 Hey guys and welcome to the business as usual podcast episode 11 I'm here with Max as usual and I've got a guest on this week. I've got MJ the fellow actor now I keep wanting to say student actually Fantastic fantastic No, yeah, congratulations by the way No, thank you And I must say it was like a big thing because like I was like do I change it from student to fellow because the reason I wanted to keep it maybe on student was a lot of my videos are very much opinionated and they're not of a professional You know opinion, you know like proper advice. Yeah, so I wanted to maybe keep that disclaimer of student But I thought no, you know, I'm not I don't want to be a student for like 50 years Let me just take the take the painful and change it to fellow and maybe like make a bit of a celebration around it So like as soon as I qualify, I was like, yeah, let's change it to fellow You work long enough for it so yeah How long how long was it in total? It was eight years. It was eight years to It was weird it was seven years to finish all the exams and then it took another year to get into the the profession and That's just because you have to do professionalism courses You have to fill in work-based skills, you know There's a whole bunch of administrative jumps that you have to go through once you've passed all the exams and it was a little bit Frustrating and like I even you know remark saying I thought the exams were the hardest part not trying to get through this process Because yeah, they and the thing is every time you send an email It's like three weeks before you get a reply So it's like three weeks. Oh, you actually needed this document and then three weeks later Yeah, and they kept changing it I was I was at the stage where and that's what hopefully it's better now but I was in that interim stage where they're going from an old method to a new method and The new method kept like changing so they kept shifting the goalposts And that's why I took a year like a further year to get this qualification So it was frustrating, but yeah, thank you. Yeah, finally. I've got you I've got the fellowship of the actuarial society and then I wrote another exam to become a chartered enterprise risk Actory, which is a a global association and They were pretty much formed in the wake of the recession of you know, that hit 2008 2009 they're like let's actually create a risk professional who understands both financial markets financial institutions and the nature of uncertainty and that's kind of what that Professions in and banks have been very keen on snapping up people in this industry Which has been great for the act trees because no longer do we just playing with financial institutions of insurer pension fund And and investment houses. We're now incorporating banks as well So we kind of like yeah, putting our fingers in all the all the financial pies Did yeah, I was gonna say did the day of say you had any influence on you actually going down that route of actor Did the what? Did the GFC? It's weird. I mean the the JSE it's like when I was at school I was very much a big follower of the Johannesburg Yacht Stock Exchange like looking at markets I had this crazy this crazy Dream to be the richest man in the world back when I was at school So I was reading all of Warren Buffett looking at Carl Icage all George Soros, you know All the big financial heavyweights trying to figure out You know, what did they do to become so wealthy and that was basically the goal the goal is to become wealthy And that's why I took a choral science because I was like I want to get into finance And I was like my brother's a chartered accountant and I was gonna go that route Because I thought, you know, they look at the balance sheets the income statements. They understand how businesses work But then I looked at a true science and I was like well We're taking another look at finance I thought with my brother doing the CA route and I doing the actual route We were able to complement each other turns out. That's not the case. We just argue all the time about finance I don't think we have any opinions aligned Which becomes a lot of fun when it comes to managing the family finances because the parents are like, you know because my brother's been his master's in finance chartered accountant and I've got my a choral fellowship in finance and they're like, okay kids We spent a lot of money on your education. What should we do and my brother's like we need to gear and I'm like We need to go and you know HR liabilities and we've got these two conflicting ideologies. So But yeah, coming coming back to the whole story is so yeah So I stayed actual science because I heard it was difficult. I heard it was a challenge I heard you made a lot of money and I heard you and stood the financial system really well from it So it aligned with my goals at the time Unfortunately living in South Africa. We were victims to quite a brutal crime you know guys came in with guns on robbery stole everything in the house and From that incident I kind of it's weird. You know people sometimes have post traumatic stress And I mean I had that to a certain degree. I was paranoid for two years afterwards Which eventually led me to moving to Cape Town But what it also did it kind of shook me from the whole idea that money is everything I kind of took more of a focus that you know family experiences memories friends Knowledge just for the sake of knowledge and and just yeah the other side of life not just just money Which put me in a bit of a predicament because I was halfway through my you know This happened in second-year AXI And the motivation had always been I'm gonna become the richest man in the world and now the motivation was who I've started This thing let me let me finish it And I am fortunate in the sense that I've got that personality where I enjoy. I just enjoy learning Like I was telling you before we started I went you know bought all these all these random books or for take a light This one's on psychology the other ones on science philosophy You know, I've got that personality where I like learning for fun So I was able to continue the actuarial course because I actually enjoyed the material So it wasn't like oh, I'm learning to become mega wealthy. It's more like I'm learning to complete the degree I'm finding this the stuff interesting and like I said the plan was then to move to Cape Town as soon as I finished My lecturer told me that that was career suicide. He said there are no jobs in Cape Town You know, all the finance happens here in Johannesburg and I was like stuff that I'm going to Cape Town I want to live a happy lifestyle rather than just a money-chasing lifestyle And I mean, you know, there's not as many jobs in Cape Town as they are in Johannesburg, especially for for actuaries But fortunately with my YouTube channel, I got a little bit of an international exposure I had some clients reach out from reach out to me you know by LinkedIn and these other social media channels and Being in South Africa, you know, we we have a very weak currency So we're actually very cheap compared to other other nations Our living expenses are lower. So we don't need that much of a high salary so the crazy thing is so I actually do a lot of my work for international clients and That's one of the great things about being an actuary is as long as you're behind a laptop You can be anywhere in the world. So if you want to be on the beaches in Mauritius or Maldives You can do that. You can do that. You don't have to go into the office. You don't have to You know always be that and especially now with like technology like this I mean, I'm having a meeting with a client Maybe you know an average once a day and we can do it using technology like the zoom sky Google Hangouts and I mean these clients are coming from everywhere from Tel Aviv to Paris to London to America You know the world really is global and the nice thing with say actual signs compared to say accounting is You know in counting you've got two different systems You've got carp and you've got if risk, you know the American system and like the European system with actual signs It's pretty much, you know statistics is statistics probability is probability Yes, there's regulation that changes a bit But you know, it's not like accounting where a lot of the information is rule-based. That's very much localized So there is that that advantage Like for instance, if you had to study tax, then your knowledge is very much localized where if you study Insurance those principles are global. So it's also one of the nice things about becoming an actuary is you do have this international You know playground to go in and the fellowship in South Africa is recognized by that in the UK It's recognized by the guys in Australia as well So we've kind of you know once you get into this actuarial club you kind of have a ticket to work wherever you want to work and People know wow you spent eight years getting into this this professional this club We know you're gonna be trustworthy because if you don't we can report you to your profession and you can get kicked out Yeah, so it's almost like when it comes to you know, banking and lending when I go into a business deal My collateral is these eight years of studying that I've put in that I'm risking you know if I do a bad job I could lose this and and that's what it's weird Sometimes I don't even get high to do actuarial work Sometimes it's just like generic business work and the clients are prepared to take me on because there is that trustworthy Factor that comes with being an actuary. So it's not like every single job is you know doing hardcore statistics and modeling Sometimes it is generic business But you still get paid the actuarial rate because you are coming in with that trust factor So it's definitely it's it that's what I mean. I'm very passionate about the subject I really do encourage people to study it to go through all the way You know not just get an actuarial degree but to go into the profession as well because it does open business prospects and Fortunately, like I said my lecture telling me going to Cape Town was career suicide Fortunately, there's no longer the case with the internet with the age of communication You can work wherever you want. So if you're you know some weird little country You can become an actuary and then do business in America and England over the internet So I think yeah, that's pretty cool So Well people sitting and listening to this who don't know what an actuary is do you want to just give a brief quick rundown? What one actually actually does no sure thing? And I mean it's it's a it's a bit of a like a like a joke in the profession is because you know How do you answer this question? You know what is an actuary and because we write so many exams? The classic answers it like depends how many marks this question is for you know if it's worth one mark You're gonna get a different answer to whether it's a 20 mark question But I mean you know it's it's weird after eight years it's kind of like you know what what is actuarial what is non-actuarial and I've kind of come up come up with a little bit of a nutshell answer and that is actuaries look at financial uncertainties and That's basically it. So if it's finance and if it's got anything to do with uncertainty Actuaries can add a lot of value. So your traditional Actuary is in life insurance because you know you're paying a financial payout when somebody dies But that death event is uncertain So hello an actuary can come play in that space and then they saw that they can use their techniques on all insurance From car insurance household insurance, you know legal insurance all these things And then what we also saw is pensions It's weird pensions is an interesting one because we went from being the champions of pension funds When it was something called a defined benefit This was when a company said when you retire, we will give you X amount in order to continue living and you needed an actuary in that place because it was a very very difficult calculation and for various reasons The world seems to have shifted away from say would define benefit to define Contribution and what it is now it is companies instead of saying when you retire We will make sure you have enough money to continue living what they're saying now is we will put aside a little bit of of your salary every month into a fund and We just hope it's enough when you retire. We just hope and it's I mean, it's kind of like well It's like well, okay You don't you no longer need an actuary anymore because yes, it's still financial but there's no longer uncertainty because the employers have shifted that uncertainty and that risk from themselves onto the individuals and That you know has opened a whole big market now for financial Advisors because now it's up to the person to handle this risk and normally these individuals cannot normally afford the fees of an actuary It was normally a pension fund because they were so huge. They could hire the top Actories to come in and help them, you know create an investment strategy And I mean some of them that they still do so some of the defined contributions still get actress to help with the investment process But we're not as required as before like now you could get an accountant You could get a CFA you could get, you know another financial professional to perform that function It's not as critical as it was before But then having said that actuaries Those are kind of like your traditional areas and then actuaries have created what we call wider fields The one wider field was something called health insurance or medical aid There it was like okay health is becoming a really expensive item Medical aids are a bit more interesting because you know, there's a lot of regulation There's a lot of rules that they can and cannot do and so actuaries have to price products in a certain way that You know satisfies both ends But your health insurance is a big one that actors have been getting into The one that I've gone into has been investments. So this is building investment strategies And normally for the insurance company so an insurance company or a life office or pension fund will say, you know This is these are our liabilities This is how much money we have invested in such a way that we make money and our liabilities are covered That's basically my my thing that I've specialized the highest at or to the fellowship in that But then also like I said specialized in risk management, which we're seeing banks are getting very much interested in and Banks are actually coming one of the big employers of actuaries now, especially in South Africa Yeah, yeah banks coming in and they like us when it comes to building credit models and credit scores and Just general, you know, is this a good business to invest in? That's up a thing and then of course, there's also the crazy They haven't done that until now Yeah, it seems like no brainer You know what actuaries and this is the things actuaries have kind of like lived in the shadows Of the financial world And I think this is because I mean you look at your typical actually there the personality I mean the big joke is, you know, what do actuaries use as birth control and it's like their personality You know, they we kind of have this image of being of being nerds and And that was saying that we really try to push forward. So in countries where actuaries are required by regulation We especially in South Africa. We had a bit of a bit of a turf war The lawyer said that they should be the ones doing the regulation because they said insurance Basically selling contracts and as lawyers they understand contracts better than anybody else Why are they lost to the actuaries is because the actuaries were able to show how complicated and how mathematical these Calculations were required in order to know how much you know money to reserve when to take profit We're not to when to reinsure all these things that the actuaries actually got given those what we call statutory roles by governments and In order to get that actuaries had to say well, it's because we're the nerdiest and these these are hard projects So actually kind of and the thing is because we required by regulation and stuff like that And there's not that many of us actuaries earn a lot without having to do any marketing, you know They don't have to be in the news, you know, it's being like, oh, look at me. Hi me. I'm an actuary I'm smart because there's a lot of work to do and they're getting paid top dollar and Like I say, they're a little bit nerdy. So they've lived in the shadows Whereas your countants and your lawyers, you know, the lawyers are always on the stand when there's a big case And it's a big scandal and the media takes over Or there's normally like an accounting issue or some corporate failure, you know Accountants are then in the news giving their opinions and that type of stuff Because actuaries generally do such a good job and insurance companies don't blow up as often Especially like chance of Africa insurance companies are very very solvent. We're not in the news. People don't really know about us So it's it's weird. We we have kind of got this persona of being nerdy and unknown That's why a lot of people don't know what actuaries do Even though we play such a pivotal role in in the financial markets, but yeah, we kind of like those those guys in the shadows Yeah, so Yeah, it's kind of blowing my mind that The banks when building credit models or anything haven't haven't Used actuaries up until recently. So what what is different to what an actuary would do Versus what the banks are doing currently to assess some of the credit Well, I mean, this is the thing is and as I say it becomes interesting to say, you know What is actuarial and what is non-actuarial? Because people other people can do our job, you know Data scientists can build models statisticians understand probability CFA's understand finance accountants also know regulation and all these type of things So the reason why I think banks haven't have taken so long to hire us is because there's been other people who can do that job and a lot of the time actuaries have been focused on life insurance and those statutory roles and Because that work is so comfortable. We haven't really needed to venture out it's kind of the banks who were just kind of looking at it and I Think what started happening is is banks started selling insurance of their own So the sort of hiring actuaries for actuarial purposes is called actuarial purposes life insurance And I think the actuaries within those teams were started saying well Credit models are using basically the same principles that we're doing. Let us have a go at making a model They made the model banks saw wow look out great these results were and now banks I think have stumbled across the fact that hey even though everybody else can kind of do what what actuaries do Actuaries and I know this comes across a little bit arrogant But we do it a little bit better and the reason why I think we do it better is because we're exposed to finance and we're exposed to Uncertainty so we're learning all about business and we're learning all about statistics Whereas before your bank would maybe have an individual as the statistician and an individual as the accountant Put them in a team and you know try make them work together But when it comes to certain things in a model You want someone who understands the delicacy. So let's say you get a statistician to build you a Model, let's say a cash flow model, you know product and non present value They might just say our interest rates, you know Interest rates was you know 10% last year is make a 10% this year something like that and they just put it put forward Whereas an actual be like, you know what interest rates themselves follow their own stochastic path and they're you know They're very sensitive to you know the output of the model This is saying that we need to actually spend more time figuring out and all this type of stuff so I mean this is a very much an imagined example, but Actories would look at those parameters and kind of get a they would have a bit of a more a good a good feeling I guess of the stochastic nature of various parameters Whereas they say an accountant running the model might, you know undermine the uncertainty and say, okay You know, let's rather make a deterministic model or a statistician wouldn't understand which ones to put in but like I said that's a very high-level imagined example and Like I said, there could be other reasons, but that's kind of how how I see it is that because of this blend of Knowledge is that actually have it's made them more powerful than two people on the side of the thing trying to do the same task Yeah, okay, so I think maybe let's move into because of our audience a little bit more like into sort of stock market and I'm that sort of area of finance So do you why don't just give a maybe a basic one out of maybe what an actually would do If they're directly sort of working within the stock market Okay, cool. So look, it's it's a it's an interesting thing because like I said when when I wrote my Financial exam this investment thing We we studied quite closely to the CFA level three students. So we would follow CFA level three blogs We would go to their events. They would come to ours There was quite a bit of of shared shared learning the thing is is that we play two completely different parts in the investment game And I think a lot of people they look at the stock market and they think oh, you know when I go to the stock market I'm picking, you know, do I want to buy this share don't want to buy that share and You know, I hold on and I give my little dividends and I maybe trade it during the day and stuff like that Actually is funny enough, even though we learn about the stock market. We learn about equities and we do all that type of stuff We tend to stay away from stock selection. We stay away from stocks selection We think technical analysis is a load of rubbish and we even quite wary on fundamental analysis as well I mean, we quite aware that especially in You know public companies there is information that they're holding back they are releasing, you know profit and loss statements that are trying to make themselves the most tax efficient and The data is quite convoluted to kind of give a proper View we also very much kind of subscribes the philosophy that the market is more efficient Then I guess what a day trader would say, you know day traders say the market is inefficient If I learn more I can outsmart the market Whereas it actually kind of says, you know what the amount of time and effort I'd have to put in to get a little bit of an advantage and that little bit of advantage is probably not worth it So where actually is play in is we play it very much at a high level So I'll give an example of what would happen is Either a pension fund or a life office or an insurance company Or even a bank, but maybe maybe not so much a bank But generally a big financial institution will come to us and they'll say Help us devise our investment strategy and what as an actually will do is we will first say, okay cool Let's define your liabilities So we we start off with the liability side of the balance sheet like I said That's well very different to my brother whose accountants they're focusing on assets. How do you maximize your returns? Actors on the other side is, you know, how do we control risks? You know, so we look at the liabilities We look at liabilities and we're very sensitive to regulation constraints So we make sure that we're playing within the boundaries of whatever the institution is in South Africa with pension funds The big regulation is called regulation 28 Which basically puts in a bunch of like a skeleton of what you can and cannot do What we then do is with the regulations and understanding our clients liabilities We then go into an investment strategy and an investment strategy I mean it can be as simple as saying 60% bonds 40% equity, you know that at the end of the day That could be our little answer Of course where it gets a little bit interesting is they say that 40% equity What do we do what we say is the market efficient or is it inefficient if we think the market's efficient We're gonna go down the passive trail So we're gonna say okay, we're gonna go passive investing and then what we will do is we will look at all the various passive strategies You know, you've got synthetic index tracking funds. You've got others that buy the whole market You've got others that have got different weighting parameters and we'll say okay Which one's the most appropriate with the most cost-efficient fee and we'll go and put our money behind those or If we think that the market is inefficient We then ask a different question. We say, okay can Can an asset manager add value and if the answer is no then once again We go to the passive or the index tracking funds if we say an asset manager can add value This is where the fund starts coming in because now we start now We start really thinking do we want a single manager? So do we want to put all our money with say one company and trust them Do we want to go with a bunch of multiple managers? And there's pros and cons to each one like why you want to maybe go multiple managers is you can find a specialist in each one But if you go to one single manager and you come with a massive amount of money You can get a reduced fee and if you know shaving half a half a percent of your fees Can play out really big in say 40 years time and that's the thing actually we're playing on big time frames so we have this whole this whole a lot of full process goes in not into which stock Should we buy or sell but which asset managers should we employ or not employ and we will look at their philosophies We will look at their structures. We will look at, you know, what have they done in the past where they going forward We will construct the mandates We'll do all these various things and as your asset managers that are the cfa cfa level 3 or it can be you know Another financial professional and what tends to happen is at the end of the day this way it gets weird We don't actually make the final choice What will happen is the client will make the final choice often a pension fund the trustees make the final choice But what you have is you'll have the trustees will sit down and one by one It's almost like a bit of a beauty parade each asset manager will come in and they'll say look this is how well we invest This is what we do they'll maybe give some free pens and the trustees will be like, oh, wow This is great and five or six different asset managers will be invited to do this And then my role would be to say, you know that guy's talking a load of crap You know that stock that he bought in it's about who you know, all that stock that he's going into I've heard bad things about Or that philosophy contradicts his investment style, you know So you kind of look at those type of things But at the end of the day it is the trustees or the client that makes the decision We give that you know that actuarial advice And that's why I'm a little bit worried about my YouTube channel because you know actually give advice and I mean my channel I'm the you know just shouting my mouth out and ranting and raving So I always have to put lots of disclaimers on on everything there And but but just so that's kind of we actually play this pull the actually that that I've become would play in that space Where we basically we don't pick stocks. We pick the asset managers To your complete our strategy and and then you're then but the thing is the job's not done then what we also do And I think this is maybe what makes us a little bit annoying is we monitor we monitor everything So we will look let's say we give our money to an asset manager. We will be not just looking at their returns We'll be looking at their returns for a whole bunch of various adjustments We'll be seeing you know was their style drift were they taking excessive risk You know what were they doing this where they're doing that could they have done better? And I mean it really starts getting intense You stop building synthetic asset managers to compare against them and then fees become another thing all together Especially if they've got a performance fee, but then the fee goes down a bit Is there a watermark is there not is there a clawback if you come back is there a surrender penalty? You know it starts really getting intense and also you've got to imagine You also now start shifting between asset managers because maybe I go as an actually I say The economy is turning in such a way that we need to get out of our asset managers and back into passive funds Or we need to go from our passive funds into these asset managers But we're talking about clients that have close to like a trillion a trillion dollars You know this is I mean the sorry the pension industry. It's you know, it's in the trillions In South Africa the pick which is the local one. Yes is a trillion rent So we really talking about big sums of money So when it comes to move from passive to active, it's not as simple as what you know, you and I can do where we oh click sell click buy Something like that would shift the market could spook the market So it's kind of like how do we slowly? Move our position from here to here and that's where we start playing with you know derivatives Creating various derivatives, especially in the short term when we play hedging strategies And we really do start getting really complicated really quickly So that's what I say it's an interesting job because at the one level we basically say 60% bonds 40% equities But then and it could be as simple as oh the market's efficient put that 40% into an index tracking fund Or it can be as complicated as going all the way drilling down and looking at all these various things with asset managers And that's all the stuff. So it's yeah It's what I guess y'all. What is what is interesting is Is that I mean there was this one guy trying to think what he's what his name was when I was reading up on all these guys Who made the money on the stock market? I think his name was John something something a very generic name, but he said he said I don't play the market He says I play the players He says I look at the psychology of everybody else and I make my trades on that everyone's getting greedy on a certain chair I'm gonna make sure I sell out of that before the fear sets in or if everyone's fearful You know I'm gonna come in and but basically he plays the market Participants rather than the actual assets in the market and What's cool about that especially now with sectoral science is as an actually you're learning about Pension funds you're learning about these financial institutions. You're learning about the regulations You're learning what they can and cannot do and they've got a lot of money that they have to invest every single month So I kind of look at this and I'm like hold on hold on I and and it's weird like before this call I thought let me just check check to see see if my thinking is correct, but Let's say quick quick example Regulation 28 chance of Africa says 60% has to go into bonds. Okay has to I know that the biggest player in the market Has to buy a minimum of 60% bonds the equity market in South Africa is currently not doing that well So even a higher amount than usual is going into bonds. Okay now bonds are Relatively have a fixed supply Governments can lend, you know up to a certain threshold But the more they lend the more it hurts their credit rating So they normally have to stay within a certain there's only so much, you know Government debt that they can release So your supplier is kind of fixed but your demand every month is constant and it's pushing and it's high and That's why you go and you look at any bond market right now, and I this was a little check I was looking even in Australia. I mean the Australian 30 year bond is up 22% in the past six months Okay, I mean you're not getting those returns on the stock market, you know the stock market Oh, you may be 2% up this month 3% down the next month 5% up the next month bonds It's like it's just like there's this massive momentum and the thing is you look at countries that are very developed like Japan Their bonds have now become negative negative yield Which means for every hundred dollars you put in you're gonna get $99 back And you're like that's crazy And it's like well because the pension funds the biggest players in the market are being forced to purchase an asset Even though it's giving a negative return. They're being forced to buy it. So that's why it's actually Like let's say a Japanese bond for example Could actually be a trading opportunity there because yes you buying the bond now and at a hundred dollars and yes You can only redeem it at 99 but let's say everyone keeps buying these bonds Which means more bonds can only be redeemed at 95 or 94 and your bonds now at 99 you can sell that for a profit So it's weird you can even make money on negative yield bonds and and that's how like I look at it And because you know, I'm kind of getting to the stage now where I need to start investing I've been working as an actually for a bit now I've got a bit of a nest egg, you know, half of it's in Bitcoin, which is very risky very very crazy And I you know the other half's just sitting in cash at the moment which I need to I need to invest properly and I'm actually looking more at the bond market than in the stock market. Like I said stock market each company is hiding, you know very very key information because it's proprietary or they you know When dodged the tax ban and stuff like that Governments are super transparent I mean and governments kind of control the central banks where they've got a very close to your central banks Which determine the interest rates which have a drastic effect on the bonds and they kind of like it's quite clear You know where they're gonna push that interest rate up or down Plus with all this constant demand and limited supply Bond market. Yes, it's it's been deemed as boring But the returns are going up and I'm even looking at, you know Maybe there's a derivative instrument out there where you go in and you say every time the bond market moves up, you know 0.1% this instrument must jump up 10% and that's the last thing about actual sciences We learn about these instruments. They call it, you know, the structured products where you can go to an investment bank And they'll make it for you And you can actually create bespoke investments that perfectly suit your needs or whatever you think the market's gonna You know play out. So actual science gives you a really awesome insight into the financial mechanisms Like I said, there's a lot to finance that that I don't know There's a lot that I still need to learn but actual science tells you these are the biggest players This is their strategy and it kind of also gives you the tools on how to measure government debts you know because we are looking at debt and Credit events and and all these other things. So we we we know enough about uncertainty and Risk, but we also know how the big market guys are playing. So, yeah I mean you if you had to put me up against some trader He'll probably dominate me in the short term. He'll probably outmaneuver me on the stock market He'll know what's hot and all that type of stuff but make extend that time frame to say 40 years and Actories clean the floor when it comes to investing. So it's And it's interesting because it's a long-term game. That's one of the things Actories are kind of taught at a very early early stage of the studying is to think 40-year periods and And that's why it's kind of something like you look at bonds and they're Actually really great instruments for us to play in but like I said, they've got this this What's it called this this appear of being boring and most of us stay away from but I don't know that Have you guys have you guys ever considered investing in bonds? I'm very honest like I haven't like at all. Yeah, I'm studying finance at University right now and you do you do your intro to finance And they tell you what a bond is and you maybe do another course where they talk about bonds and how that had a price of Bond and maybe duration of a bond or something but Everything's completely focused on equities because I guess it is the more more exciting Area of the market definitely and it's making the news and I suppose it can't that gets into the room interesting the interesting area that I've been thinking about in that Universities are in the business of Creating people who are going to go and get jobs. Yeah, and they're making they need to adjust a curriculum so that people out there can go and That their students can go and get this job That's really fascinating and whatnot that gets into the news and then they can say yep that was us and And like that that brings in students at least in the business area obviously in science and engineering Make graduate students Yeah, well this is exactly the thing is the stock market is sexy, you know that you've got new IPOs coming up our snapchats now listed or snap whatever. Oh, you know Zuckerberg said something Facebook price, you know goes down Elon Musk tweets, you know It's exciting things are happening new cars are coming in scandals craziness bond markets There's no new entrance, you know all the countries are there and and they bond is a 30 year instrument You know, so it doesn't it doesn't have that crazy volatility. There's no adrenaline rush Unless you want like I said if you build derivative instruments on top of those things It does become a lot more crazier, but for the general person Bonds are seen as as boring I mean, I even look at my parents and their investment strategy is between property and equity and and cash I'm like, have you guys ever considered bonds my brother? Bonds are boring, you know that because that very much that that is the mentality But like I said studying actuarial science, you see the regulation and it says a Minimum of 60% of pension money Has to go into the bond market and if you think about it Who's bigger than the pension funds the pension funds are the biggest players in this market so And that's why you look at the size of the bond market to the size of the stock market And you'll be surprised how much the bond market dwarfs the stock market. Yeah, like I say, it's weird It's like everybody's chasing the stock market Whereas the bond it's kind of Well, you just know if someone says they're a hedge fund manager and someone says they're a bond, you know a broker Of course, you know, I think the hedge fund manager guys a little bit more exciting and you know, he's got more crazy stories to tell But that is one of the things that I really enjoy about about finance and that actuarial science has enlightened It's to kind of say let's take a step back from the game. Let's see how this whole system works and Wow, you know, yes, some money is going to equity You know, there is money going to equity and it is a lot and it is funneling through But there's a massive chunk going to the bond market that, you know Not that many people are Looking at and you've got I mean the credit rating agencies are very transparent with their with their views, you know And it's not like the stock market where each analyst kind of keeps his informational secret And you know, he sells it out and all that stuff and companies do things, you know silently governments are more transparent than corporates and That's why bonds are are an interesting thing And then of course you've got a Europe which was doing that whole quantitative easing We they were just going out and flooding the market by buying bonds. So now you've got You've got central bank activities, you know, doing quantities of easing pumping money into the economy by buying bonds You've got pension funds buying bonds and you look at bond deals and they're all Really really really low. So it's it's crazy I mean even like like India I was looking at the Indian bond market and the 30 year yield of the Indian bond is Less than the 24 year which is a little bit mind-blowing because it's supposed to be the longer the duration The more exposed you are to various risks like default inflation You know these type of things And people like to have their money back sooner So it's crazy that that is that at once lower But it's because all these pension funds are buying the longest asset that they can find because actually say that's the best for liability matching That's what we're seeing. We're seeing supply and demand actually stuff up these curves I'm not stuff these curves, but then these curves to unnatural states and for me That's a big indication of you know, how well they're they're playing and how are they working out in the market? So it's interesting because I know you guys are big on stock market big ones, you know Which she has to pick but I'm almost thinking I don't know and this is like I said have to put a heavy disclaimers Like don't take this as investment advice, but I'm looking at the bond market I really am looking at the bond market and saying, you know what instead of having a portfolio of companies I'm gonna have a portfolio of countries, you know So I have a little bit of Australian bonds a little bit of South African bonds a little bit of this look every now and again These companies countries do blow up like Venezuela, Zimbabwe, Mozambique, you know, you do get these these defaults It's not completely risk-free But because it's not completely risk-free there is still some return to get and like I said You can create a derivative instrument then you can still You know pump up the money and and gamble almost on these movements And if you quite certain that you know, there's a 70% chance that the markets gonna go up Yeah, rather go gamble there then in a casino where the odds are designed to be against you. So, yeah, yeah That's that's kind of my Yeah Interesting video Couple of months ago now where you I think the title was the stock market is dying I found that video really interesting You gave some good reasons that I hadn't thought of for why the stock market may be on its way out Little bit cataclysmic, but Do you want to just give some of your thinking behind that because obviously the conversation has been having yes Well, you can see it's kind of been my a bit of my sentiment that equities are Overvalued like I say big disclaimer. This is this is just There's not a professional opinion and I would have to do a lot more research to justify that But just my feeling is maybe call it a feeling rather than opinion My feeling is that the equities are Overvalued That the dividends that they're paying out are really low the volatility is crazy And I just think you're the stock market. There's so many regulations. It's so difficult for a new company to list I mean listings are down globally. There's not as many new companies. They're coming up New mechanisms are being discovered. I mean crowdfunding was kind of the first one with kick-start and those type of things Then we got something called ICOs initial coin offerings, which were yes I mean they were crazy absolute crazy things and I mean it was it was clear that they were gonna get abused I mean anything where you give somebody up like millions and millions of dollars before they do any work And there's no consequences if they take the money and sail away on a yacht You've got to be crazy to think that oh the person's actually gonna build this You know blue moon project that they pushed out. So I didn't invest in any ICOs. I looked at ICOs and I actually thought that that you know the market was was gonna tank But I was I was too I was too soon on that that whole blockchain thing I was like the market's gonna blow other ICOs are gonna come crumbling down all this thing called tether was gonna blow up And I think I was making this in November and what I'm making is the mock is just pumping up pumping up pumping up Yeah, and then so I was like, oh, I must have been wrong. So I got crypto kiddies putting in more money I don't know I got caught up in the frenzy then January comes boom You know it was a bit of a painful to swallow But I do think you're I think crypto maybe I've got a feeling you let me use the word feeling not opinion I've got a feeling it's it's coming back Yeah, but but no and that's why I look at that and Bitcoin kind of gives and crypto kind of gives the same adrenaline rush of trading that the stock market did with less regulations It's more exciting. So all the things that have that the stock market try to sell on you know being sexy being big returns Get rich quick all these other things Cryptos are doing as well and they're doing it with less barriers to entry I mean you want to try by by shares and you've got to you know, I don't know what it is in Australia But yeah, it's like you need proof of your address and you need your ID Document and yet you take a selfie holding something. It's it's like, yeah Well, you want to invest in a crypto you just kind of you know You find some some nerd friend you like, you know, there's a hundred bucks He sent you some coins you then go and put it in some weird wonderful currency tomorrow It's doubled in value You then chipped it around and and I mean I had a friend who was trading at one stage up to 32 Bitcoin And then of course he lost it all because you know when you when you start making that much money And I think this was maybe I was I was guilty of this as well But you you start feeling that you're invincible You still start feeling that I know the market better than anybody else and of course I think a lot of us did get get smacked quite hard by crypto But I mean, it's still good. I mean I was the coin I was mainly in was like coin I got in at three dollars. I think now it's trading at around eighty five dollars at its peak. It was three hundred eighty So yeah, it was it was a roller coaster ride. It was a roller roller coaster ride But yeah, I think because of that the stock market is kind of very much becoming a bit of a dinosaur Even you look at the way to complete trades I mean Bitcoin can do it or the blockchain can do it much quicker And I know the ox, you know companies that are looking at doing it You look at the person who was quite high up in the Johannesburg Stock Exchange She's left to join a blockchain project. You know, these are all signs to me that There's something and look if it could be going through cycles These things do go through cycles. So maybe I should have said Not I said, you know, the stock market is dead But maybe the stock market is going to go in for a long sleep Of course, there's not the clickbait title that you want on on on YouTube So, yeah, it's it's interesting because you have that that video didn't get that many didn't get that many views and Yeah, it's it's something that I was just feeling at the time then equity is a little bit over overvalued But I mean this is another thing equity is very much localized You know the South African markets behave very differently to Australia markets like from what I know is Australia's has been doing pretty well You know the in the past 10 years Australia's done done well The markets in America seem to have gone behind Trump and he's you know low-tax kind of regime So America's you know not doing too badly But another thing with the stock market what we generally see is there are these big corrections every seven to ten years I mean in the 2000s we had it in 2001 with the tech bubble bursting then we had the great recession in 2008 Since 2008 there hasn't really been yeah, I mean and you go before 2001. I think 90 the high 1990s There was the Asian crisis in the 1980s. There was was a black Friday black Monday You know this is being all of these these crashes and we haven't had a crash yet And on the one hand you can say oh, it's because our risk management procedures are just so much better or it's because You know what the markets just overcooking and it's it's we're just delaying it and I know that there is There is some guys in the market who's saying that the next big crisis is going to be around debt government debt which is scary because And like I say, it's an interesting thing to look at because Governments should have a limit to how much they can borrow But if they're borrowing more money then like if they bought borrowing at a hundred and they only have to give it back in 99 They're gonna maybe push past certain thresholds or you know Just replenish debt like that stuff and they could be a little bit of turbulence So it's not like the bond market is guaranteed to be smooth sailing all the way forward There is a bit of a systemic risk and you can imagine you just like if you just imagine if Trump comes out and says You know what we're gonna only be paying 90 cents of each dollar that we owe You know and we're gonna shave off some of the government debt and the thing is it's Donald Trump. He's crazy He could do that You can imagine what the ripple effect of that would be Other countries would say oh, they can do it as well They would be protest because then people aren't getting their pension money. So people go to the streets They'd be riot, you know, it could be proper pandemonium And with someone like Trump Trump in charge, you know, we mustn't think that that is never gonna happen You know, it and that's what it's I keep more of a close eye on on American politics Then I do a South African politics because you know what they do kind of influences the rest of the world Yeah, and that's also what makes bond bond markets a little bit more fun is it does have that political Age as well. Whereas with the stock markets, you've got to know, you know company You know corporate politics, which is inaccessible to us unless you actually know the guys You don't know if he's gonna get data CEO next next week Whereas at least with with countries, you know if someone's gonna get impeached, you know The news is gonna be all over it. Yeah. So yeah But like I say, I mean it is a feeling and Before I'm like, let's say if I was hired by it, you know, I could pension fund to do this thing I would do a lot more data analysis. I would go through a much Genius process before giving, you know, and inform the opinion Because it's just my money and I'm just, you know, shooting Some thoughts out. I have to just class qualified as saying it as feelings. So see Yeah, how easily accessible is the data that you would actually use in, you know, some of that one thing So I mean provided by the pension funds or So, so that you go out and get it. So, no, no, I mean, this is the lovely thing when it comes to Government bonds is that data is available. I mean countries make their economical indicators well known You can see inflation trends. You can see interest rate trends. You can read the central bankers reports You can pick up on their sentiments You know, you can do all the states is basically there I mean, it's so much so that I mean one of the things that that I'm very very much interested in is technology You know, I think that's what drew me to Bitcoin It's what I'm doing quite a bit of my work at the moment is with this thing called actual Actuotech. So, you know, you've got FinTech and InsureTech. We want to create technology around actual science And we've got a cool website. We're writing magic articles but one of the little projects I've been thinking about is Actually making an and I know when people say AI, it's like a buzzword But actually making a like a proper AI that goes through the investment process that I just got a little bit earlier You know that that actually would go through And and put it on the bond market like I say companies There's too much there's too much data. There's too much noise to do it on stocks But I think you could create an AI that can go and analyze every single bond in the world You know by looking at so you take each country You look at various key economic factors an employment rate inflation interest rates business confidence GDP, you know exchange rates to dollar, whatever, you know, there's a bunch of these these economic indicators and this data is available Either for free or you can get it at quite a decent price And what you do is you take those those time series That's kind of your input and then what you also input are your bond yield curves and also how they've changed throughout the year You put that in a simple AI you teach it You know you can put it out of some Bayesian parameters that recalibrate let it do this Let it find the various correlations and it can actually tell you you know Then you map it to the rest of the world and it might even say hey Germany's Undervalued or oh Japan's overvalued or hey, Mexico's a good buy and then like I said you take that information I would then go to to an investment bank and say I want to build Derivatives that you know track the Price of the yield of these bonds and have a bit of a magnifying effect on it So here's how you know goes down one bit. I want my my instrument to to move a hundred books, you know You can create that Especially if you're going with a pension fund money, you know, you know, I've got like, you know A hundred million ran to do this investment banks can be like all right this way, sir You know would you like a Yes, very very much like what you saw in the big short is you know that they may that look quite cool You know how the guy walks in and he's like I'm gonna create a product people are creating products every single day I mean and this is something where You get some people who say starting to real science and then they leave actual science to do something called Quantity finance and that's where they just focus on the financial side of Actory so they don't worry about regulation and thinking about, you know What do trustees need and all that they just focus on how to make the best financial product, you know They become very very specialized And I've been trying to reach out to the guy University of Cape Town to try get him on my YouTube channel the lecture there Just to talk more about it because it is a question I get asked a lot and I don't know that much about it So I'm trying to get him on the channel to just talk more, but yeah, it's kind of like you can go in and Create a product and then like I said you can use your your AI as your investment assistant Another thing that you can do is there's this technology called natural language processors, which it's very very simple technology It's a bunch of logical statements like if this then that if this number's past this threshold then that and then it takes that Information and basically just writes it in in English or in a more readable format And you could basically get your natural language processor with a simple set of rules Feature through all the government data of the world and it can actually create a nice little report So I could almost even have a website where people are like, hmm The South African bonds and instead of seeing weird squiggles Which not a lot of people understand bond curves and how they work and interest rates and all that it can very quickly say that short sentence South African bonds are a great buyer right now, and then if you're like, oh, I want to know more It can be like because you know, it's greater than the average in this area Okay, unemployment is a key concern, but we do think it will you know And you can basically you could set up a very Cool website that displays this information make the top half read the bottom off you have to watch an ad You know, we'll do a Facebook does put it put it in right in the middle of the good stuff Enjoy you could actually make a and like I say you get an AI to do it with a bunch of rules and then bam, you've got all that data very nicely packaged and You could like I say it could even be a good project to do because then you can imagine if it is valuable These big pension funds will be like hey who's this kid? You know, maybe let's consult with him He kind of knows what he's doing. Yeah, and that's why I always tell people if you're gonna do something cool You know make it for free put it online for free especially initially because That's how you get discovered a lot of people who you know Especially at our age who try and do something cool But they keep it a secret because they want people to copy them or they want to charge You know and I said, you know never milk the baby cow too soon Make something like this put it up for free if you want to make a little bit of revenue put a little bit of ads Maybe but generally have something like this for free and that's how you get the attention of of big clients And also that That's because if if my clients do dry up at least I do have some of these these crazy projects that I can stop implementing Yeah, I actually saw during the whole Bitcoin craze I saw a video back then where someone used natural language processing on Twitter. Oh, yes, and Managed to fit the like the Price of Bitcoin like pretty pretty by close just using tweets about Bitcoin. Yes It's very powerful. It's like surprised me how like it looked like you didn't laugh to me I'm sure YouTube editing and stuff. It took a bit longer, but didn't take them all that long to do And and and that's I mean this is the thing is one of the things they say about actually is that we're lifelong learners So even though we finished these, you know, ages of exams my studying hasn't stopped It's kind of like, okay, what is the new technology that I need to learn? Of course artificial intelligence. It's fun. It's exciting. It links up very nicely with Bayesian statistics So, you know, it's something that at least know the foundations to but natural language processes cloud computing I mean, it's quite fun, you know building a project in the cloud I had to go at making that that that social currency called hype coin On on a on fire base. Look at God hack tooth to shreds But at least, you know, and it cost a lot of money in the long run But you know, I learned quite a lot. It was really cool playing with that cloud technology seeing what it can do What can't do When it's come to blockchain as well, I've set up various virtual machines, you know running nodes doing this doing That and it's it's amazing at how many Toys tech toys there are out there that when you combine it with just a little bit of financial knowledge You can start automating these things and really getting some cool processes and results and I think that's what we're gonna see is We we're at the moment We've discovered data. That's where the humanity is. It's like, wow, there's data But now there's like this too much data and you know data scientists are like the hot job because they like yeah We can we can understand it but that's gonna get automated soon and people gonna start building tools that you know Condense this data and put it in in a nice meaningful way that people can then extract information and you know make knowledgeable decisions on So I'm like I say another thing I always tell the students on my channel is you got to learn programming Programming just teaches you the language of technology so that you can understand these new and cool things that are coming up and Joe, I really think that you combine finance with a tech understanding and You could very well become the next Warren Buffett's type of thing I don't think it's that far fetched to see that the you know the next richest guy is going to be someone Coming again from the tech area. I mean you look at Bill Gates You look at Bezos they coming from tech and I don't think any any other reason why the next tech guy Isn't gonna pull the next richest guy is gonna come from tech I think that's kind of a given. I think the way things are going. Yeah Next rich guy has to come to it and you look Bill Gates was basically making operating systems Bezos was doing retail. You know these retail is it's quite an old business I mean people have been selling goods at a market for a long time And I think the next big thing was like a Berg also came up with just you know socializing I mean that's also a very simple thing another simple thing that's gone on for a long time But it's very important to our economy is investing it is understanding will be stuff of things and I think that's gonna be Yeah, I think the next richest man is gonna be a guy who can create an AI or something like that They can do the investment process It doesn't have to do it 100% just can do it well enough so that he can look at all the markets at once and get that holistic view And then make those key decisions and I think the first guy to do that You're gonna have all all the money all the institutional money is gonna be saying okay We have to put 40% in equities flip Let's put it in that guy because he's got a really sophisticated machine that kind of it's run by an AI The fees are low and it's getting all the benefits of active management You know people gonna pump that in if you can give like I say low fees of passive Management back with the supposed advantage of active management and an AI can produce that Then you're on to for a bit of a winner. So the market would look really interesting having an AI that had money It was getting pumped into it like and it was having to allocate it Yeah You look at you look at that guy who started Vanguard and he's he basically started passive investing He changed the game of investing where he said you know what instead of me sitting down and trying to say Oh, this stock this stock that stock he says I'm just gonna buy every single stock according to their market cap So if this company's got 20% of the market cap, I'll put 20% behind it They got 5% in the market cap. I'll put 5% and he said I'll do that and said my fee He's made a little budget. He says I need a thousand dollars whatever to let's say run this business a month When I've got this amount of investment if I have this much investment I can reduce my fees, you know as a percentage that I keep that $1,000 and that's what he did The more money came in he lowered his fees Which what does that cause more money to come in which goes into lowest fees a little bit more Which goes even more money coming and I was reading it one stays this guy's getting one billion dollars every single day of inflow That's what it averages up to look He unfortunately died, you know quite recently Because you know he said this I think you know the late 80s, but he basically created Like an automatic investing process. It was basically it wasn't even AI it was dumb It just it was like I'm just gonna invest according to this one rule more market cap more investment. That was it now Imagine if you put in a little bit of sneakier rule and people are trying to do that. I mean They are passive funds model. Yes, they do incorporate a bit of a style and they try to do this And they you know they try to warrant their higher fees and you know We are seeing you know passive funds and this is what makes you know my job a little bit more interesting is It's not a binary position of oh, it's passive or it's active You know you've got all these little the spectrum of things to choose from and then of course There's the whole core satellite approach where you can have your majority in passive and you know a little bit in these Boutique funds so that's where the job does get a little bit complicated as an act tree But like I said if you can go and create an AI And like I said, I would start with the bond market just because it's simpler the information's there. It's more transparent They've been going on for a lot longer There's no survivorship bias like you kind of get with the stock market, you know You're only looking at the winners, you know looking at the companies that blew up like Enron and that type of stuff I think it's possible. I really think it's think it's a possible Project and job it could be it could be a fun one to see where it goes Yeah, and I'm sure if you if you try and do some of these things you do tends to put them on your YouTube so In the show notes of this and on the YouTube description will definitely link to your YouTube channel Yeah, I've spent many hours Watching just even your your videos on like the actual exams like just so interesting You're doing no, thank you study videos and whatnot. Thank you very much It's it's I must say it's it's weird making YouTube videos because you you know You've got a lot of this like self-conscious feeling especially when you look at your videos that you made like two or three years ago Gosh, it's so cringy. Gosh. Well, I was so excited on that topic. So I'm like hey guys, you know So it's it's it's yeah, it's there any something that You know people make a few jokes about but it's I'm just glad that job. It's I find it helps me think about talking Like say my parents are tired of hearing about me. So I thought let me bore the internet So I'm grateful that your people are actually listening to you to my craziness and nothing much appreciate that Yeah, so we're actually running out of time here matters to go in a second So thanks for coming on the podcast I've learned a lot Not the reaction. I thought the conversation was gonna go but I'm glad it went that way So I'm gonna go and research bonds a little bit more now. I Definitely know how little I know. Yeah, the talk of duty. So yeah some research myself Yeah, so thanks so much for coming on and yeah, like I said, we'll be definitely linked into YouTube channel So you so our lessons can go and check that out. It's definitely very very interesting information over there Fantastic. Well, thanks so much guys and y'all you've got a yeah, it's not time on your side. So have a great weekend For me Friday's only just begun. So I've got y'all Yeah, but thanks so much and y'all have a great time a guys. Yeah, thanks. And yeah, cool just that