The End Game Ep 61 - Mike Green PREVIEW

Grant Williams (0:10)

Before we get going, here's the bit where I remind you that nothing we discussed should be considered as investment advice. This conversation is for informational and hopefully entertainment purposes only. So, while we hope you find it both informative and entertaining, please do your own research or speak to a financial advisor before putting a dime of your money into these crazy markets.

You're about to listen to a special preview edition of The End Game, featuring my co-host, Bill Fleckenstein and our returning guest, the wonderful Mike Green. Mike has been the voice on passive investing for many years now, and with things seemingly reaching an inflection point, we thought it would be a perfect time to get Mike back on the show, to talk about what's happening in passive, and an exciting new project he's working on. Every episode of The Grant Williams Podcast, including The End Game, Super Terrific Happy Hour, The Narrative Game, This Week In Doom, Shifts Happen, Kaos Theory and The Hundred Year Pivot is available to Copper and Silver tier subscribers at my website grantwilliams.com. Copper tier subscribers get access to all the podcasts, while members of the Silver tier get both the podcasts and my monthly newsletter, Things That Make You Go Hmmm. So, if you enjoy what you hear on the show and you'd like more high-quality content like it, then please make your way over to grantwilliams.com and join our exciting community today. And now, on with the show.

Mike, welcome back to The End Game, my friend. It's good to see you. It's been a while.

Mike Green (1:49)

It has been a while and it's great to be back. It's always a pleasure to hang out with you guys.

Bill Fleckenstein (1:53)

We figured since you haven't been doing anything lately, maybe you'd have time to talk to us.

Mike Green (1:59)

It's been an interesting time period. For those who have not kept track, I left Simplify about a month ago to launch Tier1 Alpha Asset Management. This is a new enterprise that I've created that will offer SMAs, ETFs, ultimately hedge products, building on the theories that you guys have heard me talk about. Poor Grant has been exposed to it for almost a decade now. But the influence of passive investing on markets is, in my opinion, the most important phenomenon that is going on. I've tried to share my research very freely on it with the intent of getting something to change. And the simple reality is nobody's going to change it. And I wrote about this on my sub-stack in a piece called It's Time to Complicate. I gotta be honest with you, there's a part of me that was just scared to actually do this. And the simple reality is that when you have done this work as long as I have and you've tried to share it, when you suddenly recognize nothing is going to change unless you do it yourself, that is simultaneously a very liberating experience and a cathartically terrifying one. But as I said, capitalism doesn't pay the person who comes up with the right idea, it pays the person who comes up with the right idea and turns that into an implementable product that other people can buy.

And so that's really the breakthrough that we've had in the last, it's almost exactly a year ago that I had kind of a big mental breakthrough that helped me understand something I've been struggling with for about a decade. And that's began to open the path to implementation and the rest is kind of history. Now we see how it plays out. Are we going to fall flat on our faces or are we going to demonstrate that there's actually something to the nonsense that I've been spouting for a long time and I certainly hope it's the latter.

Grant Williams (3:39)

I don't know how much you can say about it, Mike, in terms of specifics. If it's nothing at this point, that's fine. But I know that there will be a lot of people out there listening who have listened to you over the years talking about this stuff.

It's fascinating, Rob, when you started talking about this stuff, everybody wanted to hear about it. And I'm guessing now nobody wants to hear about it, mainly because a lot of them, to your point, are terrified for very different reasons. And a lot of other people are just resigned to the fact that Skynet has taken over now. So what's a poor kid going to do?

Mike Green (4:09)

The simple reality is that we have become unbelievably passive in our reaction to stimulus. And part of that is simply a function of where rats in a cage have been shocked at random so repeatedly at this point, or it feels that way, that we're not really sure what to do. And I certainly was guilty of that for a very long period of time. To me, as I began to move into implementation and figuring out whether there was actually a business here, one of the things that just shocked me is looking at how our industry has capitulated and given up. The statistic that I share with our investors is that in 1992, when Ken French and Eugene Fama wrote the paper on size and value and identified it as a factor in portfolios, it was a revolutionary event. It suddenly gave people an opportunity for hope and gave people an opportunity to try to exploit something. And you saw small value as an asset class. You see nearly 900 funds launched over the next seven years. And dimensional fund advisors who had sponsored the work from Fama French used that to power to almost a half percent share in the market. That's just an astonishing share gain today that would put you somewhere in the neighborhood of about a trillion and a half to two trillion dollars in assets, basically from a standing start.