Episode 201

full
Published on:

2nd May 2024

E1: Enter the New World of Return Stacking - Inaugural Episode!

In today’s ReSolve Riffs we’re taking the opportunity to introduce the inaugural episode of a brand new podcast channel called the Get Stacked Investment Podcast. In this series, we dive deep into the world of Return Stacking, exploring the latest projects, content, and insights from the www.returnstacked.com website.

Co-hosted by Corey Hosteen, CIO of Newfound Research, along with the support of our own Mike Philbrick and Adam Butler this promises to be an insightful and valuable too in your investment arsenal. Subscribe to the Get Stacked feed using the link in the description to stay up-to-date with the latest episodes and never miss a beat in the exciting new world of Return Stacking.

In this episode, Corey Hoffstein from Newfound Research, and Rodrigo Gordillo and Adam Butler of Resolve Asset Management Global, discuss the concept of return stacking and its implications for investors. They delve into the challenges of beating the large-cap U.S. equities market, the shift in conversations about return stacking from risk management to creating excess returns, and the potential of diversification in generating consistent positive excess returns.

Topics Discussed

• The difficulties of beating the large cap U.S. equities market and the need for diversification

• The shift in conversations about return stacking from risk management to creating excess returns

• The potential of diversification in generating consistent positive excess returns

• The idea of dictum in the markets and the difference between behavioral time and statistical time

• The concept of risk parity and the importance of maintaining balance in portfolio risk

• The role of trend following in risk management and return stacking

• The potential of stacking strategies in enhancing portfolio returns

• The structural challenges in implementing return stacked strategies in portfolios

• The importance of diversification in ensuring investment success

This episode provides valuable insights into the concept of return stacking and its potential in enhancing portfolio returns. It is a must-listen for investors interested in diversification strategies and the future of investment management.


*ReSolve Global refers to ReSolve Asset Management SEZC (Cayman) which is registered with the Commodity Futures Trading Commission as a commodity trading advisor and commodity pool operator. This registration is administered through the National Futures Association (“NFA”). Further, ReSolve Global is a registered person with the Cayman Islands Monetary Authority.

Transcript
Rodrigo Gordillo:

Hello everybody.

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And welcome to another episode

of the resolver it's podcast.

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Today we have a very special podcast

because we are going to be featuring

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our inaugural podcast episode of

our brand new stream called the

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get stacked investment podcast.

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And.

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What we're going to cover as

you probably guessed is going to

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be everything returned stacked.

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So all the projects that we're working on,

the different pieces of content that we've

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put out on the return stack.com website,

anything that has to do with return

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stacking, how the markets are evolving

over time, we're going to have guests.

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Um, co-host is going to be Corey

Hosteen CIO of newfound research.

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And of course we're always going to have.

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Support from the typical cast of

characters, Mike Philbrick, Adam Butler.

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it to feature that first episode in

our live streams, but ultimately this

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is going to have its own channels.

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So if you do get a chance, Click on

the link in the description so that

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you can subscribe to the get stacked.

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Feed, and then you can get notified

whenever there's a new episode.

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So

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Hello and welcome to the Get Stacked

Investment Podcast, where we delve into

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the exciting new world of return stacking.

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Join us as we break down complex

financial concepts into accessible

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insights, speak with leading experts

in the space, and analyze real world

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applications for return stacking.

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Get Stacked is here to help you break

out of the traditional portfolio

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construction mold and get you to start

thinking differently about the future.

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Half is successful investing.

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Corey Hofstein is the co founder and

chief investment officer of Newfound

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Research and Rodrigo Gordillo is

the president and portfolio manager

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of Resolve Asset Management Global.

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Due to industry regulations, we will

not discuss any funds managed or sub

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advised by these firms on the podcast.

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All opinions expressed by podcast

participants are solely their own

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opinion and do not reflect the

opinion of neither Newfound Research

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or Resolve Asset Management.

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This podcast is for informational

purposes only and should not be relied

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upon as a basis for investment decisions.

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Clients of these firms may

maintain positions and securities

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discussed in this podcast.

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For more information, visit returnstack.

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com.

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hello everybody.

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And welcome to the first and inaugural

episode of the return stacking podcast.

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This is something that we're

going to hopefully try to do

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once a month going forward,

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where we're going to talk about

all things, return stacking, the

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different elements that , one could

use in the return stacking space and

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how they're interacting with the

markets today and that the individual

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players, how they feel about it.

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So we're going to try to.

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Expounded as much as we can every month

on what we've learned, conversations

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we've had, and maybe some of the pieces

that we've written on the returnstacked.

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com website.

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So with that, today I am joined by,

Corey Hoffstein, CIO of Newfound Research.

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We have Michael Philbrick, CEO

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We also have Adam Butler, CIO and myself,

President of Resolve Asset Management

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Global, I think there's , plenty to talk

about, , Corey, you were saying that

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there's some interesting discussions

being had in the investment space with

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regards to return stacking, especially

the transition of how people felt

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in 2022 versus 2023 and now 2024.

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Why don't you tell us a little bit of

the conversations you've been having.

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Corey Hoffstein: When we co authored

the paper back in:

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return stacking paper, a lot of what

we were focused on with the return

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stacking concept was how do we

introduce alternatives as a diversifier?

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While allowing people to keep their

core stocks and bonds that they wanted,

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allowing these diversifiers to be in the

portfolio from a structural perspective,

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hopefully allowing people to make them

more sustainable so that when they needed

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them, they were actually there rather

than doing this performance chasing.

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That's all too evident in the space.

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2022 then rolls around.

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And I don't think we, in any of our

careers, we have had a better timed

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paper for precisely what we were

talking about, but:

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squarely in out of the rear view mirror.

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We're well past that at this point,

:

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I think we have bullish fever at the

moment that the conversation for me with

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a lot of the return stacking ideas has

gone from, how do I use return stacking

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to plug the risk holes in my portfolio to.

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How do I use return stacking

to create excess returns?

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I have higher confidence in

versus security selection.

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And it is, what's funny is it can

be the exact same thing, right?

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You could just stack, for example,

managed futures on top, and it's

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the answer to both, but the shape

of the conversation, what people

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are looking for has drastically

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Rodrigo Gordillo: It's just been so

funny because I've noticed that the

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conversations in 2022 were about

how do I use return stacking, or

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at least there were significantly

more conversations about how do I

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use return stacking to create an all

weather, all terrain portfolio, right?

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Where I actually don't want

any equity risk or bond risk.

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I want to manage that with whatever

stacks are going to do to yeah, no, that

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thing, I don't care about that anymore.

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How do we get the S& P 500 plus?

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Or like 80 20 plus or 60 40 plus

less 60 40 more 80 20 a lot of

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s& p 500 plus conversations.

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Adam Butler: think people, what

they want right now is for us to

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stack Bitcoin on ETH on NVIDIA.

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If we could deliver that

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product, I

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Mike Philbrick: Yes.

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I'm a yes there.

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When do you want to do it?

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Rodrigo Gordillo: But it's true.

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It's just amazing to see the

animal spirits shift around,

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Mike Philbrick: I think the

conversations I've had anyway have

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centered around the fact that while

things are expensive, they're not

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as expensive as they've ever been.

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In, in the U.

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S.

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certainly not as expensive

as they got in Japan.

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And the ferocity of the FOMO as you climb

that curve intensifies dramatically.

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And I think we're seeing

part of that, but.

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It's possible that we

haven't seen anything yet.

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And that this right tail risk is

truly the the potential, issue as

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advisors who are trying to take a

more sort of risk averse course, I'll

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call it maybe adopting more tracking

error are going to feel more pain.

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Lots more pain.

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And trying to hedge that potential

outcome and understanding history and

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a little bit of market history is, you

get the best of both worlds when you

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return stacking because you do have

your diversifiers in there and hopefully

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they will fire at some point in, in,

in to offset some of the potential

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drawdowns happening in the betas,

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but.

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You are participating all along the way.

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Go ahead.

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Rodrigo Gordillo: That's the other thing

that has popped up in our conversations

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in the last 12 months is that you see the

Big exposures in the markets and the S& P

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500 to the five stocks that have moved it.

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And very few advisors are fully exposed

to those things because they're smart.

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They're being prudent, and a lot

of them are sitting in a lot of cash

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and have, and we're sitting in cash.

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Throughout the second half

of:

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And so I think that FOMO, not just

from the investors themselves,

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but I think the clients clamoring

for how did we miss this?

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It's an interesting use case that we

should do an analysis of what does

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better, a 30 percent cash buffer

or an uncorrelated stack for the

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outcome of the ultimate investor.

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Corey Hoffstein: yeah, what, like

you pointed out that most people

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don't actually even have the market

weight to the magnificent seven.

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And I think what people don't realize

is when the market becomes so top

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weighted, and I'm not making an argument

here as to whether that's right or

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wrong or whether there's, it's a bubble

or not, but when it becomes so top

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weighted, it is very difficult for

long only managers to have active bets.

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Without underweighting

those top names, right?

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So think about what happens if a manager

is bullish, those top names, And those

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top names are already 30 percent of the S

and P now they're going to have 50 percent

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of their portfolio in those seven names.

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That's a lot of career risk, but if

you just market weight them, if you

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want to be neutral to those names,

that eats up 30 percent of your

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portfolio as an active manager, right?

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And so the reality is many of these

active stock picking managers.

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because they don't have the ability to

short by being long only end up having

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to underweight those names to free up

capital to put in names that they like.

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And so a lot of people just end up

not even having market weight just

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by the constraints of long only.

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And so you end up underweight

these names and chasing returns.

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Mike Philbrick: We were talking to Jack

Shannon at Morningstar about this, about

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non diversified versus non diversified

funds and the 75-5-10 rule, where if

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you're not tracking the index, you

can't actually get there with the large

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holdings in the top seven holdings.

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You can't track it.

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There's a structural impediment for

active management, active managers

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to actually achieve even getting an

overweight bet on the things that

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are working the most, if you will.

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Corey Hoffstein: That's a

really good point, Mike.

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And I bet most people who are listening

aren't even aware of those rules, that

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there are constraints as to how much a

manager can actually put in a single name.

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Rodrigo Gordillo: let alone overweight

them from whatever the index has them.

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Like how many active managers are

getting the massive overweight,

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natural overweight that exists in

the index already and saying, let's

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add five more percent to that.

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Just no, you're taking

the other side for sure.

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Adam Butler: thing that

we we also talked about.

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about is just how large and confident

of you, you must have on the sustained

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outperformance of those names.

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In order to hold them in such high

concentration of portfolio, right?

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If you're an active manager and

you're charged with having active

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views on a portfolio, right?

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I'll, each time you take an active

view, it's a trade off between is the

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excess return I'm hoping to get going to

overcome the excess risk that I'm taking.

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And so that's what sort of prevents

diversified portfolios from

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becoming too overly concentrated.

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The magnitude of difference.

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Unexpected returns between the mag

seven and all of the other stocks

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given their concentration in the index

There's no conceivable way That an

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active manager could possibly be that

confident in order to make that level

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of active bet the passive Market is

making a bet on those stocks that no

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Reasonable active manager could ever take

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Rodrigo Gordillo: Yeah.

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Indexing continues to be show

over time and time again.

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Adam Butler: Hit me Cory hit me.

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I see you rolling.

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You're grinding on that

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Corey Hoffstein: I'm thinking

through what you're saying.

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I, and I'm not sure I a hundred percent

agree with it, but it might just be that

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I'm not fully grasping what you're saying.

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I think if you said, all right,

here's the 500 names in the S&

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P 500 and you know nothing about

them, to build up that confidence.

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But if you were to fundamentally

weight them right now.

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Based on a mix of things like cashflow

and revenue and a number of other

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fundamental measures, many of those

mag seven will still be the near

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the same relative proportion, right?

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So this, like the question is

yes, they have a very large.

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weight from a market cap perspective,

but they also relative to the other names

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in the S& P 500 have a very outsized

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Adam Butler: in mind, I agree with that.

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Corey Hoffstein: footprint.

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Adam Butler: That's a fair point.

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But it's not just about what

that footprint is today, right?

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It's also about what that

footprint is going to be five

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years from now, 10 years from now.

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The market is supposed to

be a discounting mechanism.

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Is the market expecting them to sustain

this level of, these levels of margins and

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this growth rate in sales ad infinitum,

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Rodrigo Gordillo: that's an

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Adam Butler: that's what you're

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Rodrigo Gordillo: because I actually

had this discussion seconds before this

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podcast with an advisor that asked the

basically said, look, the last 10 years

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of the 6040 US 6040 have been purely due

to the fact that, rates have gone down.

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And I said no, it's purely due

to these handful of stocks.

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Taking monopolistic rents and

the world thinking that they were

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just going to go up ad infinitum.

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And I don't know where I heard this

argument, but with AI here that we're

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looking at specifically talking about

Google and how Google has made most

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of its profits on search and with AI

and the ability for like perplexity.

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ai and all the ability to just

Do it significantly cheaper,

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provide better results.

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Bard isn't, I don't remember if

it's Bard right now or whatever

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name they have, Galaxy or whatever.

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It's just not catching up, but

they, that the moat has finally

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been broken and those monopolistic

rents are being attacked, right?

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So you're right.

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If the market is a discounting

mechanism and you have AI finally

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breaking the moats and a lot of these

things, it might be time to share the

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love and it might be the end of it.

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Corey Hoffstein: What I do love is

that people tuning into a podcast

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on return stacking definitely care

about our views on individual stocks.

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Rodrigo Gordillo: You've got to create,

you've got to create some understanding

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of what could change the mandate.

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So that brings me to

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They can add, I guess we're still

trying to pitch diversification here.

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And it doesn't really

matter if you're a trans.

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Corey Hoffstein: I think

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part, I guess the point I would get

at is it is very hard for a number

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of reasons to be an active manager.

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And Rod you wrote about this

And the stat always amazes me.

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And yet everyone will, there's

all sorts of things you can argue

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about the SPIVA report, right?

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But over the last 15 years, the

number, the percentage of large

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cap funds that beat the S& P 500.

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Was sub 13% I believe.

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So you're talking about if you're an

allocator to pick those active managers

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that were able to outperform that

hot tech hand, required 15 years ago,

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figuring out who those funds were going

to be and then allocating to them and

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then sticking with them and right.

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And I think our presumption is if they

outperformed over 15 years, like your mind

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naturally goes to, it must've been smooth.

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I bet if you dove into those funds,

it's like there was one year that

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Rodrigo Gordillo: That's,

I did that, right?

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So what I did is just, I went to white

charts and pulled it's their database.

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It's not as wide as FIBAs and

doesn't have survivorship bias.

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It was just a simple analysis.

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I pulled the 20 year performance

of every single large cap U.

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S.

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fund.

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And I think it was like 3, 200.

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How many of them outperformed the S& P?

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This was shocking to me.

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I had to I actually reached out to

their team to say, this can't be right.

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Like this can't, he's no,

that's, we see it too.

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41 funds out of 3, 200

that outperformed the S& P.

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And the most important part for

me was let's assume that , that

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those 41 will continue to

outperform for the next 20 years.

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Even if we have that assumption, the

next question was, what do investors

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and advisors care about most years?

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And they care about saying either to

themselves as individual investors,

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Or to their clients as advisors,

we beat the S& P 500 this year.

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We beat our index this year.

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How often are you doing that?

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And the median, there were

21 observations, because

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they did 1994 to 2024.

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Out of 21 observations, the

median outperformance of those

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41 funds was 11 out of 21 years.

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So half the time you're saying you did it,

half the time you're saying you're not.

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The worst were six out of 21 years.

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So there's a handful of managers that just

probably had a handful of great years.

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The rest of the time it's horrendous.

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And you're saying I'm sure they're

gonna get another great year like

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they did in 2017 or whatever.

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And then the best was only 13 outta 21.

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So it's not like there was

one outlier that outperformed

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the s and p all of the time.

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So it's just, it's not only tough to pick.

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Even if you do pick and you get it

right, if you are a God in a perfect

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foresight, you're not going to get the

consistency that everybody wants, right?

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And this is the holy

grail of investing it.

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Beating the S& P 500, do it consistently.

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And also the other thing that

I found that was crazy was that

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the median outperformance was 0.

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3%, which again, I thought that was crazy.

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Corey Hoffstein: Which all raises the

question to me I know that most investors

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are constrained, but we go back to

this, like, why do people keep trying

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to fish in the same overfish pond?

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All the evidence suggests that

large cap US equities in particular

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are pretty darn efficient.

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It's a very hard market to beat,

especially in a public mutual

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fund or an ETF, just the evidence

suggests for the duration, most

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investors are willing to allocate.

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It's a very hard market to beat.

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And so again, to me, going back to the

core question of people asking us, okay,

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we care less about risk management.

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We care more about the

right tail right now.

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If you can unshackle your risk budget

from this long only concept and

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just say, let me just get the beta

and let me stack something else.

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What do we have more confidence in

generating positive Excess returns on a

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more consistent basis than stock picking.

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And I think there's a whole lot

of things that I would rather

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spend my active risk budget on.

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Rodrigo Gordillo: Yeah.

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It's the idea of dictum that the

markets are micro efficient, but

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macro inefficient, as Adam likes

to say over and over again, 99.

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99.

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I think you fact check that.

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Adam?

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99.

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99 percent of the computational

brainpower of investors goes into picking

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better stocks than everybody else.

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Nobody really focuses on the

structural macro alpha that

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you could take advantage of.

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And really in the piece that I

wrote a return stacking a different

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way to outperform the benchmarks.

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We make a case for that structural or

alternative beta on top so that you

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can have this ability to outperform

without necessarily stacking more risk.

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In fact, what we show is that the

peak to trough losses are lower.

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And the return in this particular

case, where we stacked, , 25

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percent trend and 25 percent carry

using the DSAM carry index was 3.

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2 percent outperformance.

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With lower drawdowns and 21 years of

more consistently saying, yeah, with

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my a hundred dollars, I was able to

beat the S and P 18 out of 21 years.

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So again, it's, it

comes down to the basic.

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I got X amount of money.

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I want to do something.

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If you care about beating the index,

you can try as hard as you can competing

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for that money against other stock

pickers, or you can simply just think

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about macro inefficiencies and use that

to your advantage, and I don't think

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anybody's using that to their advantage.

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You

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Mike Philbrick: well, and I think the

other thing is the emotional tracking

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error challenges that come with,

Approaches that have many years, whilst

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they might outperform the S& P, they

have many years of underperformance.

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So the classic one was Warren Buffett

through the:

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obviously Warren Buffett, a very astute

investor, but underperformed the S& P by

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an astounding amount was behind by about

percent at the peak of the:

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And so how many people were able to

weather that storm of that massive of

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a tracking error in order to stick to

the plan of the Warren Buffet hood?

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And this is where, I think Corey, you

always coined this, like the behavioral

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aspect and the stick to it ness,

the ability to actually do the thing

357

:

that's required is a big part of it.

358

:

And emotionally being able to

celebrate with your friends

359

:

while they're celebrating.

360

:

And then suffer a little bit, but

maybe suffer a little bit less than

361

:

your friends when they're suffering.

362

:

There's a lot of, there's a lot of,

human a lot of humanity in that.

363

:

And just as an aside, just thinking

about that, the tracking error, I pulled

364

:

up Raffi and, we talked about an index

that is, is more fundamentally weighted.

365

:

It's a pretty big difference

from the cap weighted index.

366

:

So if you're going to

fundamentally weight, Nvidia,

367

:

not in your top 10 for Raffi.

368

:

You have half weight in Microsoft,

half weight in Apple, significantly

369

:

reduced weight in in Alphabet.

370

:

Biggest bets are Intel, Berkshire,

Citi, Bank of America, and J.

371

:

P.

372

:

Morgan on the outside,

outside, upside bet.

373

:

And then the under weightings

are Microsoft, Nvidia,

374

:

Apple, Amazon, and Tesla.

375

:

You can imagine, that's as of December,

end of December:

376

:

imagine the tracking error that this

is inflicting on people to be weighted

377

:

in a fundamental way, or I go back to

my example of Warren Buffett in the

378

:

2000s where he had lost his touch.

379

:

Those are emotionally trying issues.

380

:

And then, as an advisor, you always have

to think of what is the tracking error.

381

:

The tracking error for someone in Texas

is different from the tracking error for

382

:

someone in Silicon Valley, potentially.

383

:

The advisor has to be aware

of those intricacies on the

384

:

personal situation of the of

385

:

the investor.

386

:

Rodrigo Gordillo: not only that, I think

what's interesting is those managers, when

387

:

I was just listening to a podcast from

the guy from Greenlight Capital, Einhorn

388

:

and And a couple other well known names

these are managers that outperform because

389

:

they concentrate in 9 to 12 positions.

390

:

And just go they just, their

tracking error is insane.

391

:

Their volatility is twice as much as the

markets, but they perform like Warren

392

:

Buffett, I think we know from the work

that AQR has done that I think it's 1.

393

:

6 percent Liebert quality.

394

:

Is that, am I right?

395

:

So there's the,

396

:

Adam Butler: 1.

397

:

Rodrigo Gordillo: stacking and it shows

and he's stacking in one risk, right?

398

:

So it does show with the volatility

399

:

Mike Philbrick: the thing too.

400

:

His portfolio is a portfolio of

securities which is a security, set

401

:

of securities that funds insurance.

402

:

And there's a very low correlation

between investment returns.

403

:

And insurance claims.

404

:

And so there's a number of layers,

not just his investment portfolio.

405

:

It's how the investment portfolio is

funded, how they underwrite insurance.

406

:

They don't write it when it's cheap.

407

:

They only write it when

they can make money on it.

408

:

They take a bow and don't write

as much as they, and so they

409

:

have this constant cashflow.

410

:

They have payouts on the other

side that are not correlated to

411

:

anything because they're related to

natural disasters insurance claims.

412

:

So there's a myriad of things in the stack

that Warren Buffett does that are magic.

413

:

It just can't be achieved by

the individual investor, not to

414

:

mention the permanent capital,

415

:

Corey Hoffstein: The permanent

416

:

Mike Philbrick: to

mention the ins and outs.

417

:

Corey Hoffstein: I would argue

Warren Buffett would have been

418

:

out of business a number of times

if he was running a public fund,

419

:

right?

420

:

He just would have run out of capital.

421

:

It's just how

422

:

Mike Philbrick: The 2000s are

a classic example of that.

423

:

He would have been like, Oh, Oak Mart

and Howard Marx's firm broke my oak tree,

424

:

Rodrigo Gordillo: Okay.

425

:

Mike Philbrick: right?

426

:

They, and GMO, they were, they suffered

mightily in that period of:

427

:

in particular was, quite close to,

428

:

I don't know if they were closing

the doors, but they were low on AUM.

429

:

Corey Hoffstein: If I can, a

consistent theme in my career

430

:

is stealing from Cliff Asness.

431

:

So I'll steal a quote from Cliff

or paraphrase him, which was, he

432

:

talked about the difference between

behavioral time and statistical time.

433

:

And us as asset managers in our

ivory tower, we always look at things

434

:

and say, look, yeah, absolutely.

435

:

Something with a 0.

436

:

3 sharp can be underwater for a decade.

437

:

And so we see it on a back test,

or we, even when we live it in

438

:

real life, if we can be objective,

we're like that's just life.

439

:

That's, that is the risk adjusted

return of this asset class.

440

:

And yeah we realized the risk and the

return wasn't there, but that's why

441

:

the expectation of return is there.

442

:

You can't always go up, but

in behavioral time, right?

443

:

That's like dog years.

444

:

That's okay, you want to

perform for three years.

445

:

You might as well have

underperformed for 20.

446

:

And so you just get this

time dilation effect

447

:

between people who are

designing strategies versus

448

:

the people who are investing.

449

:

And so again, I go back to Rod, your

piece talked about man, talking about

450

:

managed futures and carry as an overlay

and the macro inefficiencies that you

451

:

might be able to take advantage of by

investing in global futures, commodities,

452

:

currencies, rates, bonds, and equities.

453

:

I wrote a similar piece and I just said,

look, even if you don't implement these

454

:

strategies yourselves, like they're

diversified alternative funds out there

455

:

that you can get access to, global style,

premia, systematic macro, trend following,

456

:

reinsurance, cap bonds, diversified

arbitrage, Bitcoin, all packaged together.

457

:

And if you can stack that.

458

:

Diversified package of alternatives.

459

:

Do you think that diversified package of

alternatives has a higher likelihood of

460

:

having a positive excess return on a more

consistent basis than value investing,

461

:

even a diversified set of active factors?

462

:

Again, I think the evidence suggests

that even if you just stick to the

463

:

stuff that you think is a risk premium,

like just pure merger arbitrage and

464

:

that sort of stuff, I still think

the evidence is more in the favor

465

:

of stacking the alternatives than.

466

:

Then in stock

467

:

picking.

468

:

Rodrigo Gordillo: And that's that

piece is excess returns through a

469

:

structural edge and the way you can, you

picked some of the older ones, right?

470

:

Corey Hoffstein: Yeah.

471

:

I just, I picked the three

funds that came to mind.

472

:

So it was just pure survivorship bias.

473

:

Let's be

474

:

honest here.

475

:

I just picked, I think I picked AQR

and Stone Ridge and FS who all have

476

:

multi alternative multi strategy funds.

477

:

And I'm sure there are others that have

gone out of business for bad performance.

478

:

But the point wasn't go buy

those funds by any means.

479

:

The point was,

480

:

Adam Butler: What funds were those, Corey?

481

:

Corey Hoffstein: AQR.

482

:

Rodrigo Gordillo: diversifying strategies.

483

:

Corey Hoffstein: I see what you're doing.

484

:

You almost got me.

485

:

Um, but the point though, again, the

point just being by buying those three

486

:

funds, they gave access to a huge

breadth of alternative strategies, right?

487

:

You were diversifying your diversifiers.

488

:

And do you think that breadth of

alternatives, even after fees and taxes

489

:

has a higher likelihood of creating out

performance, positive excess returns

490

:

versus active stock picking, and it's hard

for me to not say yes to that question.

491

:

Rodrigo Gordillo: The issue of course,

is that those funds at any given time

492

:

over the last three years, independently

or together would have been fired.

493

:

You would have been fired if you just

had them, if you just owned them as

494

:

your thing compared to the S& P, right?

495

:

Yeah.

496

:

But it is the idea of doing

whatever it is, like as much macro

497

:

non efficient areas that you can

stack your portfolio with, I think

498

:

something again to shine the light on.

499

:

And that piece does it really well.

500

:

Why don't we

501

:

Corey Hoffstein: thing that Just really

quickly, the other thing that I think

502

:

that gets overlooked here a lot is, and

I, most advisors I talk to, if I ask

503

:

them what their active risk budget was,

they probably wouldn't have an answer.

504

:

I don't think most advisors talk

about active risk budgets, but

505

:

they have an intuition for how off

the S& P they want to be, right?

506

:

And it's normally like they

want to be plus or minus 5%.

507

:

They never want to be that much off.

508

:

And that can be difficult when

you're talking about combining a

509

:

bunch of active, Managers, right?

510

:

You pick five or six active stock pickers.

511

:

You need to understand

their style drift potential.

512

:

You need to understand their different

styles how, and when they might overlap,

513

:

how much active risk those managers

are taking and how that all comes

514

:

together versus if you take a stacking

approach, basically the vol of your

515

:

stack times, the size of your stack.

516

:

Is basically your active risk, right?

517

:

And so you can size that stack

up and down for how much risk you

518

:

want to take versus the S&P, right?

519

:

You get create a diversified set of

alternatives that have a vol of 10.

520

:

You give it a 10%

allocation, 10% stack, great.

521

:

Your active risk is 1%.

522

:

You're gonna be in, in 99% a year is

plus or minus 3% of the s and p 500.

523

:

Rodrigo Gordillo: Okay,

so let's talk about that.

524

:

Adam Butler: this drinking game.

525

:

Rodrigo Gordillo: Yeah.

526

:

Okay.

527

:

No that's fine.

528

:

You

529

:

Mike Philbrick: We need to get

530

:

stacked.

531

:

Rodrigo Gordillo: This is called

the Return Stacking Podcast.

532

:

Get over it.

533

:

So

534

:

Corey Hoffstein: Gimme

535

:

another name Adam

536

:

Rodrigo Gordillo: that's a metric,

Corey, that you've thrown out before.

537

:

And I think, it's a decent heuristic, but

it's not necessarily true depending on

538

:

how correlated those assets are, right?

539

:

You're not just stacking

10%, if you're putting a 10

540

:

Corey Hoffstein: saying if

the stack is, has a 10% fall.

541

:

If you look at the overlay as

a whole, if you, yeah, I agree.

542

:

If you if it's multiple things

that are 10%, that math doesn't

543

:

work, you need to look at their

vol in combination as a portfolio.

544

:

Rodrigo Gordillo: So it might

be lower is what I'm saying.

545

:

Corey Hoffstein: Yes.

546

:

Yep.

547

:

Yep.

548

:

Yeah.

549

:

Rodrigo Gordillo: It's a good

550

:

Corey Hoffstein: Yeah.

551

:

If you do 10 percent managed, if you

do 10 percent managed futures plus 10

552

:

percent carry, you're probably getting

a sub 10 percent volatility combination.

553

:

Rodrigo Gordillo: Exactly.

554

:

Now, we've been focusing on the S& P and

trying to, yes, and that the problem of

555

:

FOMO right now, but I think it's, this

is precisely the moment that I think

556

:

we need to be talking about all weather

and all terrain too and this is a time

557

:

when nobody wants to talk about it.

558

:

I know, Mike, that you're your intuition

tells you that this can probably

559

:

go on much longer than we think.

560

:

My intuition says the other way

and generally is that way, but

561

:

I've been wrong for a while now.

562

:

One of the things that I think we should

talk about is the, that we finally spent

563

:

some time and put together some new

model portfolios behind the the website.

564

:

That.

565

:

really deal with all terrain investing.

566

:

So we can't really talk about it or

show anything because it is behind that.

567

:

And it's only for sophisticated

investors, but for those advisors that

568

:

are interested in seeing how we've

thought about the all weather problem.

569

:

And the way we think about it in all

weather, all terrain is we think about

570

:

it in different risk metrics, right?

571

:

Less about what percentage

stack, but rather.

572

:

You want an all weather portfolio,

all terrain portfolio at 6 percent

573

:

volatility target, at 9 percent target,

at 12 percent target, at 15 percent

574

:

target, depending on where you are

in your life and your glide path.

575

:

We put that together.

576

:

And so if you happen to be an advisor

or anybody that is sophisticated

577

:

enough to get access to it, go to

the website, ask for access and the

578

:

information is there and hopefully,

we can help do this before the storm.

579

:

Adam Butler: very

580

:

Mike Philbrick: It's a balancing

act between optimality from

581

:

the standpoint of an investment

framework and not knowing the future.

582

:

So diversifying and being balanced

across your risks versus what kind

583

:

of tracking error can you sustain

over what kind of time periods.

584

:

And this is where, you need the

professional advice of an advisor

585

:

often to help you understand that.

586

:

You heuristic is a good one, but.

587

:

How do you help advisors

think through that?

588

:

And that's what the model portfolios do.

589

:

They help you look at that and get

some intuition as to how much tracking

590

:

you might be able to withstand,

because it's not zero or one.

591

:

You don't have to go to full optimality.

592

:

There's a hybrid where you can

say I need to track this much.

593

:

And I need to look like the

S& P 30 percent of the time

594

:

or 50 percent of the time.

595

:

So you, you need to think through that.

596

:

Yeah.

597

:

And those model portfolios, I think

can be very helpful in providing

598

:

intuition and insight around that.

599

:

As a, as an advisor allocator

600

:

Adam Butler: be helpful to go

through some of the thinking,

601

:

mechanical thinking that went into

the development of those portfolios,

602

:

Rodrigo Gordillo: Adam, why don't you go?

603

:

Good

604

:

Adam Butler: we can go back to,

nothing new under the sun, right?

605

:

We have long embraced the general

framework proposed by guys like Harry

606

:

Brown with his permanent portfolio.

607

:

And Ray, what's his name from bridgewater,

608

:

Mike Philbrick: right?

609

:

Dallio.

610

:

I'm like, you can't mean Dallio.

611

:

Adam Butler: I know, yeah,

612

:

Corey Hoffstein: But I hope you

saw his Instagram post today where

613

:

he looked like he was high on

Molly at a Taylor Swift concert.

614

:

Mike Philbrick: I didn't,

I can't wait to go see.

615

:

Corey Hoffstein: Yeah.

616

:

He was saying Taylor Swift for president.

617

:

He was at the Singapore concert.

618

:

Anyway, moving on.

619

:

Adam Butler: know where I pick

up off that comment, but um,

620

:

Corey Hoffstein: tell me where

that fits in his regime framework.

621

:

Mike Philbrick: Yeah.

622

:

Adam Butler: anyway, so back when

he was focused on investing, I guess

623

:

he espoused or wrote about this

concept of all weather investing.

624

:

And we had a good chat actually with

a couple of Bridgewater alumni, Bob.

625

:

Mike Philbrick: Elliot.

626

:

Adam Butler: And Constand

over the weekend.

627

:

And there's a number of different kinds

of takes on this, and some people have

628

:

called this kind of global risk parity.

629

:

And they, that typically is

built a little bit differently,

630

:

but with the same objectives.

631

:

And the all weather concept is designed to

be a portfolio where you've thought about.

632

:

What each of the sensitivity of each

of the assets that you hold in that

633

:

portfolio to changes in expectations

around inflation and growth, right?

634

:

So you've got some markets either

because they're long duration assets.

635

:

or because they're particularly

mechanically connected to a certain

636

:

dynamic in markets are more likely to

have a very large shift in their price

637

:

in the event of a meaningful shift in

expectations about inflation or growth.

638

:

Others, think about copper or crude

oil or very long term treasury strips.

639

:

And then you've got other assets

that typically you have a more muted

640

:

reaction, but still predictable.

641

:

In a certain direction, right?

642

:

When inflation ticks a little higher

than expected, we expect short term

643

:

rates to rise in anticipation of a

greater probability that the Fed is

644

:

going to intervene and maybe raise

rates at some point in the future.

645

:

That doesn't really have a huge

impact on price because it's such

646

:

a short duration asset, right?

647

:

So we always, we like to think

about diversification from an

648

:

all weather context as being a

combination of diversity and balance.

649

:

Where diversity is holding assets in

the portfolio that will mechanically be

650

:

expected to respond in very different

ways for different reasons to changes

651

:

in growth and inflation expectations,

but also account for the fact that.

652

:

different kinds of markets will

react with different magnitudes

653

:

to those changes, right?

654

:

Two year treasuries are going

to react in very different

655

:

magnitudes than long term strips.

656

:

Both of them likely to react in

somewhat the same direction, but you

657

:

want to make sure that the risk of

each of those assets is held relatively

658

:

in balance in the portfolio, right?

659

:

So that's the idea of risk parity.

660

:

It's diversity, And that's what we try

to do with all weather, but we try to

661

:

take more of a Bridgewater approach

where we analyze the different inflation

662

:

and growth scenarios and the types of

inflation scenarios, and then went back

663

:

and looked at history to determine just,

what direction on average and on average,

664

:

how much the different constituents of the

portfolio reacted in each of those shifts

665

:

Rodrigo Gordillo: think we're calling

it all terrain because we're adding

666

:

the extra level of how does trend

react in those regimes, right?

667

:

Much like when you think about

equities, commodities, bonds, we get a.

668

:

figure or feel for what

they do at different times.

669

:

And, commodities clearly will do well

in a demand pull inflation scenario,

670

:

you're going to have Treasuries

do well when there's a non

671

:

inflationary bear market and equities

do well in growth environment.

672

:

Trend following seems to have a

hybrid in terms of its maximum

673

:

movements tend to hover around

periods where trends are really clear.

674

:

Oftentimes that happens

during bear markets.

675

:

Sometimes it happens during

massive bull markets too, right?

676

:

When there's A right tail and a clear

trend happening in a handful of markets,

677

:

but it also, so it has this hybrid

benefit of doing really well during

678

:

bear markets, but also tends to do

relatively well in inflation regimes.

679

:

So it straddles the the world

of treasuries and commodities.

680

:

It has a unique place in that framework

that ultimately led to allocations

681

:

across our model portfolios.

682

:

Adam Butler: I think in general, the

idea is that you want to expand the idea

683

:

of all weather to the greatest extent

possible by adding as many sleeves

684

:

that are going to behave differently.

685

:

Some sleeves are agnostic

to inflation and growth.

686

:

Other sleeves have very predictable

responses to them, but the idea

687

:

is to just get general diversity.

688

:

You've got a lot of uncorrelated bets in

the portfolio, typically more the merrier.

689

:

Thank you.

690

:

Take care.

691

:

Corey Hoffstein: Adam, how do you think

about, and this was a conversation

692

:

you put out on Twitter over the

weekend and you didn't get many bites.

693

:

And I said, I'm just gonna, I'm

going to respond just to try

694

:

to get some conversation going.

695

:

And then it seemed like a lot of

conversation did get going around

696

:

this, which was great, but I made

the point and I, just for the

697

:

sake of argument, I was saying.

698

:

To back up a sec, you had highlighted

an interview that Bob Elliott had

699

:

done with the gentleman over at

excess returns about how he invests.

700

:

And he took a similar all weather

approach and then added things

701

:

like trend and diversified alpha as

active diversifying components in

702

:

combination with his risk parity.

703

:

And you said, why would you not do this?

704

:

And my rebuttal back

was confidence adjusted.

705

:

I have a stronger view in stocks and

bonds, maintaining a positive risk

706

:

premium over the long run than I

might have in something like trend or

707

:

carry or a systematic macro strategy

that is inherently generating its

708

:

P and L, not from a risk premium.

709

:

Now maybe trend and carry

actually are risk premium.

710

:

That's a totally different point but

I want to get your thoughts is when

711

:

thinking about designing an all terrain

strategy, like how do you think about

712

:

confidence, adjusting risk premiums?

713

:

Your view that trend will

actually respond the way you

714

:

expect it to versus commodities.

715

:

There's almost like a true mechanical

reason why they're going to respond to a

716

:

certain way in the regime, because almost

by definition, the regime is that regime

717

:

because of the prices change, right?

718

:

Like you can't have an inflationary

regime where prices don't change.

719

:

My question is, how do you think about

designing an all terrain strategy

720

:

where maybe you have a lot more

confidence in that Delta component

721

:

of something like commodities, then.

722

:

The, over the next 20 years, are you

confident that trend is going to respond

723

:

in an inflationary regime the same way

it did in the seventies and eighties

724

:

Adam Butler: yeah, I don't think

we're making a strong case that

725

:

you want to own trend to protect

against an inflationary regime only.

726

:

I think the case is that you won't

trend because it provides time

727

:

varying exposure to different.

728

:

Broad asset class categories.

729

:

And, look, we can have a variety of

different explanations for trend.

730

:

One of them might be related

to the fact that typically when

731

:

market expectations change, they

don't change overnight, right?

732

:

It took a long time for the market to come

around to the fact we were going to have

733

:

a sustained inflationary shock after the

first larger than anticipated CPI print.

734

:

We had to have a lot of larger than

expected CPI prints in concert with

735

:

some fundamental narratives around the

war in Ukraine, et cetera, in order

736

:

to allow that narrative to shift.

737

:

And it's that, meandering shift

in, in narrative and investors in a

738

:

staggered way, as different investors

come to believe there's a shift and

739

:

develop confidence in that shift

at different times, There's a shift

740

:

in allocation, and those flows then

drive divergences in prices that trend

741

:

following managers take advantage of.

742

:

One might argue that trend following

is mechanically designed to, especially

743

:

intermediate to long term trend following,

is mechanically designed to profit from

744

:

these kind of diffusion of shifts in

expectations about inflation and growth.

745

:

So where you've got a passive all

weather, not taking a position,

746

:

just Equally anticipating inflation

and growth regimes at all times.

747

:

Trend is a nice little overlay that takes

advantage of changes and expectations

748

:

that go on between those different regimes

and, help to offset the fact that if,

749

:

diversification means always having to

say you're sorry or always having regrets.

750

:

Obviously you can't be in

all four regimes at once.

751

:

So there's always going to be at least

one asset class that are disappointing

752

:

you and other asset classes that you

might have allocated more to that are

753

:

doing better than you'd hoped or expected.

754

:

And that causes regret, right?

755

:

So in, you could imagine a

scenario where adding trend helps

756

:

to alleviate some of that regret.

757

:

Because as investor expectations are

changing, we're reducing exposure

758

:

to the regimes that investors are

abandoning and, experiencing some of that

759

:

appreciation in prices where investors

are reallocating their capital to.

760

:

Um,

761

:

Rodrigo Gordillo: Sovereign bonds

for non inflationary bear markets and

762

:

commodities for inflationary regimes.

763

:

What you find over the years is

that almost every year, two out

764

:

of the three pistons are going up.

765

:

And that's what creates the

stability of returns that you

766

:

see over time and risk parity.

767

:

But there are moments where two

pistons are down and one is up.

768

:

And what will happen is if your

equal risk Across those three,

769

:

you will have risk parity suffer.

770

:

I think the concept of this trend

following component that straddles both

771

:

bear markets and inflation regimes gives

that fourth piston that will give it a

772

:

fighting chance to not lose, or maybe

even make a little bit of money because

773

:

it has that two going up, two going down.

774

:

If we look to 2008, for example,

out of those three pistons, you had

775

:

equities down, commodities down and

treasuries up, that was, that still

776

:

hurt risk parity and equal risk.

777

:

If you add a fourth component

trend, you at least have a

778

:

fighting chance of not losing.

779

:

In 2022 you had commodities up,

and equities and bonds down by

780

:

adding that trend component.

781

:

And we know this empirically, you had

a good chance of at least not losing.

782

:

And so there are examples of this.

783

:

And then sometimes it's all of them

go down together, ? So the COVID in

784

:

the beginning, you saw treasuries go

up, equities and commodities go down.

785

:

But then the liquidity crunch hit where

everything just went down together.

786

:

And the only way you can make, have

even a shot at it is if you're lucky

787

:

enough where trend happened to be short,

the right things to make some money

788

:

during those moments of maximum pain.

789

:

So I think the risk

parity concept is good.

790

:

The fact that you can count on the risk

premium of equities and bonds, great.

791

:

If you can lever enough to add

commodities in there, which, There's

792

:

still the argument whether commodities

have a positive risk premia or not, but

793

:

if you're stacking it on top and the

real return is zero, it's a zero cost

794

:

hedge for inflation, not bad, right?

795

:

And then you add that trend

component, that's the magic.

796

:

And of course, what I always have to think

about is, do we have the same type of

797

:

clarity for other risk premias out there

798

:

Mike Philbrick: I was

just going to say Rodrigo.

799

:

If you like the steak knives and you

like the cutting board and the free

800

:

shipping, have I got a deal for you?

801

:

I'm wondering if Adam can, shed some

light on how Cary compliments risk

802

:

parity and how it covers off sort of

the blind spot that is a very sort of

803

:

Somewhat obvious one in risk parity

and does such a wonderful job for it.

804

:

You might get two sets of knives, a

cutting board and free shipping here

805

:

Corey Hoffstein: have you

ever tried the Cutco scissors?

806

:

Those are really good.

807

:

The knives and the scissors,

808

:

Mike Philbrick: knives and

the scissors, but Adam, can

809

:

Rodrigo Gordillo: you can

810

:

Adam Butler: those of you at

home, try not to cut yourselves.

811

:

Okay.

812

:

Rodrigo Gordillo: Disclosure.

813

:

Adam Butler: You're leaking a

little bit of of Alpha here.

814

:

We're,

815

:

we're

816

:

Mike Philbrick: Well, right, you're right.

817

:

So let's take that offer off the table.

818

:

Adam Butler: I think it's nice

that we can set the table a little

819

:

For for risk parity, right?

820

:

Risk parity assumes that there's

always a positive term premium

821

:

and in bonds, there's always a

positive risk premium and equities.

822

:

There's always a a backward dated

term structure in commodities.

823

:

And the fact is that's

just not always true.

824

:

We just lived through a really

salient example of where that was

825

:

proven to be fallacious, right?

826

:

You've got 20, I think the yield

curve is still pretty darn inverted.

827

:

And it has been since.

828

:

2022.

829

:

There haven't been a lot of

examples of an inverted yield

830

:

curve over the past four years.

831

:

The yield curve spent quite a lot of

time during the 70s inverted, but we

832

:

just haven't had a lot of example.

833

:

Typically bonds do have a

positive term structure, right?

834

:

So you expect higher returns by locking

your money up in bonds further out than

835

:

you expect to get if you have a chance of

getting your money back at par in a few

836

:

months time and you expect a higher return

on equities than you would get on cash.

837

:

But, interesting at the moment.

838

:

You can get about four and a half

percent or pretty close to it on cash

839

:

like instruments and the yield on the

S& P 500 is sub two percent, right?

840

:

Commodities in theory, most of them are

always in a backwardation, which means

841

:

that you're earning a positive carry on

holding a basket of commodity futures.

842

:

But in reality, they're not in, in

backwardation all the time, oftentimes

843

:

for supply demand dynamics or

seasonality dynamics or what have you.

844

:

They flip between

backwardation and contango.

845

:

My point is risk parity assumes that

there's always a positive risk premium

846

:

across all of the assets that you hold,

but in reality, that's not always true.

847

:

And what carry does is it

says, I want diversity.

848

:

And I want balance, but I'm not going

to assume that all of the markets have

849

:

positive excess returns all the time.

850

:

And where the yield curve is inverted, or

the commodity term structure is inverted,

851

:

then I'm actually going to hold more short

term bonds against long term bonds, or

852

:

I'm going to hold some commodities short.

853

:

Or I'm going to hold some markets

with a higher yield, some equity

854

:

markets with a higher yield with

larger weights and hold some equity

855

:

markets with a very low yield short.

856

:

And it turns out that if you apply

kind of risk parity principles, but

857

:

you're always aligned in the direction

of the expected risk premium that

858

:

historically that's just generated a

lot more a lot stronger and a lot more

859

:

comfortable and smooth return trajectory.

860

:

Rodrigo Gordillo: And so the assumption

in risk parity is that there is a

861

:

positive risk premium across the things

that you invest in at all times, right?

862

:

Adam Butler: Always and everywhere.

863

:

Rodrigo Gordillo: Because it is

one of those concepts that is

864

:

about preparation, not prediction.

865

:

You don't know the future.

866

:

Broadly speaking, if you were to

close your eyes, put something to

867

:

work and then wake up 20 years from

now, that should still stay, right?

868

:

Being an

869

:

Corey Hoffstein: I think you

can make an efficient markets

870

:

argument about that too, right?

871

:

Which is broadly speaking for risk assets.

872

:

If they didn't have a positive

expected return, the price is wrong.

873

:

The only case that's not true

is if they offer a tremendous

874

:

diversification benefit, right?

875

:

Adam Butler: Yeah.

876

:

No, that's a really good point.

877

:

That's the theoretical justification

for a global risk parity or

878

:

all weather portfolio, right?

879

:

And most of the time it holds

true empirically as well, right?

880

:

It's not, So common or it's not

an all the time or most of the

881

:

time tech thing and commodities.

882

:

It's a lot of times when commodity term

structure flips around and you would

883

:

vastly prefer to be short than long.

884

:

But when the term structure does

flip, it historically has been really

885

:

profitable to take advantage of that.

886

:

Rodrigo Gordillo: It's in it.

887

:

The difference I think between a

risk parity concept, again, it's

888

:

about set, forget, I just had

to write my in my will, what I

889

:

want my money to do when I die.

890

:

One of the key things was what

can I count on for people not

891

:

to screw up where I don't need

somebody managing it day to day.

892

:

And I want just set it and forget it.

893

:

A risk parity concept for a 20

year portfolio, 100 year portfolio.

894

:

It's good with me.

895

:

But if you have the opportunity to

be more thoughtful about kind of

896

:

the nuance and you think about the

assumptions that risk parity makes,

897

:

they're really long-term assumptions.

898

:

The assumptions that Gary makes is, look,

899

:

there are periods where we can clearly

observe that it's a bad idea to be long.

900

:

These things compared to cash or

whatever the case, is finding.

901

:

A strong carry component in all these

asset classes predictive that it's

902

:

going to continue to provide different

positive returns in the future.

903

:

And we, find many papers have found

that it is, and so it is an active way

904

:

if you, and it's very diversified because

you're using as many assets as you can.

905

:

And you're weighting them in a risk

parity component, but the weighting

906

:

then, or the, you have the ability to

short and the weighting is defined by

907

:

carry and risk rather than expected risk

premia and risk and long only, right?

908

:

So you're removing that short component.

909

:

You're having a slightly separate

assumption and it turns out that.

910

:

It has this characteristic of doing pretty

well most years like risk parity does,

911

:

and then when things really go poorly,

especially if it's adjusted slowly a lot

912

:

of people have this hang up that carry

gets crushed in bear markets, right?

913

:

Because I think a lot of people

relate the word carry to the yen US

914

:

dollar carry, which tends to be true,

915

:

Corey Hoffstein: Or vol carry.

916

:

Rodrigo Gordillo: Or vol carry.

917

:

But when you're doing a diversified

risk parity style carry, what it turns

918

:

out that most of the time, It gets

out of the way, does it at the very

919

:

least doesn't lose too much money.

920

:

And sometimes it actually makes

positive returns during periods

921

:

of prolonged bear markets, right?

922

:

Adam Butler: On average, historically,

Global carry has had positive

923

:

returns during the worst quarters

for it for equities and during the

924

:

worst equity sustained bear markets.

925

:

Rodrigo Gordillo: and mechanically

926

:

Adam Butler: no, there's

just no relationship.

927

:

Rodrigo Gordillo: mechanically

it makes sense, but it's also not

928

:

as good empirically as trend in

protecting those big abrupt gaps

929

:

that you see in equity markets.

930

:

Because

931

:

Adam Butler: trend is structurally

designed to be more responsive during

932

:

those higher volatility tail events.

933

:

Mike Philbrick: going to smile.

934

:

Rodrigo Gordillo: It's just for me, when

I look at the, if you're thinking about

935

:

adding on different stacks or different

alternatives to me, the next best thing

936

:

is carry because it also empirically has

shown very low correlation to trends.

937

:

So what are you looking for here?

938

:

You're looking for low correlation.

939

:

Equity and bonds have low correlation.

940

:

Equity bonds trend at low correlation.

941

:

Equity bonds trends and carry a low

correlation and cross correlation

942

:

with each other, which is fantastic.

943

:

And it's really approachable rather

than trying to find alpha managers

944

:

that can't tell you what they're doing.

945

:

Because this, once the secret's

out, you can't sustain it, right?

946

:

Corey Hoffstein: Rod I, that comment

you made about your will I've also

947

:

thought a lot about in the last year,

given that Parenthood came upon me and

948

:

thinking about, I actually had to put

949

:

together a will and I, it's just something

I'd never done and all that sort of stuff.

950

:

And I was thinking about the scattered

nature of my investments and that my,

951

:

if I died my wife would kill me and a

huge part for me of the return stacked.

952

:

Mission was launching these products

such that I could basically get 99

953

:

percent of the way of my perfect

portfolio in three or five products,

954

:

and combine them and just say to my wife

955

:

Rodrigo Gordillo: Do that.

956

:

Corey Hoffstein: or not even my

wife, to maybe just leave them.

957

:

But if

958

:

Mike Philbrick: If I'm

dead, don't kill me.

959

:

Corey Hoffstein: Yeah, exactly.

960

:

Rodrigo Gordillo: best compliment

that I've gotten, because

961

:

I was in a Spanish podcast.

962

:

The other week, and I mentioned

that I was going on a trip and

963

:

my wife wanted me to fill in.

964

:

All the things, including the portfolio.

965

:

And I told him what I decided to do.

966

:

And he was inspired by that and came

back to me and said, just so you know,

967

:

what you've created, what you've pushed

out, that's a hundred percent of what

968

:

my wife is going to do when we die.

969

:

I've made it explicit now.

970

:

And I think it speaks to the ability

to get access to that easily.

971

:

And with enough education

that it makes sense, right?

972

:

Corey Hoffstein: by the way, Mike,

I know you're laughing at the fact

973

:

that I said my wife would kill me

if I died, but you've met my wife.

974

:

She would find a way to bring

975

:

Mike Philbrick: That's

what makes it so funny.

976

:

Corey Hoffstein: kill me.

977

:

Rodrigo Gordillo: To re kill you.

978

:

And by the way, Corey,

979

:

Mike Philbrick: She You

might kill some of us.

980

:

You might come after some

of your friends just to,

981

:

Rodrigo Gordillo: just so you

982

:

Corey Hoffstein: Oh, thank you.

983

:

I appreciate that offer.

984

:

Rodrigo Gordillo: Ah,

985

:

Mike Philbrick: wife.

986

:

You can have the kid.

987

:

I'll take care of Lord.

988

:

It's fine.

989

:

I'm a giver.

990

:

Adam Butler: I just want to go on the

record as saying that want my lifetime

991

:

stack to just be trend and carry.

992

:

And the fucking stocks

and bonds can get stuffed.

993

:

Rodrigo Gordillo: That

overconfidence coming out, Mr.

994

:

Butler, every time,

995

:

Mike Philbrick: What do you mean?

996

:

Adam Butler: that stocks and bonds

are massively over owned that they, if

997

:

anything's got over confidence, it's

The confidence in equities and bonds and

998

:

that, there's just very little attention

being paid to these these alternatives.

999

:

Corey Hoffstein: I think the

difference, Adam, is I'm talking

:

00:54:29,445 --> 00:54:31,675

about multi generational wealth here.

:

00:54:31,675 --> 00:54:34,885

I'm talking about

hundreds of years, right?

:

00:54:35,445 --> 00:54:37,875

That's, and hence I want

long term equity exposure.

:

00:54:38,005 --> 00:54:39,495

Rodrigo Gordillo: your lineage requires

:

00:54:39,785 --> 00:54:40,115

Corey Hoffstein: right.

:

00:54:40,395 --> 00:54:41,345

I got to think about.

:

00:54:41,735 --> 00:54:42,515

Rodrigo Gordillo: simplicity.

:

00:54:43,695 --> 00:54:48,115

So one of the things I want to Talk

about as a glide path, reimagined pieces,

:

00:54:48,155 --> 00:54:51,775

Corey, and I don't know if you want to

get into that a, little bit, cause I

:

00:54:51,795 --> 00:54:55,385

thought, I've been dying to write about

that for years and never got around to it.

:

00:54:55,415 --> 00:54:56,575

And I'm glad you finally did.

:

00:54:57,015 --> 00:55:01,145

Do you want to walk us through

that maybe part one or part two or

:

00:55:01,195 --> 00:55:04,945

Corey Hoffstein: So Steven Braun on my

team wrote these, they're a rebuild of

:

00:55:04,945 --> 00:55:07,825

rticles we wrote, I think, in:

:

00:55:08,125 --> 00:55:15,095

And the idea here was to say glide

paths are a wonderful invention for most

:

00:55:15,095 --> 00:55:19,115

people who are not gonna think deeply

about investments, but the reality is.

:

00:55:19,710 --> 00:55:23,050

Not every 50 year old is in

the same financial situation.

:

00:55:23,270 --> 00:55:28,820

So is there a way in which we can try

to generalize the problem a little

:

00:55:28,820 --> 00:55:38,320

bit more and try to find what would be

the optimal portfolio for someone of a

:

00:55:38,320 --> 00:55:41,590

certain age and of a certain wealth level?

:

00:55:41,910 --> 00:55:47,370

Now, optimal here can take so

many different uh, definitions.

:

00:55:47,370 --> 00:55:51,970

We just defined optimal as being

maximizing the probability of having, of

:

00:55:51,970 --> 00:55:53,690

not running out of money before you die.

:

00:55:54,840 --> 00:55:58,570

And then we said, instead of saying how

old someone was, we were just going to

:

00:55:58,610 --> 00:56:01,220

try to measure years from death, right?

:

00:56:01,220 --> 00:56:04,670

Because you could be a very healthy

90 year old and have a higher

:

00:56:04,670 --> 00:56:08,560

life living expectation than a

very unhealthy 60 year old, right?

:

00:56:08,560 --> 00:56:11,910

So we really wanted to generalize

the framework as much as possible.

:

00:56:11,930 --> 00:56:14,950

But the idea was if you died.

:

00:56:15,285 --> 00:56:17,895

With a penny to your name

that was considered success.

:

00:56:17,895 --> 00:56:21,835

There was no benefit

for excess bequeathment.

:

00:56:22,435 --> 00:56:26,715

And then starting with that assumption,

we walked backwards and took a step

:

00:56:26,715 --> 00:56:29,665

backwards and said, every year you're

going to spend one wealth unit.

:

00:56:30,315 --> 00:56:34,115

And we're going to have to figure out

what, for given how many wealth units

:

00:56:34,115 --> 00:56:38,095

you have, what portfolio should you

invest in such that you then don't

:

00:56:38,095 --> 00:56:39,605

run out of money over that next step.

:

00:56:39,975 --> 00:56:41,945

And you keep walking

that process backwards.

:

00:56:41,975 --> 00:56:47,375

And this really interesting sort of

zone region emerges in this grid.

:

00:56:48,095 --> 00:56:51,015

And if you look at it, there's

really three primary zones.

:

00:56:51,015 --> 00:56:55,905

One is this top right triangle that

says you have enough money that

:

00:56:56,195 --> 00:56:57,315

You're just not going to run out.

:

00:56:57,495 --> 00:56:58,355

Just don't mess up.

:

00:56:58,855 --> 00:57:00,155

you could invest in cash.

:

00:57:00,155 --> 00:57:02,265

You could invest in a

diversified portfolio.

:

00:57:02,605 --> 00:57:05,625

As long as you're not spending all

your money on lottery tickets every

:

00:57:05,625 --> 00:57:10,115

year, like you have so much more money

than you're planning on spending.

:

00:57:10,645 --> 00:57:12,015

It's a do anything zone.

:

00:57:12,055 --> 00:57:13,895

And we said, we're just

going to put that in the most

:

00:57:13,895 --> 00:57:15,545

conservative portfolio possible.

:

00:57:15,545 --> 00:57:19,255

That's all in short term T bills, but

really there's a lot of flexibility

:

00:57:19,255 --> 00:57:20,135

to what people could do there.

:

00:57:20,825 --> 00:57:24,355

You then get into the second zone that

says, All right, this is, And this

:

00:57:24,355 --> 00:57:28,115

is where there's more of a gradient

that says, okay, how, you don't

:

00:57:28,115 --> 00:57:29,765

have enough to do whatever you want.

:

00:57:30,385 --> 00:57:33,965

You need some growth, but you

can't necessarily go all growth

:

00:57:33,995 --> 00:57:37,265

because then you take too much

risk, too much drawdown risk.

:

00:57:37,435 --> 00:57:40,925

And if you get too big a drawdown,

then those, that amount you plan on

:

00:57:40,925 --> 00:57:43,885

spending in retirement represents

too large a portion, and then you

:

00:57:43,885 --> 00:57:45,945

can outspend whatever you have left.

:

00:57:46,375 --> 00:57:50,885

And so you find these portfolios of

varying diversification between stocks,

:

00:57:50,885 --> 00:57:56,055

bonds, cash, And trend following the

final zone was at the very bottom, which

:

00:57:56,055 --> 00:57:57,805

said, you do not have enough money.

:

00:57:58,165 --> 00:58:00,135

You are gonna run out of money guaranteed.

:

00:58:00,235 --> 00:58:01,695

You better swing for the fences.

:

00:58:01,765 --> 00:58:03,425

And that's where you saw risk dialed up.

:

00:58:04,225 --> 00:58:07,025

And so the first article did

this without any stacking.

:

00:58:07,845 --> 00:58:09,155

And what you saw was.

:

00:58:09,615 --> 00:58:12,385

At the very bottom, you were

all in equities because you had

:

00:58:12,385 --> 00:58:14,035

to really crank up the risk.

:

00:58:14,795 --> 00:58:17,185

And that top right triangle, you

were all cashing in the middle.

:

00:58:17,185 --> 00:58:21,005

It was a mix between stocks, bonds,

and managed futures trend following,

:

00:58:21,025 --> 00:58:23,815

depending upon how safe you were.

:

00:58:23,915 --> 00:58:26,195

The safer you were, it

was more bonds and cash.

:

00:58:26,915 --> 00:58:30,245

Towards the bottom, the more

growth you needed, it was a mix

:

00:58:30,245 --> 00:58:31,725

between stocks and managed futures.

:

00:58:32,345 --> 00:58:37,325

What was interesting is when we

got to adding And that was the

:

00:58:37,325 --> 00:58:41,025

second article and said what if we

allow this to go up to a stack of

:

00:58:41,605 --> 00:58:44,645

200%, what would you end up doing?

:

00:58:45,165 --> 00:58:49,895

And what was interesting is the Opto

optimizer almost never recommended a

:

00:58:49,895 --> 00:58:53,915

stack of 200%, except in that case where

you were guaranteed to run out of money.

:

00:58:54,005 --> 00:58:55,515

And that's just pure lottery ticket.

:

00:58:55,995 --> 00:59:00,025

But in those diversified portfolios,

it was mostly recommending

:

00:59:00,025 --> 00:59:02,130

a stack between 10 of 20%.

:

00:59:02,620 --> 00:59:06,070

And it was a very diversified portfolio

of stocks, bonds, and trend following.

:

00:59:06,790 --> 00:59:10,710

And it increased the likelihood

of success compared to not

:

00:59:10,820 --> 00:59:13,990

stacking by I think 30 or 40%.

:

00:59:14,765 --> 00:59:16,325

Rodrigo Gordillo: As

:

00:59:16,430 --> 00:59:20,360

Corey Hoffstein: this, what you saw

emerge effectively was through the use

:

00:59:20,360 --> 00:59:26,840

of stacking, aka leverage, you were

able to benefit from diversification.

:

00:59:27,410 --> 00:59:30,860

And have a greater certainty

that you were going to meet your

:

00:59:30,860 --> 00:59:32,140

desired outcomes in retirement.

:

00:59:32,320 --> 00:59:35,630

Now, again, all caveated around,

this is all simulation based.

:

00:59:35,630 --> 00:59:39,580

We have one very simple definition

of success, but I think the framework

:

00:59:39,580 --> 00:59:43,470

holds intuitively that again,

more diversification is typically

:

00:59:43,470 --> 00:59:46,140

better when it comes to having

greater certainty in your outcomes.

:

00:59:46,285 --> 00:59:50,115

Rodrigo Gordillo: as you can extract

those rents from the asset classes

:

00:59:50,125 --> 00:59:53,345

that you would otherwise need to go

100 percent on to get lucky, right?

:

00:59:53,345 --> 00:59:56,895

Especially if you're getting into that

space where you don't have enough.

:

00:59:57,330 --> 00:59:59,000

You have to go a hundred percent equity.

:

00:59:59,410 --> 00:59:59,540

Okay.

:

00:59:59,540 --> 01:00:02,300

What if you can go a hundred

percent equity and 50 percent

:

01:00:02,300 --> 01:00:03,600

something else, right?

:

01:00:03,630 --> 01:00:03,810

That's,

:

01:00:04,160 --> 01:00:05,740

Corey Hoffstein: Well, Tell you

what, here's really fascinating.

:

01:00:05,750 --> 01:00:07,700

You're talking about that a hundred

percent equity plus something else.

:

01:00:08,215 --> 01:00:12,125

When you talk about stacking and

the lottery tickets, you ended

:

01:00:12,125 --> 01:00:14,295

up not having as much equity.

:

01:00:14,525 --> 01:00:16,655

That part, Shen, where it's

you really need to outgrow.

:

01:00:17,195 --> 01:00:19,605

You ended up doing a

ton of trend following.

:

01:00:20,675 --> 01:00:25,015

Because trend following has historically

had much more asymmetry in the returns.

:

01:00:25,505 --> 01:00:30,065

It had years where upside was similar

to equity, but it never had downside

:

01:00:30,075 --> 01:00:31,535

years that were similar to equity.

:

01:00:31,925 --> 01:00:35,635

And so it was able to apply more

leverage to trend following to try to

:

01:00:35,635 --> 01:00:40,215

get that asymmetric positive payoff

versus loading all up on equities

:

01:00:40,215 --> 01:00:42,695

and risking running into a:

:

01:00:43,585 --> 01:00:44,025

Adam Butler: I hear you.

:

01:00:44,055 --> 01:00:45,015

No need for equities.

:

01:00:45,505 --> 01:00:45,945

Loud and clear.

:

01:00:45,945 --> 01:00:45,975

Yep.

:

01:00:45,975 --> 01:00:46,155

Yep.

:

01:00:46,155 --> 01:00:46,335

Yep.

:

01:00:46,975 --> 01:00:48,785

Corey Hoffstein: Well, That,

and that is the takeaway.

:

01:00:48,890 --> 01:00:49,640

Rodrigo Gordillo: takeaway.

:

01:00:49,640 --> 01:00:50,110

Yeah.

:

01:00:50,610 --> 01:00:54,730

This is not investment

advice from Adam Butler.

:

01:00:55,280 --> 01:00:56,290

Yeah, I think that's.

:

01:00:57,745 --> 01:01:01,425

What's interesting about all this

is I was speaking to a planner

:

01:01:01,425 --> 01:01:05,325

today that had started going down

the rabbit hole in the content.

:

01:01:05,325 --> 01:01:07,435

And he's I cannot believe

I've never heard of this.

:

01:01:07,895 --> 01:01:13,045

I don't understand it

seems Like it's magic.

:

01:01:13,165 --> 01:01:17,345

And what I told him is that you

weren't talking about it cause

:

01:01:17,345 --> 01:01:18,195

it wasn't available to you.

:

01:01:18,195 --> 01:01:18,995

You couldn't do it.

:

01:01:19,305 --> 01:01:20,645

So what's the point, right?

:

01:01:20,645 --> 01:01:22,305

It's like doctors, I was listening to Dr.

:

01:01:22,305 --> 01:01:27,265

Peter Attia and it was talking about how,

when they would decide to do certain tests

:

01:01:27,265 --> 01:01:30,925

or not, and there are certain tests that

they simply will not do, even though it'll

:

01:01:30,955 --> 01:01:34,075

tell you that something bad will happen to

you because there's nothing they can do.

:

01:01:34,275 --> 01:01:38,205

So the ethical thing to do is to

not run the test because it makes,

:

01:01:38,245 --> 01:01:39,875

there's nothing, no intervention.

:

01:01:40,290 --> 01:01:41,640

That will make their life better.

:

01:01:42,070 --> 01:01:43,000

And that's what I told him.

:

01:01:43,000 --> 01:01:46,470

Like I, there was no intervention that

would make your life as a financial

:

01:01:46,470 --> 01:01:48,780

planner better until recently.

:

01:01:48,820 --> 01:01:50,910

And so what does that mean?

:

01:01:50,940 --> 01:01:54,610

It means that we're just

waking up to all of this.

:

01:01:54,850 --> 01:01:57,860

Again, going back to Peter Attia, what he

talked about is that the, what's happening

:

01:01:57,860 --> 01:02:03,740

is that even though guidelines have

changed for a lot of things, It's only

:

01:02:03,740 --> 01:02:08,560

the younger doctors that are up to speed

and reading and motivated to do better

:

01:02:08,560 --> 01:02:12,480

for their clients than the older doctors

that are set in their ways, are not

:

01:02:12,480 --> 01:02:15,320

going to those conferences and learning

about it and changing their practice.

:

01:02:15,330 --> 01:02:16,420

That's going to be really hard.

:

01:02:16,920 --> 01:02:20,840

That it's going to be the next

generation that is going to have the

:

01:02:20,880 --> 01:02:26,000

motivation tools and access to be able

to apply these new technologies, right?

:

01:02:26,020 --> 01:02:31,460

So I feel like There's an opportunity for

everybody here in this space to do better.

:

01:02:32,130 --> 01:02:38,100

Understand how glide path re imagined

works, understand how you can actually

:

01:02:38,140 --> 01:02:42,230

have your cake and eat it too, and

provide that absolute or attempt

:

01:02:42,230 --> 01:02:45,190

to provide that absolute return

without, and adding diversification

:

01:02:45,190 --> 01:02:47,830

without sacrificing your core stocks

and bonds and all that fun stuff.

:

01:02:47,830 --> 01:02:52,510

But it's going to take a lot of

years and Herculean effort for us

:

01:02:52,510 --> 01:02:55,460

to continue to educate and everybody

else to continue around us that

:

01:02:55,460 --> 01:02:57,040

is talking about these concepts.

:

01:02:57,090 --> 01:02:57,470

Adam Butler: Mike,

:

01:02:58,320 --> 01:03:03,940

do you remember growing up and traveling

and you had these big suitcases?

:

01:03:04,280 --> 01:03:06,980

And you had to carry them

around, like with a handle,

:

01:03:07,365 --> 01:03:08,635

Mike Philbrick: Yeah, there was no wheels.

:

01:03:09,270 --> 01:03:13,270

Adam Butler: Did you know that wheels

itcases didn't come out until:

:

01:03:13,765 --> 01:03:14,235

Mike Philbrick: Yeah.

:

01:03:14,375 --> 01:03:14,985

Oh yeah, I've heard that

:

01:03:15,310 --> 01:03:18,970

Adam Butler: Like I remember

traveling as a child and carrying

:

01:03:19,120 --> 01:03:20,700

the bags around.

:

01:03:21,100 --> 01:03:22,490

Before that time, there were,

:

01:03:22,730 --> 01:03:23,030

Corey Hoffstein: again?

:

01:03:24,095 --> 01:03:25,215

Mike Philbrick: That's how long it took.

:

01:03:25,740 --> 01:03:26,300

Adam Butler: exactly.

:

01:03:26,500 --> 01:03:27,430

This is what I mean.

:

01:03:27,490 --> 01:03:31,020

Yeah, I talked to everybody and

they hear about this and they're

:

01:03:31,020 --> 01:03:34,920

like, No, this can't be like that.

:

01:03:34,920 --> 01:03:36,240

We're I'm just hearing about this now.

:

01:03:36,590 --> 01:03:39,890

It can't be that you guys that this is

the first time anybody's ever done this.

:

01:03:40,580 --> 01:03:43,280

I'm like, wheels on

suitcases,:

:

01:03:43,640 --> 01:03:48,520

But it just, for some reason, it

takes a long time for us humans

:

01:03:48,580 --> 01:03:53,550

to figure out why we can't, what

these dead obvious solutions are.

:

01:03:53,550 --> 01:03:56,860

But of course, now you wouldn't be

caught dead unless you had a backpack.

:

01:03:56,860 --> 01:03:58,360

You wouldn't be caught dead

traveling without a backpack.

:

01:03:58,800 --> 01:03:59,990

Wheels on your luggage.

:

01:04:00,430 --> 01:04:04,790

Honestly, I don't know why any

portfolio wouldn't have a good slug

:

01:04:04,790 --> 01:04:09,860

of these return stack strategies,

because it literally is having your

:

01:04:10,130 --> 01:04:12,520

diversification and giving up nothing.

:

01:04:12,970 --> 01:04:15,260

Rodrigo Gordillo: But a lot

of it has to do structural,

:

01:04:15,350 --> 01:04:16,665

for structural reasons right?

:

01:04:16,695 --> 01:04:20,535

Like it's the machine that

feeds the advisors that are the

:

01:04:20,555 --> 01:04:22,085

gatekeepers to doing all of this.

:

01:04:22,085 --> 01:04:26,165

And I'm going to go back to medicine

because I also want to do a public

:

01:04:26,165 --> 01:04:29,755

service announcements for those, anybody

who was listening, something that I've

:

01:04:29,755 --> 01:04:33,260

gone down the rabbit hole recently

on, and it's, all the cardiovascular

:

01:04:33,260 --> 01:04:38,630

risk that we hear about has revolved

around the bad cholesterol, right?

:

01:04:39,050 --> 01:04:45,279

The LDL C And that level is high you

got to measure it But 20 years ago

:

01:04:45,360 --> 01:04:49,750

we discovered science discovered that

in fact, there's this one particular

:

01:04:49,750 --> 01:04:55,620

reading the LPL LP little a particle

that is the most correlated to

:

01:04:55,620 --> 01:04:57,820

heart disease of any of the metrics.

:

01:04:58,680 --> 01:05:04,110

It has taken 20 years for that

to filter up to the boards that

:

01:05:04,110 --> 01:05:06,140

make decisions whether they're

going to change the guidelines.

:

01:05:07,150 --> 01:05:10,550

As far as from, this is just from a

podcast, I don't know for sure, but as

:

01:05:10,550 --> 01:05:14,040

far as I can tell, Canada is the only

one that's implemented this and actually

:

01:05:14,060 --> 01:05:16,820

put it in their guidelines that we

need to start looking for LP little a.

:

01:05:17,850 --> 01:05:21,290

Even though the lead lipidologist

know about this, right?

:

01:05:21,950 --> 01:05:23,230

We still have to get through the U.

:

01:05:23,230 --> 01:05:23,460

S.

:

01:05:23,460 --> 01:05:24,420

We got to do the UK.

:

01:05:24,420 --> 01:05:24,970

We had it all.

:

01:05:24,970 --> 01:05:27,200

Every country is going to take

their sweet time to do this.

:

01:05:27,210 --> 01:05:28,029

20 years ago.

:

01:05:28,040 --> 01:05:30,610

We know this to be true from all this.

:

01:05:30,640 --> 01:05:33,210

Everybody, every lipidologist you

talk to, they know they're going to

:

01:05:33,220 --> 01:05:37,560

do that, but the average MD does not

know and is not required to know it.

:

01:05:38,130 --> 01:05:41,400

So it's not just the

individuals at the top.

:

01:05:41,450 --> 01:05:43,029

It's the machine that says.

:

01:05:43,520 --> 01:05:44,440

Leverage is bad.

:

01:05:44,570 --> 01:05:47,300

There's no way we're going

to allow you to do that.

:

01:05:47,440 --> 01:05:51,570

Even though we know from the Nobel

prize winning concept of the efficient

:

01:05:51,570 --> 01:05:54,040

frontier and the capital market line

that we've, and we've always, we've

:

01:05:54,040 --> 01:05:58,540

known this since the fifties, that

it is a sound approach to investing.

:

01:05:58,720 --> 01:06:02,940

So by the way, if you haven't

had your LP little A tested.

:

01:06:03,225 --> 01:06:04,765

Get your LP little a tested.

:

01:06:05,245 --> 01:06:07,635

You need to take aggressive

measures in order to fix it.

:

01:06:07,635 --> 01:06:07,845

If

:

01:06:07,925 --> 01:06:10,115

Adam Butler: I think Rodrigo may

have left some of you feeling

:

01:06:10,165 --> 01:06:14,165

like he just listened to a podcast

and now he's an expert in lipids.

:

01:06:14,955 --> 01:06:17,795

This is it's like years

of investigating this.

:

01:06:17,915 --> 01:06:20,375

So you just you said, I don't know.

:

01:06:20,375 --> 01:06:22,325

I just listened to a podcast, but

this is what I understand now.

:

01:06:22,404 --> 01:06:22,845

So I

:

01:06:22,995 --> 01:06:24,885

Rodrigo Gordillo: podcast that I meant

is I didn't know how many countries

:

01:06:24,935 --> 01:06:28,505

had applied it in their mandates

yet, but yes, as Adam alludes to,

:

01:06:28,505 --> 01:06:31,135

I've been, this is my second passion.

:

01:06:31,285 --> 01:06:33,625

So anyway, that's the one thing.

:

01:06:34,035 --> 01:06:36,065

Corey Hoffstein: Lipids are

a very common second passion.

:

01:06:36,255 --> 01:06:37,295

Mike Philbrick: Yeah, lipidology.

:

01:06:37,350 --> 01:06:41,040

Rodrigo Gordillo: And if you do have a

high LP little a get your will straight.

:

01:06:41,450 --> 01:06:41,910

Just kidding.

:

01:06:42,160 --> 01:06:44,340

You can do lots about it

You can do lots about it.

:

01:06:44,630 --> 01:06:48,300

There's drugs coming down the pike,

but it is a good analogy like this

:

01:06:48,300 --> 01:06:53,130

is how long it takes so the good news

is that if You are willing and able

:

01:06:53,190 --> 01:06:55,279

to adapt it to adapt to it right now.

:

01:06:55,279 --> 01:06:59,080

You have all the tools available

to fix it so if you're and also if

:

01:06:59,080 --> 01:07:01,700

you're an advisor, there's a lot of

alpha there I just keep telling people

:

01:07:01,820 --> 01:07:05,090

when I started in this business I

was a private wealth advisor back

:

01:07:05,100 --> 01:07:06,840

in when I was in my mid twenties.

:

01:07:07,970 --> 01:07:11,060

I grew like gangbusters because

I was telling this story

:

01:07:11,529 --> 01:07:13,130

and nobody else was, right?

:

01:07:13,130 --> 01:07:17,440

So it's just, if you can capture

this magic in a bottle and talk about

:

01:07:17,440 --> 01:07:20,510

this concept, you'll be the only one

talking about this concept right now.

:

01:07:20,900 --> 01:07:24,990

And I, my personal experience was

that everybody was like, no way.

:

01:07:25,029 --> 01:07:25,740

I gotta learn more.

:

01:07:26,410 --> 01:07:30,140

And it was just easy to take

meetings, easy to get people on board.

:

01:07:30,160 --> 01:07:32,470

Cause once you take that red

pill, it's tough to go back.

:

01:07:32,470 --> 01:07:34,320

But they're not hearing from anybody else.

:

01:07:34,330 --> 01:07:39,300

It's a, something that is not only

useful for the individuals that

:

01:07:39,300 --> 01:07:43,120

are going to receive the medicine,

but also the practitioners of it in

:

01:07:43,120 --> 01:07:44,900

terms of their own business revenues.

:

01:07:45,510 --> 01:07:45,930

Adam Butler: You know what?

:

01:07:45,940 --> 01:07:46,960

It's just so easy.

:

01:07:47,080 --> 01:07:47,960

You know what I love?

:

01:07:48,560 --> 01:07:49,540

I love French fries.

:

01:07:49,540 --> 01:07:50,350

You know what I like more?

:

01:07:51,040 --> 01:07:51,880

French fries with ketchup.

:

01:07:52,440 --> 01:07:53,230

You know what I love?

:

01:07:54,000 --> 01:07:56,000

I love apple pie.

:

01:07:56,460 --> 01:07:57,350

You know what I like more?

:

01:07:57,700 --> 01:07:58,660

Apple pie and ice cream.

:

01:07:59,220 --> 01:08:00,120

You know what I love?

:

01:08:00,360 --> 01:08:02,270

Corey Hoffstein: I'm glad you didn't

say apple pie and American cheese.

:

01:08:02,450 --> 01:08:03,080

Rodrigo Gordillo: It's a thing.

:

01:08:03,105 --> 01:08:03,705

Adam Butler: you know what I love?

:

01:08:03,995 --> 01:08:05,565

Mike Philbrick: I love

that thing, by the way.

:

01:08:05,565 --> 01:08:06,205

I was hoping

:

01:08:06,235 --> 01:08:07,395

Adam Butler: You know what I love more?

:

01:08:07,515 --> 01:08:08,805

Equities and trend following.

:

01:08:08,904 --> 01:08:10,965

It's just so dead easy.

:

01:08:10,965 --> 01:08:14,705

It literally is like apple pie

and ice cream or french fries and

:

01:08:14,705 --> 01:08:17,675

ketchup or, name 50 other things

that are way better together.

:

01:08:17,710 --> 01:08:18,120

Corey Hoffstein: And there's your

:

01:08:18,270 --> 01:08:19,680

Mike Philbrick: So many things.

:

01:08:19,805 --> 01:08:21,615

Rodrigo Gordillo: That's going

to be a great YouTube short.

:

01:08:21,615 --> 01:08:24,904

It's going to, it's going to, what's

bad, it's sad guys at that one,

:

01:08:25,189 --> 01:08:27,620

Adam Butler: I'll be adding another

video of all the other things that are

:

01:08:27,620 --> 01:08:29,660

better together as an appendix to this.

:

01:08:29,859 --> 01:08:33,200

Rodrigo Gordillo: We're going to put

this on the the AI machine to pick

:

01:08:33,210 --> 01:08:37,910

which clips are going to go viral

and you're going to be number one.

:

01:08:38,559 --> 01:08:42,440

And out of all the discussions we've

had today, that one is just going to go.

:

01:08:42,529 --> 01:08:48,130

I can guarantee you, just to wrap it

up in terms of the business benefits

:

01:08:48,130 --> 01:08:51,870

of this to an advisor, I did, we

did write a piece called the key.

:

01:08:51,890 --> 01:08:55,290

No, that's if you're a financial

advisor, you got lucky or the key, but

:

01:08:55,300 --> 01:08:56,410

there's a few of them that we've done.

:

01:08:56,410 --> 01:09:01,210

If you go to the website and you go to

practice management, there's a few key

:

01:09:01,210 --> 01:09:04,290

pieces that'll allow you to think through.

:

01:09:04,910 --> 01:09:08,149

What it is to run a business, right?

:

01:09:08,149 --> 01:09:12,149

And what is the key risk

metrics for that business?

:

01:09:12,770 --> 01:09:16,080

, I've been telling a lot of advisors

that whether you see it or not.

:

01:09:16,450 --> 01:09:22,490

The last 10 years of your growth

has been mainly luck, right?

:

01:09:22,770 --> 01:09:26,330

Not to take away from the hard work and

effort it takes to bring in new clients

:

01:09:26,330 --> 01:09:30,600

and do the right thing, but a large

component of your profit has come from the

:

01:09:30,600 --> 01:09:36,399

fact that you've been overweight, the home

country bias market, bonds and equities

:

01:09:36,590 --> 01:09:40,940

in one of the largest and best performing

60, 40 sharp ratios of your career, right?

:

01:09:40,940 --> 01:09:43,609

Now you just you have to

recognize that's happened.

:

01:09:44,380 --> 01:09:46,210

You got hit in:

:

01:09:46,925 --> 01:09:48,484

And you're like, Oh my God, I got lucky.

:

01:09:48,484 --> 01:09:49,104

I didn't even know it.

:

01:09:49,104 --> 01:09:50,484

I should have taken some

money off the table.

:

01:09:50,675 --> 01:09:51,465

What do I do now?

:

01:09:51,944 --> 01:09:53,495

Luckily, you're right

back up there, right?

:

01:09:53,495 --> 01:09:55,825

It's amazing how, what

the recovery has been.

:

01:09:55,825 --> 01:09:56,355

It's been great.

:

01:09:56,355 --> 01:09:56,375

You

:

01:09:57,025 --> 01:09:58,505

Adam Butler: Damn, it

should have doubled down.

:

01:09:58,895 --> 01:09:59,665

Rodrigo Gordillo: should

have doubled down.

:

01:09:59,675 --> 01:10:02,505

But, But the thing about these

articles that we wrote under the

:

01:10:02,505 --> 01:10:03,835

practice management section is.

:

01:10:04,160 --> 01:10:06,780

To address the fact that if you want

to be, if you're a business owner,

:

01:10:06,830 --> 01:10:12,400

that has raw materials as part of your

inputs to provide a good product, you

:

01:10:12,400 --> 01:10:15,470

want to minimize the amount of risks

that you take on that raw material.

:

01:10:15,790 --> 01:10:18,440

And the only business that I

know that doesn't do that is

:

01:10:18,440 --> 01:10:19,800

the financial services industry.

:

01:10:20,470 --> 01:10:24,400

If you're a good manager, you're a

good advisor, you have good people

:

01:10:24,400 --> 01:10:27,670

skills, you're good at bringing in

new clients, your employees love you,

:

01:10:27,670 --> 01:10:32,470

you keep your costs down, you have a

good margin, you should win the game

:

01:10:32,480 --> 01:10:36,880

based on those metrics and not on

what did the S& P 500 do yesterday.

:

01:10:37,640 --> 01:10:41,850

And if you do an assessment of risks

in your portfolio, that should be

:

01:10:41,860 --> 01:10:44,700

minimized as much as possible, right?

:

01:10:44,740 --> 01:10:49,080

That if there is a bear market,

when it hurts, To get hurt, right?

:

01:10:49,490 --> 01:10:52,340

When it is a bear market, when

your clients are losing money.

:

01:10:52,635 --> 01:10:57,055

You're losing money and your own portfolio

is losing money at the same time.

:

01:10:57,095 --> 01:10:57,934

Everything that matters.

:

01:10:57,934 --> 01:11:01,705

And that is not a well balanced

business that is going to help

:

01:11:01,705 --> 01:11:03,745

you thrive across any scenario.

:

01:11:03,775 --> 01:11:07,445

You're riding the train and it's

going to stop at some point.

:

01:11:07,445 --> 01:11:13,465

So I think, this area of the website

focuses on how do you make sure

:

01:11:13,465 --> 01:11:16,595

that your success comes from all the

things that I talked about before.

:

01:11:16,955 --> 01:11:18,925

And not just a single market, right?

:

01:11:18,925 --> 01:11:22,885

So please do, if you're a practitioner,

take a look at those, see what you think.

:

01:11:23,665 --> 01:11:25,445

And let's chat about it.

:

01:11:26,065 --> 01:11:29,585

Look, we'd love to, to get more feedback

on the pieces that we're writing.

:

01:11:29,585 --> 01:11:33,765

And you might even bring somebody

on that has done it there's a couple

:

01:11:33,765 --> 01:11:36,275

of people that come to mind that can

talk about the same things that we

:

01:11:36,275 --> 01:11:38,525

just discussed here and what it's

meant to their business right?.

:

01:11:39,485 --> 01:11:39,845

Okay.

:

01:11:39,845 --> 01:11:40,135

So I think

:

01:11:40,135 --> 01:11:40,905

Adam Butler: Peanut and jelly.

:

01:11:41,885 --> 01:11:42,295

Rodrigo Gordillo: that?

:

01:11:43,345 --> 01:11:45,005

Corey Hoffstein: Peanut butter and jelly.

:

01:11:46,805 --> 01:11:47,125

Mike Philbrick: stacked.

:

01:11:47,805 --> 01:11:50,135

Working out and steroids.

:

01:11:50,175 --> 01:11:54,355

Rodrigo Gordillo: Butler blanked out

for the last five minutes and just came

:

01:11:54,355 --> 01:11:55,265

up with, I've been thinking about it.

:

01:11:55,755 --> 01:11:56,434

He's got a pen.

:

01:11:56,445 --> 01:11:58,095

He's writing down five

different analogies.

:

01:11:59,125 --> 01:12:00,135

Mike Philbrick: Oh my goodness.

:

01:12:00,915 --> 01:12:01,235

Rodrigo Gordillo: Okay.

:

01:12:01,235 --> 01:12:03,595

I think we covered a lot of

topics for this first episode.

:

01:12:03,655 --> 01:12:05,565

Gents, thank you so much.

:

01:12:05,655 --> 01:12:09,805

If anybody wants to reach us, all the

information will be on the description

:

01:12:09,835 --> 01:12:12,905

of this video or the podcast summaries.

:

01:12:13,255 --> 01:12:15,895

You can always go find more

information on returnstack.

:

01:12:15,925 --> 01:12:16,315

com.

:

01:12:16,765 --> 01:12:18,275

Anything else that I missed guys?

:

01:12:18,515 --> 01:12:19,045

Any?

:

01:12:20,285 --> 01:12:20,684

No?

:

01:12:20,985 --> 01:12:21,575

Everybody knows

:

01:12:21,675 --> 01:12:24,895

Adam Butler: No, but I think we need to

homogenize the lighting for next time.

:

01:12:24,915 --> 01:12:27,805

Corey, you look like you're

in Hemingway's bar, dude.

:

01:12:27,855 --> 01:12:29,175

Are we going to all be,

:

01:12:30,370 --> 01:12:32,990

Corey Hoffstein: So you all, need

to dial it, warm your lights up.

:

01:12:33,030 --> 01:12:35,450

You get such cold,

crisp lights over there.

:

01:12:35,695 --> 01:12:36,675

Adam Butler: I agree.

:

01:12:36,735 --> 01:12:38,725

I'm actually dying here from the lights.

:

01:12:38,725 --> 01:12:39,975

I had to turn the fan on.

:

01:12:40,045 --> 01:12:40,405

I'm like.

:

01:12:40,955 --> 01:12:41,725

Getting a tan

:

01:12:42,115 --> 01:12:42,445

from my leg.

:

01:12:42,710 --> 01:12:43,160

Rodrigo Gordillo: sharp.

:

01:12:43,160 --> 01:12:45,350

Don't listen to Corey.

:

01:12:45,350 --> 01:12:48,590

I've been bitching about the amount

of shade that he gets on the right

:

01:12:48,590 --> 01:12:51,640

side of his face since the beginning,

but I can't do anything about it.

:

01:12:51,880 --> 01:12:52,400

You won't do it.

:

01:12:52,590 --> 01:12:54,290

Corey Hoffstein: got my

rum bar right next to me.

:

01:12:54,290 --> 01:12:55,580

That's the vibe I'm looking for.

:

01:12:56,800 --> 01:12:58,860

Rodrigo Gordillo: I love that

little, what is it at the back there?

:

01:12:58,880 --> 01:13:00,890

Stack returns.

:

01:13:01,410 --> 01:13:02,020

Corey Hoffstein: Returns.

:

01:13:02,205 --> 01:13:02,525

Rodrigo Gordillo: Nice.

:

01:13:02,875 --> 01:13:03,375

Excellent.

:

01:13:03,445 --> 01:13:03,595

All

:

01:13:03,765 --> 01:13:04,515

Adam Butler: Subliminal.

:

01:13:04,515 --> 01:13:05,005

I like that.

:

01:13:06,135 --> 01:13:09,055

Rodrigo Gordillo: Thank you all for

sticking with us throughout this podcast,

:

01:13:09,075 --> 01:13:10,575

we're going to try this once a month.

:

01:13:10,605 --> 01:13:12,955

And if you have any questions,

you want to reach out to every

:

01:13:12,955 --> 01:13:14,425

one of us is active on Twitter.

:

01:13:14,855 --> 01:13:17,325

That's probably the fastest

and easiest way to reach out.

:

01:13:17,325 --> 01:13:20,265

If you don't have a Twitter account, then

the information is on the description.

:

01:13:20,695 --> 01:13:22,605

Thanks again and signing off.

:

01:13:22,934 --> 01:13:23,475

Adam Butler: Hold on.

:

01:13:23,555 --> 01:13:23,945

Rodrigo Gordillo: happy stacking.

:

01:13:24,145 --> 01:13:27,525

Adam Butler: If we get 5, 000

likes on this, Philbrook's going

:

01:13:27,525 --> 01:13:29,755

to get Stack tattooed on his bicep.

:

01:13:30,045 --> 01:13:30,175

Rodrigo Gordillo: Yes.

:

01:13:30,184 --> 01:13:30,895

Adam Butler: That's a guarantee.

:

01:13:32,265 --> 01:13:32,715

Rodrigo Gordillo: likes?

:

01:13:32,715 --> 01:13:33,285

Amazing.

:

01:13:33,300 --> 01:13:33,990

Mike Philbrick: Okay.

:

01:13:34,090 --> 01:13:34,980

That's interesting.

:

01:13:34,980 --> 01:13:35,370

Rodrigo Gordillo: Beautiful.

:

01:13:35,380 --> 01:13:35,820

Thanks all.

:

01:13:35,820 --> 01:13:36,320

Corey Hoffstein: Thanks everyone.

:

01:13:36,605 --> 01:13:37,065

Adam Butler: Thank you.

:

01:13:38,805 --> 01:13:41,845

Rodrigo Gordillo: If you're enjoying the

podcast, please consider heading over

:

01:13:41,845 --> 01:13:46,095

to your favorite podcast platform and

leaving us a rating or review and sharing

:

01:13:46,095 --> 01:13:47,695

us with friends or on social media.

:

01:13:48,385 --> 01:13:50,675

It helps new people find

us and helps us grow.

:

01:13:51,215 --> 01:13:54,945

Finally, if you'd like to learn

more about our extensive research

:

01:13:54,945 --> 01:13:59,125

on the concept of return stacking,

please do head over to returnstack.

:

01:13:59,545 --> 01:13:59,715

com.

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About the Podcast

Resolve Riffs Investment Podcast
Welcome to ReSolve Riffs Investment Podcast, hosted by the team at ReSolve Global*, where evidence inspires confidence.
These podcasts will dig deep to uncover investment truths and life hacks you won’t find in the mainstream media, covering topics that appeal to left-brained robots, right-brained poets and everyone in between. In this show we interview deep thinkers in the world of quantitative finance such as Larry Swedroe, Meb Faber and many more, all with the goal of helping you reach excellence. Welcome to the journey.


*ReSolve Global refers to ReSolve Asset Management SEZC (Cayman) which is registered with the Commodity Futures Trading Commission as a commodity trading advisor and commodity pool operator. This registration is administered through the National Futures Association (“NFA”). Further, ReSolve Global is a registered person with the Cayman Islands Monetary Authority.