Live from Fringe: What Adam Smith Can Teach Investors About AI and Investing

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2:53Welcome to Meryn Talks Money, the podcast in which people who know the markets explain the markets. I'm Meryn Somerset Webb. It is that time of year again, and we are bringing you something very special. Over the next few days, you are going to hear recordings of the conversations I had at Pamir House for the Edinburgh Fringe Festival. The Fringe is a three-week arts and culture festival that began in 1947 and takes place in Edinburgh in Scotland every August. And for the last few years, I have been hosting conversations about markets, economics and investing from one of the most special locations in Edinburgh as part of this festival.

3:27I do it from Pamir House, which is the last home of Adam Smith, philosopher and father of modern economics. It's where he completed the last editions of his bestsellers, The Theory of moral sentiments and the wealth of nations. You are about to hear the first episode in this series. I spoke with Robert Wilson, chair of Nelson's and Creative Scotland, Duncan Lamont, head of strategic research at Schroeder's, and John Steppick, Bloomberg News senior reporter and author of the award-winning Money Distilled newsletter. Along the way, we chat about the difficulty young people face finding jobs, the pitfalls of holding your wealth in cash rather than investing, how using AI to write an essay for you actually might not be that much of a problem, and, of course, everyone's favourite Adam Smith quotes.

4:07Enjoy the show. Right. Who has been before to this show? Oh, God. Limited number of jokes over the years, and we can't tell any of them again. Who listens to the podcast, Merrin Talks Money? Oh, that's great. Thank you. So quite a lot of you have started listening since last year. Who started listening quite recently?

4:34It's converted none of you from last year. We're doing a lot of podcasts now. We're doing three every week. So if you're listening to all of those, you really are spending an awful lot of time on this, for which we are very grateful. Thank you. Right. Now, I think that you heard a little bit about the house downstairs. So you all know a little bit about it, particularly if you've been here before and listened to this show before, you know quite a lot about Adam Smith and you know quite a lot about the house. So probably you've all read Moral Sentiments. Who's read Moral Sentiments? Come on. Adam, you have read it.

5:04Anyone else? Oh, heaven's sake. Has anyone read Wealth of Nations? Oh, well done. One, two. Oh, really? Interesting. Okay. They were both bestsellers in their times. You know, these were extraordinary books. He wrote them and they were printed again and again and again. He was a proper celebrity. And out on the Royal Mile, you could go up and down and you could buy, you know, you could buy his book. You could buy any kind of Adam Smith related souvenir. It was like old fashioned celebrity stuff. Now, last year, when we were here, we talked a lot about the 300th anniversary of his birth and how important that was.

5:38This year is the 250th anniversary since the publication of Wealth of Nations, which is possibly more important. And no, that's not quite right, is it? I didn't mean it quite like that. Both important, one not possible without the other. When we look at this year, things have changed so much since last year, in particular the fast movement of AI. when he published Wealth of Nations, that was the same year that the steam engine, James Watt unveiled the steam engine for the first time. It was at the cusp of that amazing industrial revolution. And that is where we are today, of course, on the cusp of another extraordinary industrial revolution.

6:13So he becomes not less relevant, but more relevant every day. And all his thoughts about division of labor, about productivity, about inequality, All these things are more important that we discuss them today than they were even five or ten years ago. And the other thing that becomes more and more important, and I think we're going to talk about quite a lot today, or I hope we are anyway, is about the way in which he discussed the nature of humanity and moral sentiments, what it means to be human, how we become human, how we learn to understand the joy and the pain of other people, which gives us the empathy, which brings together moral sentiments and wealth of nations, the humanity.

6:50What happens in a world when we live with a type of AI that can imitate humanity, but not be human? And that is the other incredibly important Adam Smith conversation that I want to get to in this show and in the shows over the next couple of days. Right. My guests. On my left, I have Duncan Lamont, who I think some of you may have heard on the podcast. Who's heard Duncan on the podcast? Great one on Stagflation recently. We've done quite a few on valuation, haven't we? Duncan is the head of strategic research at Schroder's. So a lot of charts, a lot of numbers made into really interesting stories.

7:25And so we use him a lot on the podcast and a lot. John and I, we both use him in unused letters in our writing, don't we? Yep. So you may have come across him before. Now, Robert Wilson, I think maybe some of you think you don't know, but you do know. You do know. Robert is CEO and co-founder of Nelson's, which is one of the largest natural medicine companies in the UK and possibly one of the oldest in the world. He's also the chair of Creative Scotland. And then finally I have John Steppek, who, as you know, is my co-host on the podcast and the author of his own absolutely brilliant. Say it, John.

7:57Multi-award winning. Newsletter, money distilled. I don't know if any of you have any financial awards companies. Any of you give out financial awards? It would be really great if my newsletter could win in the world. This is getting really irritating. Right. So we are going to start with John. John, let's have you quick. Okie dokie. This one's from the theory of moral sentiments. So the man of system seems to imagine that he can arrange the different members of a great society with as much ease as the hand arranges the different pieces upon a chessboard. He does not consider that the pieces upon the chessboard have no other principle of motion besides that which the hand impresses upon them, but that in the great chessboard of human society every single piece has a principle of motion of its own altogether different from that which the legislature might choose to impress upon it.

8:58Now, I really like this quote. I actually think this is my favourite Adam Smith quote of all. I have used it before, as long-suffering listeners will know. And I like it for two main reasons. So the first reason is that I think it shows how Adam Smith thinks. You know, the other kind of like big economic thinkers who I immediately think of at least are kind of Karl Marx and John Maynard Keynes. And one thing I would say about both of them is I feel that they're kind of top-down thinkers. So Marx kind of thinks of like people as classes and big groups rather than individuals. And Keynes was kind of trying to figure out how to make everything match up, almost like a chemistry set and thinking of the economy as a machine.

9:42whereas Smith is starting from the bottom up he's starting from people and thinking about how do people respond to things and they respond to incentives and the question where he's talking about the man of the system here is he's talking about someone who thinks that if you impose a system from the top down and if you can just get everyone to do exactly what you want them to do then everything will be fine and everything will work out And I think that the reason that that's so relevant to today is because I've been spending a lot of time recently thinking about, well, why do our politicians seem to be so incapable of thinking about second-order consequences?

10:22So, like, well, what happens whenever they pass a law, and why does it not match up to what they expect? And it's basically because these are the people who we are run by. We are run by men and women of system. and I mean kind of good examples include for example we've talked about youth unemployment in the UK an awful lot recently you must all have heard about you know we've got a million mates you know there's a lot of angst about well how are we going to get all these young people back to work and of course what nobody kind of like really talks about is the fact that since 2024 we've jacked up the price of employing someone under the age of 21 by about 25%.

11:04Instead of kind of saying, right, well, maybe we should revisit what we did, because in the first place, the price went up, sorry, the minimum wage went up because a politician thought young people should be paid more, let's put the minimum wage up, and that'll sort that out. And then, of course, the knock-on consequences is that it's harder for young people to get jobs, because it's much more expensive to employ young people. And rather than thinking, well, this was a predictable second-order consequence, of putting the price of them up. Instead, they turn around and come up with yet another system.

11:36So in this case, it's kind of like, you know, saying, oh, well, Sainsbury's are going to offer work experience or we're going to introduce lots and lots of kind of new apprenticeships. And so you start patching up all the things that you've already messed up. And I think that in order to... Well, yeah, I mean, this is it. We kind of need to get away from doing this. and for investors because obviously we quite often come back to investment i think that the the kind of big uh systemic kind of attack on prices if you like at the moment that we're seeing is politicians trying to set prices in the bond market and i think that's where you get kind of adam smith's way of doing things through free markets and through people responding as individuals and free markets setting prices coming up against the men of system.

12:29I mean, the price setting in the UK is kind of across the board, isn't it? I mean, we're almost a communist capitalist economy at the moment. Yeah, yeah. So we set the price of wages, we set the prices of energy, we're talking about setting the price of rent. And even in Scotland, we had this absurd conversation a few months about setting the price of food. So we're actively saying, let's get away from the signals that tell us how things should be distributed and overlay our own prices on top. And we know that. We know it never works. But our men of system insists on doing it anyway. Yeah, and it's very frustrating to see this mistake happening over and over again, because it's not just here.

13:07It's the same in the States as well. In New York, they're about to open state-sponsored grocery stores because prices are too high. And you're kind of like, well, you have to address the underlying issues rather than just do price fixing. And yeah, so I think that Adam Smith was spot on about that and it's a persistent issue. Yeah, but you always talk, John, about the thing about capitalism being that it reflects the way that humans actually are. And that every time you try and impose another system on humanity, we revert to capitalism anyway because we're natural improvers, creators, barterers, etc.

13:44And capitalism is a natural system that allows us to behave as we are. And that was Adam Smith's insight. Yeah, you have to go with the grain of people. And I do think that's where the theory of moral sentiments is actually really interesting, really worth reading. Because I think the other issue with Smith is that there's this sense that he's in some way the father of free markets or the father of capitalism. and then you quite often see, because obviously this is the 250th anniversary of the publication of The Wealth of Nations, and I remember reading a few articles where there's a sort of, there's a respect for Smith, but also a sort of like, oh, sad face capitalism sort of thing going on, where people feel slightly embarrassed about it.

14:28And in fact, really, I think trying to get away from this idea that capitalism is something that was imposed, it's not, it kind of reflects what human nature is like. and the whole theory of moral sentiments is basically about empathy it's i mean he calls it sympathy but i think these days we would probably say that he's describing empathy and really he's just talking about we have a natural desire to see our fellow human beings do well with you know within reason um and you know he talks about how when you see someone in trouble your kind of heart goes out to them and he also talks about the limits of empathy and explains for example why when you see an earthquake in in china in fact that's the example he uses you know you don't feel as upset as if say your next door neighbor you know has a horrible tragedy happened to them um and so he kind of talks about he talks about human beings and what they were like and basically they were social animals um and the way that we organize society has to be has to work with that grain rather than being imposed from the top down which is why the man a system simply can't work.

15:34Yeah, I guess that's kind of what we've seen in financial markets for quite a long time now. If you think about quantitative easing or anything like that, there is evidence that if things start to go bad, whether that's equity market falls too far, bond yields go up too high, then there will be a response from central bankers. So then you have this buy the debt mentality that people have. They think that they will not be allowed to lose too much money, so they will take more risk as a result. Look in the US, almost half of US households' financial wealth is now in the stock market. That's the highest it's been in 75 years.

16:12The peak of the dot com, it wasn't even at 40%. So they have never had so much exposure to the stock market in their lives. And I think that's partly because they've been conditioned to think that if anything goes bad, someone will bail me out. Yeah, well, they have and it has happened. So it's not just a problem for US citizens, a problem across the board. There's overexposure to equity because we know that the managed system is going to come in and bail us out. Yeah, and it leads to... But what makes you think that that won't continue? It's gone very well so far. So I think that you can look at that high allocation to the stock market as being either a good thing or a bad thing.

16:46A bad thing, it means that people are taking too much risk. And, OK, there's too much sentiment going in towards equities, and that means there's a risk of reversal. So the more encouraging thing if you're an investor would be that they will not allow there to be a big stock market fall because the hit to GDP, the hit to consumer spending would be on a scale that we have never seen in history in the past. So we know that when people feel richer, they spend more. When they feel poorer, they spend less. So I think that policymakers have kind of got themselves in a bind now because of this expectation.

17:17And they want to inject some discipline. But to find a way to allow some small fires rather than a big fire is actually quite challenging. They may come to a point where they can't prevent a proper crash. Yeah. Something to look forward to. Right. I think that we're going to come back to this in a minute. We're going to come back to all these subjects. But let's go on to another quote. Robert, how about we have your quote? Well, I think I'm here in a bunch of high-powered, economically savvy people. But I come from the world of wellness and culture. So I suppose my quotes that really appeal to me from Adam Smith, of which there are many, are very much from that slightly more principled, philosophical, moralist position.

17:59So my quote is, Nature, when she formed man for society, endowed him with an original desire to please and an original aversion to offend his brethren. She taught him to feel pleasure in the favorable and pain in their unfavorable regard. so for me this um stands out as the the basis of of smith's ideas that go well beyond this whole perception of self-interest this perception that it's all about some of the things you were talking about this sort of not oh well he is the father of conservatism he is the father of capitalism And I think it shows the breadth and the depth of this remarkable man.

18:49And it's pointing out to me that human nature starts from our orientation towards others, not from the self-interested. And the importance of everyone doing well. So, again, there's always this perception that somehow the self-interest is driving that perception of the self and that our money and earning our money for ourselves is what is paramount. Adam Smith is clearly way beyond that. And I think he would see that as a failure because it's about society improving, benefiting. I think there's another aspect to this that that underpins so much of a bit what we were talking about just now is the regard for others underpins the human condition the regard is how trust is built and trust and in sometimes cases confidence underpins so much of what we do and how we do it and so that quote to me is is is really saying that how we are perceived by our fellow men and ultimately how we perceive by society actually underpins the success of that society and touching on these things i mean we just you know this idea of the market holding up how much of that is down to confidence how much of that is trust in the institutions and indeed trust of our governments And if that starts to fail, you suddenly see cataclysmic scenarios presenting themselves.

20:27So I suppose, and the other part of this is the reward mechanism, which again, Smith has often seen in a rather monochrome way. But the reward is, in this quote, is about the benefit that we feel by seeing others achieve. and it's interesting because I my background is two things one I've got a business making natural medicines which fundamentally is about improving the lives of others but it's interesting we're just talking in the green room before about the differences of working for a very important public body a cultural organization and I was saying that when you when you move into the public sphere, some of the levers you have in the commercial sphere, like bonuses and share options and things, are not available to you.

21:22So you have to use a different set of reward techniques. And those are really down to people feeling really good about their jobs, feeling that they've done a great job, feeling that they are contributing something to a bigger cause. And my final point is it's well known that a very good thank you from a boss to somebody else is almost equivalent to a pay rise in the warmth and the sense of the feeling that they get from that. So the importance, I think, of what this quote is centering on is that ability to have much more in the panoply of reward than purely financial. and that by getting on and supporting one another and building relationships, you build that trust and that trust underpins everything that we understand within the free economy.

22:20Yeah, I'd go back to the almost. I think it's almost as good as the money. Almost. Almost. Almost. Nearly there. Nearly there.

22:35Merryn Somerset Webb: This is the Bloomberg Tech Minute brought to you by Chachi PT. I'm Carol Masser. Getting hired at SpaceX requires exceptional ability and may include having Elon Musk review a candidate's resume. So writes Bloomberg Businessweek's Lauren Grush. She reports that the company culture is defined by Musk and job candidates must understand that a commitment to SpaceX means adhering to this culture and exhibiting loyalty to Elon Musk. To get hired, candidates must demonstrate their achievements from past jobs, and hands-on experience matters more to recruiters than advanced degrees, with the company looking for people with raw, innate intelligence.

23:12Merryn Somerset Webb: A spokesperson for SpaceX didn't respond to a request for comment on its recruiting and hiring practices, but according to recruiters, advisors, and those who've interviewed for jobs there, It's the space exploration dream that draws people to the company, and Musk invokes that dream regularly to remind workers why they're there. Prospective hires are told that the job will require stamina, including in job ads that candidates, quote, must be willing to work extended hours and weekends as needed. One major perk for all that hard work? Employees' access to equity, either the right to buy shares or payment in the form of restricted stock units that vest over time.

23:50Merryn Somerset Webb: That's the Bloomberg Tech Minute brought to you by ChachiPT. Get started at ChachiPT.com.

23:59The really interesting bit here is this idea of trust and the relationships that underpins society, which Adam Smith was very, very strong on. And that brings us back to AI. So the real worry here is, who's been watching the AI, the robot Olympics? Absolutely brilliant. I mean, fantastic. it's so good and then you look at the humanoid robots that are being chatted out in China and you look and not not necessarily at the robots themselves but at the the chatbots that lots of people now talk to and as time goes past and as the LLMs and whatever comes after the LLMs the language models that we currently refer to as AI as they move on and become more and more human-like because they have scraped all the words of past humanity.

24:48So they can appear as human, they can behave as human, they can demonstrate what looks like human empathy but is not human empathy because we know that human empathy is created by struggle, right? It doesn't really exist inside AI. That's something that may well leach the trust from our communities and that becomes then, this is not where we normally go in the show, I've got to say, But that then becomes an existential concern. If you can develop a relationship with a bot, with an AI of some kind that you believe is a personal relationship, but of course it's not. We all become incredibly open to manipulation in our votes, in our emotions, in the way we feel towards other people.

25:32And our communities become fully undermined. So that seems to me to be the big risk with AI. It's not that they destroy us all on purpose. It's just that they remove our trust in the empathy that we think we feel around us. I mean, actually, there was an interesting thing that happened this week in finance, which was that Stanley Druckenmiller had a big opinion column in the Wall Street Journal. And Stanley Druckenmiller is a famous hedge fund manager. He's almost Warren Buffett levels of famous kind of thing. And he was criticising Scott Besson's decision to intervene in the US bond market. but what happened was that he'd written it with AI and that was quite apparent to people because it had a lot of these slightly weird constructions that the computer tends to come out with.

26:20And the word quietly. Yeah. The word quietly that comes up in every AI thing ever written was in there. It's not X, it's Y, those kind of things. Yeah. And it was, the interesting thing was people actually got really upset about this and it was like, I guess for two reasons. One was, you know, because they want to hear from Stan Druckenmiller, not from a computer channel and his thoughts. But also the fact that Wall Street Journal, which is obviously a newspaper, like a big brand newspaper, had just published it and not kind of mentioned that it was AI or taken a kind of stance against this. And I thought it was interesting that that was what people thought.

26:58He now claims, by the way, John, that he wrote it himself and he had it condensed by AI. that's yeah that's not what he said originally as far as i think he's also admitted that he gets everything written by ai says he he's not a he's not an english major he's an economics one he's like i can't write so this is and before ai would have had it written by a junior yeah or a ghost writer or something what difference no so and from that point of view i was kind of like well you know so what it's been published because it's a big name it's not because you know there's a lot of circumstances like if a junior journal had done it and not told me as an editor you know that's a firing offence.

27:31But if it's a guest column from the most important hedgy, then it's fine. But it's that sense of lacking trust and kind of taking away from the... Well, look at the other thing we were talking about earlier, John, you and I, we were talking about this new survey out from the FCA, which looks at whether people use AI for financial advice and the extent to which they trust it. You may have seen this in the papers this morning. And what really, really shocked me, although John seemed more sanguine about it, is that people trust AI to give them financial advice more than they trust financial journalists.

28:05I'm not sure I'm going to recover from this. I think we should get an audience there. But, Maren, it's very similar in, because, again, being in the health arena. I mean, the trust levels on AI bots, on medical facts, is way above their GDP equivalents. That may say something about GPs. Any GPs in the audience today? Okay, carry on being mean about GPs. I mean, the GPs are now using AI in the consulting room to check symptoms and stuff. So, you know, it's a very strange one, this idea of, you know, where do the boundaries start? And if those who are sort of in control of things, whether it's health or finance or whatever, are relying on these AI, it does sort of compound the problem.

28:53Well, we'll find out in due course. Let's have your quote. In all countries where there is tolerable security, every man of common understanding will endeavor to employ whatever stock he can command in procuring either present enjoyment or future profit. But I actually want to have a second quote, which is a slightly, it's not as famous, but I like it better. It's from a similar passage of Wealth of Nations. And he says, a man must be perfectly crazy who, when there is tolerable security, does not employ all the stock which he commands. That sounds like one of those made-up ones. I don't know that one.

29:28I've never heard Adam Smith use the word crazy. He's been asking AI to write Adam Smith quotes for him. So this quote, by Adam Smith's judgment, I think that makes most people in the UK actually perfectly crazy. And the reason for this is our obsession we have with cash, or with cash ISIS. and full disclosure, I am not trying to be critical of cash in general. Having a rainy day fund is one of the most important things for everybody. The research shows if you've got£1 ,000 in the bank, your chances of getting into debt problems are cut by half. That's important. But what I am criticising here is the hoarding of cash beyond what Adam Smith would describe as your kind of tolerable security.

30:18Hang on, let's stop right there and ask what is tolerable? tolerable security. John and I always say you should have six months' worth of living cash in that account. You should have six months' worth of cash. To finance your lifestyle. I've heard some people saying three months, six months, that kind of... We think six. And then we also say that you should have a couple of weeks' worth of cash in physical cash in your house. You know, cyber attacks, that kind of thing. Well, you know, there's a cyber attack, and there will be a cyber attack. Like, if you have cash, you can still buy bread and milk, and if you haven't, you can't.

30:52Or power cuts. So why would you not have physical cash? Or power cuts. And power cuts, same, same. And they're coming. We haven't got onto energy yet, have we? Maybe this isn't the place. We usually get onto energy in this conversation, don't we? But there are all these things that mean that you should, we think. You should have some cash. Have physical cash. When I was looking to buy a first house, I was actively looking with my wife to find a property. I wanted to know what my deposit was. I didn't want to take a risk at failing value. Cash has a place, but the issue is... And what cash were you keeping in your house?

31:22Not physically in my house. Who has more than£1 ,000 of cash in their house at home? And what's your address? John, I was waiting for them to put their hands up before I asked for the address that we knew to follow home. That was the GDPR form you signed on the way in. The reason I think that we end up in this situation where we have this obsession with cash is I think the way that we talk about risk in this country, and this is from politicians to regulators to those of us in the industry, is a lot of the time all wrong. And it's because of this singular focus on the only measure of risk that matters being whether your investments might fall in value over the short run.

32:05You go to open up a cash ice, stocks and shares ice. So the first thing that pops up, warning, the value of your investments may go down as well as up. It's always down first. and you might get back less than you originally invested. If someone is a nervous individual who's never put any money in the stock market, how do you think they feel when they read that for the first time? And the reason why I get annoyed is I don't think that is actually the most important risk that matters to most people. The most important risk for most people is the risk that they are unable to achieve their financial goals.

32:35So as a minimum, this means keeping pace with inflation. Otherwise, your money is literally being able to buy less. and cash is a terrible way to keep pace with inflation. But even things like retirement. So let's say John and Merrin. Merrin is saving for her retirement, puts all of her DC pension in the stock market, saves away diligently, retires in her late 60s. Late 60s? Come on, you're not going to want to stop writing. John, on the other hand, is a slightly cautious Scotsman who is a bit worried about investing. So he goes for something that's more conservative. He sleeps well at night, but then he has to work an extra five years before he can retire.

33:18So should they bought Bitcoin? It's more just, I think that we, this focus on the only risk that matters being whether something falls in value is wrong. And we should be focusing on the risk that people cannot achieve their financial goals. So actually a bigger risk is the risk that we're not taking enough risk. Okay, but right now, right now, You could say that a lot of markets are very, very expensive. You could say that there's an AI bubble well underway in the stock market. So you could say that if you're looking at the market now and you had money to invest, it might be entirely reasonable to say, oh, look, NS and I have put up their rates.

33:56So why don't I stick the money in there and just wait until this AI bubble has passed? Basically, the market all time high after all time high after all time. I'm setting you up for something here, obviously. I hope you're ready for it. All time high after all time high after all time high. Why would I invest now? So can you tell me a time in history when you would have thought it would have been a good time, though? Because the problem is, I think... Yes, late 2009. We called that, didn't we? Front page of the magazine. But I think most people... We did. We make that argument, which means actually they sit there waiting for that perfect moment, and that perfect moment never arises, and they end up still sitting waiting years later.

34:29To your point about all-time highs, I do hear this a lot from people, because probably the first thing most people think from investing is buy low, sell high. It's kind of drilled into people. But actually what I did was I went back and looked at the data for 100 years and it might surprise most of you to learn that if you invest when the market's at an all-time high, over the next 12 months, actually you would have got a better return on average than if you'd invested at any other time. So it feels weird. Buy higher and then buy higher again. It's kind of buy low, buy high. It kind of feels strange.

35:01I think what you're saying is just buy. But the reason is because the stock market actually over time goes up. So which that means it's hitting all-time highs all the time. So it makes newspaper headlines, FTSE at this level, S &P at this level, Dow at this level. But actually the stock market goes up. It's at an all-time high 30-35 % of the time. How many years did it take you to break even in real terms after 1929? That was a particularly bad period. Did you break even in real terms if you bought the FTSE at the beginning of 1970? So the way I tested this was I looked back at data going all the way to 1920 and said, you're two different people.

35:43One person just invests their money and forgets about it. They don't pay any attention to anything. The other person freaks out a bit when the market hits an all-time high and they decide they're going to go back into cash. And then whenever it's not an all-time high, they're going to buy that dip and they're going to get back in again. If you stretch this out over all that period since 1920, which covers the Great Depression, which covers every other difficult period we've had since, the person who got scared by all-time highs would have destroyed 90 % of their wealth. Because when the market's going up, it actually keeps going up.

36:18So all of those times, you're sitting in cash, waiting for that dip to buy back in, and you miss out on the market for a long time. Duncan, what you're doing, you're arguing for momentum investing here, aren't you? I'm not. One of the greatest investment styles ever. Value plus momentum. I am arguing for taking a long-term approach and not overreacting to when the world feels scary, when the stock market feels scary, because the chances... The other thing I said in our pod was, prepare, don't predict. The odds that any of us can guess exactly when the top of the market is, is very low. You're going to stick it all in the cash and then get back in?

36:50Good luck getting that right. All right, okay. I'm going back to here I am today. and maybe I've got too much amount of cash. I want to invest something right now. What's the cheapest market out there? Duncan does these great charts of cheap and expensive markets. So weirdly, emerging market equities have done really well but look cheap, but it's because the expectations of their earnings growth are so high. We're talking 60-70 % earnings growth projections. So if you believe those numbers can be delivered then emerging market equities are cheap. I'm still a bit of a fan of UK value that's fine what are two of the most hated stock markets in the world UK stocks and value stocks but most of you probably don't believe that actually UK value has outperformed the S &P 500 over the last one, three and five years it's not a popular story it's all about the sexy tech companies no, boring UK value stocks have done better than kind of exciting US AI stock.

37:51Everyone holds Japan, right? We've been talking about it for years. Yeah? Yeah? Everyone's made a lot of money in Japan. We've been telling you for 20 years to buy Japan. It's all cheap. So Japan looks good value as well. Japan has gone through lots of corporate governance improvements as well, where rather than just hoarding cash, they're returning it to shareholders. And actually, even things like share buybacks, which Japanese companies didn't really do in the past. So it used to be, if you looked at the world, share buybacks are when companies are buying their own shares. And that's been a useful prop for U.S.

38:25stock prices for a few decades. They used to do basically tons more than everyone else. And if you've got someone who's coming on every single month just buying the shares, that just helps to keep things moving. Japanese companies sat on the cash and didn't do this. They were worried they had conservative balance sheets. They are now approaching U.S. levels of share buybacks in terms of the percentage of companies that are doing this. This is not just a political story or a kind of what might happen in the future. there is action happening today in Japanese companies that are making them more shareholder friendly.

38:53And actually, I think that sets up for a really good medium to long term story. OK, excellent. I mean, talking about AI, we've been talking about minimum wages. We've been talking about young people not being able to get jobs. Quite a lot of things that you do must be relatively labour intensive. Is AI having any effect on the way that you hire? Does it change any of the jobs inside your business, make a difference? We use AI quite a lot, but it's all obviously, as you would imagine, in the marketing and sales arena. So we're very supportive of AI. We are a production company, and so it is incredible.

39:31And we're based in London. So we have had absolute issues in getting staff, strangely. And I suppose it's one of the things that I was going to come on to is this whole idea that AI, and it goes back to your point about Adam Smith, the same year as the steam engine. And then if you think of all the Luddites, which is, you know, this revolution against technology. And you see a lot of this in the AI discussion. Are we, this is jobs? Or is it just going to, like the Industrial Revolution, actually create different jobs? but a lot of fundamental jobs like what my business does are not being replaced.

40:14It's very hard to get an AI to put a stopper on a bottle. Yes, but there's a lot of subtleties in what we do. We change our lines, we change the things going through them, the different stoppers, different things and actually the human hand is extremely quick and efficient at doing that. So it is interesting and we are actually struggling We have trouble hiring even though we have a million needs. Yeah, we are. We'll finish on this Adam Smith quote that we will all desperately hope to be proven wrong. It's about public debt. Public debt has gradually enfeebled every state that has adopted it. When natural debts have once accumulated to a certain degree, there is scarce, I believe, a single incident of there having been fairly and completely paid.

41:03So we are fully reliant on AI on this occasion, proving Adam Smith completely wrong, but he's never yet been proven wrong. So I think John's right. Here we are. Fingers crossed, everyone. And thank you very much for joining us today. And thank you to my guests.

41:28Thanks for listening to this week's Merrin Talks Money. If you like our show, rate, review and subscribe wherever you listen to your podcasts. And keep sending questions or comments to Merrimoney at Bloomberg.net. You can also follow me and John on Twitter or X. I'm at MerrimSW and John is John underscore Steffek. This episode was hosted by me, Merrim Somerset Webb. It was produced by Sam Asadi and Moses Andam. Sound design by Blake Maples. And special thanks, of course, to Richard Wilson, Duncan Lamont, John Steffek, Blair Barrows, Alan Lloyds and everyone at Pamir House.

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