Bob Pisani on Lessons Learned From the NYSE Floor

Dave Nadig: This is a book of stories, as much as anything, and you kick off with an entire chapter dedicated to legendary floor trader and UBS Director of Floor Operations, Art Cashin. I have had the privilege of meeting him a few times — always over a drink — and found him to just be a larger-than-life character and an even bigger storyteller than you!  Do you think he’s a product of his era? Do you think that there will ever be a new Art Cashin?

Bob Pisani: No. Everyone’s a product of their environment, and that’s what I appreciated about him. He taught me not just a way to look at the markets, but the value of storytelling, What’s a journalist? You come in every day, and there are 50 sticky notes on the wall, and there’s a single fact on each one of them, and your job as a journalist is to draw the lines between them, showing how these facts are interconnected. You create a narrative to tell a story that makes sense out of it all. Cashin was really brilliant at this.

When I met him 25 years ago, he did a favor for me that I’ll never forget. There were 4,000 guys on the floor (almost all guys), and it was a fraternity. They did 80% of the trading in the market, and a lot of them didn’t trust the media: 4,000 great sources, and most of them won’t talk to you. Cashin was instrumental in stepping up and saying, “this guy is on it, you can talk to him, he’s not an idiot, and he’s not going to use your name on air,” which is what they were concerned about.

So he stepped up first, but then for me mostly, it was just sitting with him year after year (mostly at the bar), talking about how to approach the market. He didn’t have much use for academic theories. You and I want to debate the efficient market hypothesis and capital asset pricing models, but he never used those kinds of words at all. He used stories to illustrate what was going on.

Nadig: There are some great ones in the book – but clearly, the world is different now. What do you make of today’s financial journalism?

Pisani: Well, there are not a lot of old-school journalists around that want to sit around as I did and sort of apprentice with an Art Cashin and spend a decade in a bar; today, everyone wants to be an instant influencer. There are far fewer people that are interested in doing what I do, which is working with a team in a newsroom, creating stories, and essentially competing with each other to get stories on air.

A lot of young people today are more interested in being TikTok stars, where you have no filter. They don’t want to have a gatekeeper, they don’t want an editor. They want to stand there in front of the camera and blast their ideas out to the world and essentially be their own brand.

Nadig: You talk quite a bit about how the modern world – the internet in particular – has changed things. Everything asks for our attention all the time.

Pisani: Everyone is trying to get everybody’s attention. I use that phrase “attention cascade” a little bit differently from Bob Schiller, who coined it. The Attention Cascade essentially means when a fund manager chooses to only pay attention to whatever the fund has been paying attention to. The problem that can happen is there’s not necessarily anybody who’s looking at other issues. These fund managers pay attention to information that is right in front of their faces, or they only pay attention to information that confirms their set of beliefs already. It’s a problem.

Stepping back slightly, the three things that I’ve seen that really changed me were: number one, the birth of electronic trading; number two, the growth of indexing and passive investing through ETFs; and number three, the growth of behavioral economics.

To me, behavioral economics went a very long way to answering stuff that really bothered me. Schiller had an enormous influence on me because, in the 1980’s he noticed that, in theory, when you buy a stock, you’re buying a future stream of dividends and earnings, and if you were acting rationally, you would expect a certain level of volatility in the stock market. What he found was that volatility is actually much higher than you would expect, so he concluded that there is a somewhat irrational component to investing that would account for the higher volatility. That’s the birth of behavioral economics. Behavioral economics says, “we are studying the way people really behave, not how they’re supposed to behave. Do people buy high and sell low? Why? That’s the purpose of behavioral economics.

Nadig: Let me connect it with another great story you tell in the book. You have a whole chapter called “The Gang That Couldn’t Trade Straight” about the incredible Russian hack on the EDGAR filing system: years of snooping on corporate earnings announcements, and yet they made shockingly little money. Is that because, at the end of the day, it’s still people? Does any amount of tech change that?

Pisani: The human brain has not changed in 100,000 years. Fear, love, greed, hatred — emotions are really what dominate us. If that were to change, then I’d say something fundamental is changing. All we have is new technology around fear, greed, lust, and hate. In that particular chapter you referenced, they actually had advanced information on earnings for years. You’d think, “Oh my God. This is the greatest thing on Earth!”

As it turns out, their trading strategies and skills weren’t that good. It’s not necessarily rational the way stocks change around earnings, so even though it predicated how stocks would move in the near future, they couldn’t separate the releases that had the information and would move prices from those that wouldn’t move prices.

Nadig: There’s no measurement for how baked in something is!

Pisani: Exactly. They couldn’t distinguish what facts were actually going to move prices. Once you look at that, you have to say, “Gee, there’s a certain amount of personal unknowability and irrationality here.” I will say it’s made me a lot humbler over 25 years.

I was searching for years, buying drinks for people, trying to find the “perfect” traders, the half dozen people who knew everything: I figured I’d sound like a genius if only I knew these half dozen people, but it’s a fantasy. They don’t exist, and I describe how stupid chasing them was in 1999, and I laugh at myself. But you chase dragons, you really do!

Nadig: You make it so clear in the book that this is still a people business – even if you never found the Wizards of Oz.  One thing you mention as a bit of a life lesson was “limit the number of contacts you have, but keep the quality up.” How do you mesh that to a world where there are tens of thousands of folks following you on social media?

Pisani: Well, they’re not your sources. About six to seven years ago, I found my contact list for 1999. There were 500 people on it; I was astonished. 500 people with phone numbers and everything, and I realized 80% of the people were gone. That’s how dramatically Wall Street has shrunk.

I don’t talk to 500 people anymore. I maybe talk to 100 people on any kind of regular basis. As you get older, you realize you don’t need 500 oil analysts if you’re covering oil — at most, you need five. I’m a stocks correspondent, so I live at 30,000 feet: I need, at most, two people. You need somebody who checks two boxes: first, somebody who you feel comfortable knowing the landscape they’re talking about; and second, you need someone who can give you an honest opinion of what’s going on. They’re not necessarily the same thing.

Everybody talks their book. There’s nothing wrong with that, that’s not the problem. You need to understand what their positions are and be able to filter that out. Analysts have a vested interest in being bullish or bearish. It doesn’t mean you discount everybody. As you get more seasoned, you get better at filtering this out.

Hemingway (my favorite reporter) used to say that a good reporter has a built-in, foolproof crap detector.  You get better at crap detecting as you get older. I’ve been doing this for 32 years, I’ve been covering this stuff longer than most of my sources. I’m not a potted plant here, and neither are you. You’ve been doing this a long time, too, you know BS when you see it.

I call you up and just run things past you, and I do that because I know you know what you’re talking about, and I know that you’re going to give me an honest opinion. That kind of relationship takes years to develop, and we’ve been talking for 20 years.

Nadig: But you’ve changed too, Bob, and you’re very honest about it in the book. You talk in the book about turning to meditation after 9/11. For me, I got hardcore about meditation and yoga during the pandemic. What was your experience? Did that change how you approach the work?

Pisani: Why are you and I good at this game? We’re good at it because we both have a certain underlying edginess. In my case, if I had a proper diagnosis, I’d probably have low-level anxiety my whole life — I still bite my nails. That anxiety has been a great source of strength because it keeps you edgy and sharp.  It keeps brain chemicals that keep you alert running through your brain all the time. On the other hand, it’s exhausting to be around constantly edgy people. As my wife says when I go see her on Friday night, “Calm down. I’m not your source, we’re having a drink just relax please!” For 40 years my wife has been saying that to me. It’s tough; you want to keep that edginess, but you also want to get more Buddha-like as you get older.

When the dotcom crash happened, and then 9/11, Wall Street and NYC were a disaster in 2002. I seriously considered quitting. People were depressed, everyone had friends who died, and there were concerns about more terrorist attacks. There was a recession, and CNBC’s ratings were down; it was awful.

What turned me around is I learned to meditate. I joined a Buddhist meditation society in midtown, and I’d always been interested in meditation but never took it up. What meditation teaches you is something very simple: you cannot change an event that happened, but you can change your relationship with that event. If you stub your toe on a chair, you cannot change the fact that you stubbed your toe, but you can change what you do. You could pick up the chair and throw it through the window, or you might want to change how you think about pain. Pain is just something that is right there in front of you, and you can adjust your relationship to it.

That’s what they taught me how to do. You had this horrible event — 9/11. It wasn’t your fault; you didn’t do it; there’s nothing that you can do about it — but you can change the way you think about it. That you can change. You can actually twist the Rubik’s Cube in your head to look at things in a different way.

That first time was an hour of guided meditation. They said sit here, listen to my voice, and at the end of the hour, you’re hyperaware. So I walk on 7th Avenue, where New Yorkers are walking like, “Get out of my way, I have shit to do!” But when you are HERE, NOW, all of a sudden, you see 7th avenue.

Nadig: It’s a bit of a superpower for those of us who’ve spent a lifetime racing from thought bubble to thought bubble, right?

Pisani: All of a sudden, you see the people walking down the street. You’re not trying to think where do I have to go now? You’re thinking, “Wow, look, the windows are open. It’s a warm March night.” When you see that clearly, it’s so intense and makes you realize: oh, I get it. This is what they’re talking about with “Be Here Now” and all this mindfulness stuff. You keep hearing about all this stuff for years and years, and you sort of intellectually understand it, but emotionally you don’t until you actually experience it.

That changed my whole attitude. I went back and reevaluated and realized I really actually like what I do a lot, it’s just the world has changed, and I had to change the way I was thinking about it. I still meditate — not enough, I’m still not Buddha. I’m still a little too anxious for my own good, but it’s worthwhile, and I would like to go even deeper into it. It really saved me.

Nadig: Well, as a recent convert myself, it’s great to hear stories of folks who’ve been down the path before. Which is a great segue: I wanted to ask one sort of big closing question as someone who’s (ahem) seen some stuff. We all know what’s wrong out there in the world, but you’ve always had this strong optimism and connection to the human side of things.

So what gives you hope here in October of 2022?

Pisani: I am excited about the future, which sounds absurd, but I really am. I am astonished at how many people think that the imminent demise of the human race is at hand: it’s not.

Things are actually getting better, medical technology is vastly improving. COVID, of course, is a disaster, but we’re dealing with it. I have to keep increasing my estimates of how long I’m going to live. I’m 66, and I used to think I was gonna die at 85. Now the actuaries tell me, “Bob. It’s gonna be 90 to 95, you’re misallocating your future resources!”

I believe the technology is getting better. I tell people I’m a capitalist because it’s the best system I’ve ever seen. Churchill once said that democracy is the worst political system ever invented, except for all the others. Capitalism is the worst economic system ever invented except for all the others, and the reason capitalism has been successful in lifting humans out of a terrible plight is because it embraces technology through the profit motive.

Nadig: That sounds a little bit techno-utopian, but I appreciate the optimism! What are the catalysts? What do we need for that to be true?

Pisani: Well, consider blockchain — blockchain may be bigger than the Internet. The NYSE floor is a shadow of what it used to be, not because of some big conspiracy but because of technological disruption. This is all good news! We need more technology, not less. We need faster change! Technology can apply to more of our problems, not less.

Look at what Elon Musk has done. Nobody was going to Mars prior to Elon Musk. NASA was decades behind. Nobody was radically advancing electric vehicles or finding a battery to store solar. We need more big thinkers to drive breakthroughs at the humankind level. I know this is a bit of a rant — a little Bob 2.0 at the end.

Nadig: Well, that’s a heck of a way to end it.  Bob, thanks for chatting, I really enjoyed the book, and there are some great stories, and the message, as you say, is ultimately positive.

Pisani: You know, that’s why I’m a big Star Trek Guy: Captain Kirk always figured out some way to look at the right side of things and bring people together and not divide them.

Dave Nadig is the Financial Futurist at VettaFi. For more news, information, and strategy, visit VettaFi.