YouSaid · the spoken record

John Montgomery

lines on the record: 83
first: 2017-11-03
most recent: 2017-11-03
sittings or episodes: 1
sources: podcast

Every line below is reproduced as it was said and linked to the record it came from. Nothing here is summarised or generated. Directory · Search · Corrections

“It's not only strongly, it's incredibly strongly against you. This goes back to that year and a half that I took off in 1992 into 93 doing research where I actually went back and studied the Great Depression. So like if you want a granddaddy of downturns and you're studying risk, which is what I was doing, you go back to that period. Some people say like, John, you know, like the Fed didn't even exist in his current form, why would you go back to the 1930s? My answer to that is the specifics of risk have changed. Nuclear bombs didn't exist in the 1930s. So obviously that's a very different risk. But the nature of risk itself has been around a long time. You can learn a lot. And I convinced myself from that a couple of things out of that exercise. One is be prepared for the downturn. They will happen. It's not inevitable and it's behavioral. It's not just based on how expensive the market is. Number two, it's incredibly...”
2017-11-03 · Masters in Business · Bridgeway's John Montgomery Gives Away Half of Its Profits · IDENTIFIED FROM THE TRANSCRIPT · source
“So, if the question is Do I think the market is expensive? The answer is yes, how expensive depends on how you measure it. But the second question relates like, okay, like statistically you can measure this based on history that is more expensive. So does that mean we should get out of the market? Should we time that somehow? And that's a very, very different question with an answer that takes you into a buy and hold strategy on the market overall.”
2017-11-03 · Masters in Business · Bridgeway's John Montgomery Gives Away Half of Its Profits · IDENTIFIED FROM THE TRANSCRIPT · source
“Except, well, that's true, but the main thing is you have to sell it over a relatively short period of time, probably somewhere between three months and 12 months. If you just hold on forever, then it goes up and then...”
2017-11-03 · Masters in Business · Bridgeway's John Montgomery Gives Away Half of Its Profits · IDENTIFIED FROM THE TRANSCRIPT · source
“Research. Research is what we live and breathe and do for living on the investment team. Market capweighted index, the more a stock goes up, the more money you throw at it. Right. That's a momentum strategy. There's nothing wrong with momentum. It works over the long term.”
2017-11-03 · Masters in Business · Bridgeway's John Montgomery Gives Away Half of Its Profits · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, certainly we're experiencing that in some places at Bridgeway. First of all, we do have our own proprietary index fund. It's non-market cap weighted, has some really cool. I'm an engineer by baggage, really cool design features that we've executed. We just celebrated 20 years.”
2017-11-03 · Masters in Business · Bridgeway's John Montgomery Gives Away Half of Its Profits · IDENTIFIED FROM THE TRANSCRIPT · source
“So, two things one, we have what we call a partner stock ownership, which is typically referred to as an ESOB. So all the full-time People at Bridgeway, currently about 20% of your W2 goes to buy stock in the advisory firm. And that's across the board. That's not typically a firm our size, the top five people or so would have stock. This is broadly based across the full spectrum of salaries. Some people think like, oh, so you have an ownership culture. We say, yeah, there are aspects of that. So yes, you want to treat cost as your cost. But we like to focus on the stewardship aspect of that. There's an asset, resources that we've been entrusted with on behalf of our clients, on behalf of the public good when you talk about the foundation. We want to do an excellent job with that. That's the focus. And we think that comes back in multiple ways.”
2017-11-03 · Masters in Business · Bridgeway's John Montgomery Gives Away Half of Its Profits · IDENTIFIED FROM THE TRANSCRIPT · source
“It's pretty great to be able to say if you want to make seven figures and you're about generating personal wealth at the high end, you won't come to Bridgeway. Like there are other places to do that. We don't make any value judgments about that. We just think that life is about more. And if you take that attitude and worldview, it's incredibly powerful.”
2017-11-03 · Masters in Business · Bridgeway's John Montgomery Gives Away Half of Its Profits · IDENTIFIED FROM THE TRANSCRIPT · source
“So we now talk about that as our stewardship imperative. So, if you're a new person coming into Bridgeway, the conversation goes something along these lines. One, we're here to make a difference in the world. And that's really what we've got for our clients first, because that's why we're here for our fellow partners, each other. And that's Partners is the word we use for all the staff with a full-time and long-term commitment at Bridgeway. And also the communities that we live in. However, we expect everybody to engage in that. And if you look back over 40 years of compensation in the US, it's pretty clear to me that things have gotten out of hand at the top end. I just didn't want to get caught up in that Edgeway. And actually, it's a pretty great screening tool for if you put at one end of the spectrum greed and a lot of things that the finance industry has criticized for. And at the other hand, generosity and making a difference in life. At the other end of the spectrum.”
2017-11-03 · Masters in Business · Bridgeway's John Montgomery Gives Away Half of Its Profits · IDENTIFIED FROM THE TRANSCRIPT · source
“Is managed money. So we thought, had the naive thought of giving half away, there'd be less around. Interestingly, about 10 years into the process of Bridgeway Capital Management, I had the thought, well, that didn't work out at all. The money that's left when you're that generous and you build it in the fabric of a company and you are able to hire and retain inspired people, the benefits of that to the company far outweigh the half that you give away. So we actually, that was a bust I figured out at 10 years. It's much more powerful when you have a generous spirit.”
2017-11-03 · Masters in Business · Bridgeway's John Montgomery Gives Away Half of Its Profits · IDENTIFIED FROM THE TRANSCRIPT · source
“There's no inventory except computers, which are actually pretty cheap these days. There's no, it's an amazing cash cow business. And we thought, so what would you do with those resources? And we actually had some concern 25 years ago that that could be a problem in raising kids and the environment within which we raised it. More money is not always good. In spite of the fact what we do for living is...”
2017-11-03 · Masters in Business · Bridgeway's John Montgomery Gives Away Half of Its Profits · IDENTIFIED FROM THE TRANSCRIPT · source
“So that's worked out great. Also, when I was founding Bridgeway, we had some concern, my wife and I, about if professionally we were successful as I had been over the prior six years individually with the model that I had, this is a quantitative model so you didn't have to hire an army of analysts. So it was a low-cost strategy aspects of modeling that we had worked with for some time, then it should be a cash cow. In the investment advisory business, there's no accounts receivable. There's no accounts because people are making your money.”
2017-11-03 · Masters in Business · Bridgeway's John Montgomery Gives Away Half of Its Profits · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, Barry, I'd say naivete has worked pretty well for me in life. So I got married at 21. That's not statistics on that are not great. Statistics would say, wait a while, get more life experience. But it was awesome for me. I married to the love of my dreams for 40 years now, just celebrated a 40th anniversary. I think you just celebrated 25.”
2017-11-03 · Masters in Business · Bridgeway's John Montgomery Gives Away Half of Its Profits · IDENTIFIED FROM THE TRANSCRIPT · source
“I would say both. Early on, we had some thought of being about substance and not fluff, and that has continued in our culture and worldview.”
2017-11-03 · Masters in Business · Bridgeway's John Montgomery Gives Away Half of Its Profits · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, first of all, the algorithms are built by people So there's a very strong human component to that. And the models are only as good as the modeling process that you've got. So that would be where I start. I think there are huge advantages to machines being able to process huge amounts of data. So that's the key advantage there. And we're learning more all the time about technology and artificial intelligence and where that might go.”
2017-11-03 · Masters in Business · Bridgeway's John Montgomery Gives Away Half of Its Profits · IDENTIFIED FROM THE TRANSCRIPT · source
“But the low volatility factor turns that on its head. And what was remarkable to me was that it wasn't a bigger problem for more people that the low volatility stocks did better in the long term. Wait a minute, we talk about measuring risk, and we can go into a lot of detail on what's risk, but most common way to measure risk in academia is standard deviation of returns. Specifically measuring the exact same way, the low volatility is less risk by definition and should do less well over the long term. But the reverse is true. Why is that? In my mind, it was just a complete short circuit. Those two things don't go together. If that's true, something else must be driving these stocks. What is that?”
2017-11-03 · Masters in Business · Bridgeway's John Montgomery Gives Away Half of Its Profits · IDENTIFIED FROM THE TRANSCRIPT · source
“Go through the list. Number of things they should do as a group better in the long term. Size, same thing. If you've got fewer products, less diversification, less access to the capital markets, that's more risk, absolutely. And it makes sense that you would have higher returns over the long term with that.”
2017-11-03 · Masters in Business · Bridgeway's John Montgomery Gives Away Half of Its Profits · IDENTIFIED FROM THE TRANSCRIPT · source
“That's the low volatility factor. So if you think if you have a risk based worldview and you think, okay, value stocks are more volatile, in some sense they're riskier, so they should do less liquid.”
2017-11-03 · Masters in Business · Bridgeway's John Montgomery Gives Away Half of Its Profits · IDENTIFIED FROM THE TRANSCRIPT · source
“Absolutely. But the value part was really resonated with me. The thought, you know, I'm buying a refrigerator, it's one place or another place. And if it's basically the same refrigerator, there's some way to figure out that they're comparable. I'm going to go for the lower price. That just resonated with me and made sense that that would work. And there was a risk-based world framework for that that I really bought into. And it wasn't until probably 15, 10, 10, 15 years later that I started reading more and thinking about the behavioral insights. And there was one factor that really put me over the top on that.”
2017-11-03 · Masters in Business · Bridgeway's John Montgomery Gives Away Half of Its Profits · IDENTIFIED FROM THE TRANSCRIPT · source
“That period was when Fama French published their seminal paper on value and listing. Really? So we had early 1980s, the small size effect. It had been around why. And I was fascinated with that. Small cap.”
2017-11-03 · Masters in Business · Bridgeway's John Montgomery Gives Away Half of Its Profits · IDENTIFIED FROM THE TRANSCRIPT · source
“That's right. And I had a model for that. There was a mayor of Houston, Bob Lanier at the time, who had four different careers. And every time he switched careers, he took a year off to study the heck out of the next thing that he was doing. And he was very thoughtful about it. And I thought that was a fascinating idea.”
2017-11-03 · Masters in Business · Bridgeway's John Montgomery Gives Away Half of Its Profits · IDENTIFIED FROM THE TRANSCRIPT · source
“So, the stock market has to follow the economy long term. The problem is in the short term, it absolutely doesn't. There are two things we think that drive returns. One is risk. So in the beginning 25 years ago, definitely had a risk-based worldview, and Eugene Fama was a major contributor to my thinking on that. I took a year and a half off before founding Bridgeway to do research on the quantitative methods I'd been using individually, writing a big business plan for Bridgeway and learning more.”
2017-11-03 · Masters in Business · Bridgeway's John Montgomery Gives Away Half of Its Profits · IDENTIFIED FROM THE TRANSCRIPT · source
“We don't purchase individual stocks. We buy groups of stocks. So that is key to factor-based investing and an evidence-based worldview.”
2017-11-03 · Masters in Business · Bridgeway's John Montgomery Gives Away Half of Its Profits · IDENTIFIED FROM THE TRANSCRIPT · source
“Criticizes it says that. And there's nothing wrong with branding, but we go first to the substance of it. Well, first of all, we didn't call it factor investing 25 years ago, but absolutely applying quantitative methods to the process of investing and then figuring out as many different ways to apply numerical methods as possible. So that's not just deciding which stocks to stay away from and which you're adding to a portfolio to produce a certain design and results that you're going for. But it's also things like transaction cost, managing every other aspects of cost, the business side strategy side. We like what we call evidence-based worldview at Bridgeway.”
2017-11-03 · Masters in Business · Bridgeway's John Montgomery Gives Away Half of Its Profits · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, maybe beta. You can argue beta or alpha or a different system of looking at it. But the smart part sounds to me like a bunch of guys in a room of marketing trying to figure out how to sell something.”
2017-11-03 · Masters in Business · Bridgeway's John Montgomery Gives Away Half of Its Profits · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, first of all, the name Smart Beta kind of ruffles my feathers some. So, you know, it's data. There's nothing. Human or”
2017-11-03 · Masters in Business · Bridgeway's John Montgomery Gives Away Half of Its Profits · IDENTIFIED FROM THE TRANSCRIPT · source
“City urban transportation bus systems in particular took that to a certain level and then it was clear it wasn't going to happen. I hit the wall. This was an opportunity to transition and do something that I'd been doing as a hobby.”
2017-11-03 · Masters in Business · Bridgeway's John Montgomery Gives Away Half of Its Profits · IDENTIFIED FROM THE TRANSCRIPT · source
“First of all, transportation as a service industry. I love service industries, and anytime I'm experienced service that's subpar, I think there's a market opportunity there, whether it's a restaurant, a hotel, anywhere. Like if you're just doing a lousy job providing service, you're inviting competition in. So I was in the transportation service industry, but I was also an investor in a couple of mutual funds setting up an IRA and thinking like you should be able to do better than this, not just the investment, the whole performance side, but the communications, the talked about. I had a dozen ideas for how you could improve that industry. So at the time, I have an entrepreneurial spirit and hit a certain roadblock wall, you could say, professionally in the transportation industry where I was trying to bring private sector incentives and some insights I had about how to reorganize.”
2017-11-03 · Masters in Business · Bridgeway's John Montgomery Gives Away Half of Its Profits · IDENTIFIED FROM THE TRANSCRIPT · source
“So that could be true as well. And so you want to differentiate when things do and don't regress to the mean. Is there skill or just luck in driving?”
2017-11-03 · Masters in Business · Bridgeway's John Montgomery Gives Away Half of Its Profits · IDENTIFIED FROM THE TRANSCRIPT · source
“Percent of the hands go up So, Barry, my answer to that question usually is a humble is like, no, I'm not, probably I'm not. And in business school, I didn't think I was going to be in the top half of the class. But with respect to driving, I've never had a chargeable accident, and I've never had a moving traffic violation. Never had a moving traffic violation for something years. Oh, you're not trying hard enough. So I always go back to the statistics, the logic, the data, the evidence, evidence-based investing is what we do. Right. And so that's a knee-jerk reaction for me. It's like, well, let's just take a look at the numbers and see what you...”
2017-11-03 · Masters in Business · Bridgeway's John Montgomery Gives Away Half of Its Profits · IDENTIFIED FROM THE TRANSCRIPT · source
“Yes, so part of the dynamics of that that I thought was if this is a microcosm of Wall Street five years from now, then using quantitative methods should help get you on the other side of that investment, which should have some benefits of efficiency and cost and some other things. So that was just a seed planted for what would become Bridgeway some decade later.”
2017-11-03 · Masters in Business · Bridgeway's John Montgomery Gives Away Half of Its Profits · IDENTIFIED FROM THE TRANSCRIPT · source
“Steps back from the blackboard and he kind of tugs on his beard and he says so. Who among the people in this class think that when you get out of school here and probably go to Wall Street, that you'll be beating this record? Well, this was a pretty fine record. It wasn't just beating the market. It was doing quite well. 80% of the hands in the class go up. And the immediate thought that I had was the 80-20 rule. 80% of the people think they can beat the market, but it's probably the other way around. And it's probably at that point not the 80% that have the discipline to do it. And if you think about a top tier business school of very bright people, what has worked for them, getting them to a certain place in life, doesn't always work in investments. As a matter of fact, some of the dynamics of that works against you.”
2017-11-03 · Masters in Business · Bridgeway's John Montgomery Gives Away Half of Its Profits · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, I call it my first behavioral finance insight. This was in 1984, and it was very early on in behavioral finance. So I didn't even know the field existed. But I was at Harvard Business School really to learn more, fill in gaps in my knowledge base about business and specifically in transportation. I didn't have any idea at that point that I would go into finance. But I thought while I'm at Harvard, I'll take a few investing courses and maybe earn back the opportunity cost of taking two years out of your life after you were already had some jobs. So did that. My grade said that I should have gone to Wall Street. Those were among my best grades in business school. But I was in one particular class one day where we were studying a quantitative method of investing. And I found that fascinating. And at the end of the class, the professor”
2017-11-03 · Masters in Business · Bridgeway's John Montgomery Gives Away Half of Its Profits · IDENTIFIED FROM THE TRANSCRIPT · source
“Left brain, right brain. Absolutely. Engineering at MIT. So that's where I have my background in statistics and quantitative modeling. And at Harvard, I study business.”
2017-11-03 · Masters in Business · Bridgeway's John Montgomery Gives Away Half of Its Profits · IDENTIFIED FROM THE TRANSCRIPT · source