“The market has become a bigger casino.” When everyone rushes in the same direction, he sees opportunities in the opposite direction.
On April 9, Rick Rieder, Chief Investment Officer of Fixed Income at BlackRock, the world’s largest asset management company and once a top candidate for the new Federal Reserve Chair, stated on Morgan Stanley’s program *Hard Lessons* that today’s market has become more akin to gambling, with contrarian investing becoming more profitable than ever before.
Rieder frankly stated that the core of the investment industry is not about being “right.” He admitted that the most important lesson he has learned over the years is that the essence of this business is not making correct judgments but generating returns for clients.
He further pointed out that market perceptions may remain incorrect for longer periods, even bluntly stating that the Efficient Market Hypothesis is “far from the truth,” suggesting that markets are wrong much of the time.
However, he also warned that investors must first survive—capital may be depleted long before the market theoretically “gets it right.” Therefore, Rieder’s strategy is to “try to stay in the game” rather than blindly increasing positions when facing headwinds. He acknowledged that he is not good at doubling down when others oppose him, as his confidence tends to waver. Instead, he prefers to stick to existing holdings while deepening his judgment.
Regarding the current market environment, Rick Rieder, Global Chief Investment Officer of Fixed Income at BlackRock, concluded that the market has become more like a casino, where investors often flock in the same direction. Thus, going against the consensus is becoming increasingly profitable. He noted that this strategy is particularly effective during information-heavy periods: when the market moves unilaterally, taking the opposite position often leads to subsequent reversals.
Nevertheless, Seth Carpenter, Global Chief Economist at Morgan Stanley, stated in the interview that if the entire market has formed a highly unified direction, all relevant information may already be fully reflected in prices, making contrarian operations more difficult to profit from.
Reflecting on the toughest lessons of his career, Rick Rieder ranks the financial crisis at the top. He recalled that he had just founded a hedge fund a few months before the crisis erupted, originally thinking market volatility would present opportunities, but failing to anticipate the subsequent chain reaction. He admitted that the stress from that period remains unforgettable—every day before entering the office, he repeatedly told himself in the long corridor, ‘This is going to be tough,’ but upon opening the door, the feeling was still, ‘This really is tough.’
This experience has made Rieder consistently highly cautious about managing liquidity, leverage, and tail risks. He emphasized the necessity of designing exit strategies in advance for every asset, position, and portfolio. He stated:
Another profound lesson came from the investment in Peloton. This American interactive fitness company, known for its premium stationary bikes, treadmills, and subscription-based live fitness classes, saw its stock price soar during the early days of the pandemic due to increased demand for home fitness. However, as the pandemic eased and operational missteps emerged, demand plummeted, leading to a sharp reversal in the stock price.
As an early investor, Rieder added to his position amid rising stock prices, but the company failed to adjust its strategy in time, ultimately suffering a stock price reversal. He concluded that this experience taught him that ‘setting a stop-loss line is a very healthy practice’ and warned that in this industry, one extreme event can be enough to cause significant damage.
Despite the immense pressure of the financial crisis, Rieder stated that he still ‘loves pressure.’ He believes that anyone involved in investment must enjoy pressure, much like how he enjoys not having to arrive at the airport two and a half hours early, and frankly admits that he performs better under such conditions. During the interview, he remarked:
However, he also emphasized that investing is ultimately a business of risk, with a large part of valuation driven by sentiment. He pointed out that markets fall five times faster than they rise, and people tend to make money slowly but lose it quickly. Therefore, investors must always prepare for extreme scenarios. He stated:
Rick Rieder: I think this market has become more like a casino. You see everyone lining up to move in the same direction, and being a contrarian investor, going against the consensus, I think it has become more profitable.
Narrator: Welcome to ‘Hard Lessons,’ a Morgan Stanley production. Here, iconic investors will share the pivotal moments that shaped who they are today. You’ll hear about two contrarian calls — one spot-on, one missed. Our guest today is Rick Rieder, Global Chief Investment Officer of Fixed Income at Blackrock, interviewed by Seth Carpenter, Morgan Stanley’s Global Chief Economist and Head of Macro Research. At Blackrock, Rick Rieder helps manage approximately $2.7 trillion in assets across global bond and multi-asset markets. He is an influential voice on interest rates, inflation, and market structure and serves as the Chairman of Blackrock’s Corporate Investment Committee.
Seth Carpenter: It’s been a while since we sat down for a proper chat.
Rick Rieder: It’s great to be here, thank you for having me. You’ve been at Blackrock for 17 years. Seventeen years, it’s incredible.
Seth Carpenter: What does this journey at Blackrock feel like for you?
Rick Rieder: I remember back in 2009, I had a hedge fund, and all the partners were discussing whether we should join Blackrock. I remember saying at the time, this place could become the center of finance, but I never imagined it would grow to the scale it is today. That was before the acquisition of BGI and iShares, a deal that later revolutionized the ETF industry. Just think about it now, over $14 trillion in assets under management. When I joined, we were just a small part of that. This has become quite an extraordinary place. So, it’s been an interesting journey.
Seth Carpenter: You used the word ‘center’ earlier, and I think it fits well. Did you ever imagine yourself talking about trillions of dollars in assets under management back then?
Rick Rieder: I serve as the Chairman of the Board for a charter school in Newark, New Jersey. Once, I gave a presentation about how much money we manage. I asked everyone, ‘How many zeros are in a trillion?’ Someone answered, and honestly, I didn’t know. I actually had to stop and think, ‘Oh, wait a minute, let me figure out how many zeros there are.’ It was quite amusing. But when you think about the scale itself, it is truly astonishing. Of course, in the portfolios I manage, we are almost obsessive about precision in every portfolio. So it doesn’t feel overwhelming; this large scale feels manageable.
Seth Carpenter: A trillion, trillions. These are big numbers. Do you think this massive scale itself is one of the secrets to success? What exactly is the secret?
Rick Rieder: Scale does bring certain advantages, such as our ability to see large capital flows across asset classes and observe thousands of different scenarios. Statistically speaking, with so many different things to observe, the odds naturally improve. By the way, this doesn’t mean that every decision I make is correct or even most of them. But it gives me the ability to observe and judge — ‘Okay, that makes sense,’ and find relative value in places you wouldn’t normally think of. Being able to piece together fragments gives you the ability to effectively attempt to construct the entire investment puzzle.
Seth Carpenter: I’d like to change the topic and attempt to distill some wisdom from you, analyzing the thought process throughout your career. There have been moments when you went against the consensus, and it turned out you were right.
Rick Rieder: Perhaps I should start by addressing your use of the word ‘wisdom.’ I don’t actually think I should be described as someone with wisdom, because I believe everything stems from the necessity of doing an immense amount of work. At least for me, I don’t think there’s any innate or unique skill involved. I simply try to piece together all the fragments and form a belief around them. Some people would say that once you have a belief, you double down on it. But if others don’t share that belief, then perhaps you’re not very good at that aspect. However, one thing I believe I’m able to do is focus on technology. When it comes to technology, I’m a super-fan geek. Whenever a new technology emerges, I have to be the first in line. Every time a new technology is released, my wife laughs at me. I have to go to the store, I have to queue up, I have to be with my group of like-minded friends, and I have to understand what it’s all about. I just love technology. I’ll never forget when electric vehicles first came out. People would say, ‘This isn’t going to work; the batteries are too expensive, and they can’t compete.’ With those deeply entrenched gasoline car giants, it was deemed impossible to succeed. I remember doing all my homework and realizing this wasn’t actually about the automobile industry—it was about the energy industry. It was all about efficiency: Is it efficient? Can real scale be built around it? I remember completing all my research. I remember sitting in a room as the only ‘fool’ present. Then you start to think—by the way, sometimes I describe my own beliefs without hesitation—but I’ll tell you, getting in early on these things is important. I remember the first time I drove an electric vehicle, I thought to myself: Wow, it’s fast, clean, and quiet. I thought, this is a better product. This is how I approach everything. The same thing happened—I remember when the Mac first came out, I remember when AirPods first came out—these things worked and were incredibly unique. But for me, the next step is always understanding market timing. What is the potential scale of the market? How do you reduce costs over time? What will the cash flows look like later on?
Seth Carpenter: So what you’ve just described is actually a highly disciplined and humble process. But this process can sometimes feel lonely because there are moments when you’re on your own, and everyone else is saying you might be crazy. What do you do during those moments?
Rick Rieder: I would say that 99% of the time, it’s all about teamwork, because most people (including myself) most of the time—actually almost all the time—tend to follow the herd. But there are some different individuals who may share your contrarian views. You often review your stance with those people, asking yourself: What are we missing? Where did we go wrong? Then I like to read a lot of articles from people with opposing viewpoints to understand why they think it doesn’t make sense, etc. So I tend to surround myself with both like-minded individuals and dissenters, truly studying the issue and trying to gain confidence. But as I said, over time, I’ve learned that our business isn’t about being ‘right.’ Our business is about generating returns for clients. The reality is that market perceptions can remain wrong for much longer. I remember studying the efficient market hypothesis in school. I actually think they should abandon that theory because it’s so far from the truth. I believe markets are wrong a significant portion of the time. But you have to survive. Before the market ‘corrects’ theoretically, you might run out of capital. So I try to stay in the game. When people oppose me, I’m not very good at doubling down because your confidence wavers. But I try to stick with what I hold and delve deeper into the idea, believing it will eventually pay off.
Seth Carpenter: Oh, that’s fascinating. Interestingly, I remember this quote attributed to Keynes—or at least people associate it with him—that markets can remain irrational longer than you can remain solvent. Do you find—as a sell-side analyst, I’m asking this somewhat selfishly—that reading opinions from people who roughly agree with you to validate your ideas is more helpful? Or is it more beneficial to seek out those who disagree with you to stress-test your ideas and discover where you might be wrong?
Rick Rieder: The most sophisticated answer would be to challenge yourself with opposing viewpoints. But I don’t actually do that as much as I should. I respect and trust certain individuals, and I like to see whether they’re right or wrong, and I enjoy following their reasoning. However, when you’re strongly contrarian, I tend to read more from those whose views align with mine. One thing you learn is that everyone tends to move together. I think social media has amplified this phenomenon. Everyone moves in the same direction. Maybe it’s because I’m older or have been in this business for a long time, but you’ll always reach a point where you see everyone moving, prices shifting, and then you think: Okay, that’s enough; it’s time to pivot in the other direction. I believe the market has become more like a casino. You see everyone lining up and rushing in the same direction, and being a contrarian investor, going against the consensus, has become more profitable. Especially in times of intense news flow, it has become quite a viable trading strategy: when the market moves in one direction, you take the opposite position, and then it shifts in another direction. When you take the opposite position, you realize you’re stepping onto the trendline.
Seth Carpenter: But what I’m saying is, if essentially the entire market is positioned on the same side, it becomes harder to make money this way because all information is already reflected in the price. Where are your opportunities? There may be times when you dot every ‘i’ and cross every ‘t,’ but the trade still doesn’t work out. Perhaps the consensus is right and justified. When you reflect on those experiences where things didn’t work out, what comes to mind?
Rick Rieder: The moments when I got it wrong immediately come to mind. I think you learn much more from mistakes. You tend to forget, or hope—after all, you’ve trained your whole life for this—that you’ll be right more often than you’re wrong. But I remember something about bonds, like coupons and maturity dates—it was 20 years ago, early in my career, right after graduation. I was convinced I was right, so I bought more. That was an incredibly profound lesson: when the whole world thinks you’re wrong, you need to exit or reduce your position size to a level where one bad investment won’t ruin your entire career. That was the first lesson: you must manage risk, and you must manage position sizing. And this is a small industry; everyone senses when you’re in trouble. That’s not a good position to be in, absolutely not. It’s a fairly brutal industry when people think you’re on the wrong side.
Seth Carpenter: It’s like they smell blood.
Rick Rieder: Oh my gosh, they’ll put pressure on you. But I remember Peloton. I was one of its earliest holders. I remember this was more personal for me; I invested in it. It was amazing at the time. I observed the technology, and then the pandemic hit, which was a fortunate situation for it. Then things exploded, and the stock price soared. Then you bought even more into the entire ecosystem. These situations are very tricky: when you think your view of the company is correct, and suddenly it starts moving in the opposite direction. Many people will tell you why it’s moving in the opposite direction. Listen, I learned something from that experience, like how to manage cash flow, growing too fast, etc. People would say it was because of the pandemic, maybe a little bit, but setting stop-losses is a very healthy practice. You stick to your beliefs. I truly believe this: three out of four times, you’re right—you’re right, you’re right—and then, okay, it’s time to move on. But you know, in this industry, one situation can hurt you in an extreme way. I believe this, especially in bonds. Diversify. Ensure you have liquid assets. Be right 60%, 65%, or even 70% of the time. And in illiquid assets, as long as you’re right most of the time, like I genuinely feel, it works like a casino.
Seth Carpenter: The law of large numbers. But in terms of stocks — I remember those big losses all came from stocks — because you can have explosive gains and losses, and these are things you really need to think through carefully. You know, you have to nurture the positions where you’re winning, and for those where you’ve made mistakes, ensure that you keep their scale within what you can absorb.
Seth Carpenter: Let me follow up on that a bit more. You did mention the price trajectory of Peloton. There was a time when it was skyrocketing, and you said you held onto it. I manage an entire team of analysts, and my background is in economics. One thing I try to teach my team is that if you’re on the buy-side, there’s a term for when your analysis is completely correct but your timing is off — it’s called being ‘wrong,’ right?
Rick Rieder: Yes, yes.
Seth Carpenter: So for you, regarding the Peloton trade, do you think it was a case of you being wrong, or was it just a matter of timing?
Rick Rieder: Frankly, I thought at the time that the company could turn things around and change its strategy. But they didn’t. I think they were too slow in changing their approach. What I’ve learned most importantly, especially coming from a credit background, when looking at equities, you look at cash flow, interest coverage, collateral, hard asset coverage, and you consider all the metrics. For companies, you think about their business model and how they generate cash flow. But one thing I’ve learned is that the people running the company — not just the individual, but the entire management team — are critical. Because companies are always evolving, industries are evolving, technology is evolving, and you must adapt. Some of the most successful companies — I mean, most companies start out doing something entirely different. Then they pivot into a vast field of opportunity, whereas they may have started with just an idea that seemed good at the time, but later they had to change. Now I spend more time with CEOs to get a sense of them. Do they understand the numbers? Do they understand the business? Are they good operators? That’s what it’s all about for me.
Seth Carpenter: But diving into that level of detail, does it help you distinguish who has the potential to seize opportunities and transform? That sounds like a positive. But there are also those who can’t stick to their core competencies and are always chasing the next shiny thing. What gives you the ability to sift through the details to make that distinction?
Rick Rieder: I would say a few things, especially in the tech space. Some people have the keen insight to think about where the world is heading and then adjust their businesses accordingly. Others, as you mentioned, jump from one thing to another, disorganized, trying to do too much or chase hot trends but always lagging behind. But I’ve found that over time, I’ve studied some truly unique individuals who are exceptionally good at positioning their companies ahead of the big waves. Some stand on the crest of the wave and can talk at a high level, but the truly impressive ones dive deep into the specifics, understanding what’s happening and how to adapt.
Seth Carpenter: That sounds a bit like the process you just described for yourself. You said, ‘I don’t know if there’s wisdom, I just try to dive into the details, build from the bottom up, and learn as much as possible.’ I think this set of skills can actually be transferable across many different endeavors.
Rick Rieder: Let me tell you something. Throughout my career, I’ve always struggled with reading. There’s just so much analysis and research, so many smart things to read. If we divide the labor, you read this, you read that… I feel like I have to read as much as possible. I hold conference calls every month, and I think we have a great team. We brainstorm, and then I retreat to my room to think on my own. I hope artificial intelligence will do that for me. But my guess is that I’ll still use AI to help me think through it all; it will just allow me to absorb more, faster.
Seth Carpenter: Yes, no. I strongly predict that AI will provide all of that to you, but you still, I believe, have to go through it yourself.
Rick Rieder: I think that’s correct. But the decision-making process should be more efficient because you only need to… I find that, as humans, we can only think on a limited level. When I look at our portfolio and consider risks, if you can think multidimensionally about what technology allows you to do—stress tests, scenario analyses, putting different pieces together—I believe it will be highly valuable.
Seth Carpenter: Yes, helping you identify the areas where you really need to focus your attention and setting other things aside.
Rick Rieder: I believe so.
Seth Carpenter: When we talk about being part of a consensus, you mentioned that you immediately think of moments when you made mistakes, and obviously, you learn best after making mistakes. When I was in school as a kid, my mom always told me that, and I always thought she was just trying to make me feel better and salvage my self-esteem. But obviously, there is scientific evidence for it. I would love to hear, when you look back at your entire career, what were the hardest lessons you learned?
Rick Rieder: I mean, the financial crisis ranks first, second, and third for me. Because that’s when I had just started a hedge fund. When you think about financial assets, when everything correlates to one, and we added some leverage, then suddenly, everything starts moving downward simultaneously.
Seth Carpenter: So, to clarify, did you start your hedge fund during the financial crisis?
Rick Rieder: Or just a few months before the financial crisis. At the time, I thought it was a good opportunity because the market was becoming volatile and interesting. But I didn’t foresee the subsequent chain of events. Our business was doing well; everything was progressing smoothly. Then suddenly, the world turned upside down in a way I found extremely surprising and unexpected, especially in terms of policy directions. But I will never forget the stress it brought. There were days when I walked into the office, and we had to go through a long corridor. I remember walking and giving myself a pep talk: ‘This is going to be hard, very hard.’ By the time I got to the door, I still felt: ‘This is indeed difficult.’ I will never forget that period. But as you said, it taught me a lot and changed the way I think. To this day, I am constantly thinking about liquidity, leverage, and right-tail risks. People don’t expect you to encounter such tail risks. But the way I think about it is: What if that extremely unexpected event happens and knocks me down? But as I said, throughout my career, I’ve been trying to think: Okay, that may not happen again tomorrow. We have to do the business of investing, we have to generate returns, and we have to take risks. So you must think: What is my exit strategy? How do I approach every asset, every position, every portfolio construction with an exit plan in mind? If you know your exit strategy and your escape route, it helps you plan and think. Alright, I’ve figured it out; it’s time to execute Plan B. But again, we are in the risk business. I must say, I enjoy the pressure—not too much, but I like it. I think anyone who has done investment work must enjoy the pressure. It’s like how I enjoy being at the airport—I don’t need to arrive two and a half hours early. I think I perform better under that kind of pressure, so why waste time sitting at the airport? If you’ve never missed a flight in your life, you’re probably not taking enough risks.
Seth Carpenter: Well said. Your point about the financial crisis—an extreme version of risk, seeing how bad things can get—reminds me of something often attributed to Churchill: Plans are useless, but planning is indispensable. I feel like that happens every day.
Rick Rieder: Absolutely right. You know, in the investment business, you realize that a large part of what drives valuations is sentiment. Markets fall five times faster than they rise. People make money slowly, but lose it quickly. I mean, you see that recently in certain commodities. I think earning money is a slow climb, and then, ‘Boom!’ Suddenly, there’s a news item or something that disrupts your structural thesis, your structural positioning instantly. It requires anticipating what people will think and also assessing whether the asset itself makes sense. It’s like asking: How will people interpret that asset? How will they interpret it in two or three months? There’s a psychological element to it, which I wasn’t great at in school, but I’ve picked up a bit in investing.
Seth Carpenter: Well, Rick, this has been fantastic. Thank you very much for your time.
Rick Rieder: Thank you, sir. Thank you for the invitation. It was very interesting and enjoyable. Thank you.
