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
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
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:that's required is a big part of it.
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:And emotionally being able to
celebrate with your friends
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:while they're celebrating.
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:And then suffer a little bit, but
maybe suffer a little bit less than
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:your friends when they're suffering.
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:There's a lot of, there's a lot of,
human a lot of humanity in that.
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:And just as an aside, just thinking
about that, the tracking error, I pulled
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:up Raffi and, we talked about an index
that is, is more fundamentally weighted.
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:It's a pretty big difference
from the cap weighted index.
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:So if you're going to
fundamentally weight, Nvidia,
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:not in your top 10 for Raffi.
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:You have half weight in Microsoft,
half weight in Apple, significantly
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:reduced weight in in Alphabet.
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:Biggest bets are Intel, Berkshire,
Citi, Bank of America, and J.
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:P.
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:Morgan on the outside,
outside, upside bet.
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:And then the under weightings
are Microsoft, Nvidia,
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:Apple, Amazon, and Tesla.
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:You can imagine, that's as of December,
end of December:
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:imagine the tracking error that this
is inflicting on people to be weighted
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:in a fundamental way, or I go back to
my example of Warren Buffett in the
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:2000s where he had lost his touch.
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:Those are emotionally trying issues.
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:And then, as an advisor, you always have
to think of what is the tracking error.
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:The tracking error for someone in Texas
is different from the tracking error for
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:someone in Silicon Valley, potentially.
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:The advisor has to be aware
of those intricacies on the
384
:personal situation of the of
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:the investor.
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:Rodrigo Gordillo: not only that, I think
what's interesting is those managers, when
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: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
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:they concentrate in 9 to 12 positions.
390
:And just go they just, their
tracking error is insane.
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:Their volatility is twice as much as the
markets, but they perform like Warren
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:Buffett, I think we know from the work
that AQR has done that I think it's 1.
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: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.