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00:12:42 [Speaker Changed] I think it absolutely should be the norm because it is generally what our clients are seeking. And I think a lot of investors have figured out how to effectively make money for their clients with shorter term time horizons, otherwise they wouldn’t be doing it. Tell us a little bit about that.
We discount each year at our 10% minimum weighted average cost of capital (WACC) and some infinite series maths gives us the basis for some rough approximations 2. Maths has a long half-life and a DCF correctly done accounts for inflation.
So I took it upon myself to go off and took a course in bond math, took another course in derivatives and realized the underlying fundamental concepts were barely, I mean, it wasn’t even high school math in most cases. And then in a fit of madness, I guess, at the end of 2006, the credit markets were pretty uninteresting.
00:03:14 [Mike Greene] So that was actually an outgrowth from my experience coming out of Wharton and you mentioned the, the, you know, the transition of people who tended to be skilled at math or physics into finance. The F, there is a subsequent change in 2006 called the Pension Protection Act. So let me pose this question to you.
In my opinion the diversification benefit hits diminishing returns pretty close to 40 individual holdings based on math if nothing else. I don't think I've ever had a client stock go up that much in less than a year but if I did, it was luck. If a portfolio starts with 40 holdings each with an equal 2.5% I have a yeah but to that.
And I would say that Washington was pretty interesting because we had gone and, and spoken to people in 2005, 2006, and to kind of let people know that there was something, these are, this is a trillion dollars worth of misprice risk. So let’s talk a little bit about who the clients are for Amherst. Fascinating.
This was the era, 2005, 2006, all of my friends were looking to get banking roles. And I, and I really like the application of math and statistics and computer science to markets. And they’d say, well, who are your clients? And by the way, at that point, that client was at $13 billion. Can’t.
His clients adore him. You know, if you’re hardworking and you’re trying to do things that people value and my client base, if you will, or institutional investors, I went all the time. And they would work for data resources and take care of clients and then a client would hire them. What was that work like?
And then I didn’t do the internet again until 2006. Well, 2006 was a miracle. If you were alive and writing checks in 2006 to 2011. So this is the math that I applied. So think about this, do the math. (LAUGHTER) And that’s how I learned the internet. Now that’s a good origin story.
You’re doing a lot of math in your head on the Fly. I’m doing, I’m doing an awful lot of math in my head on the fly. Goldman had clients on the other side. They were trying to make their clients a ahead price and get hedged, and they were gonna walk away from the trade. Oh, really?
And this was back in 2005 or 2006. He was one of their top clients when they were selling these bonds of slightly lower quality… RITHOLTZ: Slightly lower quality. And these guys don’t like money sitting on a shelf. And so, you actually had a study in Congress that had what might happen if we were to experience a pandemic.
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