William Goetzmann: The AI & Market Bubbles Pattern Nobody's Talking About

追加: 2026-05-31

[00:00:06]Welcome to a special series of the Meb Faber Show on the past, present, and future of America. I'm sitting down with some of the most notable historians, Thinkers, Investors in US Financial History. All tied to my new coffee table book, Investing in America: The Rise of a 250year Bull Market, out July 4th.

[00:00:26]Met Faber is the co-founder and chief investment officer of Camry Investment Management. Due to industry regulations, he will not discuss any of Camry's funds on this podcast. All opinions expressed by podcast participants are solely their own opinions and do not reflect the opinion of Cambria Investment Management or its affiliates. For more information, visit Cambria.com.

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[00:01:57]Welcome back everybody. Today is a very special episode. My guest today is Will Getatsman, professor of finance, legendary professor at the Yale School of Management. He is an expert on financial markets, securities, investment strategies, investor behavior, financial history, all that good stuff. He's written lots and lots of papers, multiple books, including his most recent, Money Changes Everything: How Finance Made Civilization Possible.

[00:02:24]Will, welcome to the show.

[00:02:26]>> Yeah, thanks a lot for inviting me.

[00:02:28]>> Well, I'm going to give you a compliment. I've had so much fun reviewing some of your older books that I'd never come across. And will I had to spend 250 bucks to get a copy of your 1720 book shipped from Canada, which I'm really You're like Seth, a modernday Seth Clarman, man. It's out. It's hard to find. You have to be a a historian just to get one.

[00:02:55]>> We're going to have to get Yale Press to reissue that. This is a good piece of information. Tell them to look and see how much money they can make if they print some more.

[00:03:02]>> I've been a longtime reader and follower. not just of your writing, but even on places like Twitter and YouTube.

[00:03:09]I was watching a fun video which I thought we would start with today and it looks like you're at the Yale Babylonian Institute and it looks like a giant egg and it's got some writing on it or more like a giant Easter egg and it's a story of some original transactions. Can we start there and talk about that cuz I don't feel like people really really thought that finance may even start to date back that far.

[00:03:36]>> Sure. I'm happy to talk about it. It's one of the most exciting things that uh I discovered in the Yale collections and uh it's in the Babylonian collection at Yale which actually goes back to a gift that JP Morgan made to Yale University.

[00:03:53]Morgan had collected a lot of ancient neareastern documents and so forth and he gifted it to Yale along with endowing I think a professorship not mine but for a curator of that collection so it's connected to finance from the very beginning but that document is the first document recording a war in history and it was a war between two Sumerian city states sometime kind of mid 2,600 I don't know almost 5,000 years ago for sure and they were fighting over canals and land and uh one city conquered the other and then told them well you owe us a whole bunch of back rent for the lands that of ours that you occupied and so it presented them with a bill and the bill was some enormous number like billions of bushels of grain or something like this. So, what a weird thing to do. I guess not that weird when you think about reparations payments in the 20th century after World War I and so forth. It was these were reparations payments. But what's kind of interesting about it and the connection to finance is that the way they calculated up the bill is that they said, "Well, here's the normal yield on the land that you stole from us. Now, we're going to do a compound interest calculation."

[00:05:28]And when you compound interest over something like 80 years, you have a huge number. I argued that that is the first instance of compound interest calculations in history. So it's a twofer. It's the first war and it's also the first compound interest calculation.

[00:05:51]So that's that's a little bit of background about the document. It's interesting as you think about the olden days where this concept of compound interest. It's a pretty even today esoteric idea and concept that is hard to visualize how quickly it grows and grows to like you mentioned astronomical levels. And so what seems is like a reasonable interest rate. Hey, you owe us we're going to charge you 30% a year, which back then, you know, I think the the numbers, you know, that seems fair.

[00:06:25]All of a sudden, you do a few years and then all of a sudden it just multiplies more barley than the entire world sort of idea.

[00:06:32]>> Yeah. Well, you know, today, um, I don't know what the current average credit card interest rate is, but if you don't pay your on your credit card bill, it compounds. And uh I think the legal limit is somewhere just under 30%.

[00:06:49]So if you let your credit card bill compound for 80 years, if you were allowed to, you'd get up into a huge number just like the ancient Samrians did.

[00:06:59]>> Your most recent book, Money Changes Everything. Walk us forward a little bit from all right, so we're we're uniform Babylonian times was kind of like the main thesis on why you wanted to write this book. And then the subtitle is so great. How finance made civilization possible.

[00:07:14]>> When I became a uh graduate student in uh finance, I'd be sitting in a class and people would give me an equation and say, well, this is an important equation for calculating um time value of money or or something. And I was always wondering like, okay, where' that equation come from? Where did that concept come from? And so I started doing historical research and that just led me down a really interesting route of not just understanding where do the financial concepts come from but where do the financial innovations occur through history and why do they occur which is kind of important. So you'll see a theme that runs through the book is that as cities develop in ancient history and ancient times, but also in more modern times, they rely on financial tools in order to just survive. So an example is when Rome gets really big, how do they actually feed the people? And Rome can't grow enough food to really uh feed its population.

[00:08:18]It has to have boats that go down to Egypt and buy grain and ship it back up every year. And so cities when they get big, they become this technology that has to access resources from great distances. And when you have to do that, you need to have things like companies and ways of financing trade. And so the financial kind of um support system made a lot of the growth of the modern world possible and particularly cities but also the connectivity of markets across oceans and things like that ties in back to basic financial tools.

[00:09:00]>> Ideas like interest and compounding I think I've heard you mention and talk about in the book. It's a fascinating way to think about essentially shifting time, right? Where if you say, "Hey, I'm going to make this delivery or make this investment and yet you pay me back more in the future. What should that number be? How do I think about discounting it?

[00:09:22]If your ship's going to sink, all these concepts, but allowing that to occur, too, it makes it possible. Whereas maybe prior to thinking in those terms, it would have been something that would have been impossible." A lot of people when you think of finance you think of capital. Well yeah that's important but the basic technology of finance is time contracting through time. Like a loan is something you have money now but you have to pay it in the future. So that's like taking money from the future and bringing it backwards through a time machine into the present. Time is not something people feel naturally equipped to deal with. Planning for the future takes a lot of effort and uh there's so much anxiety and uncertainty. But when you have the dimension of time where you promise something now to be delivered in the future, then there's always uncertainty about what could happen in between. That's called risk. So whenever you've got the basic idea of finance is that if you're going to lend money and you're going to get it back, there's the use value that you have to put a price on.

[00:10:36]That's called interest. If you don't have your money now, in order to compensate you for giving it to somebody else for a year, you charge interest.

[00:10:45]But when there's a lot of risk about whether or not that person can pay you back, that interest charge has to also compensate the lender for the risk of not in the future getting paid back. So those are the two kind of features that play heavily in into the way all sorts of things like stocks and bonds and so forth are priced in the marketplace. So you had this money became this massive development. Along the same lines, you had kind of this concept of the company, whether it's like a limited liability company, joint stock company, which really started to grow in Amsterdam in 1600s. But you've also written a fair amount that says, well, just hold on a second. This might have had some origins that even date back further than this.

[00:11:39]You want to tell us a little bit about this concept which also was a big I think innovation in this world.

[00:11:45]>> Corporations seem to be kind of cut and dried in modern times in terms of what they are. You know, you can register a corporation, you can set it up to raise money from people and and you can sell shares. But again, where did this idea really come from and why was it developed? that kind of hooked me and my co-authors and co-ressearchers in this project. So we started looking for evidence about early companies that were set up in the middle ages actually. So these companies that we found, they were known by historians a little bit, but in the 1300s in southern France in order to build uh big mill companies and things to grind grain, groups of entrepreneurs were able to raise capital to build these substantial well they still exist actually if you go to Tulus these big buildings on the side of the river that would turn the mill. So, what makes it interesting is that somehow the archives of these ancient companies still exist in southern France and they're in a mixture of Latin and the native language of southern France, Oxaton.

[00:13:04]There's this big long contract about eight or nine feet long on parchment where it describes in 1372 how a bunch of small mill companies were merged together to create this massive super company and then how are all the shareholders of the small companies compensated. So it's a really elaborate document and what we get from that is we know the rules of the company's how it operated. Uh so it paid dividends throughout the year. It had a board of directors. The board of directors had to have accounting done so that they knew where the money was coming in and going out. It had limited liability like modern corporations do and it had its own name. So it could live well be it wasn't like a partnership where it just it lives as long as the partners. This thing perpetuated through centuries and centuries and it it existed as an independent company from 1372 to 1949 when France nationalized it. But then about 10 years ago, it privatized it again. So you can still invest in the earliest company that ever was. It's called the uh company of Basak. So it's like this amazing artifact in time that you can still go visit if you go and you can see it's not electrical generating plant as opposed to a mill company.

[00:14:35]>> I would love to own some shares of that just for the bragging rights of having the world's oldest corporation. That would be pretty cool. I think it's Yale.

[00:14:43]Don't y'all famously have a a bond that's like almost 400 years old that's still paying in still paying coupons?

[00:14:51]>> Absolutely.

[00:14:53]Another treasure that we found out about and and we got a donation that allowed us to bid at auction on this thing that it's from 1648.

[00:15:03]Again, it's on a piece of parchment about this big covered with like this like old writing.

[00:15:10]It's in Dutch and it's a bond that was issued by a municipal water company to repair a piece of infrastructure in a dyke. So when I say water company, the water companies in the Netherlands existed long before the cities started to control a lot of the uh land. Why?

[00:15:34]because a lot of the land is reclaimed from the sea and you had to have corporate organizations that were perpetually live to keep maintaining them. So like who keeps up the windmills? Who pays for people to go and check for holes in the dikes? Well, it's a whole another governmental superructure that exists in Netherlands to keep the water out of the country. So that's a cool thing. But this bond was issued just to fix a little bit of uh something called cribbing, which is to make the water in a river, keep it from eroding the banks. Really simple. And every once in a while, they had to raise some money and take a loan out, issue a bond. But what's funny is if you go on Google Earth, you can zoom down to that part of the river and you can see the modern concrete cribbing that they've just kept repairing this thing since the 1600s and uh they've been uh financing it. So this bond, my colleague Gear Ronhorst, he when we first bought it for Yale, he went over and collected the interest rate from the water company.

[00:16:47]And I think this summer he's going back with somebody from our egi library.

[00:16:51]They're going to take back the talon which has got the the IUS and collect some more money for Yale.

[00:16:58]>> It's great. What a fun story. I mean it's interesting because stocks and bonds and all these sort of innovations today it's so widespread and the concepts feel ingrained in almost our culture particularly in the US. But you rewind to that period, the 1600s, as this is developing, you had merchant exploration and some of these ideas really start to develop and you start to see some of the characteristics we still see today. And so would love to hear a little bit about you wrote a whole topic on a book of a bubble in the early 18th century which you guys the US wasn't even around yet. US didn't even exist.

[00:17:42]So everyone thinks the US is the world's biggest stock market and yeah we hold the crown today but you know at one point that was also Japan, London, Amsterdam was the home of these markets.

[00:17:55]So maybe tell us a little bit about kind of how these you know markets developed and in particular what uh these these early ideas of bubbles and booms started to look like.

[00:18:06]>> Yeah, I love that stuff because I'm really interested in financial bubbles.

[00:18:12]We've lived through the biggest financial bubble in history, which is the NFT bubble. If you treat it as a financial bubble, those NFTts went from being worth almost nothing to being worth millions and millions of dollars during the COVID era. And so one of the things I did is I built an index of NFTTS and then I compared it to the Dutch tulip mania bubble which is the 1640s or so 1630s and 40s. And those were two of the biggest bubbles in history. But the NFT bubble just beat out the tulip mania bubble. But the question is why do bubbles happen? And they happen in modern times at least in financial markets because people are trading on beliefs and expectations. You can actually trade buy and sell securities based on your analysis of what the future might bring and what you think other people think the future will be about. So financial markets when they developed they were trading pieces of paper or trading almost abstract notions of share ownership in corporations or bonds that were promises by governments and corporations. So, you know, instead of a market where you'd walk in and you'd see big bags of corn and sugar and goods to trade in the first financial markets like in Amsterdam and city of Antworp and then not long after that, city of uh London, in these early markets, suddenly people were just trading promises from one corner of a courtyard to the other. And that led to every once in a while it leads to people making enormous amount of money.

[00:20:07]Suddenly some one thing could trigger people's belief in the value of tulip bulbs taking off or the value of a microchip going crazy and dominating um the economy. And in this early the first stock market bubble that you you asked me about, that was a time when the notion of the corporate form as something you could use to do almost any kind of business suddenly dawned on people in London. They said, "You mean I don't have to ask permission from Parliament to start a company? I could just start one and I can have limited liability and I could issue shares. Hey, let's do that. And all the entrepreneurs suddenly had a way to raise capital for ideas like well ideas like the steam engine which became really a big deal.

[00:21:04]People laughed at it in 1720 when there was a a company set to sell chairs in a company to make steam engines. flying machines which I guess never actually got built in London but people raised money for them. So there was just an explosion of let's say venture capital issuance that some of the ideas like we've experienced in the dot period some of these things really transformed the British economy and then some of them were just a total bust. But the ones that caught on like taking the steam engine and sticking it on a locomotive and turning it into a rail system that changed the world. So um we see these prices based on profound expectations about the future and the transformation of of future just shooting skyhigh in 1720. Some of them were even about things like insurance and exploration of the new world and what's going to be the value of Louisiana. People were speculating on how much Louisiana's going to be worth.

[00:22:14]That, you know, led to kind of a,000% return in Paris for about a year or two.

[00:22:20]So that was a very exciting period for financing, innovation and aspirations.

[00:22:27]And for various reasons, the bubbles burst. people lost some faith in the stock market. Had to wait around for another century before the energy got sufficiently pumped up again to be able to go back to the capital markets for good ideas to to fund.

[00:22:43]>> Let's walk forward a little bit. We're talking on the day where we're not too far away from a multi- trillion dollar IPO. So talking about promises in the future where the founder came out and got awarded some new potential stock shares if the company sets up a colony on Mars with at least a million people.

[00:23:08]That was the stated goal for Mus SpaceX.

[00:23:13]And so talk about like, you know, going back to the 1700s and oh wow, these promises of travel to and trade in Louisiana or the steam engine. It doesn't feel that different today. It's just a different evolution a couple hundred years later in bigger size, trillions instead of maybe millions. But have we learned anything or is is or said differently or have the promoters learned everything and continue to use the same playbook or what? I'm fascinated by this because particularly about the role of technology and where do the ideas for the technology come from. I grew up reading science fiction.

[00:23:51]It seems like some of the deeprooted drivers of uh modern technological innovation go back to generations of science fiction writers in the past. The dream of time travel for example is something that's been with us for 150 years probably more before the uh Wright brothers in the airplane there were constant dreams of flying but the idea of where do the dreams come from it's not like people wake up and say oh I really want to figure out a way to reduce expenses in such and such a way they wake up and they say oh my god I could use that that engine to turn the cranks in a factory and we could run 25 spinning mills just by water power whereas we used to have to have horses or something to do it. You know, they these leaps of of how to do something in a new way. I think that's really been the thing that's characterized the modern world, a willingness to spring forward and can make connections across different kinds of disciplines and technologies and knowhow and so on. So, I think money is chasing it. And if Elon Musk has a dream of putting people on the moon, it's because Isaac Azimoff has prodded us back in the middle of the 20th century to think about doing this stuff. And um you know, uh who knows what will eventually come of it, but there'll be money made, money lost, but certainly technology advanced. If you and I were sitting here at the end of the year and I said, "Professor, can you believe it? SpaceX went public and that sucker is the largest stock in the world. It's a $5 trillion market cap." Like, I can't say with a straight face that I would say that's impossible with people get all hot and bothered and, you know, they go crazy. And I would say that it would be surprising and a little nutty, but I don't I wouldn't say if you know anything about markets and history is it's it's always been a little crazy, right?

[00:26:00]>> I haven't done a close study of SpaceX, but at least some of the revenue is is uh derived from contracts with the United States government. And that seems to suggest that well, you know, space has been a zone of strategic competition by great powers since the middle of the 20th century. And uh the valuation we're talking about for SpaceX suggests that it's going to continue to be really important and not just for private sector but for governments. And you know, we've seen the proof of uh the satellite technology being crucial in the Ukraine war. So, I don't know who's scoping out all the sources of the future revenue, but it could be that having a uh first mover or dominant position as a private firm might be incredibly profitable, valuable going forward in this period where we're in a transformation of rules of engagement in warfare certainly and in communication.

[00:27:05]Right.

[00:27:06]>> So, as a student of bubbles, you've written a lot about them. You've talked a lot about them. The financial media loves talking about them. There's sort of this, you've talked about a crash anxiety. Everyone's always worried about this, oh, okay, like I'm invested, I'm a buy and hold, but what if it goes down 40? What if it goes down 50? What if it goes down 80? What am I going to do type of situation? How should we think about this? Is this a idea that you have any good thoughts on?

[00:27:34]>> Sure. Well, we started off with the idea of compound interest.

[00:27:39]and the power of patience and uh you don't even have to be that patient. You wake up and if you've been invested in uh even a diversified portfolio of global stocks, not just US, but you forget about it for a few years and suddenly you find out you've made some money. You forget about it for a few decades. You go, "Oh my goodness, I may even be able to retire." So before thinking about bubbles, think about the alternative in terms of what if I just don't go in and out of the market, but I invest in in equities. Historically, that's been successful over many different countries as well. That's kind of a baseline. If you don't get excited about getting in and out of the market, if as long as you're in the market, you're probably over the long term going to be have made some money in and above inflation. and some real cash. So then, but the bubbles themselves, people can't help thinking about them. On the one hand, dreaming about a transformative investment. I think transformative in the sense that let's say I put some money into a a stock and all of a sudden I wake up, it's gone up by 10,000 times and I say, "Well, that's I have a new life. I never have to travel tourist class. I can buy a a home somewhere in in the warm Caribbean. You can think of all sorts of things that how you could spend this immense amount of wealth if you won the lottery. I think that that is something that is innate in human in human mind. I think it's the kind of thing that's always gotten humans to take a little bit more risk than they should have if they just wanted to stay safe. And so I think that taking risk should be allowed. We shouldn't be outlawing it, but it c it is of course dangerous for people too if they take risks they can't afford. But the bubbles themselves then if you have a kind of a herd mentality about taking risks on certain things, you know, sometimes the bubbles are right. A big boom is not always followed by a big crash. Okay?

[00:29:50]But when you do have a big boom followed by a big crash, people say, "Oh, I told you so. Oh, that was a bubble. Oh, watch out for the next bubble. So, one of the things I've done in my own work is to say, well, I'm going to go back through history. I'm going to look for all the times that the stock market has doubled in one year, controlling for inflation, let's say, and not just the US stock market and all the world's stock markets. Let's find all the times that one year stock market has doubled. Most people would say, well, if it's doubled in one year, it could be a bubble, right? It's like, "Oh my god, if I look over my shoulder, I'm going to take my profits. I like having double my money."

[00:30:33]Well, it turns out that in those cases, you're just as likely to double in the next year as to lose the profits you just made in the last year. In other words, it's a 50/50 shot whether you go up again the same amount or more or down again. Right? So now 50/50, maybe not everyone wants to gamble 50/50 with having I'd take my winnings, right? Like I don't want to flip a coin to lose it or double it. But then if you wait five years when you look at the history of those stock markets, you're well into the winners column if you just stick with the equity market.

[00:31:11]So the message there being if you're willing to wait for 3 to 5 years, you're more than likely going to be continued to gain. So that's the kind of message when you just say what happens after the market doubles. The other thing is doubling of a stock market's pretty rare even in wild and crazy markets.

[00:31:37]But doubling and then losing your profits, that's like really, really, really rare. It's not even a 1% chance.

[00:31:44]So you say, well, what's the chance you're going to live in a bubble where all the gains have been lost? It's very small probability that that's going to happen. Bubbles are fascinating, but I bet if you think really hard, you're not going to be able to think of eight bubbles in history. It's probably going to be like the tech bubble and the bubble of 1929 and you know 1920s. It's a handful because they're rare, but they're emotionally charged because they're like a piece of history that you think is going to teach you to be careful. Like the crash of 1720s, people still occasionally refer to it. Nobody lived through it, but it's still a piece of history that's with us as almost a cautionary note. Like that text that you read from that Great Mirror of Folly book, sort of let's never forget. But the thing you should really not forget is if you just keep all your money on the sidelines, your money's not going to earn any money. That's the other cautionary thing that one should should pay attention to. You mentioned a couple times in passing global investing. You were talking about this 30 years ago. So early to this discussion, most US investors given the last 10 to 17 years, you know, feel very warm and cozy just investing in the US. What are your takeaways from studying history in various countries and markets and also thinking in terms of you were just referencing investing in something. I think the long arc of history with an inflation and currencies has been one where currencies come and go and you know our seemingly biggest foe over time is often the purchasing power where you have to do something with your money or else it gets diluted. any general thoughts on how to build whether it's a portfolio or how to think about investing to ensure at least a hope of safety uh if there's no such thing as a safe asset probably but how how should investors think about that today in 2026 every investment it has a purpose you have to think about what the purpose is you can't just say well I'm going to save money and I don't have any plan ever to spend it either you have a explicit plan or an implicit plan like oh yeah I want to make sure my kids are well taken care of that's sort of diffuse but important purpose but you start from the plan the purpose of what that investment is because remember an investment is something where you've deferred from spending money today like you go oh gosh I can't afford that car or I'll buy a cheaper car because I want to save it for a purpose in the future again money moving through time that savings is one way to do So think about what the purpose is and then make the portfolio suit that purpose.

[00:34:49]Now what do I mean by that? Well, it could be that your purpose is that you want to help your child pay for college and they're going to go to college in three years. Say, well, I better be prepared for that. And that means I can't just put all my money in Nvidia. I got to be prepared to weather a storm in the stock market because I need some cash to make those tuition payments. So that's got a purpose and that purpose is going to keep move you towards probably holding more money in money market or securities that are insulated from big shocks in interest rates which long-term bonds they move up and down when the interest rates go down and up or the stock market because stock markets can go through these real rocky periods for two or three years. We all live through the craziness of the co crash. Not to mention when we think farther back for the great financial crisis. So in those cases, we saw that the equity markets did recover. So this is a long-winded way of saying there's some mix between safe assets that are focused on near-term purpose and long-term assets that are focused on long-term growth with some rocky periods you have to endure between now and then. Everybody's got that tradeoff. And then when it comes to what are the or what kind of risky assets should I diversify internationally? Is the US the safest bet? We have some ways of analyzing that that have to do with how much the US market moves in tandem with the other markets. But sometimes it does, sometimes it doesn't. 2005, great year for the US stock market, way better year for the global equity markets.

[00:36:36]There's a case where expost I wish I'd been more invested in non US stocks, right? But all that is is going to remind me to make sure I check my global diversification and through my mutual funds or my ETFs or these portfolios you can buy readymade that are diversified.

[00:36:55]And then on bonds, there are bond portfolios, but sometimes people like to buy individual bonds as well. But unless they are that rare breed of bonds that are still living after hundreds and hundreds of years, those bonds also mature and you have to have a plan about how to refresh your bond portfolio or your money market funds. So, so as someone who's been a archaeologist, financial historian, art lover over the years, like what have we not talked about today that's like on your brain and super interesting to you that you think about? You're always writing new articles and new topics and we've hit a bunch of things. Anything else in particular that has got Will excited or annoyed or confused here? I've always interested in how people make their decisions and what informs their belief or I'm interested in behavioral finance, let me put it that way, the human side of finance. A lot of the stuff I've been doing recently with my co-authors and colleagues is using machine learning and language tools to try and understand more about what gets people believing in the market or not believing in the market staying on the sidelines jumping in. And for that we've, when I say we, our center at Yale has run a survey for Robert Schiller, who's kind of the father of behavioral economics for 25 years now on a monthly basis. So, we've got people that are telling us what they think is going to happen with the stock market now for a huge length of time.

[00:38:38]And it's not the same people all the time, but we've been able to use linguistic analysis to try and understand how much emotion is in their decision-m versus how much reason. Okay.

[00:38:53]So, let's take the war in the Persian Gulf right now that you know it's now lasted what about 6 weeks or so, maybe less. When I say kind of reason versus emotion, there is a reasonable basis for moving your money out of stocks during this time period because the market volatility has gone went way up. I mean we measure that with the VIX index which is something that could describe the annual volatility. It's the forecast, the annual volatil, annualized volatility of the stock market. And before the war, it was something like, I don't know, just under 18 or 20. Then during the war, the VIX went way up to something like over 30 or 40, which means if the standard deviation that you're expecting doubles, it means you're taking more risk just by sitting in the market. So, our survey respondents said, "Oh, well, it's a good time to take money out of the market."

[00:39:55]But that's not irrational. It's just following the message that's coming from the setting of the VIX prices in the options market. But the other side of it is that there's pretty clear evidence from the laboratory when people do psychological experiments that that people once you get them worried about anything It can affect their willingness to take a risk. For example, suppose I just told you a story about how a burglar broke into my house and they had a gun with them last week. Okay? And then I asked you, "Do you think there's going to be a stock market crash?"

[00:40:34]The answer, if I've told you a story about a burglar, is more likely to make people think there's going to be a stock market crash. It's not because VIX went up. It's because you heard a burglar story. That kind of operation of people's beliefs that come through the channel of emotional excitement and fear and anxiety. That's one of the things we've been studying. And from what people write us in their surveys, we can parse out with language models the fear, the anxiety, the joy, the disgust, and the happiness. We can parse those out and see how much they seem to influence the behavioral as opposed to the rational component of their belief about a crash.

[00:41:21]>> If you look back, what's your favorite piece of art finance related, investing related you've combed through over the years? You got to pick one. You can pick two, but is there one comes to mind?

[00:41:30]>> I like the artist Marcel Duchamp.

[00:41:34]And Marcel Duchon was a conceptual artist from the early 20th century. And a conceptual artist means that he didn't just paint. In this case, he created a corporation. And the corporation, he raised money to raise cash to take it to Monte Carlo and gamble in Monte Carlo.

[00:41:54]So, here's a picture of the artwork that he created, which is a bra. It's a bronze, not a not a stock. And uh the coupons along the edge here are the coupons you would clip to claim your cash from the company. Here's the picture of Marcel Ducha dressed up in soap bubbles. And here's the Monte Carlo. Now, for those of you that like math and can read French, he's promising you a 20% return on your investment. So, he's telling you, look, here's the joke.

[00:42:29]You hand somebody your money, they tell you you're going to get 20% and then they go gamble in the in Monte Carlo, you're not ever going to see your money again.

[00:42:39]>> That's funny. That's great. This has been my god super fun. We've talked about so much today and this sweeping arc of history and you look at where we are in 2026.

[00:42:51]There's always a chance to say, "Okay, how could we build this out? How could we make this better for our country, our individuals, people? How should we think about our current system?

[00:43:04]And I'm going to give you kind of free reign to kind of brainstorm on any ideas. Let's say our current president or someone in the administration calls you and says, "All right, professor, we want to hear over in New Haven. What do you think? You got any good ideas for us? It could be about retirement. It could about investing. It could be about anything on your brain. What would your recommendations be? You got a only 5 to 10 minutes to pitch these to the powers that be you.

[00:43:30]>> I think that the 21st century might be a lot like the 20th century.

[00:43:37]Okay, it may be different. We may hit a period of a century of peace, but the 20th century was punctuated by the most uh destructive wars the world has ever known, by a complete schism in the world's governments for and against capitalism, let's say. And now here's the silver lining. investing in stock markets throughout the 20th century if you could invest and not everybody was allowed to invest and not everybody lived in countries where they could do it but if you were able to maintain a stock portfolio you did pretty well over the last 125 years. So that tells you that the corporate sector might actually have a kind of a way of adapting and adjusting to big shocks and challenges that could come up with the kinds of things that everybody worries about. You know, global decoupling of the world's markets. What if there's just some kind of terrible governmental shock? What are we going to do about this? You should realize these things have happened before. Companies have had to deal with terrible things that have come up.

[00:45:00]Sometimes they're not successful, but this drive to adapt to current situations is is going to be there and you'll be connected to it directly if you own shares in the company that's responding to these. So take COVID for example when we had like a complete breakdown in the global supply chain system right and a massive amounts of stimulus poured into the economy to make sure that people were not starving and then totally different marketing situation the real estate market nobody knew what was going to happen will we ever go back to office bases again okay that's a massive amount of change and uncertainty you know what the markets adapted And so that is something that's kind of hopeful. Now government's also adapted.

[00:45:52]And when we say governments, everybody can see what the US government does because it's a big government and we're all reading about it. But you don't look at company by company. What did this company do and how did this company solve because it's a disagregated invisible hand of the market situation.

[00:46:08]But I think that that's going to continue to operate throughout whatever rocky or waterfalls and rapids we might think we're going to get into. I hope.

[00:46:18]But I think hundreds of years of studies of the stock market suggest actually that they're adaptable for your purposes of your long-term savings and for that matter purposes of delivering goods and services that people rely on to survive.

[00:46:35]I think we're going to see that continue and it needs finance >> trying to get the the youngans to shift the mentality to what you're talking about a longer term perspective on investing and less on a shorter term gambling mentality I think is going to be important part of me waffles back and forth between saying hey you know when you're young you make these mistakes you learn from them you get the scars good we often many of us go through that it' be better if you didn't have to. Learned that lesson the hard way, but you know, many of us, you kind of have to. But really starting to understand that, oh wow, I can I can participate in this. I just need to zoom out a little bit and be more of an investor mentality, I think, is a key unlock. So hopefully that's the trajectory. But yeah, none of us are putting most of our money in buggy whips and railroads anymore. The market evolves over time. Last question, professor. If you look back at your most memorable investments, is there anything that comes to mind? Is there anything that you think good bad in between that uh is seared into your brain?

[00:47:41]>> Well, the most important investment was something that uh I didn't think a lot at the time, but when I took a job and I got a 401k or in this case a 403b plan and I decided just to put it all in the stock market, then um 30 years later, lo and behold, it's done quite well. It wasn't a big choice. I never thought about it. Occasionally, I'd see the numbers. That was certainly a lifechanging decision for me, but it only becomes so as I start thinking about withdrawals from it as opposed to contributions.

[00:48:16]>> Yeah. You close your eyes and magically 10, 20 years later, those numbers can get pretty big. I mean, I I love the idea of some of the Australian superanuation funds, this kind of savings, and libertarian Americans don't love the word forced, but being able to put retirement savings to work is is pretty magical.

[00:48:35]>> I will say that when I made that decision to put the money in the stock market years ago, some years later, my wife said, "You know, I think Apple's a good stock." I go, "Well, you know, we're diversified. I don't like pick stocks, but you know, it's our money together. What the hell?" you know, we'll buy some Apple. Okay. Well, now fast forward some decades.

[00:48:57]Apple's a huge chunk of the portfolio.

[00:48:59]Uh we So, there's the rational side and there's a hey, I hear that's a good stock side and my wife has bragging rights about the stock picking in our family.

[00:49:11]>> I have the exact same example with the opposite outcome where I convinced her.

[00:49:17]I was like, "Oh, no. You need to diversify. This is crazy. You should know better. And of course, she has the bragging rights on the other side holding it over me for forcing her into a uh more diversified portfolio. So, it works both ways. Listeners, professor, thanks so much for joining us today.

[00:49:34]>> Thank you.

[00:49:36]>> Podcast listeners will post show notes to today's conversation at mefaber.com/mpodcast.

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[00:49:53]Thanks for listening friends and good investing.