SI421: Taking CTAs Mainstream ft. Andrew Beer

Andrew Beer (0:01)

The entire equity market has become one crazy venture capital play, and you have something that's working this year. But why? Okay? Because it's doing things that you can't do on your own.

And so we have to step up out of the weeds, and basically make the argument that you know that having some tactical is good, but you know it's also dangerous to hand the keys of that car to humans.

SPEAKER_2 (0:28)

Welcome to Top Traders Unplugged. In markets, success doesn't come from predicting what happens next. It comes from being prepared for what you can't predict.

In each episode, we go deep with some of the world's most thoughtful minds in investing, economics and beyond to understand how they think, how they prepare and how they decide and the experiences that shaped how they see the world. No noise, no short cuts, just real conversations to help you think better and invest with confidence.

Niels Kaastrup-Larsen (1:04)

Welcome or welcome back to this week's edition of the Systematic Investors series with Andrew Beer and myself, Niels Kaastrup-Larsen, where each week we take the pulse of the global market through the lens of a rules-based investor. Andrew, it's great to have you back this week. How are you doing? Have you been?

Andrew Beer (1:21)

I'm wonderful and thank you so much for having me back. It's great to be here.

Niels Kaastrup-Larsen (1:24)

Absolutely. I've seen pictures from your travels, so I know you've been a busy man.

Speaking of busy, we will be busy today for what I am pretty sure will be hopefully a very useful conversation for, not just for investors but I think hopefully also for some of our colleagues in the industry. So we have quite a lot of ground to cover. But before we do that, and also I myself have been a little bit out of the loop traveling for a couple of weeks. So I'm kind of very interested in what came across your desk, what caught your eye in the last few weeks since, I will say, I've not followed the industry and the markets and the news as closely as I normally do. So anything exciting while I've been away?

Andrew Beer (2:22)

Well, I think I'm going to be thinking a lot about AI, and because I don't use a lot of AI in my day-to-day existence. I spend an enormous amount of time talking to people and trying to understand what they're doing.

But I have been talking to a lot of younger people recently, people their 20s or 30s about what this means for you with AI.

And you feel a tremendous amount of uncertainty about job futures. I mean, how on earth can you predict what job you're going to have in 10 years?

And what it reminded me of was actually the 1990s. That shows you how old I am. So something very, very pivotal happened in America in the 1990s, which was if you want to get a job in the early 1990s, so I was graduated from business school in 1994 There still was this idea of I'm going to find the right company, and I'm going to march up the ranks of that company over time. And unless something's really wrong, I'm going to stick with it. And that was kind of the path to, if you kind of scale the corporate ladder, you kind of make money, etc., etc. And the stability of that was highly valued. In my entrepreneurial classes at Harvard Business School, they actively discouraged students from starting their own businesses. And they said, you know, the failure rate is out of 10 One guy, sort of one professor arrogantly would laugh if anybody would talk about starting their own businesses. There are a few people who did it, like Bill Ackman and David Berkowitz had done it a few years before me, starting a hedge fund. But it was, by and large, it was you need 10 years of experience, kind of build a safety net before you even think about doing it. And in the next half of the decade, what happened was the dot-com crisis got so crazy and so frothy that there was a point at which people could sell a business flat for $10 million.

And the wealth creation was not, hey, I'm going to take a risk on this job and I might do a little bit better economically than the old job that I had. It was, my God, I could make $10 million in six months.

I could make a billion dollars. And it changed the risk tolerance of a lot of people. They left their jobs. And it wasn't the catastrophe that people thought. If you tried for two years to do a startup and it failed and you went back to your old job, they're like, oh, it's really interesting. What did you learn? That was really gutsy of you. So there was kind of a sea change in how people thought about starting businesses and being entrepreneurs that I think was extraordinarily healthy for the American economy. And it was easier to do it here than I think it was internationally, which is that's sort of when you see this great inflection point with US economic growth. And what I think is going to happen with AI is the business that used to require a million dollars of working capital, 500,000 dollars of working capital, you have four people, somebody in accounting, somebody doing this, somebody doing that. It's now one person in Claude. And so it is dramatically in a scale, it's unimaginably lowered the barriers to entry to starting new businesses. And so I was actually with a friend last weekend who has basically a business that helps people to organize their houses and go through 20 years of stuff, and it's very systematic the way she approaches it. But the most interesting to me was how she runs the business, which is it's her, it's the people who add value on a day-to-day basis, and there's no CFO, there's no accounting department, there's no bill paying. It's, and this is not somebody who is like a computer science engineer by training, like my partner, Matthias. This is somebody who just talks to Claude and says, like, how do I do this? And so I think there's going to be an enormous amount of disruption, but I think what you'll see is an entrepreneurial expression of entrepreneurial hunger, which I think is, again, I'm a fervent capitalist, and I think this is the kind of stuff that's the lifeblood of the evolution of the economy. So that's the optimistic side of AI, if it doesn't kill us and people don't build bio weapons.