1 00:00:05,760 --> 00:00:12,800 Speaker 1: Well, Trillions, I'm Joel Webber and I'm Eric call tunis Eric. 2 00:00:12,880 --> 00:00:16,200 Speaker 1: You found someone I think for your book that we 3 00:00:16,320 --> 00:00:21,040 Speaker 1: also invited to come on this week's episode of Trillions. 4 00:00:21,200 --> 00:00:27,160 Speaker 1: Who did you find? Uh? This is an interesting guest. Uh, definitely, UM, 5 00:00:27,200 --> 00:00:30,200 Speaker 1: somebody who some people are going to know, some people won't. 6 00:00:30,240 --> 00:00:34,199 Speaker 1: But his name is Victor Hagani and Joel, as you know, 7 00:00:34,280 --> 00:00:38,840 Speaker 1: I am deep deep in the book project writing about 8 00:00:39,200 --> 00:00:42,440 Speaker 1: Bogel and Vanguard, and I came thanks for taking the 9 00:00:42,479 --> 00:00:45,839 Speaker 1: time to do the podcast look for you anything. But 10 00:00:46,080 --> 00:00:48,760 Speaker 1: I was going through people to interview and I came 11 00:00:48,760 --> 00:00:52,120 Speaker 1: across this article in the Wall Street Journal and it said, 12 00:00:52,720 --> 00:00:55,520 Speaker 1: you know, former long term capital management, you know, now 13 00:00:55,560 --> 00:00:57,920 Speaker 1: an index or. And there's been a couple of cases 14 00:00:57,960 --> 00:01:01,080 Speaker 1: like this of people who go from the active world 15 00:01:01,800 --> 00:01:04,760 Speaker 1: and in long term capital management's case, that's probably is 16 00:01:04,840 --> 00:01:08,240 Speaker 1: active and in hedge fundations you could possibly get right. 17 00:01:08,680 --> 00:01:11,240 Speaker 1: This is a famous hedge fund in the nineties that 18 00:01:11,319 --> 00:01:15,200 Speaker 1: had some of the most brilliant people. Um, and we'll 19 00:01:15,240 --> 00:01:17,160 Speaker 1: go over that a little bit in a minute. But 20 00:01:18,080 --> 00:01:21,320 Speaker 1: he somebody who is now an indexer and has an 21 00:01:21,360 --> 00:01:27,679 Speaker 1: advisor and basically manages money, uh, using low cost, mostly 22 00:01:27,760 --> 00:01:31,480 Speaker 1: Vanguard ETFs, and so I thought, Okay, I wonder what 23 00:01:31,480 --> 00:01:33,640 Speaker 1: what caused this guy to do that? So I interviewed 24 00:01:33,680 --> 00:01:35,920 Speaker 1: him from my book, and I thought, you know, everything 25 00:01:35,959 --> 00:01:38,759 Speaker 1: he's saying was really good material for the podcast. Given 26 00:01:38,800 --> 00:01:41,000 Speaker 1: we talk about e t f s and some of 27 00:01:41,120 --> 00:01:43,600 Speaker 1: his experiences, I think a lot of even you know, 28 00:01:43,640 --> 00:01:47,200 Speaker 1: just regular retail investors will relate to UM. And so 29 00:01:47,240 --> 00:01:49,440 Speaker 1: I thought it'd be interesting to talk about his transition 30 00:01:49,520 --> 00:01:52,240 Speaker 1: and some of the stuff he's thinking about today. His 31 00:01:52,320 --> 00:01:59,320 Speaker 1: firms called ELM Partners, which will discuss with him this time. 32 00:01:59,320 --> 00:02:05,920 Speaker 1: I Triuian victory, Victor, what can of trillians? Thanks for 33 00:02:06,000 --> 00:02:09,680 Speaker 1: joining us. Thanks great to be here. So Eric mentioned 34 00:02:09,720 --> 00:02:13,119 Speaker 1: long term capital management, and I want to talk about that. 35 00:02:13,240 --> 00:02:16,839 Speaker 1: But ELM Partners, it seems like what you're doing now 36 00:02:17,880 --> 00:02:20,280 Speaker 1: is long term capital management. So how did you go 37 00:02:20,400 --> 00:02:24,800 Speaker 1: from from one universe to the other. Well, I guess 38 00:02:24,800 --> 00:02:26,480 Speaker 1: that name was taken, so I had to go with 39 00:02:26,560 --> 00:02:30,920 Speaker 1: something with something different UM. But yeah, so you know 40 00:02:30,960 --> 00:02:34,920 Speaker 1: the trajectory that landed me doing ELM Partners and you know, 41 00:02:35,000 --> 00:02:38,640 Speaker 1: low cost what we call dynamic index investing. You know, 42 00:02:38,800 --> 00:02:41,359 Speaker 1: I started off at Solomon Brothers, in the research department. 43 00:02:41,440 --> 00:02:45,840 Speaker 1: In four I studied finance and econ at college and 44 00:02:46,240 --> 00:02:49,360 Speaker 1: eventually I wound up in the trading on the trading 45 00:02:49,360 --> 00:02:52,320 Speaker 1: desk called the Government Arbitrage Desk run by John Merryweather. 46 00:02:52,400 --> 00:02:56,120 Speaker 1: And then eventually we went off and set up the 47 00:02:56,120 --> 00:02:59,040 Speaker 1: hedge fund ltc M. And I guess the you know, 48 00:02:59,120 --> 00:03:02,839 Speaker 1: the thread that's that's relevant here is that from when 49 00:03:02,880 --> 00:03:05,680 Speaker 1: I started at Solomon, you know, through the end of 50 00:03:05,960 --> 00:03:09,200 Speaker 1: l t c M UM, I never really thought much 51 00:03:09,240 --> 00:03:12,519 Speaker 1: about personal investing, you know. My My focus was on 52 00:03:13,120 --> 00:03:16,959 Speaker 1: trying to generate alpha for our capital provider. So to 53 00:03:17,000 --> 00:03:19,440 Speaker 1: begin with, it was Solomon Brothers the firm, and then 54 00:03:19,520 --> 00:03:21,840 Speaker 1: later on it was all these investors in l t 55 00:03:22,000 --> 00:03:25,640 Speaker 1: c M, mostly institutional investors that would allocate, you know, 56 00:03:25,720 --> 00:03:29,480 Speaker 1: small part of their capital to any given investment like 57 00:03:29,639 --> 00:03:32,040 Speaker 1: l t c M. And it was only after the 58 00:03:33,840 --> 00:03:37,400 Speaker 1: you know, after the crash of ltc M shortly after that, 59 00:03:37,400 --> 00:03:39,920 Speaker 1: that I started to I took a sabbatical in two 60 00:03:39,920 --> 00:03:42,600 Speaker 1: thousand one after sort of the wind up of l 61 00:03:42,680 --> 00:03:45,680 Speaker 1: t c M and the launch of a successor vehicle, 62 00:03:46,240 --> 00:03:47,600 Speaker 1: and it was only then that I started to think 63 00:03:47,640 --> 00:03:50,480 Speaker 1: about what to do with my own savings and I 64 00:03:50,520 --> 00:03:53,840 Speaker 1: wasn't working at that point, and uh, the first thing 65 00:03:53,840 --> 00:03:56,160 Speaker 1: that I did was I looked at what people who 66 00:03:56,200 --> 00:03:59,160 Speaker 1: I really respected we're doing, and I saw that everybody 67 00:03:59,200 --> 00:04:03,160 Speaker 1: that had a good ount of wealth was still chasing 68 00:04:03,200 --> 00:04:05,960 Speaker 1: alpha or not still, but was chasing alpha in one 69 00:04:05,960 --> 00:04:11,000 Speaker 1: form or another private equity, distress, venture deals, angel deals, 70 00:04:11,080 --> 00:04:14,600 Speaker 1: hedge funds, whatever. And I so I went and started 71 00:04:14,640 --> 00:04:16,960 Speaker 1: doing that too, from like two thousand and one until 72 00:04:17,080 --> 00:04:19,200 Speaker 1: I don't know, maybe around two thousand five or six. 73 00:04:19,839 --> 00:04:23,279 Speaker 1: And then I just realized that that wasn't a sensible 74 00:04:23,320 --> 00:04:28,000 Speaker 1: way to manage my family's savings. That an individual investor 75 00:04:28,080 --> 00:04:32,000 Speaker 1: is really different than an institutional investor, and so I 76 00:04:32,040 --> 00:04:36,000 Speaker 1: decided that I wanted to get lower cost, more tax efficient, 77 00:04:36,080 --> 00:04:41,040 Speaker 1: more diversified, long only totally transparent. And I was like, Okay, well, 78 00:04:41,279 --> 00:04:43,200 Speaker 1: now I'm really back to what I was taught when 79 00:04:43,240 --> 00:04:46,400 Speaker 1: I was in college. And it led me to UM 80 00:04:46,440 --> 00:04:50,720 Speaker 1: to deciding to get indexed with with my family's savings. 81 00:04:51,360 --> 00:04:54,520 Speaker 1: And then there was this road from there for about 82 00:04:54,520 --> 00:04:57,080 Speaker 1: five years till two thousand and eleven, when I decided 83 00:04:57,160 --> 00:05:00,960 Speaker 1: to offer it to friends and eventually to UM to 84 00:05:01,080 --> 00:05:03,960 Speaker 1: everybody that that wants to use us UM as a 85 00:05:03,960 --> 00:05:06,960 Speaker 1: low cost manager of of E t F and index 86 00:05:06,960 --> 00:05:10,679 Speaker 1: fund portfolios and talk to us about what you're offering 87 00:05:10,839 --> 00:05:14,719 Speaker 1: is at partners, like what as a individual investor, what 88 00:05:14,720 --> 00:05:16,760 Speaker 1: what should I expect that I couldn't get on my own. 89 00:05:17,040 --> 00:05:20,040 Speaker 1: So the main the main form of the offering is 90 00:05:20,080 --> 00:05:23,200 Speaker 1: that we help you open up an account of Fidelity 91 00:05:23,279 --> 00:05:27,200 Speaker 1: or Schwab and then you put some of your savings 92 00:05:27,200 --> 00:05:29,960 Speaker 1: in there and then we manage that in a portfolio 93 00:05:30,279 --> 00:05:33,280 Speaker 1: of of E t F s. We have two strategies. 94 00:05:33,279 --> 00:05:35,520 Speaker 1: One of them is what we call global balanced, so 95 00:05:35,560 --> 00:05:40,400 Speaker 1: that's a balance between risk assets mostly equities and fixed income, 96 00:05:40,760 --> 00:05:44,400 Speaker 1: and we change the weights over time as the expected 97 00:05:44,480 --> 00:05:47,640 Speaker 1: return of the different asset classes is changing. I mean 98 00:05:48,080 --> 00:05:50,640 Speaker 1: real interest rates go up and down. That's one thing 99 00:05:50,680 --> 00:05:54,000 Speaker 1: that's changing. And also the long term expected return of 100 00:05:54,040 --> 00:05:58,400 Speaker 1: equities is changing over time, as as indicated for one thing, 101 00:05:58,520 --> 00:06:02,719 Speaker 1: by the earnings yield or decichulically adjusted earnings zield of equities. 102 00:06:02,720 --> 00:06:06,520 Speaker 1: And so we are rebalancing the portfolio over time based 103 00:06:06,560 --> 00:06:11,839 Speaker 1: on expected returns, mostly from long term expected returns point 104 00:06:11,839 --> 00:06:14,520 Speaker 1: of view, but also we have a trend component that 105 00:06:14,560 --> 00:06:19,840 Speaker 1: we marry together with that, and we do tax laws harvesting. 106 00:06:20,400 --> 00:06:23,080 Speaker 1: We help people to average into the market if they've 107 00:06:23,120 --> 00:06:24,680 Speaker 1: been in cash for a long time and they don't 108 00:06:24,680 --> 00:06:27,200 Speaker 1: want to make the jump all at one time. And 109 00:06:27,240 --> 00:06:30,680 Speaker 1: we also give advice to people. We help people to 110 00:06:30,760 --> 00:06:35,800 Speaker 1: think about you know, lifetime spending and and how spending 111 00:06:35,880 --> 00:06:39,760 Speaker 1: and investing go together. We help people think about, you know, 112 00:06:39,839 --> 00:06:43,800 Speaker 1: realizing the realization of taxes, um you know, at different times. 113 00:06:44,160 --> 00:06:47,719 Speaker 1: All the different big important financial decisions that people have 114 00:06:47,839 --> 00:06:49,880 Speaker 1: were there if they want to discuss them with us. 115 00:06:49,920 --> 00:06:53,480 Speaker 1: But we just charge twelve basis points is our only 116 00:06:53,600 --> 00:06:56,320 Speaker 1: via basis point a month. And so you know, we're 117 00:06:56,320 --> 00:06:58,440 Speaker 1: not like a concierge service. I mean, we try to 118 00:06:58,480 --> 00:07:02,120 Speaker 1: be really efficient, but we have a you know, relatively 119 00:07:02,200 --> 00:07:06,160 Speaker 1: high minimum. So most of our investors are relatively affluent 120 00:07:06,400 --> 00:07:09,280 Speaker 1: and uh a lot of them are financed people so 121 00:07:09,440 --> 00:07:12,240 Speaker 1: financially sophisticated, and so it works for us that we 122 00:07:12,320 --> 00:07:15,840 Speaker 1: can sort of help them to have a diversified, low 123 00:07:15,920 --> 00:07:18,800 Speaker 1: cost portfolio of et f s and index funds managed 124 00:07:18,800 --> 00:07:20,720 Speaker 1: for them. How many clients do you have, and like 125 00:07:20,760 --> 00:07:23,160 Speaker 1: how much how much which are a U M on 126 00:07:23,440 --> 00:07:25,760 Speaker 1: their behalf? So we have I think we have around 127 00:07:25,920 --> 00:07:29,560 Speaker 1: uh close to four D clients all together, and our 128 00:07:29,640 --> 00:07:32,840 Speaker 1: a U M is we haven't calculated it lately, but 129 00:07:32,880 --> 00:07:34,800 Speaker 1: we think it's probably between one and a quarter and 130 00:07:34,800 --> 00:07:38,720 Speaker 1: one and a half billion right now, something like that. Um. 131 00:07:38,760 --> 00:07:40,320 Speaker 1: You know one of the things that we talked about, 132 00:07:40,400 --> 00:07:43,120 Speaker 1: Victor in my interview with you for my book, and 133 00:07:43,200 --> 00:07:46,440 Speaker 1: I found this really interesting and is I asked you 134 00:07:47,080 --> 00:07:50,520 Speaker 1: what you thought about index funds and Vanguard and Vogel 135 00:07:50,840 --> 00:07:53,360 Speaker 1: when you were at Solomon in the eighties, and I 136 00:07:53,360 --> 00:07:56,000 Speaker 1: gotta think the nineteen eighties, you know, what a what 137 00:07:56,160 --> 00:07:59,880 Speaker 1: a decadent time. It seems almost like thinking about that 138 00:08:00,080 --> 00:08:03,000 Speaker 1: with such a far off thought. But you talked a 139 00:08:03,000 --> 00:08:06,960 Speaker 1: little bit about the concept of indexing being around Solomon. 140 00:08:07,200 --> 00:08:09,400 Speaker 1: Could you go into that a little bit into terms 141 00:08:09,440 --> 00:08:14,080 Speaker 1: of your exposure to the concept of indexing, um, while 142 00:08:14,160 --> 00:08:17,160 Speaker 1: you were at this massive, sort of Wall Street firm. Sure. 143 00:08:17,840 --> 00:08:22,080 Speaker 1: So Solomon was this really interesting synthesis of of of 144 00:08:22,120 --> 00:08:26,280 Speaker 1: academic thinking and sort of rough and tumble street smart 145 00:08:26,520 --> 00:08:30,200 Speaker 1: people as well. And you know that that the idea 146 00:08:30,360 --> 00:08:34,680 Speaker 1: of indexing came out of the modern portfolio theory of 147 00:08:35,920 --> 00:08:38,120 Speaker 1: you know, Marco Witz and Sharp and so on, from 148 00:08:38,160 --> 00:08:41,880 Speaker 1: the nineteen fifties and sixties. And that threat of thought 149 00:08:42,040 --> 00:08:46,440 Speaker 1: also included people that I was working with or people 150 00:08:46,600 --> 00:08:48,320 Speaker 1: that I was working with the people that they had 151 00:08:48,360 --> 00:08:51,280 Speaker 1: trained with. So for instance, you know that Paul Samuelson 152 00:08:52,360 --> 00:08:56,960 Speaker 1: is somebody that Jack Bogel credits with really encouraging him 153 00:08:57,040 --> 00:09:01,200 Speaker 1: to do the the index business and all for index funds. 154 00:09:01,720 --> 00:09:05,640 Speaker 1: And it was a concept that we knew about. Um, 155 00:09:05,760 --> 00:09:09,760 Speaker 1: we had people coming through our firm, uh trying to 156 00:09:09,800 --> 00:09:13,760 Speaker 1: get us interested in sponsoring it. And um, you know, 157 00:09:13,800 --> 00:09:18,280 Speaker 1: even the earliest idea around E t F s was 158 00:09:18,360 --> 00:09:20,959 Speaker 1: something that came through. I remember being in a meeting 159 00:09:21,000 --> 00:09:23,240 Speaker 1: and some guys came through and said they had this 160 00:09:23,320 --> 00:09:27,120 Speaker 1: idea for basically the E t F structure. And you know, 161 00:09:27,120 --> 00:09:29,520 Speaker 1: it wasn't really something that fit with what we were 162 00:09:29,559 --> 00:09:31,840 Speaker 1: doing on the arbitrage desk, but it was something that 163 00:09:31,880 --> 00:09:34,800 Speaker 1: we were aware of and that the and and there 164 00:09:34,880 --> 00:09:39,280 Speaker 1: was also this intersection of the academics that we worked 165 00:09:39,320 --> 00:09:42,679 Speaker 1: with that trained us, that guided us and the beginnings 166 00:09:42,800 --> 00:09:45,600 Speaker 1: of of of indexing. So as I said, you know, 167 00:09:45,640 --> 00:09:50,040 Speaker 1: Paul Samuelston's student was Bob Murton. Bob Murton's students, you know, 168 00:09:50,120 --> 00:09:53,160 Speaker 1: like half a dozen of them were my partners. And 169 00:09:53,240 --> 00:09:56,400 Speaker 1: Bob was a partner UM and and worked, you know, 170 00:09:56,559 --> 00:09:59,680 Speaker 1: consulted at Solomon was a partner at LTC M, you know, 171 00:09:59,679 --> 00:10:01,760 Speaker 1: as well is Myron. And so there was this whole 172 00:10:02,120 --> 00:10:06,400 Speaker 1: you know, legacy of it that was there Solomon Brothers. Um, 173 00:10:06,440 --> 00:10:09,439 Speaker 1: what was it about that place? It seems like it 174 00:10:09,520 --> 00:10:12,199 Speaker 1: was almost like Seattle is to music, Like just all 175 00:10:12,240 --> 00:10:15,679 Speaker 1: these bands coming out of this one small place. Mike Bloomberg, 176 00:10:15,720 --> 00:10:20,160 Speaker 1: our boss, came out of Solomon. Michael Lewis long term capital. Um. 177 00:10:20,200 --> 00:10:22,240 Speaker 1: What was it about that place that produced so many 178 00:10:22,240 --> 00:10:26,200 Speaker 1: people like that? Well? You know, I think that when 179 00:10:26,240 --> 00:10:28,679 Speaker 1: I got out of college, I UM, I got there 180 00:10:28,679 --> 00:10:30,600 Speaker 1: were two job offers that I was thinking about. One 181 00:10:30,640 --> 00:10:32,719 Speaker 1: was JP Morgan and one was Solomon. And I went 182 00:10:32,760 --> 00:10:34,800 Speaker 1: to my dad and I said, what do you think 183 00:10:34,840 --> 00:10:37,719 Speaker 1: I should do? Um? Which one should I take? By 184 00:10:37,760 --> 00:10:40,400 Speaker 1: the way, the one that Solomon is paying, um, I 185 00:10:40,440 --> 00:10:44,120 Speaker 1: don't know, thousand dollars, The one that JP Morgan is 186 00:10:44,160 --> 00:10:47,520 Speaker 1: paying thirty five thousand dollars. That sounds like maybe JP Morrigan, 187 00:10:47,840 --> 00:10:50,440 Speaker 1: JP Morgan. Big. First of all, hold on a second, 188 00:10:51,440 --> 00:10:56,880 Speaker 1: this is right? That was that was decent money back then? Oh, yeah, yeah, 189 00:10:56,920 --> 00:11:01,520 Speaker 1: it was great and so okay, sorry. And by the way, 190 00:11:01,520 --> 00:11:07,240 Speaker 1: at the time, yeah, and Maman had this great training program, 191 00:11:07,320 --> 00:11:08,679 Speaker 1: you know. So I was gonna go there. They were 192 00:11:08,679 --> 00:11:10,719 Speaker 1: gonna train me for like a year there. I was 193 00:11:10,720 --> 00:11:12,679 Speaker 1: going to move all around, et cetera. Was going to 194 00:11:12,760 --> 00:11:16,920 Speaker 1: be this great development of human capital at Solomon Brothers. Um, 195 00:11:16,960 --> 00:11:18,720 Speaker 1: you know, there was gonna be no training. I was 196 00:11:18,720 --> 00:11:20,320 Speaker 1: just gonna hit the I was gonna go into this 197 00:11:20,360 --> 00:11:23,199 Speaker 1: research department and that was and and just start working. 198 00:11:23,880 --> 00:11:26,800 Speaker 1: And my dad said to me, well, you know, if 199 00:11:26,920 --> 00:11:30,760 Speaker 1: you do well, which place will you be able to 200 00:11:30,880 --> 00:11:34,559 Speaker 1: do well faster? And I said, definitely, you know at 201 00:11:34,559 --> 00:11:37,040 Speaker 1: Solomon Brothers, you know, and and and so I took 202 00:11:37,080 --> 00:11:40,760 Speaker 1: the job at Solomon, and Solomon was so flat. Everybody 203 00:11:40,840 --> 00:11:45,000 Speaker 1: knew everybody. The senior people were just incredibly supportive of 204 00:11:45,040 --> 00:11:47,640 Speaker 1: the junior people. I mean, I remember we were short 205 00:11:47,720 --> 00:11:50,679 Speaker 1: on desks and and you know. And so one day 206 00:11:50,679 --> 00:11:53,280 Speaker 1: I come in and and my boss, Bob Coprush says, 207 00:11:53,280 --> 00:11:57,880 Speaker 1: what you know, Marty Leebowitz's secretary is out on maternity leave. 208 00:11:57,920 --> 00:11:59,560 Speaker 1: You're gonna have to use that desk for a while. 209 00:11:59,600 --> 00:12:03,000 Speaker 1: So I was sitting in Marty liebu. It's his secretary's 210 00:12:03,000 --> 00:12:06,000 Speaker 1: desk outside of his office, and you know, people would 211 00:12:06,000 --> 00:12:08,280 Speaker 1: come by, and you know, like I thought that I 212 00:12:08,360 --> 00:12:11,559 Speaker 1: was the replacement secretary, which was fine, you know, could 213 00:12:11,640 --> 00:12:14,880 Speaker 1: you grab some coffee for this meeting or whatever, But 214 00:12:15,040 --> 00:12:16,960 Speaker 1: you know, Marty would come out and just talk to me, 215 00:12:17,000 --> 00:12:18,960 Speaker 1: and and you know, like one night I was hanging 216 00:12:18,960 --> 00:12:21,839 Speaker 1: out doing some work and he comes out and he's 217 00:12:21,840 --> 00:12:23,920 Speaker 1: like looking around for somebody, and I was the only 218 00:12:23,960 --> 00:12:25,800 Speaker 1: one there, and he got me involved in a really 219 00:12:25,840 --> 00:12:29,360 Speaker 1: interesting project because I was the only one. They're sitting 220 00:12:29,360 --> 00:12:33,160 Speaker 1: outside of his office. Do you remember what the project was? Yeah? Yeah. 221 00:12:33,200 --> 00:12:35,320 Speaker 1: He gave me all this data and he said, okay, 222 00:12:35,360 --> 00:12:37,400 Speaker 1: you know see this column here. You know, I want 223 00:12:37,440 --> 00:12:39,600 Speaker 1: you to run some regressions over here and do these 224 00:12:39,640 --> 00:12:42,280 Speaker 1: tests and whatever. So I do it all. I don't 225 00:12:42,320 --> 00:12:44,560 Speaker 1: even know what the data is. And he comes in 226 00:12:44,559 --> 00:12:45,960 Speaker 1: in the morning he says, did you do it? And 227 00:12:46,000 --> 00:12:47,880 Speaker 1: I said yeah, so I give it to him. He 228 00:12:47,960 --> 00:12:50,600 Speaker 1: goes into his office and he comes out smiling and 229 00:12:50,600 --> 00:12:52,600 Speaker 1: he says, this is great. He says, do you know 230 00:12:52,640 --> 00:12:54,240 Speaker 1: what you just did? And I was like, no, I 231 00:12:54,280 --> 00:12:59,000 Speaker 1: really don't, and he said, you just calculated the duration 232 00:12:59,240 --> 00:13:03,120 Speaker 1: of the stock market, and so he he was. He 233 00:13:03,160 --> 00:13:05,920 Speaker 1: wrote a few papers then that was looking at the 234 00:13:05,920 --> 00:13:09,360 Speaker 1: interest rate sensitivity of the stock market, you know, by 235 00:13:09,400 --> 00:13:11,839 Speaker 1: by doing these regressions and saying that you know, at 236 00:13:11,880 --> 00:13:14,680 Speaker 1: this point in time, you know the stock market in 237 00:13:14,720 --> 00:13:17,080 Speaker 1: addition to having all the stock market risk also looks 238 00:13:17,120 --> 00:13:20,320 Speaker 1: like a five year government bond as well. UM. And 239 00:13:20,400 --> 00:13:22,360 Speaker 1: he wrote a bunch of things about you know, thinking 240 00:13:22,440 --> 00:13:25,440 Speaker 1: it was really thinking about the correlation between stocks and bonds. 241 00:13:25,800 --> 00:13:29,640 Speaker 1: And he called it the effective duration of the stock market. 242 00:13:30,160 --> 00:13:32,760 Speaker 1: But you did you did the heavy lifting. No, no, 243 00:13:32,880 --> 00:13:36,200 Speaker 1: it was one night's work. It was it was the 244 00:13:36,200 --> 00:13:39,320 Speaker 1: thought and the question that was important, not the regressions. 245 00:13:40,040 --> 00:13:43,560 Speaker 1: But by the way, well, Joel, can I just digress 246 00:13:43,600 --> 00:13:45,679 Speaker 1: here for a minute. And I told Victor this story. 247 00:13:46,280 --> 00:13:48,640 Speaker 1: His story reminds me of the story that I told him. 248 00:13:48,640 --> 00:13:52,280 Speaker 1: That is also related to just being around when you're 249 00:13:52,320 --> 00:13:56,559 Speaker 1: young and like available. Because when Long Term Capital Management 250 00:13:56,960 --> 00:13:59,680 Speaker 1: UM fell and got bailed out and there was a 251 00:13:59,679 --> 00:14:02,960 Speaker 1: lot of negative media attention, I was working at a 252 00:14:03,000 --> 00:14:06,440 Speaker 1: PR firm, a crisis communication firm, and I just I 253 00:14:06,520 --> 00:14:08,680 Speaker 1: was the guy who could use the video camera because 254 00:14:08,679 --> 00:14:10,760 Speaker 1: none of the old heads could really operate a camera. 255 00:14:10,880 --> 00:14:17,199 Speaker 1: So yeah, it's true. So one of the clients was 256 00:14:17,280 --> 00:14:21,280 Speaker 1: long Term Capital Management, and so John Merryweather and another 257 00:14:21,320 --> 00:14:23,760 Speaker 1: guy Kim Or who it was, but probably come in 258 00:14:23,800 --> 00:14:27,040 Speaker 1: on a Saturday and they're like, hey, can you run 259 00:14:27,080 --> 00:14:28,920 Speaker 1: the camera for this media training? So I got to 260 00:14:28,960 --> 00:14:32,560 Speaker 1: watch him get media trained. And two things I observed. 261 00:14:32,600 --> 00:14:35,200 Speaker 1: One he was not happy. This was not it wasn't 262 00:14:35,200 --> 00:14:37,360 Speaker 1: a fun time for him. I'm sure it was. It was, 263 00:14:37,560 --> 00:14:39,480 Speaker 1: you know, pleasant. I mean, it wasn't like a jerk, 264 00:14:39,520 --> 00:14:41,960 Speaker 1: but he was. He was just very serious. And the 265 00:14:42,000 --> 00:14:44,680 Speaker 1: second was he rolled in with a sweater vest and 266 00:14:44,760 --> 00:14:46,720 Speaker 1: this was the nineties when like everybody wore a suit 267 00:14:46,800 --> 00:14:49,680 Speaker 1: all the time, and I just thought that was pretty badass. 268 00:14:49,720 --> 00:14:52,360 Speaker 1: I don't know, he just seemed like he was over 269 00:14:52,400 --> 00:14:54,400 Speaker 1: the whole suit thing. And I don't know, I kind 270 00:14:54,400 --> 00:14:57,160 Speaker 1: of I kind of was in awe of that. But anyway, 271 00:14:57,160 --> 00:15:00,600 Speaker 1: that was my experience with getting into something at a 272 00:15:00,640 --> 00:15:10,160 Speaker 1: young age, just by like sort of being around So Victor, 273 00:15:10,160 --> 00:15:13,520 Speaker 1: as long as we're talking about Solomon Brothers, Um, you 274 00:15:13,560 --> 00:15:17,720 Speaker 1: know the thing that the book that made made everyone 275 00:15:17,880 --> 00:15:20,560 Speaker 1: you know, understand Solomon Brothers better was Liars Poker obviously 276 00:15:20,600 --> 00:15:23,360 Speaker 1: Michael Lewis's book, and I'm I'm curious, what wasn't in 277 00:15:23,440 --> 00:15:29,480 Speaker 1: Liars Poker that should have been? Boy? Um, she's that's 278 00:15:29,520 --> 00:15:32,760 Speaker 1: such a good question. I think that it did. I 279 00:15:32,760 --> 00:15:35,840 Speaker 1: think it did a really good job of what it was, um, 280 00:15:35,880 --> 00:15:38,160 Speaker 1: you know, trying to do. I mean so, so one 281 00:15:38,200 --> 00:15:40,160 Speaker 1: thing that's really interesting with that book is I remember 282 00:15:40,160 --> 00:15:43,480 Speaker 1: when it came out. When it came out, everybody at 283 00:15:43,520 --> 00:15:46,920 Speaker 1: Solomon Brothers was piste off, you know, really piste off, 284 00:15:47,560 --> 00:15:51,280 Speaker 1: and and then our group in particular was even you 285 00:15:51,280 --> 00:15:53,920 Speaker 1: know more piste off because it really, you know, wrote 286 00:15:53,960 --> 00:15:59,320 Speaker 1: about John having this um apocryphal hand with John good friend, 287 00:15:59,800 --> 00:16:02,600 Speaker 1: you where it's like, you know, no five million, you know, 288 00:16:02,640 --> 00:16:04,800 Speaker 1: I'll only I'll only play one hand for five million, 289 00:16:04,920 --> 00:16:07,160 Speaker 1: which didn't actually happen, but you know, there was a 290 00:16:07,160 --> 00:16:11,320 Speaker 1: bunch of fun things that did happen, and anyway, um, 291 00:16:11,360 --> 00:16:14,120 Speaker 1: you know, so like, um, you know, I don't know, 292 00:16:14,360 --> 00:16:17,240 Speaker 1: twenty five years later and I and I was friendly 293 00:16:17,280 --> 00:16:20,400 Speaker 1: with Michael. We uh we worked together. We also were 294 00:16:20,520 --> 00:16:22,520 Speaker 1: at the London School of Economics, both of us. We 295 00:16:22,560 --> 00:16:25,440 Speaker 1: shared that in common. And so like twenty five years 296 00:16:25,520 --> 00:16:28,480 Speaker 1: later I read the book again and and I just 297 00:16:28,520 --> 00:16:34,560 Speaker 1: couldn't I couldn't reconcile why I was upset about it. Um, 298 00:16:34,600 --> 00:16:37,000 Speaker 1: you know, back when it came out in in the nineties, 299 00:16:37,000 --> 00:16:39,800 Speaker 1: I mean I just thought it was it was so funny. 300 00:16:39,840 --> 00:16:43,560 Speaker 1: It's sort of caught the spirit. It was so positive 301 00:16:43,640 --> 00:16:46,640 Speaker 1: on John and you know, and and all the different people. 302 00:16:46,680 --> 00:16:50,280 Speaker 1: I don't know, it was really really funny, how you know. 303 00:16:50,360 --> 00:16:52,360 Speaker 1: Back in the nineties, you know, like it was all 304 00:16:52,400 --> 00:16:54,560 Speaker 1: about sort of privacy, and you know, it was like 305 00:16:54,600 --> 00:16:57,440 Speaker 1: an invasion of privacy. You know, Michael was there at 306 00:16:57,440 --> 00:16:59,480 Speaker 1: Solomon and he was keeping notes and then he wrote 307 00:16:59,480 --> 00:17:02,040 Speaker 1: this book. But you know, with the passage of time, 308 00:17:02,040 --> 00:17:03,800 Speaker 1: when I look at it, you know, I just say, well, 309 00:17:03,920 --> 00:17:07,119 Speaker 1: he caught something really well. I mean, he's obviously a great, 310 00:17:07,160 --> 00:17:10,879 Speaker 1: great storyteller and writer. And you know, the really ironic 311 00:17:10,960 --> 00:17:14,440 Speaker 1: thing about it, right is how you know, Michael says, 312 00:17:14,480 --> 00:17:16,800 Speaker 1: I wrote that book to try to warn people not 313 00:17:16,880 --> 00:17:19,119 Speaker 1: to join Wall Street, you know, smart young people to 314 00:17:19,160 --> 00:17:21,040 Speaker 1: do something else and not to go to Wall Street. 315 00:17:21,080 --> 00:17:23,359 Speaker 1: And of course you know that that was probably the 316 00:17:23,560 --> 00:17:28,240 Speaker 1: single biggest thing that drew uh talented, smart people to 317 00:17:28,359 --> 00:17:31,720 Speaker 1: Wall Street. So it's kind of really funny it's interesting 318 00:17:31,760 --> 00:17:33,720 Speaker 1: you say that. Um. I have a one of my 319 00:17:33,800 --> 00:17:37,680 Speaker 1: son's friends. His mom is in the financial industry. She's 320 00:17:37,720 --> 00:17:40,320 Speaker 1: moved on, but she first was in the financial industry 321 00:17:40,359 --> 00:17:43,160 Speaker 1: for about, I guess ten fifteen years, and she said 322 00:17:43,200 --> 00:17:45,800 Speaker 1: that book inspired her to take a job on Wall Street. 323 00:17:46,200 --> 00:17:48,119 Speaker 1: And this is sort of like the movie Wall Street. 324 00:17:48,200 --> 00:17:50,239 Speaker 1: I think Oliver Stone's like I tried to write this 325 00:17:50,359 --> 00:17:53,440 Speaker 1: is like Gordon Gecko is a bad guy, but people 326 00:17:53,520 --> 00:17:56,000 Speaker 1: are like, I wanted to be Gordon Gecko. And it's 327 00:17:56,040 --> 00:17:58,920 Speaker 1: interesting how that happens. UM. I also think The Big 328 00:17:58,920 --> 00:18:04,000 Speaker 1: Short inspired a whole generation of top callers and skeptics 329 00:18:04,640 --> 00:18:07,320 Speaker 1: that honestly have probably lost a lot of money. UM. 330 00:18:07,359 --> 00:18:10,359 Speaker 1: I think there's these moments where this is something's immortalized 331 00:18:10,800 --> 00:18:13,880 Speaker 1: and it does attract people, perhaps um in a way 332 00:18:13,880 --> 00:18:17,760 Speaker 1: that isn't what was intended by the art. UM. So 333 00:18:17,800 --> 00:18:19,399 Speaker 1: we're gonna I want to get to ets in a 334 00:18:19,440 --> 00:18:22,200 Speaker 1: minute and ask about the picks. One more thing about 335 00:18:23,000 --> 00:18:26,280 Speaker 1: the old days in long term capital management. And this 336 00:18:26,359 --> 00:18:28,480 Speaker 1: is just something that I guess I'm curious about. When 337 00:18:28,520 --> 00:18:31,600 Speaker 1: you have a lot of chefs in the kitchen, these 338 00:18:31,600 --> 00:18:34,399 Speaker 1: are very smart guys. How does it work? Out like 339 00:18:34,480 --> 00:18:36,720 Speaker 1: what to invest in? Like how is the process of 340 00:18:36,760 --> 00:18:40,160 Speaker 1: an active fund like that um with so many smart 341 00:18:40,160 --> 00:18:43,159 Speaker 1: people or do you develop a system and the system 342 00:18:43,240 --> 00:18:46,280 Speaker 1: kind of rules and the people just add to the system. 343 00:18:46,280 --> 00:18:49,520 Speaker 1: It was. It was a very consensus oriented approach. I 344 00:18:49,520 --> 00:18:52,439 Speaker 1: think some people look back on that and and you know, 345 00:18:52,600 --> 00:18:55,480 Speaker 1: call that one of the problems with with ltc M. 346 00:18:55,560 --> 00:18:59,320 Speaker 1: But um, you know, we we tried to work together 347 00:18:59,560 --> 00:19:04,840 Speaker 1: on the portfolio construction and selection, very all very closely together. 348 00:19:05,640 --> 00:19:10,719 Speaker 1: It was very much a collegial sharing um, consensus oriented 349 00:19:10,760 --> 00:19:14,280 Speaker 1: sort of approach to investing and and sort of risk man. 350 00:19:14,359 --> 00:19:17,000 Speaker 1: You know, we didn't really have a totally separate risk 351 00:19:17,080 --> 00:19:21,600 Speaker 1: management from the portfolio management function. I mean we had risk. 352 00:19:21,680 --> 00:19:24,760 Speaker 1: We had a risk management function, but there was you know, 353 00:19:24,840 --> 00:19:27,840 Speaker 1: overlap in the people and and so on, and so 354 00:19:27,880 --> 00:19:29,760 Speaker 1: we didn't really you know that we didn't really have 355 00:19:29,880 --> 00:19:32,320 Speaker 1: somebody that was sort of you know, like what you 356 00:19:32,320 --> 00:19:34,360 Speaker 1: would think of as a risk manager, where his only 357 00:19:34,440 --> 00:19:37,000 Speaker 1: job is to be the risk manager and to say no, no, no, whatever. 358 00:19:37,520 --> 00:19:42,080 Speaker 1: But those are just sort of red herrings, you know, 359 00:19:42,119 --> 00:19:44,920 Speaker 1: in terms of what caused the failure. I think that 360 00:19:45,440 --> 00:19:48,080 Speaker 1: the the way that most of us feel about it 361 00:19:48,119 --> 00:19:51,760 Speaker 1: today looking back, is that um, having a standalone pool 362 00:19:51,760 --> 00:19:55,520 Speaker 1: of capital doing leveraged relative value trades, it's just not 363 00:19:55,640 --> 00:19:59,960 Speaker 1: a great business model. UM that the better business model 364 00:20:00,160 --> 00:20:03,440 Speaker 1: is that the activity that we did should be done 365 00:20:03,480 --> 00:20:07,000 Speaker 1: within a large organization with lots of capital, where just 366 00:20:07,040 --> 00:20:09,560 Speaker 1: a small amount of the capital is being dedicated to 367 00:20:09,680 --> 00:20:14,280 Speaker 1: these relative value trading strategies. So, you know, ironically, you know, 368 00:20:14,280 --> 00:20:18,000 Speaker 1: I think it should be something that's you know, a city, 369 00:20:18,200 --> 00:20:20,280 Speaker 1: you know where city has you know, a couple billion 370 00:20:20,280 --> 00:20:24,200 Speaker 1: dollars of capital. Doing these sorts of proprietary trading strategies 371 00:20:24,240 --> 00:20:28,440 Speaker 1: within city is fine today, that's that's not legal, or 372 00:20:28,640 --> 00:20:32,920 Speaker 1: it's it's outside of the regulatory remit for banks. But 373 00:20:32,920 --> 00:20:36,840 Speaker 1: but I think that that activity needs to be encased 374 00:20:36,840 --> 00:20:38,840 Speaker 1: in a large pool of capital so that it can 375 00:20:38,920 --> 00:20:43,320 Speaker 1: deal with the periodic shocks that it gets. Um, you know, 376 00:20:43,359 --> 00:20:45,600 Speaker 1: which we've seen over time. You know that we survived 377 00:20:45,640 --> 00:20:48,840 Speaker 1: a bunch of those shocks up till night. We did well, 378 00:20:48,880 --> 00:20:51,840 Speaker 1: you know whatever, but the shock got us. And if 379 00:20:51,840 --> 00:20:54,359 Speaker 1: the shock didn't get us, actually the two thousand and 380 00:20:54,400 --> 00:20:58,000 Speaker 1: eight shock was even better, even bigger, and UM, you know, 381 00:20:58,000 --> 00:21:00,520 Speaker 1: I think that just speaks to you know, a stand 382 00:21:00,520 --> 00:21:03,959 Speaker 1: alone pool of capital relying on the street for financing 383 00:21:04,680 --> 00:21:06,800 Speaker 1: doing this one activity. I think it just doesn't It's 384 00:21:06,800 --> 00:21:08,520 Speaker 1: not a good business model. So I don't think it 385 00:21:08,560 --> 00:21:11,080 Speaker 1: has to do with how we manage the risk. I 386 00:21:11,080 --> 00:21:13,720 Speaker 1: think it just had to do with this activity just 387 00:21:13,720 --> 00:21:16,199 Speaker 1: doesn't make a lot of sense there. And you know, 388 00:21:16,320 --> 00:21:20,840 Speaker 1: and today there's very few dedicated pools of relative value capital. 389 00:21:20,880 --> 00:21:22,639 Speaker 1: And the ones that that do it, you know that 390 00:21:22,680 --> 00:21:24,520 Speaker 1: we're similar to us. The ones that do it are 391 00:21:24,800 --> 00:21:26,880 Speaker 1: are doing it in a very narrow thing, like they're 392 00:21:26,920 --> 00:21:30,640 Speaker 1: doing bonds versus bond futures, you know, and it has 393 00:21:30,760 --> 00:21:32,760 Speaker 1: and it's okay, that thing has a two month that 394 00:21:32,800 --> 00:21:34,760 Speaker 1: has two months to go, and then you're going to 395 00:21:34,840 --> 00:21:37,159 Speaker 1: deliver the bonds or take delivery, and you know, stuff 396 00:21:37,200 --> 00:21:40,760 Speaker 1: like that. People are still doing stand alone, but but 397 00:21:40,880 --> 00:21:43,280 Speaker 1: not sort of the more expansive relative value stuff that 398 00:21:43,320 --> 00:21:47,480 Speaker 1: we were doing with longer horizons. I have one other 399 00:21:47,560 --> 00:21:50,000 Speaker 1: question that can kind of bring us up to present 400 00:21:50,080 --> 00:21:52,880 Speaker 1: day about this. But you know, having lived through long 401 00:21:53,000 --> 00:21:59,200 Speaker 1: term capital management and what happened there recently, Archegos capital 402 00:21:59,440 --> 00:22:03,120 Speaker 1: fell um and this is the Bill Wong implosion twenty 403 00:22:03,160 --> 00:22:06,000 Speaker 1: billion dollars that were wiped out in two days. Just 404 00:22:06,119 --> 00:22:09,480 Speaker 1: curious as somebody who's who has gone through um um 405 00:22:09,960 --> 00:22:13,400 Speaker 1: something like in our newsroom we talked about long term 406 00:22:13,440 --> 00:22:16,840 Speaker 1: capital management as ARCHEGOS was was happening. And what stood 407 00:22:16,840 --> 00:22:19,840 Speaker 1: out to you about ARCHEGOS and what what what what 408 00:22:19,840 --> 00:22:25,280 Speaker 1: what most interested you in that? Um? What most interested 409 00:22:25,359 --> 00:22:28,400 Speaker 1: me in that? Um? You know, I just don't. I don't. 410 00:22:28,920 --> 00:22:32,439 Speaker 1: I don't really know enough about the strategies that that 411 00:22:32,560 --> 00:22:35,959 Speaker 1: they were doing. I mean, I suppose that the thing 412 00:22:36,040 --> 00:22:40,040 Speaker 1: that stands out most to me about both LTCM and 413 00:22:40,240 --> 00:22:45,160 Speaker 1: this situation of ARCHEGOS is that, you know, when you're 414 00:22:45,160 --> 00:22:49,040 Speaker 1: doing leverage strategies, UM, you know, there's always this risk 415 00:22:49,160 --> 00:22:51,320 Speaker 1: that that you lose a lot of money. You know, 416 00:22:51,400 --> 00:22:54,639 Speaker 1: that's just the nature of being in leverage strategies. And 417 00:22:54,680 --> 00:22:57,680 Speaker 1: we know that, and we've always known, you know that 418 00:22:57,680 --> 00:23:01,800 Speaker 1: that financial assets are a fat tailed they're not sort 419 00:23:01,840 --> 00:23:05,119 Speaker 1: you know, it's not sort of some well behaved, UM 420 00:23:05,480 --> 00:23:09,479 Speaker 1: kind of geometric brownie emotion sort of thing. UM. You know, 421 00:23:09,480 --> 00:23:13,040 Speaker 1: it's that that there's an endogenity in other words, right 422 00:23:13,080 --> 00:23:17,680 Speaker 1: that UM, it's not like a physical process where it's 423 00:23:17,760 --> 00:23:20,119 Speaker 1: just determined by the states that it's in. I mean, 424 00:23:20,160 --> 00:23:23,080 Speaker 1: it actually is. It has there's feedback loops and all that. 425 00:23:23,119 --> 00:23:26,280 Speaker 1: So we know that about financial assets. Now the thing 426 00:23:26,359 --> 00:23:28,399 Speaker 1: about l t c M that doesn't get written about 427 00:23:28,400 --> 00:23:31,639 Speaker 1: that much, but I think is actually the signal message 428 00:23:31,680 --> 00:23:35,239 Speaker 1: and importance of l t c M is for me, 429 00:23:35,440 --> 00:23:38,720 Speaker 1: the biggest sort of mistake with l t c M 430 00:23:38,840 --> 00:23:41,520 Speaker 1: is how much of our how much of the partners 431 00:23:41,600 --> 00:23:44,600 Speaker 1: like me, how much of our own capital we had 432 00:23:44,680 --> 00:23:47,760 Speaker 1: invested in our own fund. Now, it seemed like a 433 00:23:47,800 --> 00:23:49,640 Speaker 1: great thing at the time, you know, but I had, 434 00:23:49,720 --> 00:23:56,240 Speaker 1: like I had probably se of my investible assets invested 435 00:23:56,240 --> 00:23:58,960 Speaker 1: in our funds and uh and actually some of that 436 00:23:59,000 --> 00:24:01,600 Speaker 1: I even had averaged. But you know, I still had 437 00:24:01,640 --> 00:24:04,480 Speaker 1: thirty percent of my savings that wasn't in the fund. 438 00:24:04,480 --> 00:24:06,480 Speaker 1: But the seventy percent I had in was even some 439 00:24:06,600 --> 00:24:09,159 Speaker 1: of it was leveraged. And you know, I think that 440 00:24:09,240 --> 00:24:13,280 Speaker 1: it's really hard to justify having that much in your 441 00:24:13,280 --> 00:24:17,960 Speaker 1: own fund, especially when you also own a large part 442 00:24:18,040 --> 00:24:21,560 Speaker 1: of the management company. So you know, if I had 443 00:24:20,400 --> 00:24:25,199 Speaker 1: sent in the fund, but my liquid net worth was 444 00:24:25,240 --> 00:24:29,159 Speaker 1: probably worth less than my ownership interest in LTCM, the 445 00:24:29,160 --> 00:24:32,040 Speaker 1: management company. So really I was sitting there with like 446 00:24:32,119 --> 00:24:36,400 Speaker 1: a nine percent exposure or more of my total net 447 00:24:36,440 --> 00:24:39,680 Speaker 1: worth to the fund. And you know, given the fact 448 00:24:39,760 --> 00:24:42,040 Speaker 1: that we know and we you know, we we were 449 00:24:42,080 --> 00:24:43,720 Speaker 1: aware of this, and we had it built in and 450 00:24:43,760 --> 00:24:45,560 Speaker 1: all that that we could lose a lot of money. 451 00:24:45,560 --> 00:24:48,119 Speaker 1: We knew that we could lose thirty or forty percent 452 00:24:48,280 --> 00:24:50,560 Speaker 1: and basically be out of business. Like we knew that 453 00:24:50,560 --> 00:24:54,359 Speaker 1: that could happen. Um, you know, I was too exposed 454 00:24:54,520 --> 00:24:57,920 Speaker 1: to uh, to my business like that. And that's kind 455 00:24:57,960 --> 00:25:00,880 Speaker 1: of a really big less and from the whole thing. 456 00:25:00,920 --> 00:25:04,600 Speaker 1: And now we look and hear about Bill Huang and Archegos, 457 00:25:04,680 --> 00:25:08,920 Speaker 1: and again we see somebody who has done really well, 458 00:25:09,200 --> 00:25:11,520 Speaker 1: had a lot of wealth and it seems like he 459 00:25:11,600 --> 00:25:13,480 Speaker 1: had we don't really know, but it seems like he 460 00:25:13,520 --> 00:25:15,760 Speaker 1: had most of it, a very large fraction of it, 461 00:25:16,240 --> 00:25:18,919 Speaker 1: you know, being managed and exposed to this leverage. And 462 00:25:19,080 --> 00:25:21,920 Speaker 1: and I think that that's just a really a really 463 00:25:21,960 --> 00:25:26,160 Speaker 1: important lesson for all investors and all actors out there, 464 00:25:26,240 --> 00:25:29,320 Speaker 1: is is how important it is to not put you know, 465 00:25:29,520 --> 00:25:32,200 Speaker 1: I mean, it's just so try to say it this way, 466 00:25:32,240 --> 00:25:34,880 Speaker 1: you know, but um, you know, you you know, really 467 00:25:34,880 --> 00:25:37,240 Speaker 1: smart people can get blinded to this and just have 468 00:25:37,440 --> 00:25:40,760 Speaker 1: too much, you know, in their own cooking, and it's like, oh, 469 00:25:40,800 --> 00:25:42,280 Speaker 1: I want to have all this skin in the game. 470 00:25:42,280 --> 00:25:44,320 Speaker 1: Well that's doesn't you know, it just doesn't make sense. 471 00:25:44,359 --> 00:25:47,000 Speaker 1: And um, you know, I think that's a really good 472 00:25:47,119 --> 00:25:50,640 Speaker 1: lesson from lt CM in particular. You know, the whong thing. 473 00:25:50,640 --> 00:25:53,080 Speaker 1: We don't know enough about it, but ltc M we 474 00:25:53,160 --> 00:25:55,560 Speaker 1: kind of know, you know, we you know, it's it's 475 00:25:55,600 --> 00:26:00,440 Speaker 1: it's more transparent what happened there. That's intra thing because 476 00:26:00,440 --> 00:26:02,119 Speaker 1: the skin of the game gets brought up a lot 477 00:26:02,200 --> 00:26:04,840 Speaker 1: when you're evaluating active funds, and they'll be like, well 478 00:26:04,840 --> 00:26:06,159 Speaker 1: if they don't if they don't have skin in the game, 479 00:26:06,240 --> 00:26:08,439 Speaker 1: don't invest in it. But that's sort of risen up 480 00:26:08,440 --> 00:26:10,760 Speaker 1: the ranks as a criteria. But that's an interesting point 481 00:26:10,760 --> 00:26:13,119 Speaker 1: you make about it. Um, I want to move on 482 00:26:13,200 --> 00:26:17,919 Speaker 1: to the sort of all that is is a very 483 00:26:18,040 --> 00:26:21,520 Speaker 1: unique world. Then you come down to your portfolio today, Um, 484 00:26:21,560 --> 00:26:24,080 Speaker 1: it's it's a lot of Vanguard ETFs. Um. Your biggest 485 00:26:24,119 --> 00:26:27,360 Speaker 1: holding is v t I, which I have always considered 486 00:26:27,480 --> 00:26:30,640 Speaker 1: the perfect ETFs probably the only one I can say 487 00:26:30,680 --> 00:26:33,800 Speaker 1: is flawless because with the securities lending you kind of 488 00:26:33,800 --> 00:26:36,800 Speaker 1: have perfect tracking. It's free exposure to the whole market. 489 00:26:37,040 --> 00:26:40,760 Speaker 1: You just can't really beat that deal. That said, there 490 00:26:40,800 --> 00:26:42,879 Speaker 1: are people who worry the v T I s and 491 00:26:42,920 --> 00:26:46,480 Speaker 1: the v O O s of the world. Sptfs are 492 00:26:46,760 --> 00:26:49,879 Speaker 1: like these giant blobs that are just growing bigger and 493 00:26:49,920 --> 00:26:53,119 Speaker 1: bigger and bigger as more people say the hell with it, 494 00:26:53,160 --> 00:26:57,720 Speaker 1: I'll just index. It's a very logical decision. Um, what 495 00:26:57,720 --> 00:27:01,280 Speaker 1: what are your thoughts on that bigger worry of indexing 496 00:27:01,320 --> 00:27:05,160 Speaker 1: as somebody who holds these kind of e t f um, 497 00:27:05,840 --> 00:27:09,800 Speaker 1: is there some kind of a risk that beta just 498 00:27:10,040 --> 00:27:14,440 Speaker 1: fails for a decade or something? Any take on that? Sure? So, 499 00:27:15,600 --> 00:27:18,399 Speaker 1: you know, there's lots of criticisms of uh, you know, 500 00:27:18,480 --> 00:27:22,199 Speaker 1: of market cap indexing, and um, I think that a 501 00:27:22,240 --> 00:27:25,240 Speaker 1: lot of those criticisms are wide of the mark. Like 502 00:27:25,320 --> 00:27:28,040 Speaker 1: one thing that you hear as well, you know market 503 00:27:28,040 --> 00:27:31,280 Speaker 1: cap indexing is a big momentum machine because you know, 504 00:27:31,320 --> 00:27:34,639 Speaker 1: it makes people invest more in the biggest companies. Well 505 00:27:35,040 --> 00:27:37,560 Speaker 1: that's not true in a number of diff from a 506 00:27:37,640 --> 00:27:39,640 Speaker 1: number of perspectives. That's not true. I mean the first 507 00:27:39,640 --> 00:27:42,080 Speaker 1: thing is that once an index fund owns a certain 508 00:27:42,119 --> 00:27:44,920 Speaker 1: amount of a large company, it doesn't need to buy 509 00:27:44,920 --> 00:27:47,040 Speaker 1: more of it when its price goes up. It just happens. 510 00:27:47,160 --> 00:27:49,720 Speaker 1: It keeps the same number of shares ownership and the 511 00:27:49,840 --> 00:27:52,359 Speaker 1: value of it goes up. So it's not that's not 512 00:27:52,480 --> 00:27:54,679 Speaker 1: momentum trading. You know, when a stock goes up, you 513 00:27:54,760 --> 00:27:58,040 Speaker 1: buy more of it. That's momentum trading, which an index 514 00:27:58,080 --> 00:28:01,080 Speaker 1: fund isn't doing. You know. I think another argument that's 515 00:28:01,200 --> 00:28:04,600 Speaker 1: very enticing on the surface, but I think is logically incorrect, 516 00:28:04,720 --> 00:28:09,040 Speaker 1: is that by definition, people will say a market cap 517 00:28:09,080 --> 00:28:13,000 Speaker 1: weighted index fund overweight it's overvalued companies, and underweight it's 518 00:28:13,080 --> 00:28:16,199 Speaker 1: undervalued companies, and it's a it's a it's it's an 519 00:28:16,240 --> 00:28:20,520 Speaker 1: argument which is subtly but you know, logically incorrect. So 520 00:28:20,840 --> 00:28:23,119 Speaker 1: you know, think of it as like, imagine that the 521 00:28:23,160 --> 00:28:25,800 Speaker 1: market is composed of just two stocks. You know, one 522 00:28:25,840 --> 00:28:29,000 Speaker 1: of them is a two billion dollar stock, the other 523 00:28:29,000 --> 00:28:30,720 Speaker 1: one is a hundred billion dollar stock, and so you 524 00:28:30,720 --> 00:28:34,800 Speaker 1: could be market cap indexed, but you know that the 525 00:28:34,840 --> 00:28:37,240 Speaker 1: fair value of both of those stocks. We we don't 526 00:28:37,240 --> 00:28:40,040 Speaker 1: know what the fair value of both of those stocks is, 527 00:28:40,760 --> 00:28:43,560 Speaker 1: and so you know, a priori to begin with, like 528 00:28:43,880 --> 00:28:45,640 Speaker 1: the fact that one of them is a two hundred 529 00:28:45,680 --> 00:28:49,360 Speaker 1: billion doesn't mean that it's more likely to be overvalued 530 00:28:49,840 --> 00:28:53,320 Speaker 1: versus undervalued. So it might be twenty billion overvalued or 531 00:28:53,320 --> 00:28:55,680 Speaker 1: twenty billion undervalued. That the fact that it's a two 532 00:28:55,760 --> 00:28:58,520 Speaker 1: hundred billion doesn't tell us a priori that it's more 533 00:28:58,560 --> 00:29:01,600 Speaker 1: likely to be over or you're valued. And so I 534 00:29:01,640 --> 00:29:05,160 Speaker 1: think that the logic and that argument of well market 535 00:29:05,200 --> 00:29:09,000 Speaker 1: cap weighted index makes you long the overvalued stocks more, 536 00:29:09,560 --> 00:29:13,360 Speaker 1: you know, is not correct unless you have some way 537 00:29:13,800 --> 00:29:17,200 Speaker 1: of figuring out what fair value is. So like, if 538 00:29:17,200 --> 00:29:19,800 Speaker 1: you if you have some way of beating the market, 539 00:29:19,880 --> 00:29:22,720 Speaker 1: then market cap index you know, it's better to beat 540 00:29:22,760 --> 00:29:25,200 Speaker 1: the market than to do market cap indexing. But you 541 00:29:25,240 --> 00:29:29,200 Speaker 1: can't say that you're agnostic to um to beat you know, 542 00:29:29,280 --> 00:29:32,520 Speaker 1: to U two generating alpha through valuing companies and just 543 00:29:32,560 --> 00:29:35,960 Speaker 1: say that there's an inherent flaw in market cap indexing. No, 544 00:29:36,120 --> 00:29:39,320 Speaker 1: I think that that arguments, um, you know, incorrect. The 545 00:29:39,960 --> 00:29:42,520 Speaker 1: size of indexing. You know, we're nowhere close to the 546 00:29:42,560 --> 00:29:45,600 Speaker 1: size of indexing being a problem in terms of uh, 547 00:29:45,640 --> 00:29:48,880 Speaker 1: you know, liquidity and the amount of active managers out there, 548 00:29:49,400 --> 00:29:51,520 Speaker 1: um you know, I mean there's a bunch of other arguments. 549 00:29:51,520 --> 00:29:54,720 Speaker 1: And other argument is oh, when when somebody moves money 550 00:29:54,720 --> 00:29:57,400 Speaker 1: into an index fund um, you know, they're taking it 551 00:29:57,440 --> 00:30:00,680 Speaker 1: away from active managers and that's making you know, that's 552 00:30:00,720 --> 00:30:02,960 Speaker 1: causing the cheap stocks to get cheaper and the rich 553 00:30:03,000 --> 00:30:07,120 Speaker 1: ones to get richer. Well, active managers taken collectively own 554 00:30:07,200 --> 00:30:10,080 Speaker 1: the market cap index. You know that put them all together. 555 00:30:10,200 --> 00:30:12,120 Speaker 1: So so for one thing, if you're just sort of 556 00:30:12,200 --> 00:30:15,520 Speaker 1: randomly reducing So if somebody has a bunch of active 557 00:30:15,520 --> 00:30:19,480 Speaker 1: managers and he's selling those two then buy an index fund, well, 558 00:30:19,640 --> 00:30:22,320 Speaker 1: he's selling the index to buy the index and just 559 00:30:22,360 --> 00:30:25,000 Speaker 1: getting lower fees. That's one thing that could happen. Or 560 00:30:25,360 --> 00:30:28,480 Speaker 1: maybe he's like, oh, I'm gonna sell my active managers 561 00:30:28,480 --> 00:30:31,480 Speaker 1: that have done really poorly. Well, you know, so now 562 00:30:31,520 --> 00:30:34,200 Speaker 1: we're saying that active managers. You know that that the 563 00:30:34,320 --> 00:30:38,200 Speaker 1: reduction of assets allocated to active managers who have done 564 00:30:38,240 --> 00:30:41,280 Speaker 1: poorly is making the market less efficient. I mean that 565 00:30:41,400 --> 00:30:43,480 Speaker 1: seems that's a bit of a stretch, isn't it. It's like, Okay, 566 00:30:43,520 --> 00:30:46,040 Speaker 1: the guys who have done really poorly are actually the 567 00:30:46,080 --> 00:30:54,240 Speaker 1: really good ones. How do you talk to your clients 568 00:30:54,240 --> 00:30:57,480 Speaker 1: about alpha? I mean, this is you know, when you 569 00:30:57,520 --> 00:31:00,240 Speaker 1: were at long term capital management you're also you have 570 00:31:00,280 --> 00:31:03,120 Speaker 1: clients now who you know are are wealthy and involved 571 00:31:03,120 --> 00:31:05,560 Speaker 1: in the financial industry, and like alpha is the thing 572 00:31:05,600 --> 00:31:08,000 Speaker 1: that everybody you know, it is, It is the pinnacle 573 00:31:08,080 --> 00:31:09,800 Speaker 1: of everything. So how do you how do you talk 574 00:31:09,800 --> 00:31:12,960 Speaker 1: to clients about that? Now, we say to them, when 575 00:31:13,040 --> 00:31:16,200 Speaker 1: when you've given up on alpha, come to us. You 576 00:31:16,240 --> 00:31:20,560 Speaker 1: know that alpha, Alpha is expensive. Alpha is very difficult 577 00:31:20,640 --> 00:31:24,920 Speaker 1: to you know, maybe difficult or near impossible to identify 578 00:31:25,040 --> 00:31:28,520 Speaker 1: based on historical data because you'll never have enough stationary 579 00:31:28,600 --> 00:31:31,480 Speaker 1: data to identify it. And so you know, when you've 580 00:31:31,520 --> 00:31:34,520 Speaker 1: thought about it and you've decided that, um, you know, 581 00:31:34,560 --> 00:31:37,680 Speaker 1: I want I want diversification, i want cost efficiency, i 582 00:31:37,720 --> 00:31:40,720 Speaker 1: want tax efficiency, and I'm kind of willing to give 583 00:31:40,800 --> 00:31:44,760 Speaker 1: up on chasing alpha. Then you know that's now now 584 00:31:44,800 --> 00:31:46,520 Speaker 1: you should decide do you kind of want to do 585 00:31:46,520 --> 00:31:50,160 Speaker 1: it yourself? Do you want some help? Um, you know, 586 00:31:50,200 --> 00:31:51,880 Speaker 1: do you want to free yourself up, or you know, 587 00:31:51,920 --> 00:31:53,720 Speaker 1: do you want to put some of your money, you know, 588 00:31:53,920 --> 00:31:58,280 Speaker 1: into something that's less alpha orient And now we're still dynamic, 589 00:31:58,800 --> 00:32:02,680 Speaker 1: but our dynamic is not chasing alpha. The dynamic is 590 00:32:02,720 --> 00:32:07,400 Speaker 1: just trying to have the appropriate portfolio for the appropriate 591 00:32:07,480 --> 00:32:10,640 Speaker 1: attractiveness of different investments at each point in time. So 592 00:32:10,640 --> 00:32:12,440 Speaker 1: we're not trying to generate alpha. We're just trying to 593 00:32:12,440 --> 00:32:17,120 Speaker 1: have you know, sensible portfolio mixes depending on the investment 594 00:32:17,240 --> 00:32:21,400 Speaker 1: environment for for our investors. I'm looking at this portfolio. 595 00:32:21,480 --> 00:32:25,080 Speaker 1: It's a very it's a robo esque portfolio. And I 596 00:32:25,120 --> 00:32:28,080 Speaker 1: say that as a compliment. It's got very basic, cheap ets, 597 00:32:28,160 --> 00:32:30,240 Speaker 1: little I shares, a little vanguard, maybe a little spider 598 00:32:30,280 --> 00:32:32,840 Speaker 1: here and there. It's just very much like what a 599 00:32:32,880 --> 00:32:37,360 Speaker 1: betterment would use. Your twelve basis points and you do planning, 600 00:32:37,440 --> 00:32:41,800 Speaker 1: is that right? Yes? Yeah, I mean this is part 601 00:32:41,840 --> 00:32:46,240 Speaker 1: of what I'm researching. Also, is the sort of vanguard 602 00:32:46,280 --> 00:32:48,800 Speaker 1: effect that's going to hit the advisory world. And you 603 00:32:48,800 --> 00:32:51,520 Speaker 1: don't hear about that as much. But why did you 604 00:32:51,640 --> 00:32:54,920 Speaker 1: choose twelve? I mean that is really low. It's almost 605 00:32:54,920 --> 00:32:58,320 Speaker 1: like you didn't need to. And are you open two 606 00:32:59,120 --> 00:33:01,360 Speaker 1: outside investor or do you have a cut off with 607 00:33:01,400 --> 00:33:03,440 Speaker 1: how much money you can invest? You talk a little 608 00:33:03,440 --> 00:33:06,280 Speaker 1: bit about the process of that pricing and the future 609 00:33:06,280 --> 00:33:10,200 Speaker 1: plans for the advisory business. Sure, so when when I 610 00:33:10,240 --> 00:33:13,080 Speaker 1: started this at the end of two thousand and eleven, UM, 611 00:33:13,120 --> 00:33:15,120 Speaker 1: you know, the first investors were all a bunch of 612 00:33:15,120 --> 00:33:18,640 Speaker 1: friends of mine and um, and you know, I was 613 00:33:18,720 --> 00:33:20,840 Speaker 1: just I thought that low cost is really important. It's 614 00:33:20,880 --> 00:33:23,480 Speaker 1: like this one thing that we can control. Um, you know, 615 00:33:23,520 --> 00:33:28,080 Speaker 1: as Benjamin Franklin said, um, you know, uh, a penny 616 00:33:28,120 --> 00:33:31,080 Speaker 1: saved is worth two pennies earned. You know, some people 617 00:33:31,200 --> 00:33:34,280 Speaker 1: think that he said a penny saved as a penny earned, 618 00:33:34,280 --> 00:33:37,480 Speaker 1: but actually he said a penny saved is two pennies earned. 619 00:33:37,480 --> 00:33:40,160 Speaker 1: And what he meant by that, I think, uh, you know, 620 00:33:40,200 --> 00:33:43,200 Speaker 1: it's really was was really insightful on on his part. 621 00:33:43,240 --> 00:33:46,240 Speaker 1: Of course, Um, you know is that a penny in 622 00:33:46,280 --> 00:33:50,880 Speaker 1: the bank that you've saved is risk free? Uh two, 623 00:33:51,000 --> 00:33:53,960 Speaker 1: you need to earn two pennies in a risky way 624 00:33:54,080 --> 00:33:56,640 Speaker 1: to be equal to one penny that's risk free. And 625 00:33:56,640 --> 00:34:00,280 Speaker 1: and and actually you know that's modern finance actually tells 626 00:34:00,360 --> 00:34:03,400 Speaker 1: us that's correct. So so anyway, you know, it's focused 627 00:34:03,400 --> 00:34:06,040 Speaker 1: on costs. And I was like, well, it's my friends. 628 00:34:06,320 --> 00:34:09,160 Speaker 1: What fee if if one of the what if one 629 00:34:09,200 --> 00:34:10,920 Speaker 1: of my friends that was going to invest with us, 630 00:34:11,560 --> 00:34:14,000 Speaker 1: if the if the roles were reversed, What what I 631 00:34:14,040 --> 00:34:16,160 Speaker 1: think is like a fee that just wouldn't bother me 632 00:34:16,200 --> 00:34:18,120 Speaker 1: at all, and I would say that's great. And that 633 00:34:18,200 --> 00:34:19,560 Speaker 1: was where the twelve came from. And you know it 634 00:34:19,560 --> 00:34:22,080 Speaker 1: could have been thirteen or eleven, but twelve. There's twelve 635 00:34:22,160 --> 00:34:23,879 Speaker 1: months in the year, so the basis point a month. 636 00:34:24,480 --> 00:34:26,680 Speaker 1: That's that's where it came from. And you know, it 637 00:34:26,800 --> 00:34:29,880 Speaker 1: seemed super super low back in two thousand and eleven. 638 00:34:29,960 --> 00:34:31,960 Speaker 1: You know it's still is low today. But you know, 639 00:34:32,000 --> 00:34:35,440 Speaker 1: the the world is coming to us for sure. Um. 640 00:34:35,480 --> 00:34:37,640 Speaker 1: You know, at the moment, we have this cut off 641 00:34:37,719 --> 00:34:41,360 Speaker 1: of you know, roughly half a million dollars of of 642 00:34:41,440 --> 00:34:44,000 Speaker 1: assets and the family you know, in the family group 643 00:34:44,040 --> 00:34:46,520 Speaker 1: to start with us. But you know, as we get 644 00:34:46,840 --> 00:34:49,640 Speaker 1: more efficient and build more technology, we want to bring 645 00:34:49,680 --> 00:34:52,680 Speaker 1: that minimum down, you know, and make it available to 646 00:34:52,800 --> 00:34:55,040 Speaker 1: anybody that wants to come with us. But you know, 647 00:34:55,160 --> 00:34:57,880 Speaker 1: right now, we can't really be efficient for somebody that 648 00:34:57,880 --> 00:35:00,840 Speaker 1: wants to give us five thousand dollars. We can't be 649 00:35:00,880 --> 00:35:03,200 Speaker 1: efficient for them. You know, we can't do as much 650 00:35:03,239 --> 00:35:04,960 Speaker 1: as we want to do for them. But you know, 651 00:35:05,000 --> 00:35:07,120 Speaker 1: our our investors are all over the place. You know, 652 00:35:07,160 --> 00:35:09,400 Speaker 1: we've got I don't know, a hundred million dollar investor, 653 00:35:09,480 --> 00:35:11,680 Speaker 1: and we've got you know, people that have given us 654 00:35:11,719 --> 00:35:14,200 Speaker 1: three hundred thousand dollars and we waived the five hundred 655 00:35:14,239 --> 00:35:16,640 Speaker 1: for them. You know, we have young people. You know 656 00:35:16,719 --> 00:35:19,080 Speaker 1: mostly it's people that are that kind of look like 657 00:35:19,160 --> 00:35:21,319 Speaker 1: me in terms of age and experience and all that. 658 00:35:21,400 --> 00:35:23,680 Speaker 1: But you know, we have people in their twenties, we 659 00:35:23,719 --> 00:35:26,040 Speaker 1: have people later in life. Um, and you know, we 660 00:35:26,080 --> 00:35:29,080 Speaker 1: just want to keep on helping more people and and 661 00:35:29,080 --> 00:35:31,319 Speaker 1: and using technology to do it. You know, I think 662 00:35:31,360 --> 00:35:33,720 Speaker 1: that's the key thing. Like, we couldn't do this business 663 00:35:33,760 --> 00:35:36,040 Speaker 1: twenty years ago for so many reasons. We couldn't do 664 00:35:36,080 --> 00:35:39,879 Speaker 1: it twenty years ago, but today, you know, it's it's 665 00:35:40,040 --> 00:35:42,120 Speaker 1: you know, all of the different pieces that we need 666 00:35:42,160 --> 00:35:44,560 Speaker 1: are there. You know, all this different kind of outsourcing, 667 00:35:45,000 --> 00:35:50,160 Speaker 1: Fidelity and Schwab being terrific places to have assets, you know, etcetera, etcetera. 668 00:35:50,360 --> 00:35:54,480 Speaker 1: So um, and just real quick final question is, uh, 669 00:35:54,800 --> 00:35:58,040 Speaker 1: when you look at the portfolio, it has a six 670 00:35:58,960 --> 00:36:00,480 Speaker 1: vibe to it. But there's all so some of the 671 00:36:00,520 --> 00:36:02,880 Speaker 1: things in there that you can tell you're you're mixing 672 00:36:02,880 --> 00:36:04,759 Speaker 1: it up a little bit. You've got some gold in there. 673 00:36:05,320 --> 00:36:09,960 Speaker 1: Um and uh, some different international exposures, uh, some different 674 00:36:10,239 --> 00:36:14,680 Speaker 1: this targeted bond exposures how active are you? Do you 675 00:36:14,680 --> 00:36:17,480 Speaker 1: have like a generic sixty forty for the people who 676 00:36:17,480 --> 00:36:21,480 Speaker 1: don't like want any of your of activists, or how 677 00:36:21,520 --> 00:36:24,400 Speaker 1: do you do that in terms of detect how tactical 678 00:36:24,440 --> 00:36:28,279 Speaker 1: to get So are the baseline portfolio that we have, 679 00:36:28,920 --> 00:36:31,600 Speaker 1: which is the portfolio that we start with before we 680 00:36:32,080 --> 00:36:35,480 Speaker 1: overweight or underweight different buckets. You know that that is 681 00:36:35,520 --> 00:36:39,200 Speaker 1: a little bit more granular than just owning a global 682 00:36:39,480 --> 00:36:43,520 Speaker 1: MSCI equity index and an aggregate bond index, you know, 683 00:36:43,719 --> 00:36:46,520 Speaker 1: like for SIVE. So you know, we have a five 684 00:36:46,560 --> 00:36:50,320 Speaker 1: percent bucket for reats in our in our separately managed 685 00:36:50,320 --> 00:36:52,520 Speaker 1: account programs. We actually don't have gold, but we do 686 00:36:52,560 --> 00:36:54,600 Speaker 1: have gold in our in this private fund that we 687 00:36:54,680 --> 00:36:57,600 Speaker 1: started with before. But anyway, um, so you know we 688 00:36:57,600 --> 00:36:59,560 Speaker 1: have reats in there. We have a small bucket for 689 00:36:59,680 --> 00:37:02,320 Speaker 1: muni is in there. We have a bucket for tips 690 00:37:02,360 --> 00:37:04,719 Speaker 1: and nominal bonds and corporate bonds. We kind of have 691 00:37:04,760 --> 00:37:07,279 Speaker 1: broken things up like that, and you know, and we 692 00:37:07,360 --> 00:37:10,560 Speaker 1: get granular in terms of regional equity market. So we 693 00:37:10,600 --> 00:37:13,840 Speaker 1: have you know, us, we have Europe, we have developed 694 00:37:13,880 --> 00:37:16,400 Speaker 1: Asia e M and well then you need Canada to 695 00:37:16,400 --> 00:37:20,239 Speaker 1: fill it all out. Um, and so you know, that's 696 00:37:20,280 --> 00:37:23,080 Speaker 1: our baseline, and then uh, you know, we overweight or 697 00:37:23,160 --> 00:37:27,960 Speaker 1: underweight based on a long term expected return metric mostly 698 00:37:28,040 --> 00:37:30,520 Speaker 1: that's the cyclically adjusted earnings yield, and then a trend 699 00:37:30,600 --> 00:37:33,879 Speaker 1: metric that we put together with that. And um, yeah, 700 00:37:33,880 --> 00:37:35,400 Speaker 1: I mean if somebody says, look, you know, I just 701 00:37:35,440 --> 00:37:38,359 Speaker 1: want you to manage a static portfolio for me, Well, 702 00:37:38,360 --> 00:37:40,919 Speaker 1: first of all, we have this all equity version, which 703 00:37:40,960 --> 00:37:44,160 Speaker 1: is less dynamic because it's always in equities all the time. 704 00:37:44,200 --> 00:37:47,319 Speaker 1: It's just we're changing how much US versus e M 705 00:37:47,480 --> 00:37:50,280 Speaker 1: versus Europe. Um. But we would also do a static 706 00:37:50,320 --> 00:37:52,320 Speaker 1: portfolio for somebody, but we would try to you know, 707 00:37:52,360 --> 00:37:54,120 Speaker 1: we would try to explain to them that we think, 708 00:37:54,800 --> 00:37:57,280 Speaker 1: you know, that just makes less sense than doing something 709 00:37:57,320 --> 00:38:00,759 Speaker 1: that's responsive to the investment environment. So we don't have 710 00:38:00,800 --> 00:38:03,440 Speaker 1: any static portfolios, even though we would be willing to 711 00:38:03,480 --> 00:38:05,719 Speaker 1: do that for people if they wanted it, you know, 712 00:38:05,760 --> 00:38:07,480 Speaker 1: I think that we would tend to encourage them to 713 00:38:07,480 --> 00:38:09,319 Speaker 1: do it on their own. And and um, you know, 714 00:38:09,320 --> 00:38:11,800 Speaker 1: because it's if you're gonna be static, if you're always 715 00:38:11,800 --> 00:38:14,399 Speaker 1: going to be a sixty and you want to do that, 716 00:38:14,640 --> 00:38:16,680 Speaker 1: then you know we'll do it for you. And tax 717 00:38:16,760 --> 00:38:19,480 Speaker 1: loss harvest and all that, no problem. But you know 718 00:38:19,520 --> 00:38:22,320 Speaker 1: you might want to do it yourself too, and um, 719 00:38:22,360 --> 00:38:24,360 Speaker 1: you know, because that's a pretty simple thing to to 720 00:38:24,480 --> 00:38:28,799 Speaker 1: do without needing to put much time into it. How 721 00:38:28,840 --> 00:38:31,880 Speaker 1: much trading are you doing? So we rebalance the R 722 00:38:32,040 --> 00:38:35,640 Speaker 1: S M A portfolios once a week. We rebalance them 723 00:38:35,640 --> 00:38:38,840 Speaker 1: like a quarter of the way to where we ultimately 724 00:38:38,920 --> 00:38:40,799 Speaker 1: would want to be, so we don't generate too much 725 00:38:40,800 --> 00:38:45,040 Speaker 1: turnover um. And you know, we're we've built these systems 726 00:38:45,080 --> 00:38:48,440 Speaker 1: that you know, try to do the minimum number of trades. 727 00:38:48,520 --> 00:38:50,880 Speaker 1: You know, their tax aware, so you know, if you're 728 00:38:50,880 --> 00:38:53,120 Speaker 1: gonna realize a short term gain, you don't do the 729 00:38:53,160 --> 00:38:56,319 Speaker 1: trade normally or whatever. So you know, we we try 730 00:38:56,360 --> 00:38:59,560 Speaker 1: to dampen down the trading that you would get if 731 00:38:59,600 --> 00:39:01,720 Speaker 1: it was just like oh here, here's this dynamic target. 732 00:39:01,760 --> 00:39:04,560 Speaker 1: It's moving around, just moved to it all the time. 733 00:39:05,040 --> 00:39:07,560 Speaker 1: You know, we're kind of moving trying to trying to 734 00:39:07,640 --> 00:39:10,680 Speaker 1: keep up with it, but in a in a low turnover, 735 00:39:10,880 --> 00:39:14,320 Speaker 1: low you know, tax efficient manner. So so Victor, I 736 00:39:14,360 --> 00:39:16,440 Speaker 1: gotta ask you a question that we ask everyone at 737 00:39:16,440 --> 00:39:19,960 Speaker 1: the end of trillions, which is what is your favorite 738 00:39:19,960 --> 00:39:27,080 Speaker 1: E t F ticker? My favorite E t F ticker. Yeah, 739 00:39:27,120 --> 00:39:33,279 Speaker 1: I guess it's uh uh yeah, I guess it's v 740 00:39:33,480 --> 00:39:37,000 Speaker 1: O O. You know, the the you know, the Vanguard 741 00:39:37,239 --> 00:39:40,400 Speaker 1: um SMP five hundred sort of with that nuance of 742 00:39:41,280 --> 00:39:44,000 Speaker 1: you know, of the Roman digits sort of thing. I 743 00:39:44,040 --> 00:39:47,759 Speaker 1: think that's my favorite good job knowing that, by the way, 744 00:39:47,800 --> 00:39:50,440 Speaker 1: that is a I thought you didn't know it. I 745 00:39:50,480 --> 00:39:52,880 Speaker 1: was ready to like just drop that cool factoid, but 746 00:39:52,920 --> 00:39:55,520 Speaker 1: you did. And that's to me, how how did you 747 00:39:55,520 --> 00:39:57,440 Speaker 1: did you just figure that out at face value? Because 748 00:39:57,800 --> 00:40:00,200 Speaker 1: I didn't know it until someone told me at Vanguard. 749 00:40:00,440 --> 00:40:03,200 Speaker 1: I was like, oh, now I get it. I might 750 00:40:03,200 --> 00:40:05,319 Speaker 1: have read it in one of your articles. Eric, I 751 00:40:05,320 --> 00:40:07,000 Speaker 1: don't know where I learned it, but I did not. 752 00:40:07,120 --> 00:40:09,600 Speaker 1: I did not figure that out myself. I read it 753 00:40:09,719 --> 00:40:12,080 Speaker 1: or heard it somewhere. I did not. It didn't hit me. 754 00:40:13,080 --> 00:40:15,920 Speaker 1: It's the most hidden cool ticker of all time, Like, 755 00:40:15,960 --> 00:40:18,719 Speaker 1: because only you have to someone asked to tell you 756 00:40:18,800 --> 00:40:21,160 Speaker 1: about it for you to know about it. Yes, yeah, 757 00:40:21,400 --> 00:40:25,040 Speaker 1: that's what that happened with me for sure. Victor, thanks 758 00:40:25,080 --> 00:40:27,640 Speaker 1: so much for joining us and Trillions. Yeah, sure thing, 759 00:40:27,800 --> 00:40:35,759 Speaker 1: I've been great. Thanks for listening to trillions. Until next 760 00:40:35,760 --> 00:40:38,640 Speaker 1: time you can find us on the Bloomberg terminal, Bloomberg 761 00:40:38,680 --> 00:40:42,759 Speaker 1: dot com, Apple Podcasts, Spotify, and wherever else you like 762 00:40:42,800 --> 00:40:45,840 Speaker 1: to listen. We'd love to hear from you. We're on Twitter, 763 00:40:46,320 --> 00:40:49,879 Speaker 1: I'm at Joe Webber Show, He's at Eric caltur Nois, 764 00:40:50,600 --> 00:40:53,160 Speaker 1: and you can find more about ELM Funds at thumb 765 00:40:53,200 --> 00:40:57,480 Speaker 1: funds dot com. This episode of Trillions was produced by 766 00:40:57,520 --> 00:41:02,040 Speaker 1: Magnus Hendrickson. Francesca Leave is the head of Bloomberg podcast 767 00:41:02,719 --> 00:41:05,920 Speaker 1: Bike h