The CNBC senior markets correspondent discusses his biggest investing mistakes, the media’s role in market bubbles, and the challenge of finding an information edge.
Our guest on the podcast today is Bob Pisani. Bob is senior markets correspondent for CNBC, and he is also the author of a new book called Shut Up and Keep Talking. He got his start at CNBC covering the real estate market, then moved on to cover corporate management issues before becoming on-air stocks editor in 1997. In addition to covering the global stock market, he also covers initial public offerings, exchange-traded funds, and financial market structure for CNBC. Prior to joining CNBC, Bob co-authored Investing in Land: How to Be a Successful Developer. He and his father taught a course in real estate development at the Wharton School of Business at the University of Pennsylvania from 1987 through 1992.
Shut Up and Keep Talking: Lessons on Life and Investing From the Floor of the New York Stock Exchange, by Bob Pisani
Investing in Land: How to Be a Successful Developer, by Robert Pisani and Ralph Pisani
“Confessions of a Deadhead: 40 Years With the Grateful Dead,” by Bob Pisani, cnbc.com, July 1, 2015.
“Bob Pisani: Lessons I Learned Watching the Financial Crisis Unfold From a Front-Row Seat at NYSE,” by Bob Pisani, cnbc.com, Sept. 7, 2018.
“15 Big Ideas in ‘Disruptive Innovation’ According to Cathie Wood, Ark Funds,” by Chris Katje, yahoo.com, Feb. 1, 2021.
Behavioral Finance and Markets
What is Groupthink?
Irrational Exuberance, by Robert Shiller
“Jack Welch’s Approach to Leadership,” by Claudio Fernandez-Araoz, hbr.org, March 3, 2020.
“U.S. Stock Market Is Taking Hits, But We’re Still Doing Better Than the Rest of the World,” by Bob Pisani, cbnc.com, Oct. 7, 2022.
“Billionaire Warren Buffet Swears by This Inexpensive Investing Strategy That Anyone Can Try,” by Bob Pisani, cnbc.com, Oct. 3, 2022.
“The Signs Traders Are Watching to Signal the Stock Market Has Bottomed,” by Bob Pisani, cnbc.com, Sept. 26, 2022.
Christine Benz: Hi, and welcome to The Long View. I’m Christine Benz, director of personal finance and retirement planning for Morningstar.
Jeff Ptak: And I’m Jeff Ptak, chief ratings officer for Morningstar Research Services.
Benz: Our guest on the podcast today is Bob Pisani. Bob is senior markets correspondent for CNBC, and he is also the author of a new book called Shut Up and Keep Talking. He got his start at CNBC covering the real estate market, then moved on to cover corporate management issues before becoming on-air stocks editor in 1997. In addition to covering the global stock market, he also covers initial public offerings, exchange-traded funds, and financial market structure for CNBC. Prior to joining CNBC, Bob co-authored Investing in Land: How to Be a Successful Developer. He and his father taught a course in real estate development at the Wharton School of Business at the University of Pennsylvania from 1987 through 1992.
Bob, welcome to The Long View.
Bob Pisani: Thanks very much, Christine. Really look forward to having a chat with you.
Benz: We’re really looking forward to talking to you. So, we want to talk about your tenure at CNBC, your long tenure there. You landed at CNBC in a serendipitous way, very early in the life of the network. I’m wondering if you can talk about that, how you got recruited to work there and what you were doing before that?
Pisani: This is one of those serendipitous things in life, partly knowing what you’re doing and partly just being in the right place at the right time. CNBC started in April 1989 and by sheer dumb luck, I had a book out at that time on real estate. My father and I had been teaching a course at the Wharton School at the University of Pennsylvania. We were adjuncts, and we were being brought in to teach a very specific course on real estate development. My father had been a developer for more than 25 years in Philadelphia, and I grew up helping him out in the business. And he was friends with the head of the Real Estate Center at Wharton. And we were teaching this course and we wrote a book that was based on the curriculum that we were teaching, which is essentially fundamentals of real estate development. And John Wiley published a book in 1989, and April ‘89, the month CNBC came on the air, and I had a friend who was one of the very first producers at CNBC, and I ran into her, and she said, “What are you doing?” I said, “I got a book out and we’re teaching at Wharton, doing freelance journalism.” And she said, “I just started this cable network NBC’s cable network, CNBC. You should come on.” And I went on as a guest, and they hired me as the real estate corresponded in the summer of 1990, a little less than a year after they went on the air, and I was the real estate correspondent from 1990 to 1996 or so. And in 1997, I became the stocks correspondent. I went down to the floor of the New York Stock Exchange.
CNBC was a real startup in the beginning. It was created largely by Bob Wright, who is the head of NBC, to get into cable news business. CNN was quite well known by then, as was MTV, but nothing much was making any money in cable, and they were trying to figure out, NBC, how to get into the news business. They didn’t want to compete directly with CNN in general news. And so, from the very beginning, it was called CNBC, Consumer News and Business Channel is what we called it. And it was an amalgam of consumer and financial things, and very quickly we coalesced around the stock market. We had a stock ticker below us that was a differentiator and had very limited ratings for a number of years. And then, a wonderful thing happened. In 1995, the internet happened. It had been going on for a little bit before that, but the Netscape IPO in August 1995, which is a browser, galvanized everyone. And all of a sudden, our ratings started going up. And it went up because of the internet, because of the stocks that were being offered around the internet. And that galvanized us all come from a ragtag band of startups to a very big organization by the time I got to the floor of the New York Stock Exchange in December of 1997. So, the 1990s were really a wonderful, wonderful time to be a journalist, but particularly to be a financial journalist because suddenly financial news became really big, largely around what happened to the internet. We also had developments in technology and software and hardware that enabled people to trade at home. So, it was the serendipitous thing that happened. A lot of things came together at the same time.
Ptak: You mentioned that one of your biggest challenges as stocks and market correspondent at CNBC was figuring out where to go for information and which resources to trust. In the book you talk about how the information is coming at you from every which way every day and dealing with information overload is a challenge that confronts individual investors too, just as it does you. How did you approach that challenge?
Pisani: I have a number of things in my portfolio. I’m senior stocks correspondent. So, my broad brush is to cover the stock market and what’s going on. But I also cover IPOs and exchange-traded funds and a little of market structure—what’s going on, what is the SEC saying about how the markets are doing. But for me, one of the big things is finding sources that you can trust. I’ve been doing this a long time, more than 30 years. So, what happens is, you find people whose opinion you trust. The most important source, and I talk about this in the book, is somebody who knows what they’re talking about, number one, and number two, can give you an honest opinion, and that’s not necessarily the same thing. This is Wall Street, and everybody talks their book on Wall Street, meaning everybody has an opinion. You’re bullish on technology stocks, so you’re going to talk a lot about technology stocks. You got to talk your book. And it’s very important to find people whose opinion you trust.
I remember about five years ago I found my 1999 contact list. I don’t know why I saved it, but I found it, and it had 500 people on it. I can’t believe I was talking to 500 people in 1999, but there it was, staring me right in the face. I don’t talk to 500 people anymore. I probably on a regular basis talk to about 100 people. I don’t need to talk to five oil analysts. I need to talk to two oil analysts maybe whose opinions I really trust and respect, and I know that I have talked with them for years, and I trust what they’re telling me. So, that’s the most important thing, is finding people whose opinions that you trust.
The other thing is being very careful about your biases. This is something I talk about in the book as well, about behavioral economics—that you often have unconscious biases and the people that you talk to have unconscious biases—all of us do—and being able to understand what some of those biases are, and I list a lot of them in the book and describe how they can influence what you do and the people that you talk to. So, there’s not one easy thing to look for. It’s an art form learning how to find sources whose opinions you respect and who give you an honest opinion.
Benz: For individual investors who are engaged in this struggle where they have all this information coming at them, do you have any guidance for them on figuring out who they should listen to for market perspective?
Pisani: First off, if I was a young investor right now, I would stick with the advice that I learned 30 years ago, starting with meeting Jack Bogle in the mid-1990s. There’s a chapter in the book about how I met him and what he said to me at the time. But I would encourage young investors to stay with the core of very broadly diversified index funds. And one of the things Bogle was very good at was he recognized that it’s boring doing that. And most people have a hard time sticking to that. I did. The standard advice these days was evolved out of what Bogle was talking about in the ‘90s was to have a broadly diversified set of index funds and then take 10% of your money and play around the edges. Everyone thinks they’re a great investor and can outperform the market. Go ahead and do that. Bogle used to laugh at people who did that. He said, “Go ahead, try doing that, but you’re going to find in the long run, if you honestly look at the costs and the time it’s taking you to do this, you’re not going to be outperforming the market, most of you. But that’s what I would do.”
Part of the problem you have today is the landscape, the media landscape, is not just splintering. That happened 10 years ago, where all of a sudden there was an explosion of media outlets. The media landscape today is shattering. It’s past splintering. We literally don’t know how many podcasts there are, but it’s in the millions. Every analyst and strategist not only now writes a newsletter, they have a podcast, and everyone is out with their own opinions. So, it’s a real cacophony of voices to make it fairly difficult to figure out what you should be doing. I keep emphasizing going back to core principles of investing, and you’re not going to go wrong. You’ll never go wrong if you stick with those core principles. Broadly diversified index funds take 10%, play around the edges. That will satisfy, Bogle called it scratching the itch, to go ahead and do something else. These are time-tested pieces of advice, and I don’t see any reason why anyone should change that.
Ptak: Is that how you invest, emphasizing broadly diversified index funds and then maybe you have a little pot of money that you play around with to scratch that itch like you mentioned?
Pisani: I do something that I don’t see anybody do in this book. I talk about what I own. And it is astonishing to me how many times people are talking about: this is what I’m recommending; this is what I think; and nobody ever asks, well, what do you own? And it’s amazing, nobody ever asked me that. When people stop me on the street or say something, they want to say hi, they always ask the typical question is, “What do you think of the markets?” And they usually mean, what do I think of the markets three to six months from now? They want a short-term or intermediate-term perspective on the markets. A few people will ask me questions about the mechanics of the TV business, like you just asked, like, how do I decide what to say? How do I decide what news is or what are the producers say in my ear while I’m standing there? So, part of the mechanics of television. But almost nobody ever asked me what do I own? And it’s amazing to me, considering, that’s the most important thing. Gee, they put your face on TV for 30 years, so what do you own?
And I describe in the book in a chapter my investing voyage, I call it. Travels, beginning in 1993 when I opened my 401(k) with General Electric, which owned NBC at the time, and all the way through meeting Jack Bogle in 1997 and how that influenced me; how I opened the Vanguard account for my wife and what she bought in 1997. I actually found out—we got numbers and described some of the things that I did and closed the chapter with talking about what I actually own. And whenever I tell people what I own—and you put it on an index card—people look at me and say, “This is it? This is what you own?” They’re always surprised and a little disappointed. Like, “Oh, we thought you’d be having the secret Illuminati investing, like you own leverage and inverse Malaysian bonds or something like that. You own the S&P 500 index fund, you own small-cap value index fund, you own a mid-cap index fund, you own an international, broad international diversified fund?” Yeah, that’s exactly what I’ve been saying for years. I actually do it. And I tell people what I actually own. And like I said, people are always disappointed. But actually, all I’m being a Jack Bogle disciple for all these years, I’ve been saying this and please don’t be surprised.
But I do point out some of the stupid investing decisions I made, including a real whopper, which is putting too much money in your own company. I was a very, very big believer in General Electric in the early ‘90s. I was very close to Jack Welch, the CEO. He was like a corporate God, and it is very hard to describe the influence that man had on my generation and particularly the corporate leadership in America. And I swallowed that hook, line, and sinker and bought very, very aggressively General Electric stock. It was the only stock I could own. I’m not allowed to own individual stocks or bonds; only mutual funds and ETFs. But I could own GE, and boy, did I buy that aggressively, and that was a major mistake. And you guys, both of you know this, of course, do not put too much money in your own company stock. There’s no hard and fast rule, but certainly 10% is a warning sign. And at one point, I went back to look at the records that I have remaining in my file and at one point in 1999 I was shocked to see I had 50% of my 401(k) in GE stock. That was a disaster, and you all know what happened to GE stock a couple of years after that. And I describe why I did that, which did not make sense, why I held onto it too long as well, which also didn’t make sense, another investing mistake.
And I talk about these behavioral economics mistakes that I myself made. I knew you should not be owning that much of your own company stock. I can’t go out and say, oh, I just found out 20 years later. I knew this. I knew that when the losses started piling up a few years after 2000 that I should probably have cut my losses. I did not, and I have a whole chapter about the biases that you have, including overconfidence being a major bias. In this case, overconfidence in my company that made me do that even when I knew. And this is how powerful irrational impulses can be and behavioral economics recognizes that. It studies this. So, I myself also a victim of irrational exuberance, you might call it, and describe that whole investing voyage. It was a very, very painful chapter for me to write, frankly, but I felt it was really necessary to tell people honestly what was going on.
Benz: And I wanted to ask about that. So, you mentioned that you learned the importance of not overinvesting in company stock, employer stock. What about that rockstar CEO-type thing? What have you learned about that phenomenon over the years and what should people keep in mind, whether it’s Cathie Wood running her fund or whatever the case maybe, how should people approach those larger-than-life investment-related celebrities?
Pisani: There’s a whole chapter in the book on behavioral economics and recognizing biases in the way that you invest, and I list 20, 25 of them. This is very well-studied. But principally, one of the main problems is simply overconfidence as a bias. I had way too much confidence that somehow Jack Welch was going to keep going forever. I had way too much belief that somehow the world was going to pay a huge premium for conglomerates, which is what General Electric was in 2000. It owned multiple businesses. NBC was only a little tiny part of a gigantic company that made light bulbs and jet turbines and also had a big financial arm. So, overconfidence—the belief that somehow the future was going to look exactly like the past. And none of that was true.
What happened, of course, with Jack Welch retired. His attempt to buy Honeywell failed in 2000. The predecessor encountered enormous problems because after 2000, the multiple they were willing to give General Electric for being a conglomerate dropped dramatically and there was no way to foresee that. The only way you deal with these is you accept the fact that there are aspects of the future that are unknowable, and we can talk about that if you want and why that is, but diversification protects against unknowability, essentially, and that’s the key to this whole thing.
And on a couple of levels, I failed to do that at a very critical moment in 2000 when diversity would have been very, very important for me. So, the same with Cathie Wood. Cathie Wood’s fundamental insight is correct. Disruptive technology changes the world. If you look at what really matters in the S&P 500 throughout its 100-year history—and it’s coming up on 100 years if you pick 1926 as its founding—you’ll find that at any one time, there’s only a few companies that really matter, that are really moving the index around. Most of the others are just languishing down there in the bottom and that’s because companies come and go and so do asset managers and so do people with various opinions. Cathie Wood’s fundamental insight is obviously correct. Disruptive technology changes the world. The question is, what’s the price we’re willing to pay for this disruptive technology? And she came along exactly at a moment of very high—I keep using this word—irrational exuberance, where we drove the prices of these companies, particularly companies that make little or no money, to stupid valuations and the Fed started withdrawing liquidity, or threatening to do that, and raising interest rates. The relative valuations of these companies went down, and it wasn’t a mystery. This has happened many times in the past. It happened in the dotcom bust too. So, here you have another example where people had unfettered optimism in the company and an individual person. This also exists as well with the Reddit crowd. I welcome all the young people who are out there. But I caution everyone against thinking that there are gurus out there that can lead you to the promised land. The history indicates that that is not the case. So, you can still believe in investing, still believe in broad principles like Cathie Wood stands for, just be very, very careful about putting way too much of your investing eggs in one basket.
Ptak: You also talk about groupthink in the book. You write: “Wall Street is one of the greatest sources of groupthink in the world.” What’s an example of that, and how do you make sure you’re not perpetuating that in the work that you do?
Pisani: A good example is like momentum trading. Momentum trading is essentially everybody is telling themselves the same story and all applying the same thing. So, investors make and lose large sums of money all at the same time. And I have tried very hard to not always be a curmudgeon and take the other side of every story—that’s silly, but always try to point out the other side of things. I was very influenced by a very legendary trader back 23 or 24 years ago. His name is. This was a real legendary trader. This is the guy who went after Ivan Boesky with a shotgun, and he was at Bear Wagner when I met him in 1999. He hated following crowds. He hated groupthink. He said, most traders were sheep. And he says “There’s too many crowded trades out there, and you make money when you’re not with the crowded trades.” And I said, “All right, well, so how do you do that? Where do you get your ideas?” It was back in 1999, 2000. And he left the impression with me that—and I talk about this in the book—that it was more of an attitude, more of a way of questioning assumptions and more like trusting instincts that are honed by a lot of years of experience.
Where do you get new ideas from? And he said, “You’ve got to look for places that are not that obvious.” So, for example, he said that he monitored message boards for clues of what retail traders were thinking. You guys might remember the message boards. At that time, in 1999, professional traders considered message boards—where people were posting comments and asking for opinions about individual stocks—most professional traders considered message boards cesspools of misinformation and nonsense, and that there was no informational advantage that was to be found in any of these message boards. And I said that to him, he said, “See, that’s your problem, Bob. You think that it means nothing.” He said, “You can often find insights here.” I said, “But in a sense, aren’t message boards a form of group behavior?” He said, “Yes, to a certain extent, but usually, they’re still in a tremendous minority.”
My point is, he kept looking for ways to do trades that were not obvious. You saw here, of course, with what happened with GameStop, where message boards, modern-day message boards, essentially became a very powerful force for gigantic amount of group thinking and still exists for GameStop. So, I’m not trying to push message boards on anybody. I’m just trying to say, as a journalist, I often will try to play against the prevailing trope. So, my job is to say, here’s the prevailing meme, here’s the prevailing idea, here’s where the markets are going, what the majority are thinking right now. Look at it this way. So, if people are worried about an earnings apocalypse, which they are right now, you can easily point out, this is exactly what happened in May. It didn’t happen. Why did it not happen? And point out to people and help calm people down a little bit.
Battling against groupthink is not easy. And sometimes, it’s good to simply point out that the majority maybe right. But to help other people out, it’s really a good idea just to keep your mind open, and part of this is just being open. There’s a very famous essay called “The Fox and the Hedgehog,” and it was done in 1950s and it’s about people and the way they look at the world. Hedgehogs tend to have one particular idea, and they filter it through that one particular prism, one ideology. Foxes are not as strongly opinionated about everything. They take new information as it comes in, and then they might change their opinion as new information comes in. They’re just more fluid. And the evidence is that foxes, more fluid thinkers, are much, much better at understanding the world, not just the stock market, but just the world in general than people who filter it through a single ideology. We can talk about that if you want and how it influences stock-picking and forecasting, but that’s the way I look at it. I try to think of myself as a fox, not a hedgehog.
Benz: You mentioned that Jack Bogle had an outsize impact on your thinking, and he figures prominently in the book, so did Nobel Laureate and Yale professor Robert Shiller. In the book, you discuss Schiller’s assertion in his book Irrational Exuberance, that bubbles need access to the media, to the mass media, in order to form. As you reflect on a couple of the big bubbles you’ve seen during your career—the dotcom bust in the late 1990s, the real estate bubble of the 2000s—to what extent do you think the media was complicit in them, or maybe not complicit?
Pisani: Complicit is a difficult word. Shiller used that word in his famous book Irrational Exuberance that came out in 2000, and it’s still very relevant. So, one of Shiller’s insights is that bubbles need several things to make them work. And he had a startling revelation that was obviously true, but I never thought about it in the book. He said that the history of bubbles, speculative bubbles, really began with the advent of newspapers in the early 1600s, and that’s where we saw bubbles developing around tulips, for example, or the Amsterdam Stock Exchange and the Dutch East India Company, which was the first big company ever listed on a stock exchange and it was 1602.
So, what do bubbles need? They need a mass form of media to propagate the information. They need some kind of investment vehicle. In 1600, it was stocks essentially. That was brand-new idea back then. And the third thing it needs is a new technology, something shiny and new. In the 1990s it was the internet. A few years ago, it was bitcoin. But in the 1600s, there was turnpikes and there were canals in the United States in the 1820s, there were railroads in the 1830s, there was the telegraph in the 1830s, the telephone in the 1870s, radio in the 1920s. Radio was the internet of its day, and it created an enormous speculative bubble, particularly around RCA, that was the Microsoft and the Apple of its day in the 1920s, that was the big radio station.
So, bubbles need a medium to make them work. They need an investment vehicle, and they need some new technology around them. And so, the question is, to what extent does the media help propagate bubbles? If you think about this, the mere act of reporting on something will help propagate it, but Shiller had some very precise criticism about this. Schiller noted the media reports after the fact. IBM goes up $3. The media reports IBM goes up $3. But IBM has already been up $3 after the media has reported. So, Schiller used to ask, “To what extent is the media responsible for the IBM being up $3?” The answer is, it’s not. However, they can be complicit in helping to continue propagating it down the road. And Schiller had spent a lot of time looking at why does the stock market go up and down on any given day. And he concluded, like a lot of people, that oftentimes the movement of the market are random, and that financial journalists tend to look for a reason for everything, and they may or may not be obvious reasons why the market moves up and down. So, I think what happens here is the focus that the media has a narrative on why the market went up 100 points on the Dow yesterday to explain the movement of stock prices can influence prices down the road.
When Schiller looked at very specific examples—for example, the 1920s, he saw very clear evidence of one-way rah-rahing in the media. He also looked at the dotcom bubble. And this book, Irrational Exuberance, came out just at the tide of the dotcom bubble. It had just come out. And what he saw there was a lot of instances where the media focused actually on the opposite, quoting people that this rise in price is somewhat irrational. And surprisingly, Schiller did not turn around and say, “The media is partly to blame for this dotcom bust and bubble.” He said, “I see plenty of examples where the media went out and warned people.” So, it’s a long-winded way of saying it’s a very interesting question about to what extent is the media involved in talking and promoting things like bubbles. And I think the way you get around this is you deal with it responsibly. I have to report IBM is up $3. We’re in the financial media for crying out loud. We have to do this. We can talk about why it might be up, and we also need to talk about, for investors, is it worth being up? And I’m very conscious of that myself. I’m not here to grade the entire media, financial media, or whether they do or don’t. There are certain rah-rah aspects of it still that exists that I find disturbing. But at least, I can tell you from my part, I’m very aware of that need not to appear too much rah rah.
Ptak: In addition to Bogle and Schiller, your book has some terrific discussions of the people who were pivotal, have been pivotal to your evolution as a market commentator. One of those people is Art Cashin. Can you talk about Art for people who might not be familiar with him and share a lesson or two that you learned from him?
Pisani: Well, Art Cashin was one of the people who had the most influence on me. I’ll give you an example. It’s 1997. I came down here on the floor that summer. There were 4,000 people on the floor, almost completely men, 4,000 on the floor and they did 80% of the volume of trading. Imagine this: 80% of the volume of trading all NYC stock happened on the floor in 1997. And there were some very powerful people down there. It was a fraternity, to be perfectly blunt about it, of very influential people. And it was not easy to crack this fraternity. Imagine you got 4,000 people down here, all potential sources of information, and most of them wouldn’t talk to you because they weren’t sure they could trust you. Because a lot of this information, of course, was trading information. They didn’t want you going on TV and saying that I just talked to Jack Smith over here who says he has a bunch of Exxon Mobil for sale. They would get in trouble. They don’t want that. So, they’re not sure they could trust me at all even though I’m standing around, walking around, asking questions. Art Cashin was one of the people who really stepped up for me and said, you should talk to Bob, he is a good guy, you can trust him. So, he became a friend of mine; still is 25 years later.
There’s a chapter in the book about him. Art is kind of the ultimate storyteller. He had almost no use for academic theories at all. He learned his craft on the floor of the NYSE and in the bars all around the NYSE. He was one of the great raconteurs of all time. Boy, let me tell you, have a drink with Art Cashin and you’re going to have some fun. He’s a great storyteller.
I’ll give you one quick example. He used to try to explain price discovery to people—how do you know what the right price is when you buy something, a stock, or anything else? And he used to tell this story about Louis Tiffany, the real original Louis Tiffany and J.P. Morgan, the real J.P. Morgan. So, one day, Tiffany sent a $5,000 stickpin to J.P. Morgan. He said, “I hear you like stickpins. Here’s a stickpin. It’s really magnificent. I’m going to charge you $5,000 for it. If you like it, please send me a check.” And by the way, $5,000 in the early 1900s was about $150,000 today. So, Morgan sends a note back to Tiffany and says, “Sir, thank you. This is beautiful and I like it, but the price is too high,” and he says, “I’m enclosing in this box a check for $4,000 and the stickpin.” Now, if you want to accept the $4,000 rather than $5,000, great, send the stickpin back to me and cash the check.” And Tiffany looked at the note and sent a note back through a messenger and said, “Mr. Morgan, thank you, but I think the stickpin is worth $5,000. So, sorry, I’ll turn you down, but I hope to do business again some other time.” He sends the messenger off, and then he opens the box, and in the box there’s a check for $5,000. And there’s no stickpin and a note that just says “Just checking the price. Sincerely, J.P. Morgan.”
So, there’s a story. Not an academic theory; a story about how you check your prices. You’re basically quoting around people. And he was full of these kinds of stories. He was rumpled. Always had a rumpled suit on. Always was sitting there, looking like he was sometimes slightly bored. But he had an amazing ability to watch people very, very carefully. And I’m proud to say he’s still around, still with us, still writes a daily newsletter that’s very, very widely read on what the markets are doing.
Benz: You had a chance to meet one of your heroes, Walter Cronkite, fairly early in your career. Can you talk about some of the lessons that you took away from that meeting and from Cronkite’s legacy more broadly?
Pisani: It’s hard to describe how important Walter Cronkite was. In the 1950s and 1960s and 1970s, he was the number-one news anchor on television, and I grew up with him. He’d grown up doing the war with Edward R. Murrow, World War II, and was respected and beloved for his sonorous voice and just the way he read the news. You trusted the guy. And 1999 was probably the greatest year of my whole life. We didn’t know this. None of us did. But it was about to be the end of a really fairly wild decade. And the NYSE was the epicenter of everything. In 1995, the people who ran the NYSE, principally Bob Zito, who’s the head of marketing, and Richard Grasso, was the CEO and ran the NYSE. Started orchestrating very elaborate events around the bell-ringing. A bell had been rung and opened and closed the markets since the 1860s, but it was never a big media affair. Most of the time the bell was rung by an exchange employee. Ronald Reagan came in 1985 and then again in 1992 with Mikhail Gorbachev, and they created a little bit of a sensation showing up.
But beginning about 1995, Zito and Grasso started having rockstars come in, and CEOs come in and started orchestrating media events around this and it became a huge thing because the stock market started going up. And at the end of 1999, they had in December 1999 a series of events of famous people coming down to ring the opening bell, including Jack Welch. I met Muhammad Ali that month and I met famous baseball players. Walter Cronkite came in December 1999, and I was so excited to meet him. Most of the time when you meet famous people, they don’t mean an awful lot to you. You just talk to them, you say hello, and you have a chat for a few minutes. But Walter Cronkite meant something to me personally. I had grown up with this guy. And it was like meeting one of your great heroes of all time. And I remember just coming up to him, and said “Mr. Cronkite, I’m so happy to meet you.” I was so excited. “I wanted to be a journalist because of you. I’m so happy to meet you.” And then, a remarkable thing happened. I was expecting Cronkite to blast us because he had been very critical of the rise of what he called opinion journalism where, particularly on cable television in general, where newscasters were giving their opinions. He thought this was really bad and said, this is going to end badly, and I hope that that will turn away. Of course, he was wrong about this, and he’d be horrified today if he saw what’s going on. But he turned around and asked me and was quite surprised about the rise of financial journalism. He noted that this was never a big thing when his career was around and asked me about why this was and about what was going on with CNBC and the rise of CNBC and all of that. And I’m thinking to myself, Oh my God, Walter Cronkite is interviewing me. This is so cool. I was so excited about it. Unfortunately, I didn’t record the interview. I didn’t do it on air, but I have a picture up with him and it’s one of my proudest moments. And I just remember how important it was for me to listen to him. And a lot of what I’ve done has been modeled on him not being too opinionated, or avoiding that, and try and stay down the middle. I tried, and his influence is still there for me as a journalist.
Benz: You’ve now worked at CNBC full time since 1990, and you’ve observed many market gyrations over that time period. What was the most worried you’ve been about the market during that time? I know you were there for 911, so that was obviously a hugely worrisome period. But what was the most worried that that you felt about the markets’ direction?
Pisani: There were two times when this happened. I wasn’t that worried after the dotcom bust. What made me a little unhappy was I could smell by the end of 2000 that it was the end of a wild ride that had begun in 1995 with, as I said, the birth of the Netscape IPO, which to me was the birth of the internet. And for the next five years, boy, was it a wild ride. I talk about how much fun it was. The Christmas party in 1999 was this riotous affair. There were just marching bands and all sorts of things on the floor of the New York Stock Exchange. And there was a sense that a lot of this stuff didn’t make sense. The pets.com where they were throwing money at organizations that had no real chance of turning a profit. Everybody had a sense that it was a little out of hand. But I knew things were changing dramatically by the end of 2000. What really altered the landscape wasn’t the dotcom crisis. It was 911, because 911 came within less than a year after the dotcom bust. And the two on top of each other was a disaster for Wall Street, disaster for downtown. So, all of a sudden now you had the humanitarian crisis. Everyone in the building, everyone at the New York Stock Exchange had someone, a friend who died. I did. I had several who died in the catastrophe. I was on site for it and saw it myself. And it left a profound psychological impact on people. It’s hard to describe what it was like to be down here in the months after 911. The trade center was a smoking pit. It smelled bad. It was a constant, depressing reminder of the people that we had lost. There was continuing concerns about additional terrorist attacks. And we were in the middle of a recession, and the stock market had already been down because of the dotcom crisis and really didn’t bottom until the early mid-part of 2002. So, it was a profound psychological crisis for people down here. And that was a really rough time for everyone. And I was thinking of even leaving at that point. It was a good run for me. What turned me around is I learned to meditate, and that’s a different story for maybe a different time. I can chat about it if you want. But that turned me around and helped save me and make me want to come back and sort of renewed me.
The other time that I really got very worried was after the 2008 financial crisis. There’s a chapter in the book around the market bottom. That was March 2009, and we were down 50% from the high in 2007. And what depressed me was—and this is when I became a real, real believer in behavioral economics—is I saw people selling at the bottom. We didn’t know that there was a bottom in March 2009, nobody did, but we were down 50% and any kind of rational view of the stock market would tell you that unless you think the U.S. economy is going to zero, you do not sell down 50%. That just makes no sense at all. You buy down 50%, and yet that is not what I saw happening. I’ve followed, for example, mutual fund flows and mutual fund outflows, sale picked up as we were hitting a new bottom. There was a rally briefly through October and December prior year and sales picked up. They were selling more as we were down. That’s when I looked at it and said, Oh my God, my entire generation—I’m talking to baby boomers—are flushing their savings here down the toilet, selling at the bottom. It’s not buy low, sell high; they’re buying high and selling low. They’re doing the opposite of what you would rationally do. And this is when I started really paying really close attention to behavioral economics. I had known about it for a decade. I knew Robert Shiller’s book. But it’s one thing to know about this intellectually, it’s another to truly understand it and see it. I saw people selling their second homes at the bottom. I saw people selling stock at the bottom. And I got very worried. I said this is going to leave some real psychic scars, and it has.
In one sense, we are still dealing with the aftermath of the great financial crisis because the Federal Reserve under Ben Bernanke looked at this and said, my heavens, this is that once-in-a-maybe-100-year crisis. And Bernanke had grown up studying the great crash, the 1929 crash, and the aftermath. And Bernanke had concluded that The Depression was not caused by the stock market crash. It was caused first by the fact that the U.S. was on a gold standard. That made no sense. But more importantly that the Federal Reserve did not act to help the banking system out when it had the power under the Federal Reserve Act to do something, to step in and provide liquidity to the banks. It failed to do so. So, now, Bernanke is faced with this crisis in 2008. And what he decided to do was I’m not making the same mistake. I am going to go all in on this. And they were pumping massive amounts of money into the system, and they got some fiscal help as well from the government, and they helped turn the market around. But it took a while. There was so much damage from that. And again, we’re still dealing with the fallout from that because the Fed pumped in so much money into the system and then after COVID, pumped even more money into the system. So, in a sense, as I said, we’re still dealing with the fallout from the financial crisis.
Ptak: What innovations that you’ve observed over your career had been the most beneficial for investors?
Pisani: I would say, if you ask me, what have I seen, what’s the most important things that I’ve seen, I would say three things. First, I saw the birth of electronic trading, a new form of trading. When I got here, most of the trading on the NYSE was still done on the floor. Nasdaq was created in 1971, but remember initially, Nasdaq was just a screen-quotation system. You couldn’t make trades on Nasdaq on a computer until much, much later, even though it was a while ago, you couldn’t do that. So, I would say, the birth of electronic trading that I think helped lower prices, lower bid-ask spreads, ultimately led to lower commissions, made the market more efficient. That would be number one.
Number two would be the growth of indexing and the birth of exchange-traded funds. There’s a whole chapter in the book about how indexing came about, and basically people discovered that active stock-picking doesn’t work very well, and people have been looking—people like Burton Malkiel at Princeton—had been talking about an index, if we could simply own an index. After the 1987 crash, the Securities and Exchange Commission specifically said if there was some intraday way to trade the market in general the crash might not have been as bad. And that was a big incentive for looking at some way to create indexing and how to trade intraday was an issue that wasn’t solved until exchange-traded funds came about. The first one was 1993, the S&P 500 fund, the SPDR, that came about. So, I would say, what that did was it allowed people access to low-cost indexes that greatly saved billions and billions of dollars in fees, unnecessary fees. So, that’s number two.
The third thing I think that’s most important that I saw is the growth of behavioral finance. So, behavioral finance is very simple. Behavioral finance purports to study how people really behave, not how they’re supposed to behave. There used to be old models of rational economic actors, people who buy low and sell high all the time. These people don’t exist. And there is a tremendous body of research beginning in the ‘70s, but accelerating in the 1980s, that purport to show what they really do. And as a result, there are now long lists of biases that we understand how they affect people and affect how they look at the world, how they trade. And these biases are very important in understanding why, for example, people are so bad at forecasting everything. And we can talk about this if you want, why the future is so unknowable. But I would say, those are the three most important things I saw: the birth of electronic trading, the growth of indexing and the birth of ETFs, and the growth of behavioral finance. All of these have made the markets better, more efficient and I think made people wiser about what’s going on.
Benz: Well, Bob, this has been such a fun conversation. We know that you’ve got plenty more great stories, which people can find in the book. Thanks a million for taking time out of your schedule to be here.
Pisani: Thank you, guys, and I really appreciate it. I’m a big Morningstar fan, have been for many years. In fact, I’ll give you a plug. When I need to do some research on a fund, I will typically go to Morningstar.
Benz: Oh, thanks so much, Bob. That’s really lovely to hear. We appreciate your book and your efforts. Thanks a lot for taking the time.
Pisani: Thank you, Jeff and Christine.
Ptak: Thank you.
Benz: Thank you for joining us on The Long View. If you could, please take a moment to subscribe to and rate the podcast on Apple, Spotify, or wherever you get your podcasts.
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Ptak: And @Syouth1, which is, S-Y-O-U-T-H and the number 1.
Benz: George Castady is our engineer for the podcast and Kari Greczek produces the show notes each week.
Finally, we’d love to get your feedback. If you have a comment or a guest idea, please email us at TheLongView@Morningstar.com. Until next time, thanks for joining us.
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