemic.

Tracy Alloway (1:53)

But certainly, you would have been missing out on big gains if you put money into small caps or international stocks versus the big US tech stocks.

Joe Weisenthal (2:02)

Right. And we've gotten a little bit... When DeepSea came out, that raised some questions about big tech stocks. Obviously, with the policy volatility in the US, which is one way to put it, there have been some questions about, okay, is now the time to diversify abroad? Yeah, okay, you could have bought money buying Rheinmetall or one of the beneficiaries of German defense spending. But so far, it's still not obvious that there's some other big moneymaker out there for investors besides big tech.

But we may be at a juncture.

Tracy Alloway (2:38)

Well, I think the other unappreciated aspect is the importance of the benchmarks in all of this. And I think investors tend to think of benchmark index providers as these very neutral entities that are holding out a mirror to the market and just reflecting what's already there. But actually, a lot of their decisions are very active and have very, very big implications for investors. So if MSCI says that the All World Index is going to have small caps and big caps in it, then investors are forced to buy small cap exposure.

Joe Weisenthal (3:14)

That's totally correct. And this is core finance theory, that the optimal portfolio is more or less the global portfolio. We've talked about that with the dimensional guys. You really should have a weighted allocation somehow, if possible, to every bond, stock and piece of real estate out there. And that's the best you can do. And that clearly has not been the best you can do for a long time. And so we want to talk about the tortured pain of the poor diversified allocator.

Tracy Alloway (3:39)

And the tyranny of the benchmark index providers.

Joe Weisenthal (3:42)

Yeah, very Shakespearean. Anyway, I'm really excited. I think we do, in fact, have the perfect guest, someone who I've been a big fan of for a long time, someone I've wanted to have on the show for a long time. He's probably one of my top five favorite posters on Twitter, although he's quieted down a little bit lately, but I think he's addicted like the rest of us. We're gonna be speaking with Krishna Memani. He is currently the Chief Investment Officer of the Lafayette College Endowment. Previously, he was the CIO at the Oppenheimer Funds, which was bought by Invesco, so a long storied career. Someone who knows about all of this stuff. So Krishna, thank you so much for coming on the podcast. Thrilled we can finally make it happen.

Krishna Memani (4:21)