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Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.

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Speaker 2: Hello and welcome to another episode of the All Thoughts Podcast.

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Speaker 2: I'm Tracy Alloway and I'm Joe Wisenthal.

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Speaker 3: Joe, do you.

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Speaker 2: Ever feel like the investment gods are punishing you?

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Speaker 4: Oh? My god. I think about this all the time. Like,

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Speaker 4: you know, when I first started investing my money, I'm like,

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Speaker 4: I'm going to be a very prudent diversifier, and I'm

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Speaker 4: going to buy some bond funds.

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Speaker 2: Some hard assets, some star funds.

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Speaker 4: I'm going to invest internationally. I'm going to invest a

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Speaker 4: little bit in emerging markets. I'm going to buy some

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Speaker 4: ETF so I get a little income. Yes, I thought

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Speaker 4: I was being very smart for that, but all it

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Speaker 4: turns out is I should have just bought QQQ or

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Speaker 4: you know, the big tech stocks how to inspire die? Yeah, yes,

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Speaker 4: or over time I've become a little bit more aspired.

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Speaker 5: Dye. H.

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Speaker 4: You capitulated, Yeah, it capitulated probably means it's the top.

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Speaker 2: Now I have the same thing. So obviously we're journalists

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Speaker 2: and we can't really invest. We don't trade, right, we

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Speaker 2: don't trade. H But for instance, we have retirement options yeah, right,

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Speaker 2: And there are retirement options that are like, oh, an

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Speaker 2: ex Us dividend fund or something like that. And I

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Speaker 2: remember in the sort of mid twenty tens people talked

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Speaker 2: a lot about international equity. Yeah, and like, don't just

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Speaker 2: put all your eggs in the America basket. Make sure

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Speaker 2: you have exposure to emerging markets in China and like Europe,

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Speaker 2: even coming out of the Eurozone crisis. And it turns

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Speaker 2: out that was a bad idea totally.

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Speaker 4: You really should have just bought us big caps.

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Speaker 5: You know.

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Speaker 4: You mentioned like retirement like in our like four to

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Speaker 4: one K options. I think I have money and some

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Speaker 4: sort of target date funds. Yeah, which is a cool

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Speaker 4: idea because as you get older and one right, I

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Speaker 4: think so, you know, and like in theory, as you

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Speaker 4: get older you're supposed to take on less risk and

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Speaker 4: stuff like that, and so great, it seems like a

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Speaker 4: good idea to want to like think about it too much.

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Speaker 4: So it'd be nice if we're just sort of automatic.

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Speaker 4: But man, all of this diversification is killing me. What

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Speaker 4: a mistake.

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Speaker 2: All right, Well, today we need to talk a little

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Speaker 2: bit about why diversification for the past ten years or

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Speaker 2: so at least, has turned out to kind of be

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Speaker 2: a bad idea. You would have made a lot more

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Speaker 2: money just putting stuff in the S and P five hundred.

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Speaker 2: You certainly would have made a lot more money if

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Speaker 2: you just, I don't know, bought Apple.

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Speaker 4: Or QQQ, Yeah, just big cap tech.

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Speaker 2: So why is that we need to talk about why

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Speaker 2: we're being collectively punished for being prudent. We have the

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Speaker 2: perfect guests to talk about this. We're going to be

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Speaker 2: speaking with someone who I actually can not believe hasn't

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Speaker 2: been on the show before. I feel like he has,

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Speaker 2: but then I realized that, like he's sort of like

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Speaker 2: the Rocky Mountains in the sense that he's just always

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Speaker 2: kind of been there, but you kind of take him

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Speaker 2: for granted. He's like out there, you know him, you

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Speaker 2: read all his stuff, maybe listen to a show, see

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Speaker 2: him on Twitter, certainly, and yet we've never had him

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Speaker 2: on the show. We've just taken him for granted.

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Speaker 4: Or outrageous oversight that we must now rectify.

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Speaker 2: Yes, Okay, so I'm very excited to say we are

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Speaker 2: going to be speaking with Med Faber. He is, of course,

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Speaker 2: the co founder and CIO of Cambria Investment Management and

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Speaker 2: also the host of the Med Faber Show the podcast,

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Speaker 2: So meb thank you so much for coming on all blots.

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Speaker 2: I feel so bad that you haven't been on before.

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Speaker 2: I can't believe it.

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Speaker 3: It's great to be here y'all. As a Colorado native.

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Speaker 3: Maybe the Mountain analogies spot on.

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Speaker 4: Oh that was better than you real. By the way,

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Speaker 4: we're still out even though it's long past. We are

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Speaker 4: recording this at the future Proof conference in Huntington Beach, California.

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Speaker 4: Maybe you live like an hour away.

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Speaker 5: Huh.

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Speaker 3: Yes, Sadly we invited Joe and Tracy come surfing. They

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Speaker 3: skipped out again for our surf lessons. But beautiful day,

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Speaker 3: glad y'all are here.

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Speaker 2: I'm not good with cold water, so I'm just gonna

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Speaker 2: be like one hundred percent honest. It's like sixty five

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Speaker 2: degrees at the moment in Huntington Beach. I could not

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Speaker 2: fathom going willingly going into the water in this temperature.

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Speaker 3: Who just talked about surfing, Actually, Joe mentioned that he

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Speaker 3: likes getting punished in the market. Surfing will be perfect, right,

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Speaker 3: It's the ultimate humility. You get out there and just

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Speaker 3: get tossed.

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Speaker 2: Pounded by the waves of bad decisions over and over again. Yeah,

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Speaker 2: that sounds about right. Okay, Wait, so I mentioned that

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Speaker 2: you've sort of always been out there, and certainly for

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Speaker 2: as long as I can remember, in financial journalism, you

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Speaker 2: were always there. Cambrio was always there, and so I

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Speaker 2: never really stopped to think about what it is that

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Speaker 2: you actually do. But what does Cambria do?

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Speaker 3: Yeah, So we like to think of ourselves as the

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Speaker 3: odd lots of ETFs.

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Speaker 5: You know.

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Speaker 3: See, But I'm being serious, you know. We fast forward

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Speaker 3: from getting started pre GFC the company launched its first

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Speaker 3: ETF and twenty thirteen, so over a decade old now,

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Speaker 3: and we often tell people the best compliment you can

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Speaker 3: give anyone in investing, but also in the asset management

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Speaker 3: and entrepreneurship is just surviving. So Alpha all that extra wonderful,

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Speaker 3: but just surviving is a big compliment. So we're near

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Speaker 3: three billion in assets, sixteen ETFs now, but we often

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Speaker 3: say it's the best time ever to be an investor.

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Speaker 3: The choices are limitless. You can invest in ETFs for

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Speaker 3: near zero fee, thousands of choices. But in that world,

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Speaker 3: if you're going to charge more, you better be doing

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Speaker 3: something weird. We're concentrated in different and so we try

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Speaker 3: to only launch funds that don't exist in in a

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Speaker 3: world of ten thousand plus funds, that seems like a

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Speaker 3: hard goal, or that are sufficiently we think we can

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Speaker 3: do cheaper or quote better and better off is a

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Speaker 3: lofty goal too, But it has to be something I

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Speaker 3: want to put my own money into. It has to

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Speaker 3: be something that's backed by academic and practitioner research, and

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Speaker 3: so that versus a lot of the industry. And I

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Speaker 3: love our friends here that throw as much spaghetti against

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Speaker 3: the wall and see what sticks. We want products that

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Speaker 3: we want to invest in that don't exist.

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Speaker 4: Speaking of academic research, didn't you write some like it

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Speaker 4: was one of the most downloaded papers ever on SSRN

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Speaker 4: about market timing?

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Speaker 3: Yeah, well, it's funny you mentioned market timing. The original

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Speaker 3: title was a better Approach to market timing, and no

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Speaker 3: one would read it. I got a lot of really

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Speaker 3: nasty responses from probably some prior a lot guests, but

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Speaker 3: a lot of famous investors and a lot of really

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Speaker 3: wonderful thought for responses too, and I changed the title

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Speaker 3: to Quantitative Approach to Tactical Asset Allocation. Oh more, sounds

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Speaker 3: way more like consultant speak. But it also there's a

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Speaker 3: lot of luck. It came out pre financial crisis. Is

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Speaker 3: a very simple trend following methodology, and trend falling goes

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Speaker 3: back one hundred years, so nothing particularly new, but it

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Speaker 3: would have worked great as trend falling tends to do

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Speaker 3: during crisis and big bear markets, which we haven't had

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Speaker 3: in a long time, and so it became very popular. Clearly,

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Speaker 3: if I published in twenty ten, probably have zero downloads

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Speaker 3: as well.

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Speaker 2: It did better under the second title than it did

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Speaker 2: under the market timing title. That's kind of crazy from

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Speaker 2: a headline perspective.

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Speaker 4: Well, tactical, I think is a great word to have,

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Speaker 4: all right.

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Speaker 2: The headline of this episode is going to be like

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Speaker 2: med Faber on tactical allocation. Yeah, all right, okay, Well,

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Speaker 2: so you mentioned in the beginning that if you are

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Speaker 2: charging clients more, you better be doing something interesting and worthwhile.

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Speaker 2: Convince me why I shouldn't just put all my money

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Speaker 2: in spy.

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Speaker 5: Long dramatic pause. So a couple of things.

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Speaker 3: We always say the global market portfolio is the best

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Speaker 3: starting point. And what is the global market portfolio's If

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Speaker 3: you buy everything in the world, all the public assets,

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Speaker 3: and that is roughly half stocks, half bonds, half US

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Speaker 3: half foreign roughly speaking, and that's actually a really really.

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Speaker 5: Hard portfolio to beat over time.

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Speaker 3: But if you were to go back one hundred years,

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Speaker 3: one hundred and twenty years, we were doing odd lots

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Speaker 3: in London, sipping on some tea, drinking some champagne in

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Speaker 3: eighteen ninety nine and trying to project what would be

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Speaker 3: the successful country. You know, maybe we pick the US,

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Speaker 3: Maybe we pick Argentina, you know, maybe we pick other

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Speaker 3: countries and areas and stock markets. And my favorite investing book,

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Speaker 3: Tryumph for the optimists, you know, outlines the historical returns

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Speaker 3: of stocks, bonds, bills and all these countries. People always

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Speaker 3: think the US is the best. It hasn't been. I

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Speaker 3: think Australia and South Africa had better returns. But the

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Speaker 3: US has darned near over two thirds of the world

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Speaker 3: market cap today. So even if you invest in the

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Speaker 3: global portfolio, you're putting ten times as much in the

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Speaker 3: US stock market as any other country. And let's be honest,

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Speaker 3: US has been on a roll. You guys know. I

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Speaker 3: love to do my polls on Twitter. We did a

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Speaker 3: poll the other day and listeners, you got to answer

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Speaker 3: this before I give the answer up, I said, what

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Speaker 3: do you think US stocks have done since two thousand

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Speaker 3: and nine? And the multiple choices were do you think

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Speaker 3: they've doubled, do you think they've tripled? Do you think

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Speaker 3: they've quadrupled? And the fourth answer, which I had to

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Speaker 3: google was non you polled, which is nine times, and

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Speaker 3: then deck you polled, which is ten times. So listeners,

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Speaker 3: think about what do you think stocks had done? The

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Speaker 3: answers is almost a ten bagger. So one hundred grand

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Speaker 3: in stocks in two thousand and nine, if you didn't sell,

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Speaker 3: or you held, or you bought in March, you now

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Speaker 3: have a million bucks million bucks. You got ten million

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Speaker 3: bucks amazing fifteen percent returns. So you should have invested

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Speaker 3: in spy right like you crushed everything in the world.

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Speaker 3: But historically that concentration has not been rewarded. If you

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Speaker 3: look at the other forty five countries and you talk

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Speaker 3: to someone in Greece or Japan, or China or the UK,

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Speaker 3: they would tell you that investing all their money and

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Speaker 3: their home country was a terrible idea. But diversifying globally,

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Speaker 3: particularly into the US, has saved their bacon for the

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Speaker 3: past ten fifteen years.

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Speaker 4: So Tracy mentioned that much to our regret we've never

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Speaker 4: had you on the podcast before. I have interviewed you, however,

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Speaker 4: once maybe twice on TV, and you're talking about some

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Speaker 4: of these similar themes about international diversification, and I think

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Speaker 4: if I recall, he was talking a little bit also

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Speaker 4: about like sort of international extension of some of the

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Speaker 4: ideas that Robert Schiller has talked about, and the idea

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Speaker 4: of Schiller cape ratios, looking at market valuation from that

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Speaker 4: point and opportunities to essentially invest in cheap markets overseas,

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Speaker 4: and this idea that if it works in one country,

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Speaker 4: maybe it works internationally. What's the basic idea behind that?

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Speaker 4: And then you know, you mentioned, okay, the US has

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Speaker 4: just like totally clobbered everyone else. Give us the rundown

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Speaker 4: of like, I don't know, it was probably ten years

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Speaker 4: ago or maybe eight years ago, what's happened over the

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Speaker 4: last eight years internationally?

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Speaker 3: So if you rewind the clock and look at these

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Speaker 3: various regimes, and everyone wants to focus on what's the

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Speaker 3: FED doing, what are earning? Is going to be what's

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Speaker 3: going to happen this month, the election next month? A

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Speaker 3: lot of these regimes play out over not.

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Speaker 5: Just years, but decades.

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Speaker 3: Right If you look at not that long ago, from

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Speaker 3: two thousand to the financial crisis, the US stock market

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Speaker 3: got creamed by everything.

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Speaker 5: Else in the world.

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Speaker 3: Reads, gold, foreign stocks, merging market stocks, and so you

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Speaker 3: go through these periods where various assets have their time

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Speaker 3: in the sun and day in the shade. If you

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Speaker 3: look at the US market, say nineteen eighty super cheap, right,

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Speaker 3: the US has been a long term KP ratio of

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Speaker 3: five before, it's been as high as forty five at

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Speaker 3: the peak of my favorite bubble ninety nine.

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Speaker 4: Mine too.

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Speaker 3: Yeah, it's a great time in the nineties, but if

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Speaker 3: you look on average, it's usually like in the low

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Speaker 3: twenties if inflation is chill. But you have all these

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Speaker 3: countries and other examples. The classic we always talk about

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Speaker 3: is Japan. You know, Japan was darn near one hundred

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Speaker 3: in the nineteen eighties and then went nowhere for multiple decades.

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Speaker 3: Now it looks great today after an entire generation has

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Speaker 3: made no money in the Japanese stock market. But that's

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Speaker 3: how long it often plays out in Japan's not some

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Speaker 3: tiny economy, you know, this is a top three world

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Speaker 3: economy in stock market, and what's the biggest stock market

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Speaker 3: in the world at that time where the US is today,

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Speaker 3: and the US isn't expensive today, it's in the mid thirties.

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Speaker 3: It's not a bubble, but it tends to be a weight, right.

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Speaker 3: It tends to be a headwind over time, because you're

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Speaker 3: buying all the.

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Speaker 5: Future cash flows.

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Speaker 3: The good news is most of the rest of the

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Speaker 3: countries around the world are reasonably priced to really cheap.

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Speaker 5: The really deep.

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Speaker 3: Value like GMO and others talk about, is exceptionally interesting

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Speaker 3: right now, So we manage these shareholders yield ETFs, and

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Speaker 3: so the market cap in the US, the Achilles Heel

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Speaker 3: of market cap indexing is there is no tethered to

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Speaker 3: value whatsoever. It's the stock price times shares outstanding. And

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Speaker 3: that's good most of the time because you're guaranteed to

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Speaker 3: own the winners. But it's bad in the sense when

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Speaker 3: things go crazy, they're really expensive, and everyone's talking about this,

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Speaker 3: right the bag seven everything else, the really expensive stuff

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Speaker 3: gets the highest weights, and so much like late nineties,

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Speaker 3: a lot of the cheap companies high quality look exceptional

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Speaker 3: not just within the US but in foreign developed and

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Speaker 3: emerging as well. But everyone's forgotten about foreign stocks. Emerging

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Speaker 3: market stocks wants any but that sets the stage for

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Speaker 3: the next next outperformance as well.

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Speaker 2: Wait, talk more about the role of the benchmark indices

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Speaker 2: in all of this, because this is one thing that

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Speaker 2: I've been really interested in in recent years. This idea,

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Speaker 2: I mean, this is where the flows before pros kind

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Speaker 2: of comes from. This idea that like, if you want

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Speaker 2: to pick a winner, maybe rather than looking at the

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Speaker 2: fundamentals or trying to see if something is underpriced or whatever,

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Speaker 2: you want to look at where the flows are going.

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Speaker 2: And a lot of those flows nowadays are dictated by

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Speaker 2: index construction. And so how big a role does that

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Speaker 2: indexing actually play in I guess the outperformance of concentration

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Speaker 2: or US versus diversification and rest of the world.

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Speaker 3: We always say flows drive performance, and you know in

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Speaker 3: a particular small asset class or a concentrated strategy has

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Speaker 3: a much larger impact. You've seen some active funds, some

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Speaker 3: very famous fund managers over the past ten or so years,

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Speaker 3: where the flows a dramatic impact on the way up

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Speaker 3: and also on the way down. But this could also

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Speaker 3: be if you're buying Brazilian small cap tech stocks, right,

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Speaker 3: you can move those around with a lot less money

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Speaker 3: than you could the SMP. But look, you go back

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Speaker 3: fifty years, the concept of the market cap index set

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Speaker 3: off just this neutron bomb across the industry. But it

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Speaker 3: actually wasn't the index. That was the innovation, you know,

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Speaker 3: John Bogo, Wells Fargos and others. It was what indexing enabled,

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Speaker 3: which is low cost investing because you don't do anything

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Speaker 3: and you're guaranteed to own the winners. So quote passive

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Speaker 3: investing was an amazing invention. But here we are in

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Speaker 3: twenty twenty four and you don't have to do market

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Speaker 3: cap indexing to deliver the low cost right. We always

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Speaker 3: say ETFs are eating the asset management industry. So you

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Speaker 3: have all this historical very expensive mutual funds with conflicts

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Speaker 3: of interest and front end loans and twelvey one fees

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Speaker 3: that maybe index funds. But the index is not the innovation.

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Speaker 3: It's the low fees, which is what John Bogo used

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Speaker 3: to say. You know, it's not about index active passive.

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Speaker 3: He's like, the debate is really high fee, low fee,

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Speaker 3: and so now you can deliver these much more interesting

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Speaker 3: exposures instead of just passive market cap waiting.

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Speaker 5: That should do much better over time.

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Speaker 4: You know, one of the things that really strikes me.

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Speaker 4: And I think this is an important point that you've

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Speaker 4: already touched on a couple of times, that the beauty

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Speaker 4: of like the sort of modern ETF world is it

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Speaker 4: used to not be trivial right to have substantial foreign exposure.

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Speaker 4: And you know, especially thinking like before mutual funds proliferated,

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Speaker 4: you might say, like, I've like Brazil, but when you like,

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Speaker 4: go out and have a broker make a buye order

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Speaker 4: for every individual stock, Like that's a cost process and

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Speaker 4: now that's not costly anymore. And I think that's a

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Speaker 4: really underappreciated fact about investing. But just sitting aside the

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Speaker 4: US outperformance, what's going on in international markets so that

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Speaker 4: investors haven't loved them, Like, yeah, why you talk about

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Speaker 4: there must be great Latin American companies, Latin American tech companies,

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Speaker 4: Latin American tire companies and beverage distributors and everything they have.

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Speaker 4: Why haven't investors liked these companies?

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Speaker 3: The US has certainly had great earnings growth, yeah, for

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Speaker 3: the past ten to fifteen years, right, so it's led

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Speaker 3: the charge.

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Speaker 5: It's done really well.

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Speaker 3: But if you look around the rest of the world,

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Speaker 3: you know, and we manage my largest look, by the way,

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Speaker 3: my largest fun long only US stock fund. So talking

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Speaker 3: my book here, But looking at the foreign and emerging

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Speaker 3: you see great companies, and so here's an example. You know,

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Speaker 3: we run a value quality strategy. US shareholder yield doesn't

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Speaker 3: have much tech exposure. Okay, surprising because tech stocks in

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Speaker 3: the US on average are pretty expensive, but they also

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Speaker 3: do a bunch of share issuance based on stock based compensation, right,

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Speaker 3: so they have a negative buyback yield because they're issuing

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Speaker 3: and issuing a ton of shares. But if you look

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Speaker 3: at foreign, developed, and emerging, our emerging market fund, tech

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Speaker 3: is the largest sector allocation, which is surprising to many

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Speaker 3: people because it's a value strategy.

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Speaker 5: But we always say.

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Speaker 3: There's opportunities, people just aren't necessarily focused on them. As

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Speaker 3: an example, our largest holding was a better performer than Nvidia,

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Speaker 3: and it's a semiconductor stock, but nobody knows about it.

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Speaker 3: Nobody talks about it because nobody cares about emerging markets.

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Speaker 4: But used to be clear, setting aside what people care

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Speaker 4: about at a given time, earnings growth in the US

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Speaker 4: since two thousand and nine or really at any point

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Speaker 4: has been extraordinary and over time. It just there are

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Speaker 4: companies that buy and large are just continue to grow earnings.

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Speaker 4: Has that not been the case internationally?

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Speaker 3: Yeah, you haven't had the same earnings growth. But also

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Speaker 3: within the US, you have had this tailwind of multiple expansion.

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Speaker 3: Our buddy Cliff was talking about, He's like, the percentage

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Speaker 3: of the returns that are attributal to multiple expansion is

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Speaker 3: pretty high. Right, So you've had the US So back

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Speaker 3: in two thousand and nine, right, we're hanging out in

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Speaker 3: March somewhere at a pub in New York City, drowning

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Speaker 3: our woes about the world going crazy. The US stock

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Speaker 3: market talking about back to the Shuler cap ratio was

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Speaker 3: low teens, but so was foreign developed and emerging. So

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Speaker 3: the US has gone from twelve to let's call it

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Speaker 3: thirty six today, whereas the rest of the world hasn't.

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Speaker 3: It hasn't had that multiple expansion, and so that can

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Speaker 3: be a massive tailwind and headwind over the course of

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Speaker 3: a decade of like three, four, five seven percent per year,

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Speaker 3: depending on what people are willing to pay for those stocks.

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Speaker 2: So just on this point, one of the criticisms that

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Speaker 2: is sometimes leveled against diversification or strategies that are focused

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Speaker 2: on diversification is the idea that well, your purposefully kind

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Speaker 2: of adding losers to your port, Like you're not really

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Speaker 2: trying to choose winners, You're trying to distribute your risk

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Speaker 2: among a bunch of different entities. And the analogy that

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Speaker 2: I sometimes use, which probably will not resonate for either

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Speaker 2: of you or like most of our listeners, but I

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Speaker 2: sometimes think it's kind of like trying to find a

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Speaker 2: single guy over forty in New York City, Like there's

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Speaker 2: a reason they're desirable to single women. But on the

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Speaker 2: other hand, like, there's probably a reason that they're single

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Speaker 2: over forty. There's probably something wrong with them, right, and

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Speaker 2: that's why this is good, That's why they're single. So

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Speaker 2: I sometimes think about diversification or like value investing in

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Speaker 2: those terms, why should you seek out things that are

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Speaker 2: probably going to be losers at least for you know,

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Speaker 2: the short to medium term.

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Speaker 3: There's the late Peter Bernstein had a great quote which

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Speaker 3: I'll get directionally correct, which was he's like, look, acid

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Speaker 3: allocation is a defensive strategy, but it's also an aggressive

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Speaker 3: strategy because you never know where the next windfall is

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Speaker 3: going to come from.

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Speaker 5: Look around the.

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Speaker 3: World, today gold all time highs. Nobody's talking about it,

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Speaker 3: at least at this conference that I'm chatting with. But

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Speaker 3: you never know if you look at various assets, whether

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Speaker 3: it's coffee, whether it's the yen, whether it's foreign stocks,

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Speaker 3: merging markets, reads, bonds, even US stocks value right quality,

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Speaker 3: you never know the exact timing of it. And that's hard,

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Speaker 3: you know, And we have a lot of non consensus

401
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Speaker 3: views when it comes to acid allocation. I actually don't

402
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Speaker 3: think if you're doing buy and hold, your allocation matters

403
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Speaker 3: much at all, which I think it's like my mom

404
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Speaker 3: is a Southern cook and you know, you make She

405
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Speaker 3: makes chocolate chip cookies with just by by a feel right,

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Speaker 3: She tastes some. But as long as you have the wheat,

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Speaker 3: the flour, the butter, the chocolate chips, like it's going

408
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Speaker 3: to end up okay, you totally omit one thing and

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Speaker 3: it's probably going to be suboptimal. And that's the way

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Speaker 3: with this ass allocation. You have some global stocks, some

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Speaker 3: global bonds, and some real assets, meaning like tips reads,

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Speaker 3: the allocation percentage doesn't much.

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Speaker 5: And when we wrote this book, this.

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Speaker 3: Acid Allocation book a decade ago, which were updated, we

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Speaker 3: actually found that if you look at overtime the last

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Speaker 3: fifty the last one hundred years, and compare the best

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Speaker 3: performing strategy relative to the worst. And we looked at

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Speaker 3: all of them en DOWNMNT permanent portfolios sixty forty, on

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Speaker 3: and on, we found the spread was actually pretty tight.

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Speaker 3: They all returned about within a percent or two percent

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Speaker 3: of each other. And the crazy part is if you

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Speaker 3: took the best one, you say, all right, Joe Tracy,

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Speaker 3: I'm gonna give you crystal ball. We'll hop in the Dolorean,

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Speaker 3: go back fifty hundred years. I'm going to tell you

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Speaker 3: which asset out case and strategy was best. How much

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Speaker 3: would you pay me that? You know, PIMCO probably give

427
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Speaker 3: me a billion dollars for that knowledge. But I said,

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Speaker 3: hold on the genie. There's one rule. You have to

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Speaker 3: implement it with the average mutual fun feed of today,

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Speaker 3: not back then one point two five percent today that

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Speaker 3: takes the best performing allocation makes it almost as bad

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Speaker 3: as the worst.

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Speaker 5: Wow.

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Speaker 3: So all this time we spend on the FED, on

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Speaker 3: gold or whatever. And this is for buy and hold,

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Speaker 3: just market cap indexing. We're not talking about all the

437
00:21:54,640 --> 00:21:57,280
Speaker 3: good stuff that we do. Trend following value, YadA YadA,

438
00:21:57,520 --> 00:21:59,680
Speaker 3: just the basics. And so we often say, you're acid,

439
00:21:59,680 --> 00:22:02,800
Speaker 3: alt care doesn't matter that much, but what does matter

440
00:22:04,000 --> 00:22:06,480
Speaker 3: is expenses, costs and taxes.

441
00:22:06,640 --> 00:22:10,640
Speaker 4: Yeah, yeah, I remember seeing I think, well, it might

442
00:22:10,640 --> 00:22:12,639
Speaker 4: have been like the bulgel Head Forum is back in

443
00:22:12,680 --> 00:22:14,639
Speaker 4: the day, and it is so much about like the

444
00:22:14,640 --> 00:22:17,879
Speaker 4: cost matter is hypothesis as being a more powerful idea

445
00:22:17,880 --> 00:22:22,960
Speaker 4: than the efficient market hypothesis for this exact reason. So,

446
00:22:23,240 --> 00:22:25,240
Speaker 4: you know, we've been talking about Okay, since two thousand

447
00:22:25,240 --> 00:22:27,960
Speaker 4: and nine, we know US stocks have clobber the rest

448
00:22:27,960 --> 00:22:30,040
Speaker 4: of the world. When was the last time, Actually that

449
00:22:30,119 --> 00:22:30,720
Speaker 4: wasn't the case.

450
00:22:30,920 --> 00:22:32,680
Speaker 3: Well, so we wrote this piece. It's called the bear

451
00:22:32,720 --> 00:22:35,600
Speaker 3: market and diversfication. Yeah right, and so since two thousand

452
00:22:35,600 --> 00:22:38,400
Speaker 3: and nine, US stocks again, listeners, think in your head

453
00:22:38,880 --> 00:22:41,600
Speaker 3: fifteen percent per year. Yeah, that's only happened on a

454
00:22:41,640 --> 00:22:44,479
Speaker 3: ten year rolling basis four times in history. And they

455
00:22:44,520 --> 00:22:49,040
Speaker 3: all have names. Roaring Twenties, in fifty fifty, the Internet bubble,

456
00:22:49,040 --> 00:22:51,960
Speaker 3: and then whatever we're calling this COVID meme sonk Ai

457
00:22:52,240 --> 00:22:55,320
Speaker 3: era right now, you don't know how long it's going

458
00:22:55,400 --> 00:22:55,760
Speaker 3: to last.

459
00:22:55,760 --> 00:22:56,480
Speaker 5: And on the.

460
00:22:56,400 --> 00:22:59,439
Speaker 3: Backside, they also all have names, the Great Depression, the

461
00:22:59,480 --> 00:23:04,680
Speaker 3: inflation seventies period, the dot com bubble burst in GFC

462
00:23:04,800 --> 00:23:06,480
Speaker 3: echo and whatever comes next.

463
00:23:06,480 --> 00:23:06,800
Speaker 5: Who knows.

464
00:23:06,800 --> 00:23:08,040
Speaker 3: It doesn't mean so during.

465
00:23:07,800 --> 00:23:12,480
Speaker 4: Those periods that we don't have good names for, international

466
00:23:12,480 --> 00:23:14,600
Speaker 4: diversification has paid off.

467
00:23:14,440 --> 00:23:17,679
Speaker 3: If you look at this period has arguably been the

468
00:23:17,960 --> 00:23:22,080
Speaker 3: worst period ever for an acid allocation portfolio. And we'll

469
00:23:22,080 --> 00:23:26,840
Speaker 3: just use the Global market portfolio versus the SMP. The

470
00:23:26,880 --> 00:23:29,600
Speaker 3: only comparable period is post World War two. And this

471
00:23:29,720 --> 00:23:31,440
Speaker 3: is not just in terms And first of all, didn't

472
00:23:31,480 --> 00:23:33,840
Speaker 3: do bad, did like seven percent a year? Totally fine,

473
00:23:34,040 --> 00:23:36,399
Speaker 3: Joe's four to one k seven percent a year not bad.

474
00:23:36,800 --> 00:23:40,080
Speaker 3: But if you look at in terms of underperforming your neighbor,

475
00:23:40,200 --> 00:23:43,040
Speaker 3: so an absolute underperformance versus the sb But the worst

476
00:23:43,040 --> 00:23:46,159
Speaker 3: part is not the absolute poortance, it's the years in

477
00:23:46,200 --> 00:23:50,640
Speaker 3: a row. It is something like thirteen of fifteen years.

478
00:23:51,160 --> 00:23:54,240
Speaker 3: It's funder perform the SMP. So it's just bodyblow after

479
00:23:54,320 --> 00:23:58,840
Speaker 3: body blow of looking less smart than your dope neighbor

480
00:23:58,880 --> 00:23:59,680
Speaker 3: who bought the cues.

481
00:23:59,760 --> 00:24:03,760
Speaker 4: And that's upsetting. Yeah, I know it's not fair.

482
00:24:05,000 --> 00:24:09,240
Speaker 2: I'm trying to process this because it bothers me so much. No, okay, well,

483
00:24:09,840 --> 00:24:13,760
Speaker 2: since you brought up taxes and the cost base as

484
00:24:13,800 --> 00:24:19,280
Speaker 2: such a big factor to investment success or outperformance. Talk

485
00:24:19,280 --> 00:24:22,360
Speaker 2: to us about what you're seeing there in terms of

486
00:24:22,600 --> 00:24:25,720
Speaker 2: I guess innovation, because we often talk in the investment

487
00:24:25,760 --> 00:24:28,760
Speaker 2: space in ETF certainly about the race to the bottom

488
00:24:28,840 --> 00:24:31,400
Speaker 2: in terms of costs. And to me, I look around

489
00:24:31,640 --> 00:24:34,239
Speaker 2: at some of the tax yields on these things, it

490
00:24:34,280 --> 00:24:37,040
Speaker 2: feels like you can't get that much lower, but maybe

491
00:24:37,080 --> 00:24:37,400
Speaker 2: you can.

492
00:24:37,880 --> 00:24:40,960
Speaker 3: There's a lot about ETFs that I think that people

493
00:24:41,200 --> 00:24:45,320
Speaker 3: don't know. First of all, a lot of public funds

494
00:24:45,359 --> 00:24:48,480
Speaker 3: will do short landing and return that revenue to the consumers.

495
00:24:48,560 --> 00:24:51,359
Speaker 3: So on top of the fee you have, let's say

496
00:24:51,520 --> 00:24:54,679
Speaker 3: like we charge half or percent well the short landing revenue,

497
00:24:54,680 --> 00:24:57,040
Speaker 3: and some funds at may be ten basis points, at

498
00:24:57,040 --> 00:24:59,600
Speaker 3: maybe twenty. In some cases it could be very material

499
00:24:59,640 --> 00:25:02,479
Speaker 3: fifty over one hundred basis points. So there are plenty

500
00:25:02,520 --> 00:25:06,600
Speaker 3: of ETFs out there that actually already have a negative

501
00:25:06,600 --> 00:25:09,640
Speaker 3: expense ratio. So let that sink in. You're getting paid

502
00:25:09,680 --> 00:25:12,080
Speaker 3: to own this fund. That's pretty cool, right. Second is

503
00:25:12,119 --> 00:25:16,920
Speaker 3: the ETF expense ratio is also tax deductible. Right, It's

504
00:25:16,920 --> 00:25:19,000
Speaker 3: coming out of the income. So if you're comparing that

505
00:25:19,000 --> 00:25:22,160
Speaker 3: to a traditional separate account, which is not deductible. That's

506
00:25:22,160 --> 00:25:26,440
Speaker 3: an additional essentially benefit of the ETF over these traditional structures.

507
00:25:26,880 --> 00:25:30,479
Speaker 3: But here's the challenge. If you've been participating, you're one

508
00:25:30,480 --> 00:25:32,240
Speaker 3: of the lucky ones. You bought a bunch of stocks,

509
00:25:32,280 --> 00:25:35,280
Speaker 3: you own a bunch of Nvidia since two thousand and nine.

510
00:25:35,480 --> 00:25:38,320
Speaker 3: You're sitting on a ten bagger gain. And if you

511
00:25:38,400 --> 00:25:42,240
Speaker 3: talk to older generation, if you look at Buffett, you

512
00:25:42,280 --> 00:25:44,479
Speaker 3: know all these decisions that he has to make on

513
00:25:44,560 --> 00:25:47,080
Speaker 3: Apple where he has to eventually pay the taxes. Right,

514
00:25:47,080 --> 00:25:48,399
Speaker 3: you talk to the order gender and say, well, I

515
00:25:48,440 --> 00:25:52,040
Speaker 3: just can't sell my Microsoft or GE or IBM because

516
00:25:52,080 --> 00:25:55,560
Speaker 3: the taxman would kill me. We had Hank Bessenbinder on

517
00:25:55,560 --> 00:25:58,439
Speaker 3: the show recently, who did the famous paper to stocks

518
00:25:58,480 --> 00:26:01,120
Speaker 3: outperformed T bills. We had Hank run for the past

519
00:26:01,119 --> 00:26:03,280
Speaker 3: one hundred years. I said, hey, what's the best forming

520
00:26:03,280 --> 00:26:06,200
Speaker 3: stock of all time? And listeners, you have to guess

521
00:26:06,200 --> 00:26:06,560
Speaker 3: this too.

522
00:26:06,720 --> 00:26:07,280
Speaker 5: You may get it.

523
00:26:07,320 --> 00:26:09,200
Speaker 3: Of the top five, the top three, I don't think

524
00:26:09,240 --> 00:26:11,360
Speaker 3: I could guess two or three ever heard of them,

525
00:26:11,560 --> 00:26:13,920
Speaker 3: but Vulcan Materials I think two.

526
00:26:14,480 --> 00:26:15,600
Speaker 5: Kansas City was.

527
00:26:15,800 --> 00:26:19,760
Speaker 3: Third and number one was railrud Yeah, okay, and this

528
00:26:19,840 --> 00:26:24,000
Speaker 3: is just you are optimizing on length of compound.

529
00:26:24,080 --> 00:26:25,000
Speaker 5: Yeah, so one hundred years.

530
00:26:25,359 --> 00:26:27,760
Speaker 3: But Altria you put It's like you put one thousand

531
00:26:27,760 --> 00:26:29,320
Speaker 3: dollars in al three hundred years ago, you now have

532
00:26:29,320 --> 00:26:33,640
Speaker 3: two billion. Anyway, the point being is that if you invest,

533
00:26:33,880 --> 00:26:37,080
Speaker 3: you eventually have a bunch of capital gains. Great good

534
00:26:37,119 --> 00:26:39,280
Speaker 3: problem to have, right if you're in a taxable investor,

535
00:26:39,800 --> 00:26:41,920
Speaker 3: and if you have been invested in the US stocks

536
00:26:41,920 --> 00:26:45,159
Speaker 3: in two thousand and nine, you have ten x capital

537
00:26:45,200 --> 00:26:48,800
Speaker 3: gains on average. Right, So that's a problem for investors, right,

538
00:26:48,800 --> 00:26:50,359
Speaker 3: because you got to make a decision. Am I just

539
00:26:50,359 --> 00:26:52,399
Speaker 3: going to bite the bullet? Sell this, pay the taxes

540
00:26:52,440 --> 00:26:56,879
Speaker 3: and move on. Because these power laws dominate everything we

541
00:26:56,920 --> 00:26:59,560
Speaker 3: do in investing. It's in VC, it's true in public

542
00:26:59,600 --> 00:27:02,480
Speaker 3: markets where the best performers, it's like five percent of

543
00:27:02,520 --> 00:27:04,480
Speaker 3: stocks generate all the return. So if you end up

544
00:27:04,520 --> 00:27:07,480
Speaker 3: with one of these, your whole portfolio is now this

545
00:27:07,680 --> 00:27:11,520
Speaker 3: appreciated stock or portfolio. What I'm getting at is what

546
00:27:11,640 --> 00:27:14,199
Speaker 3: do you do well. There's actually been something that's been

547
00:27:14,200 --> 00:27:16,760
Speaker 3: around for one hundred years called the exchange fund. It

548
00:27:16,800 --> 00:27:19,560
Speaker 3: was popularized really in the nineteen seventies by eat Advance

549
00:27:19,680 --> 00:27:23,800
Speaker 3: by now Morgan Stanley Goldman does it. And it's like

550
00:27:23,840 --> 00:27:25,120
Speaker 3: a ten thirty one exchange.

551
00:27:25,119 --> 00:27:26,760
Speaker 5: If you have a portfolio, this is it.

552
00:27:26,800 --> 00:27:28,720
Speaker 4: The ten thirty one is that how real estate investors

553
00:27:28,800 --> 00:27:29,600
Speaker 4: never have to pay ten.

554
00:27:29,680 --> 00:27:31,840
Speaker 2: That's like when you buy a house, if you buy

555
00:27:31,880 --> 00:27:33,800
Speaker 2: an if you sell it and then buy another.

556
00:27:33,600 --> 00:27:36,760
Speaker 3: One commercial you buy it, you buy a hotel, you

557
00:27:36,760 --> 00:27:37,320
Speaker 3: buy some farm.

558
00:27:37,320 --> 00:27:40,119
Speaker 4: Commercial real estate. People love this. This is like the essence,

559
00:27:40,320 --> 00:27:40,520
Speaker 4: what's it?

560
00:27:40,800 --> 00:27:44,600
Speaker 3: Indefinite tax referral. And it builds generational wealth. And it's

561
00:27:44,600 --> 00:27:46,720
Speaker 3: why you see so many people that you know, they

562
00:27:47,119 --> 00:27:50,880
Speaker 3: they talk, well, my grandmother bought this property at ten

563
00:27:50,920 --> 00:27:53,560
Speaker 3: thousand dollars and now it's ten million. You know, So

564
00:27:53,600 --> 00:27:58,199
Speaker 3: it's great. It's a huge wealth compounder over time. But

565
00:27:58,280 --> 00:28:00,600
Speaker 3: so with stocks, you eventually have to pay the pipers.

566
00:28:00,640 --> 00:28:03,280
Speaker 3: So there's this thing that's been around forever called exchange funds.

567
00:28:03,320 --> 00:28:05,600
Speaker 3: And the way they work is if you have highly

568
00:28:05,640 --> 00:28:09,000
Speaker 3: appreciated positions, you get a bunch of other people, you

569
00:28:09,080 --> 00:28:11,320
Speaker 3: contribute them to a portfolio, and there's some rules. You've

570
00:28:11,320 --> 00:28:13,840
Speaker 3: got to be accredited or qualified. You've got to hold

571
00:28:13,880 --> 00:28:15,960
Speaker 3: it for seven years and at the end of seven years,

572
00:28:15,960 --> 00:28:19,080
Speaker 3: you get back at diversified portfolio, so you you eliminate

573
00:28:19,080 --> 00:28:21,840
Speaker 3: your concentration risk. But the problem of the course is

574
00:28:21,880 --> 00:28:25,159
Speaker 3: it's run by the traditional asset managers who love to

575
00:28:25,240 --> 00:28:27,679
Speaker 3: charge exceptionally high fees. They're going to ding you probably

576
00:28:27,720 --> 00:28:29,679
Speaker 3: a percent or two just to get in, and then

577
00:28:29,680 --> 00:28:31,720
Speaker 3: they're going to ding you a percent or two every

578
00:28:31,800 --> 00:28:34,200
Speaker 3: year for seven years for the privilege of having this

579
00:28:34,560 --> 00:28:37,200
Speaker 3: exchange fund. So there's others trying to do this. There's

580
00:28:37,200 --> 00:28:39,880
Speaker 3: a company called cash that's doing this, trying to disrupt this.

581
00:28:40,480 --> 00:28:44,360
Speaker 3: But if you think of the ETF structure, which is

582
00:28:44,400 --> 00:28:48,479
Speaker 3: a massive innovation where you're having actively managed portfolio at

583
00:28:48,480 --> 00:28:52,760
Speaker 3: index portfolio, you're only paying taxes when you sell that fund,

584
00:28:52,840 --> 00:28:55,120
Speaker 3: so the turnover doesn't matter. I think that's well understood

585
00:28:55,160 --> 00:28:57,840
Speaker 3: by most investors today, hopefully. But if you look back

586
00:28:57,880 --> 00:29:00,120
Speaker 3: at Spy, if you bought it in ninety seven, I've

587
00:29:00,120 --> 00:29:02,240
Speaker 3: paid no capital gains at all, despite the fact that

588
00:29:02,400 --> 00:29:05,720
Speaker 3: trades consistently. That's not a feature of mutual funds or

589
00:29:05,760 --> 00:29:08,000
Speaker 3: hedge funds, and that's why ETFs are eating asset management.

590
00:29:08,160 --> 00:29:11,640
Speaker 3: They're vastly more tax efficient, which on average is probably

591
00:29:11,640 --> 00:29:15,480
Speaker 3: about a seventy basis point after tax benefit relative to

592
00:29:15,520 --> 00:29:20,640
Speaker 3: mutual funds. Monster number probably more important than the expens ratio. However,

593
00:29:21,040 --> 00:29:22,440
Speaker 3: what if you've got a bunch of stocks have gone

594
00:29:22,520 --> 00:29:24,000
Speaker 3: up a ton, so you could go to this exchange

595
00:29:24,000 --> 00:29:25,560
Speaker 3: fund route, you're stuck.

596
00:29:25,320 --> 00:29:26,080
Speaker 5: You could sell it.

597
00:29:26,680 --> 00:29:29,760
Speaker 3: But what you've started to see over the past five years,

598
00:29:30,640 --> 00:29:32,840
Speaker 3: you've seen the riding on the wall, and the traditional

599
00:29:32,920 --> 00:29:35,240
Speaker 3: mutual fund industry is doing one of two things. They're

600
00:29:35,280 --> 00:29:37,840
Speaker 3: going Ostrich style head and sand I'm just going to

601
00:29:37,920 --> 00:29:41,160
Speaker 3: ride this till I retire and we'll just deal with

602
00:29:41,200 --> 00:29:44,840
Speaker 3: the outflows and someone else's problem. Or their shops like DFA,

603
00:29:44,920 --> 00:29:45,240
Speaker 3: they say.

604
00:29:45,200 --> 00:29:46,200
Speaker 5: You know what, we're going to convert.

605
00:29:46,360 --> 00:29:49,520
Speaker 3: We're going to They do fifty billion of mutual funds

606
00:29:49,560 --> 00:29:53,880
Speaker 3: to ETFs. And then you see some innovation going on

607
00:29:54,080 --> 00:29:56,760
Speaker 3: where a group we're partnering with Wes Gray and his

608
00:29:56,800 --> 00:30:00,680
Speaker 3: team at Alpha Architect ETF Architect, they we're able to

609
00:30:00,680 --> 00:30:04,360
Speaker 3: go to an asset manager and say, okay, well.

610
00:30:03,520 --> 00:30:04,960
Speaker 5: Let's convert your clients.

611
00:30:05,480 --> 00:30:08,520
Speaker 3: So they had five thousand clients from separate accounts to

612
00:30:08,560 --> 00:30:11,720
Speaker 3: an ETF and it's not a taxable transaction. And so

613
00:30:12,120 --> 00:30:13,440
Speaker 3: I started to think about this. It's called a three

614
00:30:13,560 --> 00:30:15,920
Speaker 3: fifty one exchange again, been around for one hundred years,

615
00:30:16,520 --> 00:30:20,280
Speaker 3: and you start the brain working in an odd lot's

616
00:30:20,320 --> 00:30:22,800
Speaker 3: way and taking this to its logical conclusion. I say,

617
00:30:22,840 --> 00:30:26,120
Speaker 3: this is a really cool idea, and to my knowledge,

618
00:30:26,160 --> 00:30:27,920
Speaker 3: we're going to be the first to do this. And

619
00:30:27,960 --> 00:30:30,160
Speaker 3: so I said, why can't we open this to everyone?

620
00:30:30,560 --> 00:30:33,600
Speaker 3: Why can't we make this so that it's disrupting the

621
00:30:33,720 --> 00:30:36,560
Speaker 3: entire industry. You make it democratize it where you don't

622
00:30:36,600 --> 00:30:38,960
Speaker 3: have to be a qualified investor. You can just be

623
00:30:39,040 --> 00:30:41,280
Speaker 3: any investor that's sitting on capital gains.

624
00:30:41,760 --> 00:30:43,000
Speaker 5: And so the way that works.

625
00:30:42,800 --> 00:30:45,959
Speaker 3: Is you can contribute a portfolio of stocks ETFs whatever,

626
00:30:46,040 --> 00:30:48,120
Speaker 3: and there's some rules like one position can't be over

627
00:30:48,160 --> 00:30:51,000
Speaker 3: twenty five percent, the top five can't be over fifty.

628
00:30:51,760 --> 00:30:55,520
Speaker 3: You contribute a basket of stocks, you get an ETF

629
00:30:55,520 --> 00:30:59,120
Speaker 3: in return, and you get essentially a tax deferral diversified

630
00:30:59,120 --> 00:31:02,800
Speaker 3: portfolio that now has a diversified strategy. It could be

631
00:31:02,800 --> 00:31:05,400
Speaker 3: whatever strategy. The first one we're doing is actually a

632
00:31:05,480 --> 00:31:09,400
Speaker 3: riff on an old paper we wrote which demonstrated that

633
00:31:09,400 --> 00:31:11,280
Speaker 3: if you're a high tax investment in it plays like

634
00:31:11,320 --> 00:31:13,960
Speaker 3: California or New York. The last thing you want is

635
00:31:13,960 --> 00:31:16,680
Speaker 3: dividends or high dividends. So we demonstrated that if you

636
00:31:16,760 --> 00:31:20,360
Speaker 3: had a value strategy that targeted stocks that paid load

637
00:31:20,400 --> 00:31:23,400
Speaker 3: to no dividends your act after tax, you do much

638
00:31:23,400 --> 00:31:28,200
Speaker 3: better than the SMP or high divinut strategy. So this

639
00:31:28,280 --> 00:31:31,280
Speaker 3: takeaway of this idea is that you can contribute a

640
00:31:31,360 --> 00:31:34,120
Speaker 3: basket of stocks end up with a great ETF and

641
00:31:34,920 --> 00:31:37,240
Speaker 3: you could launch a series of these every year, every

642
00:31:37,280 --> 00:31:40,000
Speaker 3: three months, every six months, and let people opt in.

643
00:31:40,600 --> 00:31:42,080
Speaker 5: What do you think, great?

644
00:31:42,240 --> 00:31:45,000
Speaker 4: This sounds good. I wish I had some gigantic capital

645
00:31:45,040 --> 00:31:48,440
Speaker 4: gains that I needed to solve for, but a loss

646
00:31:48,520 --> 00:31:51,200
Speaker 4: that's not my problem. But let's just talk a little

647
00:31:51,200 --> 00:31:55,320
Speaker 4: bit more mechanics. So let's say ten years ago, I'd

648
00:31:55,320 --> 00:31:58,440
Speaker 4: bought a bunch of Apple and Nvideo and Microsoft and

649
00:32:00,160 --> 00:32:02,520
Speaker 4: whatever else, JP Morgan, a bunch of names that have

650
00:32:02,560 --> 00:32:05,280
Speaker 4: done well. Okay, So I have these and now I'm thinking, Oh,

651
00:32:05,320 --> 00:32:08,920
Speaker 4: the market's kind of expensive these days, I'm nervous, et cetera.

652
00:32:09,520 --> 00:32:11,720
Speaker 4: I'm thinking about I want to sell them, but I

653
00:32:11,760 --> 00:32:15,200
Speaker 4: don't want to like write a huge check come next April. Okay,

654
00:32:15,360 --> 00:32:18,760
Speaker 4: so that's my problem. Talk to me the specific mechanics.

655
00:32:18,920 --> 00:32:22,960
Speaker 4: Now your fund suddenly, your new ETF suddenly exists. Walk

656
00:32:23,040 --> 00:32:25,720
Speaker 4: me through the specific mechanics of what I have to

657
00:32:25,760 --> 00:32:27,800
Speaker 4: do to swap them.

658
00:32:27,960 --> 00:32:29,760
Speaker 2: I don't understand how you like deliver it.

659
00:32:29,960 --> 00:32:33,120
Speaker 4: Yeah, so I swapped that into this thing so that

660
00:32:33,280 --> 00:32:36,239
Speaker 4: now I'm in a diversified portfolio that's a little bit

661
00:32:36,320 --> 00:32:40,280
Speaker 4: de risked. Thanks to diversification, I don't have my concentration problem,

662
00:32:40,360 --> 00:32:42,200
Speaker 4: but I didn't have to pay the taxes. Talk to

663
00:32:42,200 --> 00:32:42,880
Speaker 4: me about exactly.

664
00:32:42,920 --> 00:32:44,960
Speaker 3: This is why we're partnering with our friends ETF architect

665
00:32:45,000 --> 00:32:47,600
Speaker 3: like you have things like ten thirty one, have very established,

666
00:32:47,600 --> 00:32:49,200
Speaker 3: templated rules how to do it.

667
00:32:49,200 --> 00:32:50,760
Speaker 5: And this is the first time we going through it.

668
00:32:50,800 --> 00:32:53,320
Speaker 3: So I'm sure it's not going to be one hundred

669
00:32:53,320 --> 00:32:57,800
Speaker 3: percent without headaches and hiccups. But the first thing you inquire, right,

670
00:32:57,920 --> 00:33:01,080
Speaker 3: So we set up camera investments dot com, forward slash tax.

671
00:33:01,400 --> 00:33:04,280
Speaker 3: Put in your name, your info. I got this portfolio.

672
00:33:04,400 --> 00:33:07,640
Speaker 3: Joe's got a portfolio. Swab Yeah, it's I literally do have.

673
00:33:08,720 --> 00:33:11,640
Speaker 3: So you know, here's I'm interested. Send me more information.

674
00:33:11,680 --> 00:33:14,320
Speaker 3: I'm sure we'll do a webinar, we'll educate everyone and

675
00:33:14,360 --> 00:33:16,600
Speaker 3: we'll say here's the menu, here's the process of what's

676
00:33:16,600 --> 00:33:20,760
Speaker 3: going to happen on I'm just making up this date December. First,

677
00:33:21,200 --> 00:33:24,120
Speaker 3: your portfolio will contribute to the ETF.

678
00:33:24,200 --> 00:33:25,480
Speaker 4: Everybody, How does that work?

679
00:33:25,640 --> 00:33:26,040
Speaker 5: Magic?

680
00:33:26,160 --> 00:33:29,160
Speaker 3: Hopefully you know the plumbing and the pipes of it.

681
00:33:29,440 --> 00:33:31,000
Speaker 3: We'll have to get Wes on the show and get

682
00:33:31,080 --> 00:33:33,160
Speaker 3: him to get really deep on it. But they just

683
00:33:33,160 --> 00:33:34,800
Speaker 3: did it with a five thousand account.

684
00:33:35,000 --> 00:33:38,360
Speaker 4: But like Schwab or whatever, like, they have mechanisms for.

685
00:33:39,240 --> 00:33:40,960
Speaker 3: Yeah, I mean, I'm sure, like I don't know whether

686
00:33:41,000 --> 00:33:43,520
Speaker 3: it's going to be you know, acadding and whether it's

687
00:33:43,560 --> 00:33:45,400
Speaker 3: going to be just electronic transfer.

688
00:33:45,520 --> 00:33:48,680
Speaker 4: Okay, but you can do that with shares, yeah, okay, Okay.

689
00:33:49,440 --> 00:33:52,360
Speaker 3: So we wrangle up a bunch of people with all

690
00:33:52,400 --> 00:33:56,240
Speaker 3: sorts of different securities and they all contribute them, and

691
00:33:56,280 --> 00:33:58,240
Speaker 3: then the next morning they have an ETF in their

692
00:33:58,240 --> 00:33:58,960
Speaker 3: swap account.

693
00:33:59,040 --> 00:33:59,680
Speaker 5: It's beautiful.

694
00:33:59,720 --> 00:34:02,400
Speaker 3: And then there you know they have a diversified portfolio.

695
00:34:02,520 --> 00:34:04,640
Speaker 3: And we have a few different ones lined up. We

696
00:34:04,680 --> 00:34:07,560
Speaker 3: have an endowment style. You guys probably seen me pick

697
00:34:07,560 --> 00:34:08,880
Speaker 3: my fights with cowpers.

698
00:34:08,480 --> 00:34:09,000
Speaker 5: Over the years.

699
00:34:09,040 --> 00:34:11,520
Speaker 3: We have a global shareholder yield style. So the menu

700
00:34:11,640 --> 00:34:14,520
Speaker 3: will be different for people that may want different ideas,

701
00:34:14,560 --> 00:34:17,920
Speaker 3: but the first one, at least, we're doing US stock exposure.

702
00:34:18,320 --> 00:34:22,240
Speaker 2: So once you're in the diversified portfolio the ETF, presumably

703
00:34:22,280 --> 00:34:24,600
Speaker 2: if you sold that you would still have to pay

704
00:34:24,719 --> 00:34:28,120
Speaker 2: capital gains, but the benefit is that you're getting out

705
00:34:28,120 --> 00:34:31,000
Speaker 2: of that like big concentrated position and going into something

706
00:34:31,000 --> 00:34:31,879
Speaker 2: more diversified.

707
00:34:31,960 --> 00:34:32,600
Speaker 5: That's the hope.

708
00:34:32,760 --> 00:34:34,960
Speaker 2: Okay, that sounds interesting.

709
00:34:35,200 --> 00:34:37,319
Speaker 4: It sounds very interesting. Can I ask a question? You

710
00:34:37,440 --> 00:34:42,359
Speaker 4: mentioned Wes's company, Wes Gray. You mentioned Wes's company is

711
00:34:42,400 --> 00:34:46,960
Speaker 4: called Alpha Architect. Since you've been in the ETF game

712
00:34:47,200 --> 00:34:49,680
Speaker 4: for a long time, can you talk a little bit

713
00:34:49,719 --> 00:34:53,239
Speaker 4: about how, you know, if Tracy and I have an

714
00:34:53,239 --> 00:34:56,439
Speaker 4: idea for an ETF, some strategy that we think could

715
00:34:56,480 --> 00:35:00,760
Speaker 4: be interesting, how much easier is it today in twenty

716
00:35:00,800 --> 00:35:04,400
Speaker 4: twenty four to build What is the process of Like, okay,

717
00:35:04,400 --> 00:35:07,200
Speaker 4: we want to build an ETF around this versus say

718
00:35:07,400 --> 00:35:10,080
Speaker 4: twenty fourteen or two thousand and four.

719
00:35:10,239 --> 00:35:10,960
Speaker 5: It's night and day.

720
00:35:11,239 --> 00:35:12,920
Speaker 4: So what's the what's it like?

721
00:35:13,000 --> 00:35:15,880
Speaker 3: You know, we originally were gonna sub advise on a

722
00:35:15,880 --> 00:35:18,680
Speaker 3: couple of funds. The Forbes family was gonna move into ETFs.

723
00:35:18,800 --> 00:35:20,960
Speaker 3: It's a fun fact they didn't because it was two

724
00:35:20,960 --> 00:35:24,160
Speaker 3: thousand and nine. So we eventually sub advised on a

725
00:35:24,160 --> 00:35:28,160
Speaker 3: fund with advisor shares. Because back then it costs half

726
00:35:28,200 --> 00:35:30,759
Speaker 3: a million a million bucks a year just to get

727
00:35:30,800 --> 00:35:33,919
Speaker 3: the trust permission to launch ETF, so a huge pain.

728
00:35:33,960 --> 00:35:37,320
Speaker 3: We eventually bit the bullet starting launching funds in twenty thirteen.

729
00:35:37,920 --> 00:35:41,120
Speaker 3: Fast forward a decade in the ETF rule which was

730
00:35:41,160 --> 00:35:44,360
Speaker 3: passed a few years ago that really streamlined everything, changed

731
00:35:44,400 --> 00:35:47,520
Speaker 3: it all. And so the two main companies, so ETF

732
00:35:47,640 --> 00:35:50,279
Speaker 3: architect and then Title, which are both groups that do

733
00:35:50,400 --> 00:35:53,279
Speaker 3: this white label ETF business. You could go to them

734
00:35:53,320 --> 00:35:56,880
Speaker 3: now and say, Joe's got his idea for this ETF.

735
00:35:57,000 --> 00:35:59,800
Speaker 3: It's only going to invest in companies in North Carolina.

736
00:36:00,120 --> 00:36:01,840
Speaker 3: The letter M like, whatever it may be. You know,

737
00:36:01,880 --> 00:36:04,200
Speaker 3: who knows. Three months from now you could have a

738
00:36:04,200 --> 00:36:06,560
Speaker 3: fund out. Wow, it's going to cost you, I don't know,

739
00:36:06,640 --> 00:36:09,600
Speaker 3: fifty grand and startup fees. But the big problem, and

740
00:36:09,960 --> 00:36:11,920
Speaker 3: you know everyone sees the gold at the end of

741
00:36:11,920 --> 00:36:14,040
Speaker 3: the rainbow, but you really need to be able to

742
00:36:14,080 --> 00:36:17,319
Speaker 3: get to twenty thirty forty million. So a lot of

743
00:36:17,320 --> 00:36:18,720
Speaker 3: people sit at zero.

744
00:36:18,960 --> 00:36:21,200
Speaker 2: Is that just to make the economics of actually like

745
00:36:21,400 --> 00:36:23,319
Speaker 2: managing and trading the ETF actually work well.

746
00:36:23,320 --> 00:36:24,719
Speaker 3: If it sits at zero, you're on the hook for

747
00:36:24,719 --> 00:36:27,920
Speaker 3: probably quarter million expenses per year two hundred and fifty grand.

748
00:36:28,000 --> 00:36:29,680
Speaker 3: But that's if it sits at zero, and so then

749
00:36:29,719 --> 00:36:32,759
Speaker 3: you're subsizing. You know, writing twenty k checks per month

750
00:36:32,800 --> 00:36:34,040
Speaker 3: adds up over time.

751
00:36:50,440 --> 00:36:53,759
Speaker 2: Here's something I always wanted to write about or talk

752
00:36:53,800 --> 00:36:58,440
Speaker 2: about reverse inquiries in ETFs. I think this is sometimes

753
00:36:58,480 --> 00:37:02,480
Speaker 2: like an underappreciated perspect of how ETFs come into being.

754
00:37:02,680 --> 00:37:05,279
Speaker 2: But I have heard that, like a hedge fund or

755
00:37:05,360 --> 00:37:08,080
Speaker 2: an investor will go out and say, we want the

756
00:37:08,120 --> 00:37:11,520
Speaker 2: opposite exposure to this particular thing. We want to take

757
00:37:11,560 --> 00:37:13,799
Speaker 2: the other side of the bet. Will you create an

758
00:37:13,800 --> 00:37:16,359
Speaker 2: ETF that allows me to do this?

759
00:37:16,920 --> 00:37:18,719
Speaker 3: Yeah, you see that more at a lot of the

760
00:37:19,040 --> 00:37:24,080
Speaker 3: trade specific shops and firms that want those thematic exposures.

761
00:37:24,120 --> 00:37:26,319
Speaker 3: You know, we tend to focus on ideas I want

762
00:37:26,320 --> 00:37:28,799
Speaker 3: to put money into. You know, the average mutual fund

763
00:37:28,800 --> 00:37:32,200
Speaker 3: manager has zero dollars invested in their own fund, which

764
00:37:32,239 --> 00:37:35,800
Speaker 3: is an astonishing statistic. And half of all public funds

765
00:37:36,360 --> 00:37:39,120
Speaker 3: close over the course of ten years, so there's a

766
00:37:39,160 --> 00:37:41,759
Speaker 3: massive amount of turnover and people that don't have skin

767
00:37:41,840 --> 00:37:43,719
Speaker 3: in the game, and so a lot of these ideas.

768
00:37:44,440 --> 00:37:45,880
Speaker 3: You know, I want nothing to do with a lot

769
00:37:45,960 --> 00:37:49,040
Speaker 3: of these tradeable thematics, right, but if people build them,

770
00:37:49,080 --> 00:37:50,680
Speaker 3: they want to invest them, God bless them.

771
00:37:50,719 --> 00:37:51,000
Speaker 5: Right.

772
00:37:51,080 --> 00:37:53,160
Speaker 3: But we we air on the side of things that

773
00:37:53,200 --> 00:37:56,319
Speaker 3: we think make a material impact to investors, you know,

774
00:37:56,560 --> 00:37:59,040
Speaker 3: future returns and portfolios and.

775
00:37:59,080 --> 00:38:00,720
Speaker 5: A lot of out there.

776
00:38:01,280 --> 00:38:03,080
Speaker 3: You know, I wouldn't touch with a ten foot pole,

777
00:38:03,200 --> 00:38:05,200
Speaker 3: but some of them raise a billion, ten billion dollars

778
00:38:05,239 --> 00:38:05,799
Speaker 3: or what do I know.

779
00:38:06,920 --> 00:38:11,760
Speaker 4: It's interesting hearing you describe how much easier ETF creation

780
00:38:11,960 --> 00:38:16,359
Speaker 4: has gotten, because it strikes me that it's like the

781
00:38:16,400 --> 00:38:21,360
Speaker 4: ETF physation of the ETF industry, because ETFs, of course

782
00:38:21,520 --> 00:38:25,360
Speaker 4: make investing in a country or a theme much easier

783
00:38:25,360 --> 00:38:26,840
Speaker 4: than if you had to do it by hand and

784
00:38:26,920 --> 00:38:30,840
Speaker 4: buy a bunch of stocks. And this is essentially taking

785
00:38:30,880 --> 00:38:34,560
Speaker 4: that same idea except applying it to the creation of ETFs,

786
00:38:34,600 --> 00:38:37,240
Speaker 4: where you have all these white label things. The infrastructure

787
00:38:37,320 --> 00:38:39,480
Speaker 4: is already there, so all you have to do is

788
00:38:39,640 --> 00:38:42,200
Speaker 4: supply the idea. This gives me just something I've always

789
00:38:42,280 --> 00:38:44,800
Speaker 4: just sort of been wondering about what happens when in

790
00:38:44,880 --> 00:38:47,960
Speaker 4: the ETF dies. So Tracy and I launch our fund

791
00:38:48,000 --> 00:38:50,719
Speaker 4: where we only invest in North Carolina stocks where the

792
00:38:50,760 --> 00:38:54,960
Speaker 4: ticker has the letter eminem and then, for whatever reason,

793
00:38:55,719 --> 00:39:00,360
Speaker 4: in two years we have five hundred thousand dollars under management,

794
00:39:00,400 --> 00:39:03,480
Speaker 4: which is probably high, but clearly not enough to build

795
00:39:03,520 --> 00:39:05,399
Speaker 4: a business on. You're like, you know what, we don't

796
00:39:05,400 --> 00:39:06,719
Speaker 4: want to do this. We don't want to write the

797
00:39:06,800 --> 00:39:10,439
Speaker 4: twenty thousand dollars checks a month to support this. When

798
00:39:10,600 --> 00:39:13,080
Speaker 4: we decide to wind it down, what happens.

799
00:39:13,239 --> 00:39:16,080
Speaker 3: They go to the ETF ticker in the sky graveyard,

800
00:39:16,320 --> 00:39:18,640
Speaker 3: you know. I mean it's a pretty orderly process. There's

801
00:39:18,719 --> 00:39:21,480
Speaker 3: a lot of prior arity, of course, you know, I

802
00:39:21,520 --> 00:39:24,440
Speaker 3: think on very very rare cases.

803
00:39:24,200 --> 00:39:27,000
Speaker 4: The investors get distributed the stock or do they get

804
00:39:27,040 --> 00:39:28,080
Speaker 4: distributed the cash.

805
00:39:28,440 --> 00:39:29,280
Speaker 5: It's usually cash.

806
00:39:29,320 --> 00:39:32,480
Speaker 3: But the correct answer for the vast majority of investors

807
00:39:32,520 --> 00:39:34,480
Speaker 3: just sell it before close it down, you know, you

808
00:39:34,840 --> 00:39:36,560
Speaker 3: sell it on the secondary market. Yeah, like, hey, we're

809
00:39:36,560 --> 00:39:37,759
Speaker 3: going to close this into the year. We'll just sell

810
00:39:37,800 --> 00:39:39,719
Speaker 3: it now and just be done with it. But you know,

811
00:39:39,960 --> 00:39:42,640
Speaker 3: I think a lot of people take a negative view

812
00:39:42,680 --> 00:39:45,120
Speaker 3: of the amount of products out there. You often hear

813
00:39:45,160 --> 00:39:48,200
Speaker 3: people say there's more ETFs than stocks, right, and say, well,

814
00:39:48,239 --> 00:39:50,839
Speaker 3: there's more words than letters like that, that doesn't ye like.

815
00:39:50,800 --> 00:39:52,719
Speaker 4: It doesn't more sentences than words, but.

816
00:39:52,880 --> 00:39:55,880
Speaker 3: You have sort of the ability to have this limitless

817
00:39:56,000 --> 00:39:58,960
Speaker 3: grocery choice. There's a lot of areas that I think

818
00:39:59,040 --> 00:40:02,040
Speaker 3: haven't developed the way that they will eventually in One

819
00:40:02,040 --> 00:40:04,960
Speaker 3: example is the all in one acid allocation ETF. We

820
00:40:05,000 --> 00:40:07,000
Speaker 3: have three of these, but if you look at the

821
00:40:07,080 --> 00:40:12,520
Speaker 3: traditional mutual fund asset allocation industry, it is multiple, is

822
00:40:12,560 --> 00:40:16,279
Speaker 3: more expensive and tax inefficient compared to the ETFs, and

823
00:40:16,360 --> 00:40:18,560
Speaker 3: yet they still have about a trillion in assets. And

824
00:40:19,000 --> 00:40:21,719
Speaker 3: you know those type of assets, it's usually death or

825
00:40:21,760 --> 00:40:24,680
Speaker 3: divorce or bear markets where they all come out all

826
00:40:24,719 --> 00:40:26,359
Speaker 3: the money at some point, but they never go back

827
00:40:26,400 --> 00:40:29,080
Speaker 3: to paying two percent. And so I think you'll see

828
00:40:29,160 --> 00:40:31,280
Speaker 3: over the next ten to twenty years a big shift

829
00:40:31,320 --> 00:40:35,239
Speaker 3: and assets and structures, but eventually it all leads to

830
00:40:35,520 --> 00:40:36,040
Speaker 3: the ETF.

831
00:40:36,360 --> 00:40:40,279
Speaker 4: You know, you mentioned the sort of global market portfolio,

832
00:40:40,960 --> 00:40:44,680
Speaker 4: and we can never own the global market portfolio truly,

833
00:40:44,760 --> 00:40:47,200
Speaker 4: so you only are like trying to get close, right,

834
00:40:47,239 --> 00:40:50,920
Speaker 4: because the global market portfolio also includes all real estate

835
00:40:51,520 --> 00:40:53,839
Speaker 4: in the world and just a number of things like

836
00:40:54,160 --> 00:40:57,200
Speaker 4: you can approach it maybe asymptotically, but you'll never truly

837
00:40:57,239 --> 00:41:00,000
Speaker 4: own the global market portfolio. But the old academic Reais

838
00:41:00,040 --> 00:41:03,080
Speaker 4: search says, like to own the global market portfolio every

839
00:41:03,560 --> 00:41:06,840
Speaker 4: asset in the world. How close do you get in

840
00:41:06,880 --> 00:41:09,480
Speaker 4: one of these funds? Are you like ninety five percent

841
00:41:09,520 --> 00:41:10,160
Speaker 4: of the way there?

842
00:41:10,200 --> 00:41:12,960
Speaker 3: I'd say it's closer to like ninety nine, you know.

843
00:41:13,040 --> 00:41:15,720
Speaker 3: The if you look at one of my favorite examples

844
00:41:15,760 --> 00:41:18,239
Speaker 3: we always joke on these assy action from portfolios. We

845
00:41:18,239 --> 00:41:20,880
Speaker 3: have one called the Talmud portfolio, which is based on

846
00:41:21,280 --> 00:41:22,799
Speaker 3: there's a piece of advice where it was like, let

847
00:41:22,840 --> 00:41:26,320
Speaker 3: every man invest a third in business, a third in land,

848
00:41:26,400 --> 00:41:28,680
Speaker 3: and a third keep in reserve, which we interpret is

849
00:41:29,080 --> 00:41:31,440
Speaker 3: a third in stocks, a third and real assets, and

850
00:41:31,440 --> 00:41:34,919
Speaker 3: the third and bonds. That portfolio is almost impossible to beat.

851
00:41:35,040 --> 00:41:37,560
Speaker 3: And if you look at a lot of like Cowper's Bridgewater,

852
00:41:37,640 --> 00:41:39,480
Speaker 3: and we do all these articles and say should these

853
00:41:39,480 --> 00:41:42,920
Speaker 3: big institutions just be managed by a robot? And they,

854
00:41:43,120 --> 00:41:46,640
Speaker 3: for the most part, usually can't beat these basic asset

855
00:41:46,680 --> 00:41:49,320
Speaker 3: allocation benchmarks. It's really hard for them. Some you include

856
00:41:49,320 --> 00:41:51,040
Speaker 3: a little leverage because they have a lot of private

857
00:41:51,080 --> 00:41:54,480
Speaker 3: equity and leverage vehicles, but these basic portfolios are a

858
00:41:54,520 --> 00:41:55,480
Speaker 3: heart high.

859
00:41:55,320 --> 00:41:56,600
Speaker 4: Bar that's funny.

860
00:41:56,640 --> 00:42:00,719
Speaker 2: I hadn't considered talmudic investment philosophy for the wind, but

861
00:42:01,160 --> 00:42:04,040
Speaker 2: I guess it works. Okay. So this whole conversation has

862
00:42:04,080 --> 00:42:06,600
Speaker 2: reminded me that I am old enough to remember when

863
00:42:06,719 --> 00:42:11,040
Speaker 2: active ETFs were first becoming a thing and they were

864
00:42:11,080 --> 00:42:15,879
Speaker 2: going through like regulatory approval process. Obviously they've become much

865
00:42:15,920 --> 00:42:19,320
Speaker 2: more of a thing since then, and we've seen mutual

866
00:42:19,360 --> 00:42:22,960
Speaker 2: funds convert into ETFs. As you mentioned, what's the next

867
00:42:23,000 --> 00:42:27,400
Speaker 2: big thing in the etfification of the market.

868
00:42:27,680 --> 00:42:30,520
Speaker 3: Now, there's a few areas we're always interested in. And

869
00:42:30,840 --> 00:42:33,080
Speaker 3: when we look at the Vinn diagram or you make

870
00:42:33,120 --> 00:42:37,120
Speaker 3: the columns of things that are totally fine, Okay, good,

871
00:42:37,520 --> 00:42:38,719
Speaker 3: there's plenty, right.

872
00:42:38,920 --> 00:42:39,080
Speaker 5: You know.

873
00:42:39,120 --> 00:42:40,879
Speaker 3: I was chatting with someone last night and he's like, look,

874
00:42:40,880 --> 00:42:43,120
Speaker 3: I used DFA, Why should I use your funds? I'm like, don't.

875
00:42:43,239 --> 00:42:46,640
Speaker 3: DFA is fine, you know, but the bad news is like,

876
00:42:46,680 --> 00:42:51,280
Speaker 3: there's a whole universe of absolutely awful, god awful, terrible.

877
00:42:51,640 --> 00:42:54,319
Speaker 3: I have a Twitter thread that's just instant. I made

878
00:42:54,360 --> 00:42:59,799
Speaker 3: the mistake of bookmarking a spammy, sleazy Instagram ad for

879
00:43:00,239 --> 00:43:03,120
Speaker 3: private real estate. It's always private real estate, right, fifty

880
00:43:03,160 --> 00:43:04,000
Speaker 3: percent per year.

881
00:43:04,760 --> 00:43:05,360
Speaker 5: You know, they're.

882
00:43:05,160 --> 00:43:07,919
Speaker 4: Claiming those guys got closed. There's twenty See.

883
00:43:07,960 --> 00:43:09,880
Speaker 2: Some of the videos are like, if you just commit

884
00:43:10,040 --> 00:43:12,799
Speaker 2: investment and tax fraud, you can make like a two

885
00:43:12,920 --> 00:43:15,000
Speaker 2: hundred percent return in six months.

886
00:43:15,000 --> 00:43:18,200
Speaker 3: So all my all my ads are now these scams. Right,

887
00:43:18,239 --> 00:43:20,400
Speaker 3: I just get delivered because they I bookmarked it, so

888
00:43:20,480 --> 00:43:22,880
Speaker 3: I get all these So just avoiding and doing the

889
00:43:22,920 --> 00:43:26,600
Speaker 3: really dumb stuff is the key to almost all of this.

890
00:43:26,840 --> 00:43:27,000
Speaker 5: Right.

891
00:43:27,239 --> 00:43:29,840
Speaker 3: We did an old article about the food pyramid. You

892
00:43:29,840 --> 00:43:30,840
Speaker 3: remember the food pyramidal?

893
00:43:31,360 --> 00:43:31,799
Speaker 5: Yeah, you know.

894
00:43:31,840 --> 00:43:33,440
Speaker 3: The base of that when we were kids was eat

895
00:43:33,440 --> 00:43:35,920
Speaker 3: a bunch of cereal and bread and pasta, you know,

896
00:43:36,040 --> 00:43:38,719
Speaker 3: and it's kind of inverted now where thinking about it.

897
00:43:38,719 --> 00:43:40,800
Speaker 3: But the same thing with investing is like the basics.

898
00:43:40,840 --> 00:43:44,040
Speaker 3: Get the basics right, payloa fees, payload taxes, get your

899
00:43:44,080 --> 00:43:48,120
Speaker 3: money invested. That's the number one piece of advice of

900
00:43:48,160 --> 00:43:50,879
Speaker 3: all this is get to work, let it compound, right,

901
00:43:51,280 --> 00:43:53,080
Speaker 3: and then the other things take care of themselves. So,

902
00:43:53,160 --> 00:43:55,640
Speaker 3: but because this is the Wonky Show and we get

903
00:43:55,640 --> 00:43:57,800
Speaker 3: into this, I think the things like the three fifty

904
00:43:57,800 --> 00:43:59,560
Speaker 3: one exchange idea we're talking about are going to be

905
00:44:00,000 --> 00:44:01,800
Speaker 3: extremely material when we're talking about.

906
00:44:01,600 --> 00:44:02,279
Speaker 5: This in a year or two.

907
00:44:02,560 --> 00:44:04,719
Speaker 3: I've seen some other companies and we don't do this,

908
00:44:04,840 --> 00:44:08,160
Speaker 3: But I love the idea of taxable target date ETFs.

909
00:44:08,440 --> 00:44:11,800
Speaker 3: We see people behave better in target date style funds.

910
00:44:12,200 --> 00:44:16,560
Speaker 3: I think there's some ideas and concepts around building personal

911
00:44:16,719 --> 00:44:20,000
Speaker 3: pensions where people are locked into their investments and get

912
00:44:20,000 --> 00:44:22,600
Speaker 3: them to behave in a good way where you know,

913
00:44:22,680 --> 00:44:26,000
Speaker 3: these fiduciaries, you're kind of forced to hold investments and

914
00:44:26,120 --> 00:44:28,600
Speaker 3: let the compounding do its work. There's a lot of

915
00:44:28,640 --> 00:44:31,160
Speaker 3: innovation in some of those ideas. But if you go back,

916
00:44:31,200 --> 00:44:32,600
Speaker 3: I have a joke, I'm like, so many of the

917
00:44:32,760 --> 00:44:36,919
Speaker 3: fintech ideas are just vanguard with a shiny coat of paint, right,

918
00:44:37,000 --> 00:44:40,120
Speaker 3: Like you already have pretty great out there. But there's

919
00:44:40,160 --> 00:44:41,520
Speaker 3: there's some more ideas we're working on too.

920
00:44:42,200 --> 00:44:44,360
Speaker 4: I love the idea of like a sort of like

921
00:44:44,480 --> 00:44:49,200
Speaker 4: forced pension because it intuitively it seems like a most

922
00:44:49,239 --> 00:44:52,000
Speaker 4: people make mistakes when they're like left on their own,

923
00:44:52,040 --> 00:44:53,359
Speaker 4: so you just sort of want to lock it up,

924
00:44:53,480 --> 00:44:56,680
Speaker 4: would be. It also seems like there's probably excess returns

925
00:44:56,719 --> 00:44:59,239
Speaker 4: for like that commitment where if like you trade off

926
00:44:59,280 --> 00:45:03,920
Speaker 4: the liquidity profile, then you get paid more anyway, med favor.

927
00:45:04,440 --> 00:45:06,759
Speaker 4: It's so great to finally have the show. Great to

928
00:45:06,800 --> 00:45:09,720
Speaker 4: catch up with you in your natural environment at.

929
00:45:09,560 --> 00:45:10,520
Speaker 2: The surfing on a beach.

930
00:45:10,800 --> 00:45:13,359
Speaker 4: Yeah, it's like okay, like, yeah, we didn't have MeV

931
00:45:13,480 --> 00:45:15,120
Speaker 4: on for a long time, but if we when we

932
00:45:15,160 --> 00:45:17,759
Speaker 4: did finally have it, we're like literally on the beach

933
00:45:17,880 --> 00:45:19,440
Speaker 4: right now, listeners.

934
00:45:18,960 --> 00:45:19,560
Speaker 5: You heard it here.

935
00:45:19,600 --> 00:45:22,080
Speaker 3: They're committed to us serving with this future.

936
00:45:22,160 --> 00:45:22,480
Speaker 4: I don't know.

937
00:45:22,600 --> 00:45:25,320
Speaker 2: Only I said only if the temperature is above eighty

938
00:45:25,360 --> 00:45:27,600
Speaker 2: degrees or someone like loans me a what you.

939
00:45:27,800 --> 00:45:29,160
Speaker 4: Just it's freezing.

940
00:45:29,520 --> 00:45:30,600
Speaker 3: I'm really cool care of it.

941
00:45:30,680 --> 00:45:32,040
Speaker 2: I've been cold for two days.

942
00:45:32,360 --> 00:45:35,000
Speaker 4: It all right, thanks so much, man, take.

943
00:45:34,880 --> 00:45:35,319
Speaker 5: Great, y'all.

944
00:45:48,200 --> 00:45:50,120
Speaker 2: Well, I'm glad we were finally able to do that, Joe,

945
00:45:50,160 --> 00:45:54,040
Speaker 2: as you say, in Meb's natural environment. One thing I

946
00:45:54,160 --> 00:45:57,319
Speaker 2: was thinking was just about that new fund and the

947
00:45:57,360 --> 00:46:00,440
Speaker 2: sort of tax focus of it. It is in interesting

948
00:46:00,480 --> 00:46:03,719
Speaker 2: because you know, our whole conversation was about how over

949
00:46:03,760 --> 00:46:07,400
Speaker 2: the past ten years or so, those big concentrated yeah

950
00:46:07,520 --> 00:46:11,400
Speaker 2: investments are what have paid off the most, and I

951
00:46:11,400 --> 00:46:13,799
Speaker 2: guess people are now trying to think through how they

952
00:46:13,880 --> 00:46:18,480
Speaker 2: actually crystallize those wins and so it's interesting to see

953
00:46:19,000 --> 00:46:21,880
Speaker 2: the market trying to come up with a solution to

954
00:46:21,960 --> 00:46:23,120
Speaker 2: that problem.

955
00:46:22,800 --> 00:46:25,160
Speaker 4: The solution of the problem of people having to pay

956
00:46:25,320 --> 00:46:28,520
Speaker 4: tax and people having to eventually pay taxes. You know

957
00:46:28,560 --> 00:46:32,040
Speaker 4: what I think is interesting to me to going back

958
00:46:32,080 --> 00:46:36,319
Speaker 4: to the sort of diversification story and getting punished for

959
00:46:36,400 --> 00:46:41,160
Speaker 4: diversification where we started. I like the idea that one day,

960
00:46:41,440 --> 00:46:44,000
Speaker 4: like the sort of I'm still kind of diversified, you

961
00:46:44,040 --> 00:46:48,000
Speaker 4: know that, like my prudent approach is going to pay off.

962
00:46:48,360 --> 00:46:51,080
Speaker 4: But it's also interesting that like the periods that were

963
00:46:51,239 --> 00:46:54,640
Speaker 4: paid off are like not great periods. So it's like, Okay,

964
00:46:54,680 --> 00:46:55,279
Speaker 4: I want my.

965
00:46:55,280 --> 00:46:57,759
Speaker 2: Diversification yocer and forgettable.

966
00:46:57,600 --> 00:47:00,640
Speaker 4: Yeah, or like the aftermath of a craft and so

967
00:47:00,760 --> 00:47:03,200
Speaker 4: like I want my diversification to pay off, but I

968
00:47:03,200 --> 00:47:04,080
Speaker 4: don't want to crash.

969
00:47:04,239 --> 00:47:07,560
Speaker 2: This is exactly what I was thinking. The trigger for

970
00:47:07,800 --> 00:47:12,239
Speaker 2: diversification coming back would be something very bad happening that's

971
00:47:12,320 --> 00:47:14,920
Speaker 2: right in the US. Yeah, And as people who live

972
00:47:14,920 --> 00:47:17,320
Speaker 2: in the US were de facto over levered.

973
00:47:17,360 --> 00:47:19,080
Speaker 4: Yeah, we're always going to be levered to the US.

974
00:47:19,120 --> 00:47:21,640
Speaker 4: I mean, our jobs are levered to the US economy, right,

975
00:47:22,000 --> 00:47:25,280
Speaker 4: So I think about this a lot, which is like Okay,

976
00:47:25,840 --> 00:47:29,680
Speaker 4: it makes me uncomfortable as not just someone with money

977
00:47:29,800 --> 00:47:31,759
Speaker 4: in the market, but it makes me uncomfortable as a

978
00:47:31,800 --> 00:47:34,760
Speaker 4: press of the world that, like, we have this market

979
00:47:34,800 --> 00:47:38,759
Speaker 4: that is just so heavily concentrated and so levered to

980
00:47:38,840 --> 00:47:42,560
Speaker 4: the success of Meta and Nvidia and Amazon, and I

981
00:47:42,560 --> 00:47:44,919
Speaker 4: don't really like that. It rubs me the wrong way.

982
00:47:45,000 --> 00:47:47,640
Speaker 4: It doesn't sit right with me as something. But on

983
00:47:47,680 --> 00:47:51,640
Speaker 4: the other hand, if I think about what would change that,

984
00:47:52,239 --> 00:47:54,839
Speaker 4: it's nothing good. Yeah, there doesn't seem to be like

985
00:47:54,920 --> 00:47:58,440
Speaker 4: a positive version. Now I would see the one exception

986
00:47:58,560 --> 00:48:01,600
Speaker 4: where maybe this doesn't have to be the case would

987
00:48:01,680 --> 00:48:06,920
Speaker 4: be kind of like a market in which the investments

988
00:48:06,960 --> 00:48:10,400
Speaker 4: that are being made in things like the Inflationial Reduction

989
00:48:10,480 --> 00:48:12,560
Speaker 4: Act and the chipsy Act, where there's like this industrial

990
00:48:12,600 --> 00:48:15,880
Speaker 4: renaissance in the US and that really started taking off,

991
00:48:16,400 --> 00:48:19,960
Speaker 4: or where you have such above trend growth and productivity

992
00:48:20,239 --> 00:48:22,400
Speaker 4: that a lot of the so called like real economy

993
00:48:22,560 --> 00:48:25,520
Speaker 4: stocks really start to do well, et cetera. So there

994
00:48:25,719 --> 00:48:27,560
Speaker 4: is like that sort of golden.

995
00:48:27,239 --> 00:48:31,480
Speaker 2: Scenario where more winners come in this right right, and

996
00:48:31,600 --> 00:48:35,200
Speaker 2: so like having more exposure to potential winners that pays off.

997
00:48:35,239 --> 00:48:38,080
Speaker 2: But on the other hand, it feels like the downside scenario,

998
00:48:38,120 --> 00:48:40,640
Speaker 2: where like the current winners just get just.

999
00:48:40,840 --> 00:48:43,719
Speaker 4: Are no longer the winners and everyone loses, and then

1000
00:48:43,760 --> 00:48:48,000
Speaker 4: seems more probable. It seems more probable, and so it's hard. Yeah,

1001
00:48:48,080 --> 00:48:52,160
Speaker 4: it feels like when the regime shifts, which will happen

1002
00:48:52,280 --> 00:48:55,799
Speaker 4: because regimes shift, and maybe it'll be one hundred years

1003
00:48:55,840 --> 00:48:58,200
Speaker 4: from now and it will be dead and whatever. But

1004
00:48:58,280 --> 00:49:01,319
Speaker 4: it seems most likely that when the regime shifts, it

1005
00:49:01,360 --> 00:49:03,600
Speaker 4: will not be because things are good.

1006
00:49:03,960 --> 00:49:09,000
Speaker 2: Yeah, nothing last forever shed dramatic tear, including our time

1007
00:49:09,080 --> 00:49:11,879
Speaker 2: at Futureproof on the beach. So shall we leave it there?

1008
00:49:11,920 --> 00:49:12,680
Speaker 4: Let's leave it there.

1009
00:49:12,960 --> 00:49:15,759
Speaker 2: This has been another episode of the oud Lots podcast.

1010
00:49:15,880 --> 00:49:18,760
Speaker 2: I'm Tracy Alloway. You can follow me at Tracy Alloway.

1011
00:49:19,040 --> 00:49:21,560
Speaker 4: And I'm Joe Wisenthal. You can follow me at the Stalwart.

1012
00:49:21,800 --> 00:49:25,200
Speaker 4: Follow our guest meb Fabor. He's at meb Faber. Follow

1013
00:49:25,239 --> 00:49:29,400
Speaker 4: our producer Kerman Rodriguez at Kerman ermann Dashil Bennett at Dashbod,

1014
00:49:29,480 --> 00:49:33,240
Speaker 4: and Kelbrooks at Kelbrooks. Thank you to our producer Moses Ondam.

1015
00:49:33,440 --> 00:49:35,799
Speaker 4: From our odd Lots content, go to Bloomberg dot com

1016
00:49:35,800 --> 00:49:39,040
Speaker 4: slash od Lots where transcripts, a blog, and a newsletter,

1017
00:49:39,239 --> 00:49:41,640
Speaker 4: and you can chat about all of these topics twenty

1018
00:49:41,640 --> 00:49:43,640
Speaker 4: four to seven in our discord, where we have a

1019
00:49:43,680 --> 00:49:46,400
Speaker 4: markets channel and people talk about stocks and debate the

1020
00:49:46,400 --> 00:49:49,560
Speaker 4: market discord dot gg slash odd Lots.

1021
00:49:49,640 --> 00:49:52,239
Speaker 2: And if you enjoy odd Lots, if you like it

1022
00:49:52,280 --> 00:49:55,640
Speaker 2: when we talk about the pain of being a diversified investor,

1023
00:49:55,719 --> 00:49:58,480
Speaker 2: then please leave us a positive review on your favorite

1024
00:49:58,520 --> 00:50:02,480
Speaker 2: podcast platform. And remember, if you are a Bloomberg subscriber,

1025
00:50:02,560 --> 00:50:05,600
Speaker 2: you can listen to all of our episodes absolutely ad free.

1026
00:50:05,960 --> 00:50:08,560
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1027
00:50:08,560 --> 00:50:12,400
Speaker 2: on Apple Podcasts and follow the instructions there. Thanks for listening.