Lead-Lag Live

James Fishback on Rethinking Quotas, Retail Investing Impact, and Advocating Meritocracy in Business Practices

• Michael A. Gayed, CFA

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Join us as we challenge the status quo with James Fishback, founder of Azoria Partners, as he questions whether racial and gender quotas in hiring are truly beneficial for businesses. James shares his journey in the investment world and his dedication to crafting affordable investment opportunities for everyone, while celebrating the power of retail investors who are reshaping the financial landscape. Discover how these retail investors are using trend-spotting savvy to rival traditional Wall Street giants and learn why James believes skill and expertise should be the cornerstones of hiring practices.

We take a critical look at the struggles of traditional Wall Street models to adapt to the modern era, particularly in recognizing the potential of trailblazers like Palantir, NVIDIA, and Tesla. The conversation moves to trading apps like Robinhood and Webull, assessing how they've revolutionized investor behavior and inadvertently fueled impulsive decisions. Strategies to counteract these behavioral biases are shared, and we urge for a return to a merit-based system free from political interference, where decisions are driven by capability and not quotas.

In our exploration of diversity and meritocracy, we acknowledge the complexity of these themes within large corporations. The conversation scrutinizes how some companies may sacrifice performance for social agendas through forced diversity initiatives. James shares insights and personal reflections on promoting merit-based hiring beyond mainstream media, inspired by his grandmother's pragmatic and strategic investment approach. Follow our newsletter and social media for ongoing insights into market and geopolitical trends, and join us as we advocate for a shift toward genuine meritocracy in business practices.

The content in this program is for informational purposes only. You should not construe any information or other material as investment, financial, tax, or other advice. The views expressed by the participants are solely their own. A participant may have taken or recommended any investment position discussed, but may close such position or alter its recommendation at any time without notice. Nothing contained in this program constitutes a solicitation, recommendation, endorsement, or offer to buy or sell any securities or other financial instruments in any jurisdiction. Please consult your own investment or financial advisor for advice related to all investment decisions.

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Speaker 1:

What we mean by meritocracy is, very simply put, is that you hire, promote and invest in employees based on skill, ability and expertise alone, full stop. If you are a company that is saying we have a racial and gender hiring quota, that we have to have 50% of our executive team be female, that is not a meritocracy. If you are saying, like Best Buy does, that one out of three salaried employees must be a black indigenous person of color, that is not a meritocracy. That is wrong. That is un-American. There is legitimate reason to believe that is illegal, but more than anything, it is an awful business practice. Think about it as a company. You want to hire the best, no matter what they look like, no matter their gender, no matter their skin color, no matter their ethnicity.

Speaker 2:

My name is Michael Guyatt, publisher of the Lead Lager. Pour joining me for the rough hour, mr James Fischbach, who you were just chatting before the show. It turns out that we know some of the same people. We'll maybe avoid some of that conversation, but, james, introduce yourself to the audience. Who are you? What's your background? What have you done throughout your career? What are you doing currently?

Speaker 1:

Well, thanks, michael. Pleasure to be here. I launched my new investment firm, Azoria Partners, last year after spending the better part of a decade working at my own hedge fund and then working at a prominent hedge fund in New York City as a macro trader, and I've seen this industry through different lenses, and what I'm really excited about with what I'm building with Azoria is creating differentiated, low-cost investment products that anyone can buy, that anyone can take part in, and also creating a conversation much like you have with your audience to hear from folks. I think that a lot of people the elite Wall Street crowd scoffs at retail investors, but I got to tell you the truth. I would rather invest in 10 retail investors out there who are doing the research, who are actually having to defend their views against people and think at a really high level about why they're investing and how they're doing so, than against the group think, resume-obsessed, credential-focused Wall Street crowd. That has been wrong at every single turn, and so I was at an interesting discussion yesterday. I spoke at the University of Chicago with some students who pushed back on this notion People who want to work at the Goldman Sachs and the JP Morgans of the world that why would. I want to invest with retail, and the thinking was look, was retail right about Tesla? Were they wrong about Tesla? No, it was retail that was right, and it was the Jim Chanos and the David Einhorns my ex-boss who got Tesla dead wrong. It was retail who sensed that what was going on in 2020 and 2021 was going to be inflationary. These weren't Wall Street economists who are calling for the Fed to raise rates at the most aggressive rate in 40 years, and so I think the big thing is creating a movement with Azoria. That is a two-way street Thought leadership isn't just me coming up and talking about my thoughts, but it's also genuinely hearing from our investor base about what they're seeing, whether they're an oil engineer in the Bakken in North Dakota, whether they're a truck driver who's seeing certain things in their market. That helps us make better investment decisions.

Speaker 1:

And as I left that UChicago meeting yesterday, I was talking to a young lady and I said, if you've ever had to defend your decision to buy a stock to family, friends or classmates, vehemently defend it and be confronted and challenged. Well, what about this part of the company? What about the earnings multiple? What about this particular competitor? Well, is it already priced in.

Speaker 1:

If you've had to earnestly defend your investment thesis, michael, you've done more than 90% of Wall Street hedge fund managers, who are to tell you the truth as someone who's worked at a prominent hedge fund who are largely beyond reproach. You're not allowed to disagree with the guy who runs the place because he's a billionaire and you're not. You're not allowed to disagree with him because his name's on the door and you're not. And so I'm a high school debater from a different life and started a nonprofit debate league which is now the fastest growing in America. But the intersection of debate and investing is really important to me and I think that's how we should be investing, especially going into a time where there's going to be immense, immense dislocations politically and economically.

Speaker 2:

I always hate the term dumb money because I don't think it has anything to do with intelligence, but do you get a sense that retail has and this is a broad statement smartened up just because there's more information, there's easier accessibility to markets, that they're more savvy just because of technology and their interpretation of news flow? Yeah, I do.

Speaker 1:

First off, dumb money isn't just derogatory, it's false.

Speaker 1:

It's actually false right, name me a company where the hedge fund managers got it right long-term and retail got it wrong.

Speaker 1:

Alex Karp from Palantir brought this up when he posted a video thanking retail investors for getting Palantir to the point where it got included in the S&P 500. And he said retail investors is just another way of saying people who put their own money on the line when they're making an investment. There's not a hedge fund manager in the world, michael, where 100% of the investment whether that's short Tesla, whether that is in some currency trade or whatever there's no hedge fund investor where 100% of the money that's on the line is his or her own money. And so dumb money is derogatory, it's disrespectful and, most importantly, it's false. Second, I think the biggest thing is I look at Wall Street Bets, I look at the FinTwit community and the community of retail investors, specifically in the Tesla community on X. They are the most knowledgeable people. They are being challenged from every single direction, from the pessimists, from the bears, from the skeptics, and they're answering questions and they're actually conceding. Look, I don't know the answer to this, they might say. And I look at someone like Hallmark's catalog, who I've been a big fan of his work and have spoken to him several times and said look, this is a guy who didn't go through the traditional Wall Street training but looks at a visionary company for what it's worth because it doesn't fit the traditional Wall Street mold. Wall Street wants to write it off, wants to write off Elon Musk's personality, wants to say that because he's supporting President Trump in this election, that's a mistake. And so I come full circle and I say, if you are a retail investor and you are articulating your views online, having to defend them, being challenged by people that you don't even know, and walking away from those challenges saying I may not be as convinced about my position, let me lighten up a little here. Or man, I really handled that challenge well. It's time for me to add to my position. If you have that challenge offline, whether it's around the dinner table, my dad and I have many debates about the positions that we have at Azuri and I end up walking away saying he is right, it's time to add a little bit more or to take some off, or whatever. That makes you already already more of a rigorous investor than most of Wall Street, which is just a giant groupthink bubble. I'm sorry to say I never actually lived in New York, but I can tell you that, having gone up there and worked at this firm, I was working remotely as a macro trader. That so much of this is. It's the way the boss says it goes and you're not allowed to disagree.

Speaker 1:

And I think that Azoria and retail investors and everyone should operate in terms of a meritocracy. It doesn't matter what your resume says, it doesn't matter what your credentials are. We don't fall for logical fallacies, and chief among them is the appeal to authority. Well, what do you know? Goldman Sachs says it's a buy. What do you know? Goldman Sachs says it's an underweight and you're buying it. What do you know about Tesla? Says the guy who bought it at 180, and it's now 220. Says the guys who bought it several years ago, and it's up 800, 900%.

Speaker 1:

And so the biggest takeaway if I could share in this journey, for me for nearly a decade of investing and which is not nearly as much as some folks have been doing this for 40, 50 years is one humility balancing the humility of knowing you might be wrong with the confidence of knowing you might be right and, most importantly, michael, thinking for yourself. I enjoy reading Goldman Sachs research. I enjoy hopping on a call with a Morgan Stanley analyst or economist. I enjoy going to idea dinners with portfolio managers in New York City or in Boston. But I walk away from those meetings saying did they convince me because they made good arguments, they had logic and facts and reasoning on their side, or did they convince me because of the authority, the credentials and their status? And so retail investors have a chip on their shoulder, they proudly wear that chip and they defend their positions everywhere they go and look, they're going to get things wrong. There's no question about that. But ultimately you stand by what you do and you see what happens and the P&L doesn't lie.

Speaker 2:

Is it fair to say that retail tends to, on average, be more speculative than traditional?

Speaker 1:

Wall Street. Yeah, I agree and guilty as charged, and I would consider myself more speculative. Traditional Wall Street. Look, what does traditional Wall Street do? Look at the most common metric on Wall Street the price to earnings multiple. What is that? Just objectively, what is it? It is the price of the stock over the earnings, either on a trailing basis or on a one-year forward basis. Michael, we're talking about RoboTaxi, we're talking about CyberCab, we're talking about Optimus.

Speaker 1:

Even Elon Musk admits this is not going to be the consensus earnings expectation for the next 12 months. And so the big thing is, the entire metrics that the Wall Street so-called sophisticated experts use are wrong. Look, that's fine if you're valuing an industrials company that doesn't have some big innovation down the pipeline, but the reality is, if you're dealing with a company like Tesla, like Nvidia, like Palantir, you are still in a speculative business, because, really, the worth of Nvidia is zooming forward 5, 10 years. The worth of Tesla is not the EV business today. Even Elon Musk will tell you that it is a pure play on autonomy, and that autonomy, whether you agree with it or disagree, whether you think it's going to come to fruition or not, that autonomy is absolutely 100% not reflected in the consensus estimates of next year's earnings because it's not proposed to come out in that timeframe. And so, yes, I do think that retail investors are more speculative, and I don't think that that's a bad thing.

Speaker 1:

I think the average retail investor says look, I'm in the real world, I'm seeing these cars everywhere. I may own a Tesla myself, says a retail investor. I proudly own both a Model Y and a Model 3, and it drives me everywhere. I've driven hundreds of miles this month and haven't touched the steering wheel once. And I look at that and say, well, this doesn't fit into the Wall Street model. I talk to analysts all the time who are bearish on Tesla and ask them a very simple question Michael, have you been in the car lately? And to my surprise, the answer isn't no. I haven't been in it in a couple of years. The answer is I've never been in it. I've never seen full self-driving, I've never seen Tesla autonomy as is in practice today.

Speaker 1:

And so how do you take someone seriously like that who has a position on whether the iPhone is going to be replaced as the dominant smartphone in the world? And they never used it? We wouldn't take that person seriously, and so retail is very much a kick the tires crowd. Go out. What am I hearing? What am I seeing? Who am I talking to? Is the product working?

Speaker 1:

The Wall Street crowd is very much talk to their bubble. Look at their models, look at their broken metrics that don't necessarily fit with the visionary companies of the future. Let's be honest, wall Street wasn't the ones touting Palantir as a long. And look at what that stock has done. I don't remember anyone on Wall Street telling us that NVIDIA was going to do what NVIDIA has done over the past two years, which has gone absolutely parabolic. I don't remember anybody on Wall Street believing the Tesla story, with the exception of a few people over the past five years. And look at what it's done. It's up 900%. And so the Wall Street crowd is, by definition, entrenched in an old way of thinking. Michael, that old way of thinking does not work with the companies that embrace a new, heterodox way of thinking.

Speaker 2:

It's a funny comment I'm seeing here on X, I'll show from passive income. Often I am dumb money. That's why I listen to you guys to save me from myself. All right, so let's go back to speculative retail versus non-retail. Is it fair to say also that, separate from the speculative question, retail on average tends to be more apt to behavioral biases and having sort of poor risk management because they get really hyped and they don't really appreciate diversification, so on and so forth.

Speaker 1:

I would agree with that and I'll concede that point, that I think that there's these biases. I think part of it too, michael, is the trading apps themselves. I'm a big fan of what Robinhood and Webull have done to democratize access. More people today are investing, and doing it well, because they have access to tools that are right on their phone. The downside is that they're right on their phone and they can overreact to some headline about some carry trade unwinding, or they can underreact, or whatever the case may be, to a development, and so the ease with which you can trade often affects your ability to fall victim to those biases. And so what my advice would be for any investor, and as someone who runs an investment firm with outside investors, I would say that I myself actually don't do a lot of the button pushing on trading because I want to take my time with it. I'll open up a chat with a broker on Bloomberg and have a little bit of a longer conversation and plan things out. I don't even personally have the ability by design, by my own choice, to take out my phone and buy 100,000 shares of a particular stock, because it's a more thoughtful process. Now could I do it in the course of maybe 10, 15 minutes, sure, but I couldn't do it in the record sub-minute speed that some Robinhood investors could, and so I think, generally speaking, the easier it is for you to buy and sell something, that's a good thing, but that becomes a diminishing and then a negative return If you can see some headline where Elon Musk tweeted something about Donald Trump or retweeted some conspiracy theory which, funny enough, became truth in a matter of hours later. That you would overreact to that one way or the other, I think is wrong, and so I think that is the double-edged sword with the democratization of tools like Robinhood and Webull. But I do think that, overall, retail is well-positioned, and I'll tell you, as someone who worked at a hedge fund, that risk management is often extremely poor at some of the billion-dollar managers, because they fall for the same fallacies, the same cognitive biases the confirmation bias, the anchoring bias that anyone can fall for. So we're all human, we all fall for those biases.

Speaker 1:

What I do think we can do, michael and I know that you're a big fan of this too is developing pragmatic systems that don't rid us of our biases. We can't get rid of them. They're called biases after all. They're innate, they're internal, they're inherent. We can create systems that make those biases less likely to hijack our process, and so what I just mentioned for example, not having the Robinhood app installed on your phone and so what I just mentioned for example, not having the Robinhood app installed on your phone literally restricting access to it in a deliberate way, so you're not again overreacting I don't have Twitter notifications on because I spend a little bit too much time on there. I'm overreacting to headlines. Take a breather. If you're doing things that are impulsive, take a breather. That's where you tend to see retail stray, but, to tell you the truth, I've seen that with billionaire hedge fund managers, and so it's all about developing processes to insulate yourself from your worst biases.

Speaker 2:

Let's talk about meritocracy for a bit here. When I hear the term meritocracy, my mind goes a little bit political. Yeah, to be much more conservative Republican. It's not about race, color, gender. It's about how good you are. There's some good arguments for why you should consider, I think, other dynamics there, but talk about how you use that as a screening methodology when it comes to equities?

Speaker 1:

Absolutely. You bring up a great point. It's become this coded political dog whistle, michael. Why, why does it have to be? I mean, this is not controversial. It wasn't controversial, by the way, until the last couple of years, where DEI was in vogue. And DEI, of course, diversity, equity and inclusion.

Speaker 1:

That's not to say that we don't want people, all Americans, no matter what they look like, no matter their belief system. We want them to be treated with dignity and respect. That's not inconsistent with saying that DEI is a toxic business practice. What we mean by meritocracy is, very simply put, is that you hire, promote and invest in employees based on skill, ability and expertise alone, full stop. If you are a company that is saying we have a racial and gender hiring quota, that we have to have 50% of our executive team be female, that is not a meritocracy. If you are saying, like Best Buy does, that one out of three salaried employees must be a black indigenous person of color, that is not a meritocracy. That is wrong, that is un-American. There is legitimate reason to believe it is illegal, but more than anything, it is an awful business practice. Think about it as a company. You want to hire the best, no matter what they look like, no matter their gender, no matter their skin color, no matter their ethnicity. You don't want to be in a position where you have to embrace the bigotry of low expectations, which is prejudice. To say that black Americans are less qualified, as effectively these companies are admitting to, and that's why we have to lower our standards to welcome them in. That's wrong. There are extremely qualified Americans who are Black, who are Hispanic, who are American Indian, who are white, who are Asian, and so it's really simple Our job is to run a business, not to be the model United Nations club at high school, where we have every little country represented and we play this game of diplomacy. And so when you hire the best people, you'll find out, michael, that you don't actually have to give up diversity in the process, that you actually can achieve natural diversity as a result of radically embracing a meritocracy. Look at the US Women's Olympics team, for example. There is no racial or hiring quota for the Women's Olympic team. They are the most qualified gymnasts in the world on that team and yet you get the textbook diversity of a Simone Biles and a Sonny Lee, two incredible gymnasts, but who got there on merit and merit alone.

Speaker 1:

I'm reminded of the New York Times story that they read in 2022 that found that Wells Fargo, which had embraced one of these DEI scams hiring policies, was that they needed to say that they needed to interview a black employee for each position they had. And so what did they do? They interviewed white employees, gave the job to a white employee and then, after they had already extended that full-time offer to that employee, they then went out after the fact, michael, and interviewed a black employee from Monroe, louisiana, by the name of Donald. He's a black wealth manager and said we're going to interview you for the job Him thinking that this job was actually available for him, that he was actually being interviewed and had spent hours preparing for that interview, for it to be a complete ruse and a complete sham. That is what an embrace of DEI and woke social engineering does, as opposed to meritocracy. As opposed to meritocracy.

Speaker 1:

A meritocracy says Don, jacob, miguel and Philip, you're all going to be interviewed and whoever gets the job is going to be the person that is the most qualified. You don't have to worry, don, if we hire you because you are a black American. You don't have to worry about your colleagues whispering behind your back that the only reason you're on this floor is because of the color of your skin. No, don, you deserve to be hired. You proved it in the interview process. You proved it with your references, you demonstrated it with your cadence, your gravitas and your case studies. You are here because you deserve to be here, and so we want every company in America to be a meritocracy. And so what are we going to do about it?

Speaker 1:

Michael, we're going to launch the Azoria Meritocracy Fund next year, which starts with the S&P 500 universe and excludes those several dozen companies that we've identified that have embraced these hiring practices that are inconsistent with running a meritocracy, and so we're going to exclude them not permanently, they're in purgatory for now, and what we're going to then do is engage with those companies in good faith and sit down with them and make the case, as you do in a meritocracy. Make the case why you should abandon the toxic hiring practices you have and adopt the meritocracy that you once were, why that is contributing to underperformance, why that is leading to a deterioration in human capital, why it may be creating a hostile work environment for workers of all skin colors, of all shades of melanin. It is wrong to say that black Americans deserve lower expectations and lower standards, that is, in effect, admitting that they are less qualified and inferior. So when companies say we're going to play this DEI mandatory hiring game of blacks, of Hispanics, of women, that is one, a bad business practice. Two, it is unethical. And three, it is a disrespectful, derogatory statement toward the very people that you are purporting to help. Black Americans want to be hired on the basis of skill, ability and expertise. They want to be hired, michael, on what they bring to the table. They don't want to be hired as some token in a game to appease their woke masters.

Speaker 1:

I see that Jacob's asked a question here about how would you recommend getting into investing? The best way to start investing is to start investing. The best way to start swimming in a pool is to swim in the pool. Yes, there are plenty of books that you can read. Intelligent Investor just came out for the third edition with updated post-chapter analyses by Jason Swig, who's a great writer and a great thinker about investing. I think the best thing is to invest to learn by doing, and so that means maybe opening a brokerage account on Robinhood or Webull, putting whatever you can afford to lose Again, whatever you can afford to lose in that portfolio. If that's $1,000, heck. If that's even a couple hundred dollars, just do it. Just get started.

Speaker 1:

Here's the thing when you have money on the line in a stock, you will care about that stock infinitely more than if it's just something on some watch list or something that you're following in your idle time. If you own one share of Tesla $290 a share you will care infinitely more about that stock than being a passive observer about it on X. And so if you want to get into investing, jacob, my advice is open up an account, put a couple hundred dollars into it, buy one share of your top pick and then, from that point on, follow that company. Because, guess what? 100% of what you have invested in the market is that company. 100% of your investment portfolio is that company. Whether that's $100 million invested or a couple hundred dollars invested, it is still the truth that 100% of what you have is that company, and so you should follow it. You should be on the earnings call, you should be engaging in debates and discussions on that company and its newest products, whether that's on Wall Street Bets, whether that's on the individual subreddits for those companies, whether that's on X and, more than anything, you should be seeking out information deliberately, intentionally seeking out information that's contrary to your own thesis.

Speaker 1:

It's very easy for us to fall victim to the confirmation bias, which, of course, is that we're long Tesla and all we want to hear about, all the information that we want to be exposed to is good news about Tesla, the robo taxi, the upsides of autonomous, the upsides of optimists. But one of the things that I'm proud of as an investor that we do at Azuria is we spend most of our time thinking about how we could be wrong. We spend most of our time, michael, going and reading the Wall Street analysts who say that Tesla is not worth $500 a share, but is worth $50 a share the folks who are really down on the stock. That's who we want to be talking to. We want to understand how did they arrive at their conclusions? What type of evidence and reasoning are they using to arrive at that conclusion and understand it?

Speaker 1:

If it's flawed, that gives us more conviction that we are right about Tesla going to the moon. But if some part of what they're saying is sound, we at Azoria need to investigate that further. We'll do that as a team, independently, and then come together at our regular meetings and talk about what that means and that will decide. Is that a position we want to trim, we want to hedge, we may even want to take off entirely? If, at any point, the facts change, michael, we are commanded. We are commanded to change with them.

Speaker 2:

The question I want to ask you on the meritocracy. I mean, I'm sure you see this. There's plenty of studies that show that diversity does tend to help shareholder value. How is the sort of screening out of the DEI different from more classic studies around the benefits of diversity in a workplace?

Speaker 1:

Yeah. So that's a really, really good point. This is what we want to hear. We want to engage in a debate, michael, about okay, well, first off, great, great spiel. But is this the right way to be thinking about it? Is it wrong to do this? Well, let me just say we're going to publish our findings publicly. We're going to open source all of this, michael, so you're going to be able anyone is going to be able to look at this and say are they right about this and does it make sense? So let's just follow this line of thinking.

Speaker 1:

We're not anti-diversity, to be very clear, we're not saying that diverse companies are going to underperform. We are saying that diversity as a forcing mechanism, as something that you are trying to solve for that you are trying to ram down your shareholders' throats. That is not just unethical, it is a terrible business vision. And so we want diverse companies. We want diversity in all forms, by the way, not just the superficial diversity of our skin color, but we want thought and viewpoint diversity, because we think that when you bring people from all different political and ideological perspectives together, you get closer to some semblance of truth than you do into an ideological echo chamber that most American universities have become, and that's exactly why those places are not exactly places for truth. So the first thing is we're not anti-diversity at all. We are anti the type of mandatory hiring quotas that are trying to force diversity at all costs. I can tell you, as someone that went to a Title I public high school I was one of two white kids in the entire senior class that there is no reason you need to lower your hiring standards for Black Americans. There is no reason. These are some of the most qualified people that I've spent my time with and had thoughtful debates with. There is absolutely no reason you need to hire and lower your hiring standards for Hispanic Americans or for women, not just obviously at the top, but in the rank and file roles in making things happen in the day-to-day operations. And so what we are talking about very specifically is companies that have said no matter what we are committing ourselves to hiring, as Best Buy says, one out of three corporate salaried employees must fit this particular idea of diversity, even if that means hiring people who may not otherwise be qualified for the job. The other issue, by the way, is that, as we split this universe up, the S&P 500 meritocracy and then these companies that are anti-meritocracy, michael. What we found is that the companies that are anti-meritocracy are underperforming. The companies that are pro-meritocracy and get this are actually less diverse. They're less diverse, they are underperforming as a stock and they are less diverse as a company, the very thing they are trying to solve for and have had a policy for. They've actually led to less diversity and the stock itself has suffered.

Speaker 1:

Businesses are about creating a great product or service, delivering it to consumers and returning capital to shareholders. That's what a business is about. It is not a charity, it is not a social experiment. It is a business, and there are lives on the line here. It is not fair to a black employee to tell them that you are only being hired, you're only being interviewed, because of the color of your skin. That is derogatory, it is demeaning, it denies them of their dignity and their individual contributions. It is also wrong to tell a white or Asian American that you will not be hired because of the color of your skin and you are otherwise qualified, that you will not be hired because of the color of your skin, that you are otherwise qualified, that you will not be hired because, at this point in time because of where we are with our own diversity metrics and our own diversity practices. We don't have room for any more white employees, any more Asian employees or any more men, and so we think about in economics, michael, chapter one of the Gregory Mankiw textbook is about positive sum, negative sum and zero sum games.

Speaker 1:

I believe that investing is a positive sum game. These woke hiring practices, these mandatory racial and gender hiring quotas which is what our criterion is for determining what a meritocracy is or is not they are a zero. They're not just a zero sum, they are a negative sum. Everyone loses from this. The company loses good talent. The particular individual who is hired only because of their race or their gender loses because they now feel dehumanized because I wasn't hired by what my smarts or my talents or my abilities. I was hired to check some box. And then the person who wasn't hired, who had those smarts, abilities and talents, loses because they could have added productive capacity to the company. And so this is not a radical idea. This is not something new.

Speaker 1:

Meritocracies have been around for as long as humans have been around. When you had the Aztec tribes or when you had the Seminoles, there were certain people who did certain things and certain people who did other things. There were certain people who hunted and gathered, and others who rode horseback, and others who fired arrows and others who fished. It's about allocating talent to where its best use is, and so, in the long arc of history, 99.9% of it has been meritocracy, and that's why America is the most successful economy in the world, with the most valuable companies in the world. That's why OpenAI is based here, apple is based here, nvidia is based here, tesla is based here, spacex is based here because we've been a meritocracy Right. Why doesn't NVIDIA have a mandatory racial and hiring quota? Because they're a meritocracy, and yet they have a very diverse pool of talent and they deliver incredible products that are powering the AI paradigm shift.

Speaker 1:

And so we could go on and on talking about this or that, but I will say that it's a negative sun game. Everyone loses at this game. The particular individual who was hired on the color of their skin and not on their abilities, even though they had those abilities, the particular individual who was hired on the color of their skin and not on their abilities, even though they had those abilities, lost out. The individual who wasn't hired because, despite they, had those abilities but had the wrong color skin misses out. The company and the shareholders miss out, because human capital is everything. A company is nothing without its employees, from the C-suite on down to the rank and file, michael, and so I come to you and I'll end on this particular note, on this point, is I come to you with the humility to say that I could be wrong.

Speaker 1:

But for me to be wrong, for Azoria to be wrong about this meritocracy ETF that we're launching next year, it would negate not just our investment thesis that we've been putting together for the past year. It would negate hundreds of years in the West of businesses rising to the top, displacing competitors, creating innovative products and services and growing industries, not by hiring people on the color of their skin, but by hiring people on what they bring to the table. And so we're going to build this in public. We accept that we might be wrong, but we want people to engage with us in the types of good faith debates that we're having right now. And ultimately, the P&L is not going to lie. You're going to be able to see the returns of our meritocracy fund, which is, very simply put, s&p 500 minus the companies that are not meritocracies. And the question, michael, is very simple Will the S&P 500 meritocracy Azoria ETF, will that outperform the S&P 500 itself? If the answer to that is yes, in one year, five years and 10 years, then we've won the debate.

Speaker 2:

In that screening? Are there certain from the studies you've looked at? Are there certain sectors which tend to be more prone towards that type of hiring?

Speaker 1:

practice? No, actually not, and it ranges from new companies to old, from a number of different sectors. We've got about that are represented across just an enormous. We've got a tech company in there. We've got a brick and mortar retail business. We've got a food service business so no, it's not exclusive. And mortar retail business. We've got a food service business. So no, it's not exclusive.

Speaker 1:

This woke mind virus has infected almost every last possible nook and cranny, whether it's industry, whether it's the particular market cap. And so our job, by the way, is we don't want to punish these companies, we don't want to. But ultimately, who's paying us, michael, are investors, whether that's a nurse in Cincinnati or a truck driver in Coeur d'Alene. They're paying us to be stewards of their capital. They're investing their retirement money, the college savings fund, a rainy day fund with Azoria, so we can give them the maximum return on their investment. So we answer to them and we say to them we don't believe you can make money as much money we don't believe you can outperform by investing in these companies that have embraced these hiring practices. We believe you outperform by investing in meritocracies, but in the meantime, we're going to exclude these companies from the ETF, from the investment fund that you've got your money in, but we're not giving up on them. We are a mission-driven investment firm. We are going to engage with each and every one of those several dozen companies. I'm going to personally meet with board directors. I'm going to personally meet with the chief executive officer, with the head of human resources, and I'm going to make my case, not because this, that or the other, not because I have some fancy degree, I don't. The other, not because I have some fancy degree, I don't, but because I'm going to make the case with logic, evidence and facts on why. What otherwise is a great company with great products, great workers, great services can be an even greater company by embracing the radical idea that you hire on skill, ability and expertise, you employ, you promote and you invest on skill, ability and expertise.

Speaker 1:

And some conservatives and I myself am an unapologetic conservative, but I got to tell you, the conservatives who reached out to me saying they want to broaden the scope, they want to say, well, any company that has a DEI program or any company that recognizes Columbus Day, as I call it, with Indigenous Peoples Day, that those should be excluded. And I say, no, this is not a culture war. At the end of the day, I'm not here to be some conservative reactionary and engage in culture war for clips and AUM. I'm here to develop with my team, my co-founder Asaf, to develop an investment fund that works for all Americans and that delivers returns. And to tell you the truth, if we're going to go down the list of who has a diversity department, we're going to exclude nearly all of the S&P. If we're going to go down the list on who recognizes certain holidays, we're going to exclude nearly all of the S&P. We have to pick a criterion, Michael, that has a tangible negative impact on the business, and one in which is not red meat for the conservative base, but one in which infects the very core of the company, which is human capital. I'll tell you something If a company has, like Best Buy, has a requirement that one out of three salaried employees be Black, indigenous people of color, you know what I asked them.

Speaker 1:

What if you were hiring 100 people, by your logic, 33 need to be Black, indigenous people of color. Are you then going to say that if we've got 100 people here and 50 of them are extremely qualified or extremely talented, have the skills to punch above their weight on day one and all 50 of them are black. Are you then done with those black hires at the third? Or is that a ceiling? What is that exactly? Because, again, it doesn't make any sense.

Speaker 1:

Hire smart people, hire talented people and stop trying to play woke games. It's really that simple, and so there's just so much here that doesn't make any sense. It's either unclear or it's very clear and it's disastrous, and we're going to get to the bottom of it. And in the meantime, these several dozen companies which we're going to publish early next year, and, in the meantime, these several dozen companies which we're going to publish early next year in our white paper, these several dozen companies are pursuing a woke social agenda at the expense of shareholders, the expense of employees, at the expense of everyone else, and we are going to say you're out of the investment fund until you abandon this practice. But we are going to engage with you in good faith to try to convince you why you should embrace, unapologetically, a meritocracy.

Speaker 2:

One thing I appreciate about you is that you're clearly very passionate when you speak about these things. Once the product is out, how are you going to get the word out? I mean, what's your thinking? I mean, yeah, I see you do more media runs. Obviously, you're building up a nice social media presence. As you know, it's hard to really stand out in a crowded field of content marketing.

Speaker 1:

It's tough and I'll tell you the truth. I don't think that our customer is listening to CNBC or is listening to Bloomberg. I lost my grandmother of 97 years last month and she was such a great friend to me and I think a lot about her philosophy on life. She was a superb investor. A superb investor, having recently looked at her portfolio and had many conversations with her about calls that she made from Taiwan semiconductor a decade ago, as just one example, realizing that everything that was being made, this new technology, whether it was phones and watches and glasses, and all of that was going to be powered by these semiconductors, and took a bold bet on it. I think about my grandmother as our investor. She never watched a second of CNBC or Bloomberg. She listened to AM radio, read the Wall Street Journal, would read hard mail that came in the door, that made pitches to her, would talk with family and friends about what they were thinking about and would oftentimes listen to conservative media, and so we're going to go to these people wherever they are.

Speaker 1:

I'll never turn on an opportunity to be on Bloomberg. I was there recently, had spoken at a number of conferences, spoke yesterday in Chicago at the Institutional Investor Fixed Income Trading Summit, where I talked about the Fed, their reaction function and what the neutral rate is going forward. But I'll never turn on an opportunity to be there. But I'll tell you the focus, michael, is to talk with people who listen to what you do, your content, your thought leadership. To talk to people at in-person events.

Speaker 1:

We're going to do a meritocracy tour next year where I'm going to visit in-person people who have never been at an investment conference, who have maybe never spent more than a minute watching Bloomberg or CNBC, and talk with them directly, not to talk at them, but to speak with them, for it to be a two-way dialogue. And so I'm gonna do everything it takes for this to work and it will be enough. We will talk with Americans of all backgrounds. I will go to any place, anytime, whether that's on progressive media, conservative media, podcasts. We're going to host a number of events.

Speaker 1:

Like I said, the meritocracy tour. We're going to speak on AM radio, as we already have. We're going to continue posting on X. We're going to continue posting wherever we can be to get this message across, and if that means showing up at MSNBC, if they give me the opportunity and they want to debate diversity and meritocracy. I'm happy to do that anytime, and so we're going to get the word out there, but I'll tell you we're not going to spend a second trying to go after the Bloombergs and CNBCs of the world. We're going to show up where everyday Americans are who have good common sense and know that companies that hire on skill, ability and expertise, those are the companies that are going to outperform over the next decade.

Speaker 2:

James, for those who want to track more of your thoughts, more of your work, be kept up to date on things, where would you point them to?

Speaker 1:

Three words headofmacrocom, that's my newsletter. We've got over 10,000 people there. I don't have a regular schedule on writing. I've got to tell you the truth, and this is not to sound too arrogant. I kind of write when it comes to me and so I'm not on some preset schedule. I'm not just blasting your inbox with my thoughts. Of course, it's a totally free newsletter. We're never going to charge for anything like that. But I write when things are happening, and I think there are a lot of things happening right now in the world and with the election and politics and geopolitics, and I feel more compelled to write. Follow me on X as well. But headofmacrocom, that's our sub stack where we send out these things. And, just like I said, I just uploaded my 20 minute keynote yesterday from the Fixed Income Trading Summit.

Speaker 1:

I am a macro trader and so it's kind of you know. People say well, what do you mean? Shouldn't you be launching a hedge fund? Shouldn't you be trading fall and rates? And yes, I do those things and we'll have an internal fund at Azoria that's called Thorin that allows high net worth individuals and family offices to invest. But what gets me up in the morning is the most macro thing of all, which is not what the Fed is doing, which is not what a particular European central bank is doing or a currency is doing, but it's what the West is doing. What are our priorities? Are we prioritizing group quotas over meritocracy? Are we prioritizing DEI and ESG over common sense? Are we prioritizing domestic manufacturing over offshoring at the expense of a manufacturing crisis, at the expense of 7 million working age men who are neither working nor looking for work? And so it doesn't get more macro than this.

Speaker 1:

People think macro. They associate it, as you know, michael, with the gold trade and the dollar yen and my good friend, bob Elliott and the work that you do, and I love this stuff. I love investing in trading dollar yen and dual digis and ball swaps and bar swaps. That's what I've been doing for the past 10 years. I'm not going to stop doing that, but what I'm going to wake up thinking about and what our team is going to be focused on is the biggest, most macro themes in the world the survival of the West, the importance of meritocracy and what the next decade will look like with the advent of artificial intelligence. Nothing gets more macro than that. Nothing that Jay Powell says is more macro, more big picture than meritocracy versus DEI, than domestic versus offshoring and the coming boom boom of artificial intelligence.

Speaker 1:

And so, head of macrocom, always free sharing thoughts on there. Follow me on X, where I'm posting podcasts and so on and so forth, but I couldn't be more excited for what our team is building together and we'll be sharing more about the ETFs that we're going to be launching. We'll be launching several in 2025. And so I often end these tweets with Azoria 2025, because that's our year to put up or shut up. Our job is that we can talk about this all day, we can debate it, but the way you answer this debate, michael, you know, is the price action doesn't lie. The price of our ETFs won't lie. I want to come back to you in a year from now and say that all three of our funds are outperforming the S&P and are delivering delivering not for the stuffy hedge fund managers, who are already worth billions of dollars, but who are already worth billions of dollars, but who are delivering from Americans from all walks of life that they feel like they are part of something bigger than just an investment firm.

Speaker 2:

All right, make sure you follow James Fishbeck, be on the lookout for those products, and I will see you on the next episode of Lead Lag Live. By the way, I'm a big fan of Bob Elliott. Love Bob Good guy Appreciate those that watch this. Thank you, james Appreciate it. Thanks, michael Cheers. James Appreciate it. Thanks, michael Cheers everybody.

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Michael A. Gayed, CFA

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