Transcript: Matt Hougan on ETFs, Crypto



The transcript from this week’s MIB: Matt Hougan on ETFs, Crypto, is below.

You can stream/download the full conversation, including the podcast extras on iTunesBloombergOvercast, and Stitcher. Our earlier podcasts can all be found at iTunesStitcherOvercast, and Bloomberg.




This is Masters in Business with Barry Ritholtz on Bloomberg Radio.

BARRY RITHOLTZ, HOST, MASTERS IN BUSINESS: This week on the podcast, I have a special guest, Matt Hougan is a friend who I know through his work at Inside ETFs as well as the Inside ETFs big conference. I also know him from his days running and he more recently joined a crypto fund where they are producing the very first index of crypto coins which is quite fascinating.

If you’re at all interested in anything from the gamut of ETFs to Bitcoin and quite bluntly, Bitcoins held in ETFs and everything in between, then this is the conversation that’s going to be for you. There are few people who are more knowledgeable about the entire process of creating managing marketing and administrating ETFs than Matt, and taking that skill set and bringing it to a crypto firm where he’s basically going to try and do for various crypto coins and crypto assets what he helped do with ETFs is really quite a fascinating conversation. I think those folks who are interested in this space will find it endlessly informative and entertaining.

So, with no further ado, my conversation with Matt Hougan.

My special guest this week is Matt Hougan, he is the global head of research at Bitwise Asset Management. Prior to that, he was the chairman and pretty much chief cook and bottle washer at, that was purchased by Informa and the Inside ETF conference is the biggest ETF conference in the world, you’re still chairman of that event.

MATT HOUGAN, GLOBAL HEAD OF RESEARCH, BITWISE ASSET MANAGEMENT: I’m still chairman of that event. Yes, I love it very much.

RITHOLTZ: Bitwise Asset Management is the creator of the world’s first crypto currency index funds, Matt Hougan, welcome to Bloomberg.

HOUGAN: Thanks for having me, Barry.

RITHOLTZ: I’ve been looking forward to this, I am a little bit of a Bitcoin skeptic, but I’m open minded because I’m somewhat fascinated by the underlying blockchain technology and you know I’m interested in anything related to either ETFs or indexes, so let’s jump right into this.

And why don’t we start with your work at

HOUGAN: Great.

RITHOLTZ: What did you do there?

HOUGAN: So, I started as a freelance reporter for its predecessor which was IndexUniverse and overtime …

RITHOLTZ: I recall that.

HOUGAN: … we left the worst URL in the world with IndexUniverse and …

RITHOLTZ: Yes. Not a winner.

HOUGAN: No. is just marginally better.

RITHOLTZ: Really? I would think that’s a no-brainer.

HOUGAN: I think it was a no-brainer.


HOUGAN: So, we switched to I eventually became the CEO of the business. Some of the things I’m most proud of that we did there, we built the largest ETF conference in the world Inside ETFs. We built the first ETF classification and rating system.

It’s hard to imagine in ETF land that eight or nine years ago, things like tracking error were not available to most investors …

RITHOLTZ: Shocking. I mean, that’s just entry-level stuff, isn’t it?

HOUGAN: It is entry-level stuff. But it didn’t exist.

RITHOLTZ: Amazing.

HOUGAN: No one had even gone through the prospectuses to make sure they were extra tracking total return indexes. It was a mess. So, we built the first classification and rating system which we subsequently sold to FactSet. Now, the power’s FactSet’s.

RITHOLTZ: And that’s how mutual friend, David Nadig, previously ended up at FactSet set and then – didn’t they get bought by – was it CBOE?

HOUGAN: So, we sold our business in three separate sales. We sold our data business to FactSet, our events business to Informa, and our media business,, the property, to CBOE …


HOUGAN: … which is now Bats or we sold it to Bats which is now CBOE.


HOUGAN: To confuse matters more, we sold Dave with the Data business to FactSet and then he left FactSet to go to at CBOE Bats. So, it’s virtually impossible to keep straight in your head.

RITHOLTZ: Now, well, that explains my lack of understanding. So, you’re CEO of at the start of the, I guess, for lack of a better word, the ETF era, what was the industry like? You mentioned some of the real basic metrics that everybody takes for granted with mutual funds, that didn’t exist for ETFs.

HOUGAN: Well, people have to remember that early in the days of ETFs, no one believed in them, no one trusted them and no one understood. There are huge miss about ETF liquidity. People didn’t know what a creation redemption was, and people had no way to even answer basic questions like what are all the emerging market ETFs. That didn’t exist. No way to answer how well does this ETF track its index.

So, we spent a huge amount of time. I must have explained creation redemption.

RITHOLTZ: That’s the thing that I think most of the investing public understands the lease.

HOUGAN: Yes. Yes.

RITHOLTZ: Give us a 30-second version. What is creation and redemption of the underlying in an ETF?

HOUGAN: Sure. So, let me start with mutual funds because people understand them better. When you invest money in a mutual fund, you send them cash and then the mutual fund managers, sits on that cash overnight, then they come in to work and they pick which stocks to buy and they buy stocks with that cash.

RITHOLTZ: And usually, they’re buying their existing model.


RITHOLTZ: Here’s what our core holdings look like. We’ve gotten this much inflow. Great. Go out and buy a pro rata ..

HOUGAN: That’s right.

RITHOLTZ: Everything we already own in proportion to the money.

HOUGAN: In proportion. And then when you want your money back the exact same thing happens in reverse, you say I want my $100,000 back, they sell $100,000 of whatever stocks are out-of-favor and they send you your cash. And that’s a creation and a redemption in the mutual fund but you’re doing it.

In an ETF, when you buy an ETF, you just buy it like you buy shares of IBM. I buy my shares …

RITHOLTZ: Like a closed-end funds.

HOUGAN: Or just on the exchange, right?


HOUGAN: I might buy a hundred shares of SPY and you might be selling it and will get matched at the exchange level. What happens with an ETF is instead of the ETF going out and buying the securities, it publishes a list of what securities it wants to buy and a big institutional investor called an authorized participant, goes out and acquires that list of securities.

Say it’s the S&P 500, they buy it all 500 securities. And then they send all 500 securities to the ETF company in exchange for the same value of shares in the ETF which they can just send cell on the on the markets.

Same thing happens in reverse when these APs want to redeem shares, they say we want to – we have 50,000 shares this ETF, they send the 50,000 shares to the ETF company and the ETF company sends them the equivalent dollar amount in stocks which they can then sell. Now, you may wonder why does that matter and it matters for a bunch of different reasons. I’ll give you two.

So, first, think about when you send money to a mutual fund company. They have to hire people who go in to the market, decide what to buy, trade. It cost money that raises the fees.

The other reason that matters is when you redeem from a mutual fund, they have to sell actual stocks. If those stocks have appreciated in value, they realize capital gains in the fund. The horrible thing about the mutual fund industry is at the end of the year, everyone who still owns those funds has to pay taxes based on the fact that you left.

RITHOLTZ: Someone else sold, generated a capital gain tax event …


RITHOLTZ: And the people who didn’t sell are on the hook.

HOUGAN: Are left totally in the bag.

RITHOLTZ: So, I was looking at ETFs has having to really attractive qualities. One is there – if you decide to sell your ETF, and I don’t, I don’t get stuck with your capital gains.

HOUGAN: Agreed.

RITHOLTZ: And second, that whole creation redemption process means as long as the underlying holdings have liquidity, there’s never liquidity problem with the broader S&P like ETFs or am I wrong?

HOUGAN: No, you are absolutely right. I actually think if the ETF came first, the SEC would never approve the mutual fund structure. You’re going to make people share in the tax event? That’s insane. Are you …

RITHOLTZ: Socialism for the tax …

HOUGAN: For investors. Yes. It’s totally right. And you’re absolutely right about the liquidity as long as the underlying is liquid, the ETF is liquid, which is why, and people get this wrong, the only bond funds that have blown up have been bond mutual funds because they have to redeem out in cash …

RITHOLTZ: Because they’re so liquid. Very often, it’s only the top third or top half of the bonds and a lot of big indexes trade regularly are deep and wide and have a lot but by the time you get to the thousandth holding, you trades every Tuesday by appointment, not a lot of liquidity there.

HOUGAN: Good luck. People worry about bond ETFs blowing up. What they should be worried about is it in a bond market crisis corporate bond mutual fund blowing up and having real issues. I think that could happen.

RITHOLTZ: So, I have to ask the obvious question. ETFs were the hottest area in the markets, what made you decide to say I’m going to leave this behind and make a leap into the craziness that is crypto? Because you jumped into it right in the middle of the mayhem.

HOUGAN: Yes. Yes. Although it was – the plan to jump into it started earlier that that, but that’s absolutely true. I would say there are three things.

When I got into ETFs, they weren’t well understood and they weren’t widely adopted and they were still a new and emerging industry. And the only skill I have, to the extent I have a skill, is the ability to explain complex things in a simple way. And I felt like a lot of what I wanted to do in ETFs have been accomplished, right?

I had helped create the first ETF rating system. I’d have created the first ETF classification system. I’ve done some small part to move ETFs into the mainstream. And now, they are the dominant way people get exposure to the market.

So, I felt most of what I’ve done, what I want to do have been achieved. And I went looking for the next area of disruptive opportunity where I thought the quality of information was poor. I actually ended up with two. I ended up with crypto and with option strategies, both of which I think are potentially very important and both of which are really poorly understood by most investors.

But this unique crypto opportunity to be involved in the group, first crypto index fund, appealed to my inner indexing nerd.

RITHOLTZ: So, is there – are you seeing parallels between how crypto was being perceived by the investing public and ETFs in the early days?

HOUGAN: Hundred percent. Do you remember when people talked about ETFs as weapons of mass destruction?


HOUGAN: Do you remember when people wouldn’t – didn’t think ETFs would never amount too much? I think they were – the I shares franchise was sold for a dollar from Morgan Stanley to BGI, right? It’s …

RITHOLTZ: Nice trade.

HOUGAN: Yes. Exactly. I think …

RITHOLTZ: I hope someone …

HOUGAN: … call the Louisiana purchase of …

RITHOLTZ: Yes. I hope someone still has that dollar taped on the wall somewhere.

HOUGAN: But these were not – people didn’t think ETFs would amount to much, right? They were a last-ditch effort to save the Amex and create trading volume there. People didn’t realize how good they were.

And the same thing as crypto. People are reflexively dismissive of crypto. Most people have given it about two and a half minutes of thought.


HOUGAN: If you give it two and a half minutes of thought, you think it’s very unicorn money on the Internet and it takes hours and days of really analyzing it to see where it might and may have value. So, I see a lot of parallels.

RITHOLTZ: So, to me, and I know this is almost a cliché at this point, blockchain is so obviously useful in so many applications that we’ve only begun to think about, it’s that this the bitcoins and the Ethereums and go down as hundreds of coins, it seems to be that there’s a lot of speculative excess in the space and I think that’s what makes it so easy for people to just, yes, okay, bitcoin. Bitcoin is the next dotcom. And it – the parallels are there also.

HOUGAN: I think those parallels are accurate. It – I think it is the next dotcom. But remember, the dotcom bubble created but it also created Amazon.


HOUGAN: So, I think there are 2,000 cryptocurrencies out there, 95 percent of them are useless and will die a painful death. The sooner that happens, the better.


HOUGAN: There’s also a lot of bad activity, bubble-related activity, that’s getting cleared up.


HOUGAN: But from those ashes, if you call them ashes, I mean cryptos up 300 percent over the last two years, so that’s ashes. They’re nice ashes. But from those ashes, I think will merge important things. Just like from the dotcom ashes emerged Amazon, Google, Facebook, etc.

RITHOLTZ: Right. No doubt about that.

I’m going to throw a quote at you and I want you to explain it. You said you think we need crypto to cut out the rent-seeking middleman that creates a tax on society.


RITHOLTZ: Now, we’re all familiar with rentiers or at least we should be, but give us a little detail?

HOUGAN: So, crypto is the first time we’ve been able to engage in financial transactions between people who don’t know each other without someone in the middle to verify those transactions. That’s all that blockchain technology does. It allows you to replace someone in the middle verifying transactions like Visa or like your bank and your friend’s back with software that does it automatically and for free.

And so, so much of the financial industry is at some level a middleman like an escrow agent that verifies trust and crosses transactions and crypto has shown that you don’t need that. And that’s a big deal.

RITHOLTZ: That’s a huge deal.

HOUGAN: There’s a huge deal. Now, we’re miles away. We’re years away. It’s an early stage technology. We’re years away.

But already, you can go to IBM and you can wire money using a crypto asset internationally for much cheaper than you can send it through a traditional banking system. So, it is going to get here but it is early.

RITHOLTZ: Quite fascinating. So, let’s talk about some real-world applications for – I think we want to separate the coins from the underlying software from blockchain and that technology. But you’re focusing on the entire value chain from start to finish?


RITHOLTZ: So, let’s start with blockchain a little bit.


RITHOLTZ: What are some of the near future, not 50 years future applications of blockchain?

HOUGAN: Yes. For what it’s worth, I’m way more bullish on crypto assets than I am on blockchain.

RITHOLTZ: Really? That’s the opposite with so many people. It’s almost a cliché to say, yes, skeptical about that one but this blockchain is …

HOUGAN: It is. If you remember the early days of the Internet, the really early days when there were books and you’d look up a website and type it in, everyone was really excited about corporate intranets. Like it’d be great to send files to (Joe) in accounting without having to walk over there. People thought …

RITHOLTZ: That’s what Slack is for.

HOUGAN: Exactly. No, but people thought corporate intranets were the thing. The analogy between an open Internet which people are like no one will trust that …


HOUGAN: … is the same between private blockchains and public blockchains. Public blockchains that are open and accessible by anyone need a crypto asset to function. And I think over the long-term public, open accessible technologies tend to win.

Now, private blockchains are important. I think they could revolutionize settlement. One that the things blockchain does really well is settle transactions much faster. I think they could – they can memorialize data. I think they let you trace back transactions.

But I think those are actually modest improvements. And I think the massive improvement is this displacement a trusted middleman that public blockchains allow.

RITHOLTZ: So, one of my favorite examples is during the financial crisis when we were securitizing mortgages by the millions, slicing and dicing them and then re-securitizing them and selling them, that on undoing that Gordian knot became almost possible and banks ended up losing track of which bank on which mortgage that went to which house.

And there were actual stories of something that should be a legal impossibility. People without a mortgage going on vacation and coming home to find that they were foreclosed on, all their stuff is out on the street. There’s an orange sign on their door. How was I foreclosed on? I bought this house for cash. That should be impossible.

HOUGAN: Should be.

RITHOLTZ: And then banks foreclosing, that didn’t own the mortgage, foreclosing on somebody and the example I like to use is if blockchain was used as a methodology to track where each of those mortgages went, it wouldn’t have been that same impossible to untangle mess, you could’ve traced exactly who own which mortgage and who own which property as a failsafe. There would be no headaches at all.

HOUGAN: It’s amazing and it’s amazing that it exists. We all by something called title insurance to guard against the risk that somehow this most important asset we’ve ever bought is not actually ours. It is incredible that still exists in today’s society. I think that example is a great one. And there are many like that.

RITHOLTZ: So, let’s talk about you’re still chairman of Inside ETFs, why did you decide to keep that role?

HOUGAN: I still love ETFs and I still think the ETF industry is evolving rapidly and I still think there are a lot of things that people need to learn, particularly as we enter a different cycle in the market. So, the ability to still influence the conference was really appealing. I’d like to keep my hand in. I’m also on the board of a small ETF issuer. So, I like to stay involved in the ETF space because I still think we have miles to go there.

RITHOLTZ: So, I speak at a lot of events and conferences and every now and then, there’s a couple of – there’s a good name or two that speak. Your conference held in Florida in February of the year, it’s mind blowing. The list of names that show up.

So, last year I got to interview Serena Williams as a favor to you.

HOUGAN: Yes. Yes.

RITHOLTZ: So, I’ll call – I’ll be calling back that favor. But before I interviewed Serena Williams, I’m in the audience watching Quincy Jones.


RITHOLTZ: And then after I’m done with that interview, I went back into the audience and watched – was it General McChrystal?

HOUGAN: Yes. Yes.

RITHOLTZ: So, I mean, it was just like – and this year you have Michael Lewis who I’ll be interviewing in February, Paul Tudor Jones, Joe Montana. I mean you guys don’t mess around.

HOUGAN: Bob Shiller. Yes. We don’t mess around. What we – one of the great things about running a conference company is that you get to indulge all your intellectual interests.

So, I love Michael Lewis. So, why don’t we want to have him there, right? We love – I love sports so you can get football giants there.

RITHOLTZ: You had Alex Rodriguez the year I was one of the keynote presenters and I wish I would’ve hung around to see that.

HOUGAN: He was great. Like, I …

RITHOLTZ: I heard.

HOUGAN: And I – how you find them, I read a great article where he reflected on through the challenges that he had faced. I thought he would be an interesting person to listen to.

It’s four days. And so, you can’t do four days of creation redemption and emerging market debt. You need to give people a chance to reflect and think about other things.

And, yes, we’re really excited. I think having Shiller there this year, at this time in the market, is really timely and I’m looking forward to that.

RITHOLTZ: Yes. He’s terrific. Anybody who wants to look up the agenda, you just Google Inside ETF Conference Florida in February and it will show up. It’s always a great time.

So, the next question I have to ask is what do you hope to accomplish with this giant event? And I don’t know if I’ve teed this up correctly for people. I’m not just promoting an event. I don’t want people to think that.

I go to a ton of events. This and SALT. I mean, these are the biggest conferences of the year. These are giant, 2000, 3000 people events.

So, SALT in Vegas, the last time I went there was an amazing – it had to be 2,500 hedge fund managers there and I got to run around and say underperform, underperform. I got around – I wasn’t the most popular there – guy there, although that was – yes, that’s true.

And then the first time I went to this event, I was kind of blown away by how giant it actually was. And not just big for the sake of big, big with really big names and really interesting things. What do you hope to accomplish with this event?

HOUGAN: Yes. So, the event is focused primarily on financial advisers. And to my mind, it’s a success that the people who come and take three days out of their lives to attend that away from their families find a way to sustain or grow their business.

And so, to do that, I want them to learn of this particular year’s event a few things. I want them to think deeply about where we are in the economic cycle and what that means for clients and what that means for their bond holdings, etc.


HOUGAN: I want them to think deeply about these new areas of the market that are opening up, not just crypto which we talked about but some of the thematic ETFs and whether those are performance-chasing or valuable and interesting. And then one thing we try to do a little bit is ask them to think five years ahead.

I think the financial advisory business is going to be fundamentally transformed in the next five years. I think we’re on the cusp of an era of mass customization for client exposures. And just like we talked about robo advisers five years ago when no one cared, I think getting people to think about mass customization, personalized indexing, ESG overlays now will be helpful to their business in the years ahead. So, that’s – those are some of the things I want them to take away.

RITHOLTZ: So, who attends these events? Is it just RIAs? Is it – because when I was there last year, I saw a lot of ETF managers. I saw a lot of active managers. I saw a bunch of economists and strategists. Who’s primarily in the audience?

HOUGAN: Yes. I think everyone from the traditional asset management industry is there. So, every ETF issuer, every index provider, all the APs and market-makers. Also, all the mutual fund managers who must be thinking about the ETF space are there to see and learn. And on the flipside, there are really two classes of investors.

So, there are a large number of financial advisers and there’s a rising number of institutional investors because they’re increasingly using ETFs at the core of their portfolio and not just on the edges. So, that mix comes together.

RITHOLTZ: So, I recall last year, you had Tim Buckley, the new CEO of Vanguard. There were a number of other BlackRock, State Street, Wisdom Tree. It was hard to walk around and not run into some pretty substantial entities. Have you ever sat back and calculated the total assets under management in that room?

HOUGAN: I have not. That’s a good question.

RITHOLTZ: I’m going to guess it’s somewhere – and there’ll be a lot of overlap because when you have the of BlackRock and the head of Vanguard upfront and then two-thirds of the audience owns Blackrock and Vanguard, there’s a little bit of double counting. But I got to think there’s like $10 trillion, $20 trillion in that boardroom.

HOUGAN: There’s a huge amount of volume. There’s a thing called the Inside ETF effect which ETF volumes tend to be down for the three days …

RITHOLTZ: Get out of here. Is that a fact?

HOUGAN: At least used to be a fact. I don’t know if it continues to be a fact.

RITHOLTZ: So many people from the ETF industry are in Florida for this even that trading volume falls.

HOUGAN: Yes. It’s modest, but yes, that has been a reported truth.

RITHOLTZ: That’s hilarious.

And I just have to – I just have to give my disclosures about this because we’re all about transparency and full disclosure. So, I have been a paid speaker at the Inside ETF conference and the Inside ETF firm is cosponsoring a conference in 2019 in September in Arizona with my firm, RWM, Ritholtz Wealth Management called Well Stack and I would rather disclose that and have somebody after the fact, say, hey, why don’t you tell us about that?

Two years ago, I interviewed Serena Williams which was the highlight of my interview career, as a tennis player, and we played a couple of sets. She won 6-2, 6-4. It was closer than you would have imagined.

HOUGAN: That’s not bad. Not bad.

RITHOLTZ: She was six months pregnant. Actually, this was right after she had a baby.

HOUGAN: That’s right.

RITHOLTZ: And what was really interesting is what I’m fascinated by the nonfinance people that speak at events like this and you guys do a really good job programming this is how many parallel learning experiences there are between non-finance related businesses and whether it’s the military or sports or music, there’s some really fascinating things to learn about process of her outcome about our own errors and biases and how we can do better even when we make mistakes, how we can learn from them.


RITHOLTZ: That sort of – that sort of stuff is always really fascinating.

Who are you really looking forward to seeing speak this year?

HOUGAN: Yes. I’m really looking – I mentioned this earlier. I’m really looking forward to Shiller speaking. I think that …

RITHOLTZ: So, he’s – you’ve seen him before.

HOUGAN: I’ve seen him before.

RITHOLTZ: He’s fantastic.

HOUGAN: He’s fantastic and he seems honest and organic.

RITHOLTZ: He’s totally organic.

HOUGAN: Which is unique. Not everyone is. A lot of people speak their book …

RITHOLTZ: For sure.

HOUGAN: And that’s not true. I’m really excited about Michael Lewis. We’ve tried to get him many years and the schedule has not worked out. He’s one of my favorite authors. I see him around town in Berkeley. I always want to, like, stalk him and ask him to come speak …

RITHOLTZ: Now, you have an excuse.

HOUGAN: Now, he’s there.

RITHOLTZ: So, I’m assuming you read “The Undoing Project” which is his previous book. The “Fifth Column” is the new one.

HOUGAN: I have read the new one. It’s on my list.


HOUGAN: I haven’t read it yet.

RITHOLTZ: So, I read it. We went down to Florida over the holidays. I read on the plane. And it’s great but it’s infuriating.

HOUGAN: Yes, yes, yes.

RITHOLTZ: Because it’s just why are they making these mistakes? You know what it is? The Big Short is infuriating, but you feel like the people who deserve to – some of the people who deserved to get …

HOUGAN: Yes. Totally.

RITHOLTZ: … punished, get punished.

HOUGAN: Right.

RITHOLTZ: And in the “The Fifth Column,” there is no justice. It’s like, wait, people are doing what?


RITHOLTZ: No, that’s wrong.

HOUGAN: It’s just bad.



RITHOLTZ: It’s quite fascinating. And I read that in anticipation of this interview.

HOUGAN: I’m looking forward to hearing you chat with him.

RITHOLTZ: Normally, I would have held that book for my, like, February-March, that’s beach reading to me.

HOUGAN: Yes. Yes.

RITHOLTZ: But I’m like, no, no, I got to prep and I like to read like a month in advance. And then kind of go through my notes a week beforehand and it all comes back but it had time to percolate.

HOUGAN: I like it. I like it.

RITHOLTZ: Well, so Shiller – by the way, Shiller, a prior guest and Michael Lewis a prior guest, Shiller’s amazing. You’re going to have a great time.

I think he’s not doing an interview. He’s just presenting, right?

HOUGAN: He’s just presenting. That’s right. His outlook.

RITHOLTZ: He’s – professors at Yale, for some reason, have a way to command a stage and an audience. I think people will love him. And he doesn’t go too far out into the weeds even though he could at any time he want …

HOUGAN: That is definitely true.

RITHOLTZ: You’re certainly – I assume you’re familiar with his friendship with Jeremy Siegel.

HOUGAN: Of course, who …

RITHOLTZ: Which is Hilarious.

HOUGAN: It is Hilarious. And Jeremy Siegel is magic on stage. I love seeing Jeremy Siegel before he goes on stage where he’s old professor, sort of mean to him …


HOUGAN: And then he goes on stage and he’s just supernova. It’s amazing to watch him.


HOUGAN: He’s a fantastic presenter.

RITHOLTZ: So, when he was on the show, he was sitting where you are sitting, and for whatever – he’s in University Pennsylvania.


RITHOLTZ: So, they take the train in, they must have them teed up for a dozen things. I’m interviewing him towards the end of the day, it’s like 5 o’clock.

HOUGAN: Right.

RITHOLTZ: And so, it’s a long day for anybody and for someone who’s his age to run around, it’s a long day. And he’s sitting there and I want to say in, like, the last 30 minutes of two hours, he just starts swiveling with the chair and then before you know it he just starts doing this. And I’m sitting there watching this and you could literally hear him, you could hear the Doppler effect that he – as he says, well, in the first in the long run, it was absolutely one of the things that I – and I just had like a grin on my face that you – it must have taken a week for me to stop laughing and then the amazing thing is he is consistently picked as everybody’s favorite professor …


RITHOLTZ: … at Wharton.

HOUGAN: Of course.

RITHOLTZ: And I always wondered why. And then you realize, he’s like this impish child, this delightful leprechaun discussing long-term expected returns of equities. Of course the Wharton students love him, he’s just like endlessly entertaining.

HOUGAN: I agree.

RITHOLTZ: And the two of them couldn’t be more different personalities.

HOUGAN: It’s so great.

RITHOLTZ: Yes. No, it really is.

HOUGAN: It is so great.

RITHOLTZ: I have to mention a quote of yours that I’m tickled by and get a response. So, for a long time, I’ve been saying that all the crypto heads are the new gold bugs but you phrased it a little differently. You said bitcoin was the new millennial gold. Discuss.

HOUGAN: Yes. Well, it’s definitely true. Every generation has an asset that they love or a way of getting exposure that they love. The greatest generation love gold, then people loved active mutual funds. Gen X loved hedge funds. Millennials love crypto.

If you ask millennials which would they rather hold, gold or bitcoin, it’s bitcoin by a mile. Which would rather hold equities or bitcoin, it’s bitcoin by a mile.


HOUGAN: And I would say there are a lot of analogies between bitcoin and gold. They’re both non-sovereign stores of value. But bitcoin is much more useful than gold. It’s …

RITHOLTZ: For sure.

HOUGAN: It’s much easily divisible. It can be spend, it can be stored. It’s – it can be transferred easily. So, it is, it’s like an upgraded version of gold.

RITHOLTZ: I think I could get liquid with gold faster than I can get liquid with bitcoin in size and I certainly could trade gold for more things than I could for bitcoin.

HOUGAN: Right now.

RITHOLTZ: Right now?

HOUGAN: That’s definitely true.


HOUGAN: That is definitely true. Any early-stage technology, it takes a while to get up …


HOUGAN: I’m not sure you’re right about the liquidity in size. It depends on – you can get liquid in bitcoin at very reasonable sizes very quickly. Certainly, gold’s a …

RITHOLTZ: I got a 100 million in bitcoin.

HOUGAN: I didn’t know you were that well off. But that’s …

RITHOLTZ: Well, this is for a friend.


RITHOLTZ: This is for a friend. So, he wants to know how we can get the hell out of this and there are some dollar limitations on the coin …

HOUGAN: No, that is true. It is an early stage technology. And I’m not claiming it’s more established than gold.


HOUGAN: If you look back at gold when it came off the U.S. gold standard, it went through a period of rapidly rising prices and massive volatility. It had years …


HOUGAN: … when it went up 100 percent, years when it went down 33 percent. We just don’t remember that. This is a new sovereign store value. You would expect sort of an asymptotic rise in prices and you would expect massive volatility. And if I’m right about bitcoin 10 years from now, it will be boring like gold, too. And that’s what we’re waiting for.

RITHOLTZ: That’s not the first word that comes to mind when I think about bitcoin. It’s boring.

But by the way, people forget how many 80 percent drawdowns has Amazon has, that’s Apple had. GE is in the middle of a 90 percent – major successful companies go through that on a regular basis. We tend not to want to think about it.

HOUGAN: That’s right. And bitcoins gone gone through seven – six or seven, 70 percent plus drawdowns in the past. And each of those has set the stage for a new rally. No, I’m not saying that will necessarily happen here, but it’s down 70 percent. It’s up 300 percent over last two years. So, it depends on your perspective.

RITHOLTZ: So, let’s talk a little bit about the index that you guys are putting together. You created the index. You’re using it as a basis for an ETF. You’ve already filed with the SEC.

So, let’s talk a little bit about that filing. What …


RITHOLTZ: What do you disclose in that filing and should someone who’s interested in buying an ETF that will hold coins, on index of coins, actually look like.

HOUGAN: Yes. So, we have filed two applications for cryptocurrency ETFs. One is an index basket that holds the top 10 crypto assets and one is bitcoin only.

RITHOLTZ: So, wait a second. I could buy bitcoin when this is finally approved through an ETF?

HOUGAN: That would be the hope if the SEC approves this ETF, you would be able to it through an ETF, the same way you buy gold through GLD or silver for writer silver for – through SLV. It’s the same idea. It’s easy exposure in a familiar brokerage window to something you otherwise have to buy in a different way.


HOUGAN: And so, there have been multiple bitcoin ETFs filed. For what it’s worth, we’re moving forward more aggressively on our end with the bitcoin filing than the index filing. But, yes, we’re hopeful and optimistic that we can work with the SEC. They’ve raised legitimate issues, but we hope we can work through it and we’ll see.

RITHOLTZ: And this isn’t an ICO – so a lot of these initial coin offerings have been played with not – this is an ETF equity-trading vehicle that will hold bitcoin.

HOUGAN: That’s the hope assuming …

RITHOLTZ: That’s the hope? Now, there’s been a lot of scams not on that idea but some of these wallets and various coin offerings and people have been hyping it. Some – well, a number of celebrities got associated with this and gotten into trouble with the SEC. You’re trying to do the most plain, vanilla offering you can with bitcoin as the underlying asset.

HOUGAN: That is right.

So, a lot of those ICOs were scams, I think, were illegal and will be prosecuting …

RITHOLTZ: People are going to jail.

HOUGAN: I think people will – are going to jail and I think they should.

And it brought out a lot of bad actors in the space because there is such massive wealth accumulation, but that doesn’t mean that there aren’t legitimate things. So, right now, we have crypto index funds that’s available for credit investors. We have a bitcoin for credit investors. But the hope is we can launch an ETF that gives that exposure to everyone and makes it safe cheap and easy to gain exposure to in the market.

RITHOLTZ: I hope you’ve picked out a nice security symbol.

HOUGAN: The ticker choice is a big deal.

RITHOLTZ: It really is. People don’t appreciate.


RITHOLTZ: Do you remember MOO? That exploded and you – or HACK for that matter, H-A-C-K, which is now in the midst of litigation. I hope it gets resolved sooner rather than later. But having – and it’s been shown even with equities.

HOUGAN: Totally.

RITHOLTZ: If you have a good ticker symbol, it’s worth a couple of percent in performance overtime.

HOUGAN: And it makes perfect sense. It makes behavioral sense. I think it matters a great deal and I can’t wait until the day that we get to pick and disclose the ticker.

RITHOLTZ: Right. I’m assuming you have one reserved and you just can’t disclose it.

HOUGAN: Well, you’ll never know.

RITHOLTZ: So, let’s talk a little bit about the methodology of the index. Is it simply just the 10 biggest coins or the 10 most liquid coins? How are you putting that together?

HOUGAN: So, at one level, the indexes for our fund is the 10 largest coins. But of course, everything in crypto which is why I got interested is more complex than it is in equity. So, like, you and I could say what is the price of IBM and we would say the exact same number. If you ask me what the price of bitcoin is, I’d have to look at different exchanges, merge them together.


HOUGAN: So, everything is more difficult. But it is a market cap weighted index of crypto assets. And let me say why I think that’s an interesting strategy. We don’t know …

RITHOLTZ: Worked for the S&P.

HOUGAN: Well, yes. Well, we don’t know what will happen in crypto, right? It’s early. These are competing protocols. They’re each optimized for a different use case and I’m not smart enough to know five years from now weather bitcoin or Ethereum, or Litecoin or Monero or these other assets will be the most important. I just don’t know.

And so, the index gives you a simple way to make a simple bet which is I think crypto will be more important in the future than it is today. And if that’s the bet you want to make, you want to make a broadly diversified bet.

RITHOLTZ: So, why the top 10 and not the top 100?

HOUGAN: Yes. There’s a very big power law in crypto. So, the top 10 captures 80-85 percent of the market, and after that, liquidity falls out.

If you think back to the equity market in the early days of emerging markets, you would only buy large caps …


HOUGAN: … and then large mid and now you buy everything, I think the same thing is true in crypto.

RITHOLTZ: Makes sense. I know the venture capital world has been very interested in everything from crypto to blockchains or what have you. Bitcoin has some pretty high-profile backers.


RITHOLTZ: What do you see in the VC space when it comes to cryptocurrencies?

HOUGAN: Yes. A lot of interest and a lot of interest that’s trickling into the endowment and pension space that’s investing into crypto through funds like the Andreessen fund …


HOUGAN: Or some of the other funds.

A lot of the firms are trying to solve one of two problems. Either they’re part of establishing this institutional ecosystem, because remember, crypto emerged as a retail asset. It trades on likely or non-regulated exchanges.


HOUGAN: So, you’re seeing a lot of investment into regulated exchanges like backed which is from ICE, which is launching in Q1. That’s one thing.

And then the other thing is companies that are improving on the underlying technology and the blockchain technology or building applications on top of that.

And like any VC boom, valuations are probably too high. There’ll be pullback. But it’s exciting and it means there’s a big infusion of capital and big infusion of people working on the project.

RITHOLTZ: You mentioned the pensions and the endowments that have an interest in this.


RITHOLTZ: What other institutions are looking at this? And I would have to also bring up Fidelity, of all companies, made of big early jump towards crypto. Tell us what you know about that.

HOUGAN: Yes. Fidelity is hiring up to 150 people to build a way for institutional investors to buy crypto and store it with a name they trust, right? One of the greatest brand names in the future.

You’ll ask yourself why Fidelity and why haven’t I seen BlackRock, State Street, other asset managers? The difference is that Fidelity is a family-owned firm. They’re still …

RITHOLTZ: Right. Privately held, not public.

HOUGAN: Still reputational risk in crypto. The other big player in crypto is VanEck, also privately held, also a family-owned firm.

RITHOLTZ: We know Jan.

HOUGAN: We know Jan. And I don’t think that’s a surprise. I think they’re free to do it. Fidelity saw that this is important. We know, we had conversations with 2,000 institutional and financial advisers last year. There is dramatic interest in crypto. They want good ways to get exposure.

Right now, most of the ways are retail oriented and noninstitutional grade. And so, they say an opportunity to be first and they’re doing it.

RITHOLTZ: Quite fascinating. I read a statistic a couple of months ago that I was kind of shocked at approximately 25 percent of all the points ever created have been lost. Either their encrypted password access has been lost or it’s physically on a drive that was destroyed or some source that — how accurate are those numbers and if they are accurate, how can this ever really be a serious asset class if think about all the VCR tapes and cassettes people have that essentially technology …


RITHOLTZ: …has orphaned totally?

HOUGAN: Well, you couldn’t orphan this because all that’s written on that is like a 50-letter code. So, you could literally if you wanted to write it down …

RITHOLTZ: Write it down.

HOUGAN: on a piece of paper and you would have it. It is true that it’s a digital bearer instrument like a bearer bond or …


HOUGAN: … a bar of gold. And so, if you lose it and what you lose is …

RITHOLTZ: It’s lost.

HOUGAN: It’s lost. Again, you got to think this is an early-stage technology. Right now, the UI for crypto is terrible. If you want to email me, you can email me at, my first name and last name, easy, memorable. If you want to send me bitcoin, it’s like 52 random letters.


HOUGAN: So, I think the UI improvements will happen in 2019. It will become easy to save store and spend crypto. I think it’s just a matter of software development.

RITHOLTZ: We have been speaking with Matt Hougan. He is the Global Head of Research. If you enjoy this conversation, be sure and come back and check out the podcast extras where we keep the tape rolling and continue chatting about all things crypto. You can find that at iTunes, Overcast, Bloomberg, Stitcher, wherever your finer podcasts are sold.

We love your comments, feedback and suggestions. Write to us at You can check out my daily column that’s on Follow me on Twitter @Ritholtz. I’m Barry Ritholtz, you’re listening Masters in Business on Bloomberg Radio.

Welcome to the podcast. Matt, I’m so glad we’re having this conversation. I was looking forward to doing this with you towards the end of last year …


RITHOLTZ: … and things just got so crazy with everything. I’m glad we waited a little while to just let everything settle out.


RITHOLTZ: But I have to ask from a — well, first, was bitcoin a bubble last year?


RITHOLTZ: Total bubble.

HOUGAN: Total bubble.

RITHOLTZ: I mean, when we start the year like 2000?

HOUGAN: At 20,000. You mean – 2018. Yes. Yes.

RITHOLTZ: We start 2018.

HOUGAN: It started around a couple thousand …

RITHOLTZ: And then ended up at 19,500 …


RITHOLTZ: … something like that.

HOUGAN: And there’s speculative fervor and there was every element of a bubble that you or I would recognize, including your bartender, your cabbie, and your …

RITHOLTZ: 2017 was the top.


RITHOLTZ: And then 2018 was what, is that 75, 80 percent retrenchment?

HOUGAN: Somewhere in there. Yes. Absolutely.

RITHOLTZ: That’s a big move down.

HOUGAN: It is significant. Yes. It is still up 300 percent from the start of 2017 until now.


HOUGAN: So, from a longer-term perspective, people love to make fun of hodlers in crypto, the hold-on for dear life. That’s the same thing as buy-and-hold in equity. So, you just have to have a little bit more perspective. But, yes, it was a massive run-up and a massive pullback.

RITHOLTZ: The Qs in NASDAQ 100 from 2000, 2003 down 81 percent.


RITHOLTZ: So, this is comparable.

HOUGAN: I think that’s right. And it did the same thing that happened in the Internet which is it attracted a huge amount of talent, it attracted a huge amount of capital and it had been very painful for investors. I think out of that …

RITHOLTZ: For investors or for the people who just jumped on blindly when it had already begun to move aggressively?

HOUGAN: The people who jumped on blindly when it already moved aggressively and also volatile highly moving assets encouraged bad behavioral responses …


HOUGAN: … as well as bad activity. But it did bring a lot of capital and interest in development to the ecosystem. So, I do think interesting things will be born from that. But, yes, it was a difficult year in 2018.

RITHOLTZ: So, let’s talk a little about ETFs. You were the CEO of


RITHOLTZ: We’ve already discussed how the industry has begun to mature and change since your involvement and we’ll note that’s a correlation, maybe not a precise causation. But I have to ask, this is one of my favorite questions with anybody working in ETFs, are there ETFs that exist today that you think should not exist?

HOUGAN: Should not exist, yes.



RITHOLTZ: And I know exactly what you’re going to say but go ahead, what s it?

HOUGAN: Volatility ETFs.

RITHOLTZ: Really? I’m wrong. I mean, that was …

HOUGAN: Really? What did you want – what did you think I was going to say?

RITHOLTZ: I was expected like the three X inverse …

HOUGAN: Yes. I don’t — I have a particular problem. I had more of a problem with those when they first came out because people didn’t understand them.


HOUGAN: I feel that people understand them now and the quality of disclosures and information around them are better. My issue with volatility ETFs is people still don’t understand them and they overwhelmed the actual volume of volatility futures and there is massive contango that just makes them — they’re testing Zeno’s paradox of whether they can actually get to zero and I think they’re doing so and harming that.

RITHOLTZ: You can’t just go halfway …

HOUGAN: Exactly.

RITHOLTZ: … all the time. You don’t think you can do that?

HOUGAN: I don’t know. We’ll find out.

RITHOLTZ: Explain contango for people who don’t understand commodity future.

HOUGAN: Sure. So, contango is when you buy a future, you’re buying the right to buy it at a future date, let’s say 30 days in the future. Let’s say oil to take account of example is $50 now. The future may be trading at 55.

If you buy it at 55 and the spot price doesn’t move from 50 over the next month, that $55 future is going to converge down to 50 and you’re going to lose $5 that’s 10 percent of your money.

The problem with volatility futures is that they almost always trading contango and it is a very sharp contango. And so, you’re losing not just a couple percent. You may be losing 10 or 20 percent of your money every month.

And I think people bought those with the thought, hey, volatility is at record lows, it’s going to go up. That thought was right as far as …

RITHOLTZ: Eventually.

HOUGAN: Eventually. But what they didn’t realize is you’re not buying VIX. You’re buying VIX futures and …


HOUGAN: … there’s just a massive delta between the words VIX and VIX futures and that delta is squashing investors.

RITHOLTZ: So, as long as I’m testing you, let’s do backwardation.

HOUGAN: Backwardation is the exact opposite.


HOUGAN: If oil is at 50, you buy it at 45. As long as the spot price stays at 50, you make $5 which is whatever 11, 12 percent and that’s a more positive situation. My issue with ETFs and all these futures-based ETFs is a lot — they’re available to all retail investors and retail investors may think, I’m buying oil. That the spot number that I see on TV.


HOUGAN: And that’s not. You’re buying oil futures. Now, it’s disclosed and disclaimed and I’m generally in favor of ETFs existing in these markets and probably they should even exist in volatility. But the educational burden required is massive or else mom-and-pop can buy them and (inaudible).

RITHOLTZ: So, now there are different gold ETFs. You mentioned GLD. Am I misunderstanding that? I’m on the impression GLD represents physical gold held in vaults.

HOUGAN: That’s correct.

RITHOLTZ: It owns — but there are other ETFs and I don’t remember which that are actually trading gold futures not buying the gold.

HOUGAN: That’s right.

RITHOLTZ: And some of these are leveraged and some of them are inverse, et cetera.

HOUGAN: That’s exactly right. So, when you get into leverage, you may well use futures to get those leverage. There may even be one X gold futures ETFs, I’m not sure.

I don’t know why anyone would buy — gold always trades at a persistent contango. That’s about equal to the risk-free rate. So, you’re just losing a little bit of money.


HOUGAN: The one advantage it would give you is their taxes futures which if you hold them for short period of time is a beneficial tax treatment. So, there may be a tax angle for short-term traders of gold.

RITHOLTZ: That’s kind of interesting. So, that’s one particular ETF that you don’t think ought to exist.


RITHOLTZ: I would want to steer the conversation to slightly different direction. So, let me throw this at you.


RITHOLTZ: How do you look at the Darwinian process of all these ETFs coming out each year, most of which don’t survive?

HOUGAN: Yes. I think that’s great. I think that’s great. If you didn’t have that process, you wouldn’t have a significant — you wouldn’t have the ETF industry for starters, right?

The ETF industry really, in real life, was launched at BGI when they launched a huge number of ETFs. It wiped out bonuses at BGI for three years. All the executives were angry. But they are like, let’s give this a shot. And all of the — a lot of the ETFs that we take for granted today were spaghetti on the wall.


HOUGAN: We want to factor ETFs, low volatility ETFs. So, you can’t get innovation without some misses. And so, I’m fine with them being launched and closed.

RITHOLTZ: So, what is Jeff Bezos’ comment, if you’re not failing, you’re not taking any risk?

HOUGAN: That’s exactly right.

RITHOLTZ: You have to at least try and just recognize we don’t know what’s going to work. Well, we won’t know until it – until we put it up the flagpole …

HOUGAN: Until we give it a shot.

RITHOLTZ: Yes. Absolutely.

HOUGAN: And the first article about all the ETFs needing to exist I think ran – I’m going to get this strong, I think it ran in an investment news in 2003. They’re like we’ve reached the end of ETF innovation and development. You can already buy stocks and bonds. And that was like that was it. And those …

RITHOLTZ: Good call.

HOUGAN: … those have appeared over and over and over again. So, never discount. I don’t think we’ll ever get to the end of ETF (inaudible).

RITHOLTZ: So, let me ask you a different version. It seems that — and you’re a geek so you’ll appreciate this. We don’t have a Gaussian distribution of firms and assets.

HOUGAN: Right.

RITHOLTZ: It’s a very much fathead longtail where you have the big four, really the big three, Vanguard, BlackRock, State Street, I’m trying to think who is the next closest after them.

HOUGAN: PowerShares.

RITHOLTZ: Yes. And that’s …

HOUGAN: But you get down the spectrum pretty quick.

RITHOLTZ: But, I mean, your power law distribution is its three and then it begins to fall off pretty rapidly.


RITHOLTZ: Why have only three companies captured so much of the investing public’s mind share …


RITHOLTZ: … and assets? The actual dollar share of BlacRock is 6 trillion going on 7 trillion.


RITHOLTZ: Vanguard is five on the way to six trillion with a T. Why is it just a handful of companies that seem to be the biggest winners in the space?

HOUGAN: Because ETFs are natural monopoly system unlike traditional active mutual funds. In active mutual funds, you need the Cambrian explosion, different guys trying different things. In ETF land, a large liquid ETF is better than a small illiquid ETF.

So, if you already have good exposure to the S&P 500, you don’t really need other funds. No other funds have popped up because you get distribution in different channels. There maybe two or three ETFs offering broad-based exposure.

But you’re going to see severe concentration in ETF assets as long as they’re dominated by index exposure because larger is better in ETFs and that is a good thing for investors and I think it will persist maybe indefinitely and certainly for the next 10 years.

RITHOLTZ: So, larger is better and I’m going to guess that’s a function of a combination of scale, quality, and liquidity, are those the three things?

HOUGAN: Yes. Scale and costs.


HOUGAN: Right. It’s cheaper to run a large ETF that it is on small ETF. There are just no advantages to a smaller ETF. Now, smaller ETFs can be liquid and they can do innovative things. But you can’t launch a Me-Too ETF without a unique distribution mechanism like Charles Schwab has and expected to gain assets.

They will just all go mostly, not all, but mostly they’ll go to the large players and that’s why it’s a great business for BlackRock and Vanguard and State Street.

RITHOLTZ: Quite fascinating. I know I only have you for a finite amount of time. Let’s jump to my favorite questions and I’m going to throw a few curve balls at you with this.

HOUGAN: I’m ready.

RITHOLTZ: Let’s start. What’s the most important thing people don’t know about Matt Hougan, which is an inside job, about Matt Hougan?

HOUGAN: Let’s see. My career started as a minor-league baseball mascot and …

RITHOLTZ: A mascot.

HOUGAN: Yes. I was a 9-foot seal for the AA Portland Sea Dogs. No. I say that in jest. My career path has been very unusual. I’ve been a speechwriter. I’ve worked in biotech. I’ve been a biotech portfolio manager. I ran Now, I’m in crypto.

All those are only united by the how much I like to talk about things that seem complex. But that’s the unique thing about my career. It’s been very varied over time.

RITHOLTZ: Well, that’s certainly interesting enough. Tell us about your early mentors. Who helped shape this serpentine career of yours?

HOUGAN: Yes. The number one person who comes to mind is a former guest of yours which is Dave Nadig. Dave Nadig hired me when I was a minor-league mascot to become a biotech analyst at the transparent mutual fund he was running at that time.


HOUGAN: MetaMarkets.

RITHOLTZ: MetaMarkets.


RITHOLTZ: That’s right.

HOUGAN: We ran OpenFund which was the first mutual fund to disclose its trades in real time.


HOUGAN: We even have …

RITHOLTZ: Way ahead of the curve.

HOUGAN: Way ahead of the – we have live video where you can watch as trade. And I learned a lot of things from Dave. He continues to be a good friend and we worked together three or four companies since.

He taught me the core importance of being honest with your colleagues when you go to work and I think the first company you worked for in a serious way and the first person you worked for is really important in shaping how you view the world and how your career progresses.

RITHOLTZ: Interesting. And Dave is now with CBOE when he runs

HOUGAN: Yes. He sits in my former seat.

RITHOLTZ: That’s funny. So, what — let’s talk about investors, what investors influence the way you think about things like ETFs or crypto?

HOUGAN: Yes. Jack Bogle is the only investor who really matters to me, maybe my grandfather a little bit. But I’m one of the — so, I worked in crypto, I’m one of the most boring investors in the world.

I don’t think I have traded my portfolio other to rebalance in eight or nine years and sort of the overwhelming math that Bogle presented. Well, I started my career on the active site as an active biotech analyst and then an active biotech portfolio manager and I’d learned the hard way that active doesn’t work.

And so, pivoting into indexing in and learning from Bogle set the stage for my ETF career and set the stage even for my crypto career although that probably makes Jack Bogle want to throw his head against the wall.

RITHOLTZ: And also a prior guest on Masters in Business.

HOUGAN: One of my heroes.

RITHOLTZ: That’s fantastic to hear. So, let’s talk about books.


RITHOLTZ: What are some of your favorite books be they investing, non-investing, fiction, nonfiction, crypto or other ones?

HOUGAN: I knew you would ask about books. So, I was thinking about the most important books I read. The most important book to my life probably was “A Heartbreaking Work of Staggering Genius” by Dave Eggers who both writes with unique clarity and also came at a time when I needed to rediscover my agency and ability to shape my life in the way that I wanted and that was a very important book for me.

After that, it’s a weird amalgam of a handful poetry books and then whatever I’ve been reading most recently. So, that the book I’ve been reading most recently is the history of California. I’m a transplant to California. I moved there 10 years ago.

RITHOLTZ: Isn’t everybody a transplant?

HOUGAN: I — basically, yes.

RITHOLTZ: Right. It feels like that.

HOUGAN: And my kids are learning all about California history the same way I learned about Virginia history when I was a kid. At that time, I thought that was just history but it turns out you learn different things depending where you grow up.

RITHOLTZ: What the name of the book?

HOUGAN: It’s named “California” and I’ll tell one little anecdote from it …

HOUGAN: … that empowered me. If you go to California, it looks likes it sort of — especially Southern California, it looks like the Mediterranean. All the houses are in these Mediterranean styles and I assume this was organic. But in fact, it wasn’t.

It all started in Santa Barbara. When Santa Barbara burned to the ground and at that time …

RITHOLTZ: What year was that?

HOUGAN: It was ’20s I think.


HOUGAN: At that time, there was a lot of advertising to get people to move out there and people were deliberately casting it as the Mediterranean of the Americas. And so, they built it in its physical presence to look like that.

And what that reminded me of was something that I forgotten which is the importance of narrative and the ability to shape reality and how being able to define and see what it could be actually can lead to physical developments that become entrenched and just become important to society and I thought that was an interesting …

RITHOLTZ: Life imitating art.

HOUGAN: There you go. Exactly.

RITHOLTZ: Interesting. And as long as you mentioned poetry …


RITHOLTZ: … we’re a very – audience of listeners. Give us what your – who’s your favorite poet or their favorite book if it’s a book.

HOUGAN: Yes. August Kleinzahler’s “Red Sauce, Whiskey and Snow” is one my favorite books of poetry. I think …

RITHOLTZ: “Red Sauce, Whiskey and Snow.”

HOUGAN: Yes. I think about 50 percent of the poems in there are terrible. But the other 50 are seen with such clarity and with the kind of emotional connections that really resonate with me that it’s an important book to me and I read it regularly.

RITHOLTZ: That is quite fascinating. So, I have to ask, this is a question I — we were talking about earlier and I’m actually debating making this a regular question because our conversation about it was so fascinating. But what was your first car?

HOUGAN: My first car was a terrible, as I said earlier, a terrible choice. I bought a Volkswagen Jetta shortly after I got my first job and that was a disaster in like nine different ways.

RITHOLTZ: Really? Because my experience with Volkswagens …


RITHOLTZ: … and this might have been cars of a different era, the ’60s, ’80s whenever.

HOUGAN: Right.

RITHOLTZ: They were indestructible. I had a VW bug with 300,000 miles. My roommates, Volkswagen Golf. We would just take it apart and swap out parts. I need a new fender and just take the old one to the junkyard. Hey, I need one of these …




RITHOLTZ: New fender. Like you can’t do that anymore. But they were pretty indestructible. Why was the Jetta a pick?

HOUGAN: So, for two reasons. One, it was utterly destructive. It constantly broke down.


HOUGAN: And two, like it was an aspirational purchase, right, it was a poor man’s Audi.

RITHOLTZ: I said a poor man’s Audi.

HOUGAN: I said a poor man’s BMW. You improved on that with a poor man’s Audi.

RITHOLTZ: Same owner, same parent company.

HOUGAN: Yes. So, I bought it because I thought I’m a biotech portfolio manager, I need this nice new car. I could have done so many better things with that money than buy this terrible car with a poor historical track record of reliability, which I knew when I bought it but I like the way it looked and the people I was around own Volkswagen Jetta and I bought it and it was just a yolk on my neck until I finally sold it.

RITHOLTZ: That’s very funny. So, tell us about a time you failed and what you learned from the experience.

HOUGAN: Yes. So, when I was a biotech portfolio manager at OpenFund, I bought a company called Titan Pharmaceuticals which had a drug in front of the FDA.

RITHOLTZ: This is ’99, ’98?

HOUGAN: This is 2000 was when I think I made this purchase.


HOUGAN: Biotech is obviously a binary outcome at the FDA and it went against me and I lost a huge amount of money for that company and I learned two really important things from that. When it happened, I thought I was going to get fired because I was new to the job and I just lost like $2 million for the fund which to me at that time having been …

RITHOLTZ: More money than God.

HOUGAN: More money than God.


HOUGAN: And one of things I learned from my mentor, Dave Nadig, was all you have to do is own up to what went wrong and design a process so it doesn’t happen again. And I did that and then just went on about my day and I’ve used that with every subsequent failure in business and it immediately clears the air and get you on a better path.

The other thing I learned which was unique to investing in biotech but has application was I had focused entirely on the wrong thing. So, the sexy thing in biotech, the thing everyone talks about is does the drug work.

And the does-the-drug-work question for Titan was true. It seemed to work. But that is not what the FDA cares about. The FDA is a bunch of doctors. The Hippocratic Oath is first, do no harm.

RITHOLTZ: Is it safe?

HOUGAN: They care only about safety.


HOUGAN: If it might work but it’s safe to approve it, this one, there were risks but there are also benefits and they just shut it down. And it taught me that you have to frame things not from what you think is important but what from the people who are in control of that think is important.

And in biotech, that’s safety. Efficacy is a distant second. That’s true like when I built the ETF conference. When you build an ETF conference, you want to focus on what’s going to go up the most the next year, where should people invest, what financial advisors want to learn, it’s how can I retain and grow my clients, right?

They want to know I want to make sure I don’t get fired and whether I can build a better portfolio is actually secondary to do I understand this, can I talk about this, will this help me win new clients. And so, the ability to reframe what you think is important than to what’s actually important was an important lesson.

RITHOLTZ: So, tell us what you do for fun, what do you do to relax or stay in shape outside of the office.

HOUGAN: Yes. I’m a runner. I love to run. I love to hike but I have three kids, a wife who works. I work at a start-up, I sit on boards. I have four chickens. Mostly, I just try to keep all these plates spinning. But when I do get away, I like to run or hike or be outside.

RITHOLTZ: So, I’m going to back you up a little bit because slipped into that whole running, hiking family thing …


RITHOLTZ: … was something about chickens?

HOUGAN: Chickens. Yes. Yes. Yes. So, we went to the feeds store with the kids to get some hay because we thought it would be cute to have a hay bales for a party for people to sit on and in the feeds store where two-day-old chicks.


HOUGAN: My kids are very convincing …

RITHOLTZ: They’re sitting — they’re adorable.

HOUGAN: So adorable. And so, we brought home, I was convinced to bring home four chicks. They cost $3.75 each if you want to know what chicks cost.



RITHOLTZ: I actually buy them by the dozen and it’s a $1.89.

HOUGAN: Well, I should have learned. Now, they two and a half months old. Now, we’ve invested money in a chicken coop. The first egg that we get which will be in like a month and a half is going to cost me about $2,000 and it better …

RITHOLTZ: That’s a good egg.

HOUGAN: It better be a good egg.

RITHOLTZ: It better be a good egg. Wow.

HOUGAN: The chickens are great. The chickens are great.

RITHOLTZ: All right. Can you interact with them as a pet or they’re just dumb, little dinosaurs running around?

HOUGAN: Actually, they’re very nice.


HOUGAN: They’re very nice. I mean, they …

RITHOLTZ: You feed them. They should be.

HOUGAN: You feed them. They like you. They — each have their own personalities.

RITHOLTZ: Distinct like you – noticeably different bird personalities.

HOUGAN: A hundred percent. Yes. You have the nice guys. You have the sort of mean guys. They do different things. They all look different because they’re different breeds. They have a half-life when you pick them up of about 90 seconds. If you hold them for more than 90 seconds, they start to poop everywhere.


HOUGAN: So, you can pick them up and they’re very cute but the clock starts ticking and you got to like — you got to put them down before disaster happens.

RITHOLTZ: That’s hilarious.

HOUGAN: When I lived in the city, our next-door neighbors had dozens of birds and they had a cockatoo that was a baby and when they would go away, the one bird that needed attention was Gonzo. So, we would babysit this cockatoo and even at like a year old, I would hold him on my arm, he would put his wing around me and the two of us would watch TV.

HOUGAN: There you go.

RITHOLTZ: And he truly had a personality. He was very smart. I taught him to laugh. But they’re known as really intelligent birds.

HOUGAN: Right.

RITHOLTZ: Chickens aren’t necessarily — have that same reputation. So, I was curious about the personality and how …

HOUGAN: Yes. They still have some personality. We haven’t watched much TV together but they do have personality.

RITHOLTZ: And all the kids okay when mom makes chicken for dinner? That hasn’t been a problem?

HOUGAN: So, my kids are vegetarians.

RITHOLTZ: They are? So, this has not come up as a …

HOUGAN: It’s clear. Yes. Yes. It hasn’t come up. But they’re ready to eat the eggs.

RITHOLTZ: Hold on a sec, you’re not a vegetarian.

HOUGAN: I’m a vegetarian.

RITHOLTZ: You are?


RITHOLTZ: I’ve had meals with you …

HOUGAN: So, I’m an opportunistic vegetarian.


HOUGAN: So, my rule is I’m a vegetarian unless if it’s going to be …

RITHOLTZ: If Ritholtz is around, this is going to be red meat at the table. Right.

HOUGAN: It’s all off.


HOUGAN: Unless it’s going to be really exceptional or different.


HOUGAN: You have to experience the world.

RITHOLTZ: That’s fair.

HOUGAN: So, opportunistic vegetarian.

RITHOLTZ: That’s absolutely fair. So, our last two questions, if you are giving some advice to a millennial who was interested in a career of either finance or crypto, what sort of advice would you give them, how do you think they should approach either of those fields?

HOUGAN: Interesting.

RITHOLTZ: And I’m not asking which would you steer them towards.

HOUGAN: No. I get that.

RITHOLTZ: I’m asking, hey, what advice would you give them …


RITHOLTZ: … if they came asking about that.

HOUGAN: Yes. So, either I would advise them as I do most young people to take some time off and go travel and play around while they’re young before they get serious about their career. If they didn’t take that advice, which I think is good advice, I would encourage them to think most about their company, the company they choose and their direct manager and think the least about their intro salary or their title or even what work they’re going to be doing.

It’s vastly more important to engage yourself with a well-run company and with a good manager where you can learn good work habits than it is to make an extra $4,000 a year or to have a particular job that focuses on one skill set or another. So, pick your company careful, pick your manager really carefully and ignore all the rest.

RITHOLTZ: Sounds like pretty good advice. And our final question, what is it that you know about the world of investing today that you wish you knew 20 something years ago when you first began?

HOUGAN: That’s a good question. Obviously, buy Apple is the easy answer or buy a bitcoin when it first come out.

RITHOLTZ: So, Apple at 120?

HOUGAN: I don’t know.

RITHOLTZ: Or bitcoin at 4,000 or do you mean if you had a time machine and could back?

HOUGAN: At a time machine.

RITHOLTZ: So, that’s an easy question. I’m asking no time machine.

HOUGAN: No time machine.

RITHOLTZ: What do you know today that you wish you knew back then?

HOUGAN: That I get. Okay. Great question. I learned every hard knock investing lesson there is to learn. And so, I could tell you not to do those things like don’t confuse your lucky pick of the stock that went up with true skill. Don’t sell when you feel the painful feeling in your gut. Just buy and hold them and never sell. But you wouldn’t listen.

So, I guess it would be just buy things. Selling things is where everything goes asunder. Just buy things and hold them and sit on it forever.

RITHOLTZ: Quite fascinating. We have been speaking with Matt Hougan. He is the Global Strategist at Bitwise Asset Management, Global Head of Research.

If you enjoyed this conversation, well, look up an inch or down an inch on Apple iTunes and you can see any of the other 250 such conversations we’ve had over the past five or so years. You can find that at iTunes, Stitcher, Overcast, wherever your finer podcasts are sold.

We love your comments, feedback and suggestions. Write to us at I would be remiss if I did not thank the crack staff that helps put together this conversation each week. Karoline O’Brien is my audio engineer par excellence, Madena Parwana is our producer, Taylor Riggs is our booker/producer, Atika Valbrun is our project manager, Michael Batnick is my head of research.

I’m Barry Ritholtz, you’ve been listening to Masters in Business on Bloomberg Radio.

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