Episode 232

full
Published on:

29th May 2025

Rafael Ortega: Using Return Stacking To Build an All-Terrain Portfolio

In this episode, Rodrigo Gordillo sits down with Rafael Ortega, a distinguished Spanish investor and Senior Investment Fund Manager at Andbank Wealth Management. Known for pioneering innovative portfolio solutions in Spain—from the classic permanent portfolio to advanced return stacking and off-road strategies—Rafael discusses a wide range of topics including diversification, structural risk balancing, leveraging, regulatory hurdles, and the future of portable alpha in today’s dynamic markets.

Topics Discussed

  • Rafael Ortega’s journey from engineering to a transformative investment philosophy
  • The evolution of the permanent portfolio strategy into a modern diversified approach
  • Structural diversification and risk balancing using all-weather return stacking
  • Customizing portfolio volatility through post-diversification leverage
  • Overcoming operational and regulatory hurdles in Europe’s investment landscape
  • The integration of trend following, carry, and other non-traditional diversifiers
  • Communicating advanced diversification concepts to retail investors
  • The future outlook for portable alpha and return stacking in an evolving regulatory framework

Mentioned in this episode:

The Return Stacking Symposium

October 8, 2025 | Chicago A full day of curated portable alpha / return stacking education. Register Here: https://www.returnstacked.com/return-stacking-symposium-2025/

Transcript
Rafael Ortega:

This is what I've been looking for, right?

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I can create a portfolio.

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I can finally create a portfolio that

is truly diversified, that is using

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everything that we know we can use.

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So that means not only

assets, but also strategies.

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We can try to balance those things out.

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It's gonna be a great long-term,

sharpe ratio portfolio.

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It's gonna be stable, it's gonna

be all weather, and then we can

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get it to the volatility that

people actually want, right?

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And if they want an 8%

volatility portfolio, we can

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do that without losing balance.

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If you want a 12% volatility

portfolio, we can now do that.

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And it's not losing balance, right?

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Rodrigo Gordillo: Hello and welcome

everybody Today I have a very special

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guest, a friend of mine and, and

colleague Rafael Ortega which is a

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Spanish investor, not from Latin America,

but from Spain, and he is currently

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a senior investment fund manager at

Andbank Wealth Management, where he

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manages a bunch of portfolios including

permanent portfolio ideas, all terrain,

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return stacking, and what he calls the,

off-road investor approach, which are

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custom built portfolios for institutions

and high net worth individuals.

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Yeah, this is a, interview that I've

been wanting to have for a while now.

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I'm also, been doing his podcast

in Spanish, called The Off-Road

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Investor for over a year now.

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Rafa?

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Yeah.

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Yeah.

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And I struggle a little bit with the

nomenclature in Spanish when it comes to

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our industry, and I'm sure Rafa's gonna go

through the same, it's my turn to make him

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suffer a little bit and do it in English.

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But,

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I figured that, it would be a great

time, to bring him on board because I

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think, broadly speaking, when we talk

about return stacking, and the way

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that we've really garnered attention is

how do people stack returns above a 60

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40 portfolio or 80 20 portfolio, or a

hundred percent equity plus portfolio.

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But, And then you get into, okay, what

else can we do with the return stacking?

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Maybe there's a more balanced approach

to building a portfolio and you

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get to an ultra terrain approach.

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But Raf actually came

the other way around.

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He started, when I met him, anyway,

he's gonna tell us his background,

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but when I met him, he actually had

already started thinking about, the

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concept of a balanced portfolio and

then built himself into all terrain.

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And now he's thinking about in

the latest iterations of doing

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60 40 plus or a hundred plus.

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so yes, he is a fantastic partner.

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he actually has taken the Return

Stacked Portfolio Solutions moniker

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and, and on our behalf started

creating, the brand in Spain.

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So we'll talk a little bit about that,

but before I get into all of the fun

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stuff, I, do want the audience to get a,

bit of a background on you and how you

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started as a, as an engineer and ended up

in Return Stacking, Portfolio Solutions.

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So maybe give us a, broad

overview of your history.

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Rafael Ortega: first of all, sorry for my

English, I, all the investing information

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I consume is in English, but then I

never speak about investing in English,

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so I'm sure some of the words are not

gonna come and maybe Rodrigo can help

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as I've been helping him in Spanish.

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the thing is, I started

not as an investor, right?

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I did engineering.

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I thought I was gonna be some

sort of consultant and I actually

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started in a, one of those big

consultancy firms as an analyst.

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But that lasted only a couple of months

because then, I was studying and living

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in Madrid my family is from Valencia,

that's another city in the east of Spain.

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And my family used to run, my mother

used to run a small business and

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then she was sick and went on a The

business was in a crisis and, I felt

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like the prodigal son that had to come

back and, do something about that.

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My have a younger brother,

he was still studying.

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And, my father had recently passed away,

so we were go going through a, like a huge

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family crisis we solved it eventually.

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And then at that point I was looking

at, like any family and any business,

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what do you do when you make more

than you when than you consume?

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So what do you, what do

we do with those savings?

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But obviously I was, youngish

like 20 something, but I was

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looking at, family money.

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I, hadn't really made that.

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Also something that had taken

a couple generations to build.

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I started looking online on

what do you do when you invest?

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And everything I found was, trading

or, oddly enough, in Spain there's

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a huge value investing culture.

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So I got into, the Warren Buffets

and Benjamin Hams and all of that.

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I also.

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had a look at what had

been done in the past.

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And my mother used to work with a local

bank, and I very, very fast I found

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that most commercial banks, first of

all, in Spain until now, most people

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just relied on their state pension.

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financial literacy is very, low.

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Only the newer generations are

starting to see that they, will need

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to have some savings, the future.

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So basically, everyone worked with their

commercial bank, which just gives you,

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closet indexed funds that are expensive.

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strategy is expensive.

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That's not gonna take you anywhere.

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And,

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I, just couldn't find a solution

that made sense or made sense for me.

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When I looked at a value investor, they

would say have these great marketing

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things, you know, value is what you

get, but price is just what you pay.

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And that's, that sounds great, but if

you've just gone through a crisis like

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I have just done, and if your savings

are 50% down, it doesn't matter that

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you tell me that the value isn't down.

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The price is what matters if,

when you need your savings, right?

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Most people, or at least my understanding

of this was most people need to

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balance out participating protecting.

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You need both of those.

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And that to me is what makes

sense to almost everyone.

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And I started looking at market

history and other strategies

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and I just didn't see it.

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I saw those 50% draw downs.

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And then even if you have a theoretically

balanced portfolio with stocks and

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bonds, those also go through huge

draw downs when there's inflation.

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And just looked around and I couldn't see

anything that I could believe in, right?

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Or that I, liked.

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I don't know how, I just don't

know how found Harry Brown and

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the permanent portfolio idea, and

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Rodrigo Gordillo: You don't remember?

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Rafael Ortega: I don't know what

I saw it the first time, right?

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Just, I must have read a blog post

or something, and that just clicked.

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I, I read it and I thought, okay,

this makes so much sense to me.

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And for those who don't know, basically

the permanent portfolio idea is that,

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we're gonna have economic cycles, we're,

they're really bad at anticipating

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the next step of the cycle, or even

if we know what's gonna happen, we

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have to also have the timing right.

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It's just too difficult.

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But at the same time, we do know

that different assets, and then

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eventually I found that different

strategies, also have this behavior.

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They behave in different ways

in different environments.

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And that is something you

can believe in, right?

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We know that's gonna happen eventually.

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It's not in the short term, but in the

medium term that, eventually happens.

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So you can map those.

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And the simplest version of this would

be a portfolio that has something

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that works for growth, something

that works for deflation, something

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that works for inflation, and then

something that will work in a recession.

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Brown, had stocks, bonds, gold

and cash, or invested cash.

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And so you have three assets that

are, high volatility, that's 75% of

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the portfolio, 75% of the portfolio

have low correlation, and then you

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have a buffer, which essentially is

de-levering that portfolio for you.

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So, you have a conservative

approach investing has low

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volatility, good returns.

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It works in different market, scenarios.

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I think what you're showing here is

yeah, the different asset classes and

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what do we expect right from them.

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But not only what do we expect, like

what do we know is gonna happen, right?

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The theory.

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Rodrigo Gordillo: Yeah.

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Yeah.

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That's a thing that's a kind

of the key thing here, right?

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So, what I'm showing here for those that

aren't, watching and listening is just

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the performance of some periods where

we've seen inflationary stagnation,

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inflationary boom, deflationary

bust, and disinflationary boom.

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which are just fancy names for when

the intersection between high or

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low inflation shocks and positive

or negative inflation shocks happen.

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And, and you can see clearly, right?

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And this is, I think the big unlock

when you get into this world is, okay,

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everybody wants to just do better.

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Warren Buffett value investing and throw

in a little bonds just to reduce risk.

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But the reality is that a lot of retirees

in the last few years that put a hundred

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percent of their money in bonds have

realized that even bonds have risk.

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and you can, and you don't have to

have a lived experience that tells you

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that for them to modify your behavior.

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before we saw the 2022 inflation

shocks, you and I had already

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come to the conclusion that high

inflation would be bad for both

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equities and bonds at the same time.

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But, and this chart here just shows,

inflationary stagnation, you're, you,

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what you generally saw historically was

commodities, gold, and in this case,

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trend following, we'll get to that.

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But, Harry Brown is more

traditional assets, right?

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More gold than anything.

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And, and then inflationary boom, which

is high in inflation, accelerating

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growth, everything floats up, but the

biggest winners are commodities and gold.

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disinflationary boom, which is what our

lived experience, and most investors

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lived experience has spent most of

their time on is high accelerating

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growth shocks and falling inflation.

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And that means, of course, that

equities and bonds are gonna do well.

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And I think that's why the 60 40 has

become so prominent and deflationary

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bust is when you have a bear market

and, a negative growth shock and

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slowing growth without inflation, right?

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So that's generally equities down,

commodities down, and then you

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see bonds really picking up the

baton trend following and, and

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commodities, sorry, and, gold bonds

and trend following, getting hurt.

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So that's when you understand that

framework, you're like, oh, okay.

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We need to think about my families,

in your case, right, It was my

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family's wealth going forward, and

Harry Brown basically, from what

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I understand, it was fairly simple

and the original idea is just, a

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quarter, cash gold equity loan, right?

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Rafael Ortega: seems, it's,

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simple that it looks silly,

but if you look at it

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from what I know now, I.

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Actually the three assets are kind

of risk parity, equal X, right?

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Because it's called stocks

and long-term, bonds.

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And those kind of have the

same volatility, right?

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So you're actually doing like

a risk parity from those three.

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And then the other one is just a buffer.

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It's just de-leveraging the portfolio.

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So you have the conservative approach

because he was trying to find a

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solution that anyone could do and

that it made sense for almost anyone.

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So the conservative approach

to that made a lot of sense.

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Also, we can go on that

a little later, right?

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But with only, if you only have

stocks, quantum gold, there are

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still sometimes where those three

can go down, down especially

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through, some crisis and shocks.

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And so he wanted something that

would protect you even then, right?

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something that was

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Rodrigo Gordillo: Yeah.

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Rafael Ortega: all-terrain I found that,

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Rodrigo Gordillo: I can I just

pause there for one second?

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One thing that I think few

people understand is when we

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say bonds, most people think

about that aggregate bond index.

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Aggregate bond portfolio that

has a, generally speaking, has a

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duration of six to seven years.

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Volatility profile of four or 5%.

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and the key behind balance is

making sure that the maniacs aren't

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taken over the asylum, right?

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That, you don't want equities

to be four tenths of volatility

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of your bond portfolio.

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And there's two ways of doing that

leverage, which we'll talk about in

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a sec, but more importantly here, if

you go out the curve, and the longer

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the duration, the more the volatility,

therefore the bigger the impact when

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you need it the most and the bigger

the impact when you're getting hurt.

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But it's, if it's balance and risk across

equity and bonds, that's the way to do it.

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So when we talk about bonds, here,

we're, really talking about lingerie

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bonds, which nobody does, right?

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Because it's too volatile, because

bonds are supposed to be safe,

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they're not supposed to be volatile.

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And it's so funny because

they could be whatever you.

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Rafael Ortega: exactly.

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So I started my like, own

personal portfolio, like for, the

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company, for the business or the

family, however you wanna see it.

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And it was a permanent portfolio, and

I started talking about the permanent

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portfolio with, different banks

because I was trying to get, those

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long-term bonds in that gold position.

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And it was almost impossible, right?

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And everyone looked at me like, like 25%?

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what?

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they, they couldn't, understand.

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And then also I, started looking

online and finding more people.

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Eventually I found you guys

and I found other, all weather

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solutions or all-terrain solutions.

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But, at that point in time, that's,

that I was like my first aha moment

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where, as we've said before, once

you see it, you just can't unsee it.

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And I noticed that no one in Spain,

or in the Spanish internet world

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was actually talking about this.

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Like absolutely no one.

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And even in the anglosphere, as I, I like

to call it, though, you can find people

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talking about programing portfolio ideas

and all weather, it's, there, there's

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more people doing it and there's obviously

like you guys and more people doing it.

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but it's not that, it's

not standard, right?

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Like it's more of a niche thing.

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In, in the, in Spain or in Spanish

absolutely no one was talking about this.

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So that sent me through, double

path, one of, okay, there's

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a business opportunity here.

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So I, this makes a lot of sense.

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It makes sense for me.

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There's obviously more people

than it makes sense for.

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I need to learn more about this

and, get my license and become an

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advisor and start preaching this.

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And then on the other side, I

need to, keep learning more and

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more about how to implement these

strategies better and better.

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And that's how I found you guys.

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I found, my favor with

this Trinity approach.

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I found, eventually found Corey.

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I found Ray De, Ray Dalio and all

of his, all of his, pupils and

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all of those, risk party ideas.

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So I just, spent the last decade and

a half, reading and trying to see what

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people were doing in the space and then

trying to get my way through compliance

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teams and, Spanish institutions to

try to get these things back so that

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investors in Spain can actually,

have a portfolio that does this.

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Rodrigo Gordillo: Yeah, being a

trail blazer is not always fun.

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Rafael Ortega: Yeah

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along the way I, I built, a community

of people that believe in this, right?

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So when, As you were saying, When,

you came up with the, that all-terrain

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paper Return Stacking Anything.

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I see, I started learning

about trend following.

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Anything I see, I just see it from this,

structural diversification standpoint.

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I just can't see it any

other, any other way I.

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Rodrigo Gordillo: Yeah.

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And, I'll give you credit.

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you are, I, always tell people that

you're the Corey Hoffstein of the,

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Spanish investment space because

when you say you built a community,

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you really are an incredible writer

and synthesizer of information.

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even the stuff that we've written

that we think we synthesize, when,

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you take your take, when you have

your take and your go, it is so

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much easier to under to understand.

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So kudos and credits to you for

being able to do that for a community

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that has literally never heard of

most of this stuff, at least in the

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US you didn't, it's wide enough.

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And Canada, that you

can reach some people.

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you're starting from scratch.

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Every single person you're talking to

like has never heard about this, right?

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And so you, I think you must have learned

by slamming your head against the wall how

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to communicate with a community and create

a, pretty large one, as I see it now.

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Rafael Ortega: think whenever I read

your stuff, I, feel like, okay, this is

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written for someone that knows what we're

talking about, and I always try to, water

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it down into the essence of it because

I'm usually talking to retail, right?

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I, most in Spain, most

funds are sold, right?

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People that do invest with

me buy my funds, right?

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they buy the idea and then

they go into the, strategy.

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I have no, no commercial, team.

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I, just do education and people find our

stuff, and if they have the similar, if

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they buy into the idea or the philosophy.

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Then they eventually, invest or they

do something similar and then preach it

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around and then that hits other people.

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But, that, that's basically what

I've been trying to, trying to do.

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But always with that focus on that,

there's many things I don't know, but I

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do know that, diversification works and

that the true diversification is what I

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think, I think Adam is the first person I

read that said structural diversification.

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And that just, again, I think one

of the things that all-terrain

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or -weather investors don't

have is the same nomenclature.

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And I think that's something that value

investors have and other investors

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have, and that brings a lot of those

people together and then that creates a

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community and that helps the ideas grow.

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So I like how, you guys have been,

interviewing people that are supposedly

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your, competitors, but, in the way I see

it they're, not your competitor, right?

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Your competitor is, someone that's doing

a index, fund, robo advisor thing or,

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just a highly active in the sense of

stock picking, stock picking strategy.

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we're doing something different

and we need to speak about it,

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without trying to hide what we're doing.

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Like with the example of return

stacking, I think it's very clear.

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I think the reason people buy return

stacking is that you're actually

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saying what you're doing and you're

not scared of saying what you're doing.

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And, you're not scared of defending

the idea that you're trying to defend.

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It's tough.

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'cause you're saying things

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Rodrigo Gordillo: Yeah.

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Rafael Ortega: leverage, manage futures.

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especially when I, every time I bring

something to the table, as you were

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saying, no one's certain like when

I have to explain, or global macro or

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carry strategies, like most of the, time

people are like, what a new thing again.

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Rodrigo Gordillo: Yeah, we

feel your pain for sure.

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And yeah, this is why communication and

having the ability to synthesize things

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as well as you do is important here.

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but let's, go back to, you have this

interesting permanent portfolio approach

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and your revolution towards like where,

you got stuck and then how return stacking

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might have unlocked some value there.

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Rafael Ortega: thing is, when I started

with a permanent portfolio for myself,

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but when I got the opportunity, I

actually became a financial advisor.

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That's where I got my first clients

and that I started to grow a base

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of, investors that were interested

in, adding something different

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to their portfolios, right?

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That's how I, actually started

and eventually I got the

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opportunity to start a small fund.

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So, I could build a strategy and people

could go into the strategy instead of

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me, managing everyone's little portfolio.

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and I thought at the time, this was an

error, by the way, but at the time I

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thought that most people wanted something

that was not as conservative, right?

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The permanent portfolio's problem.

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and, I don't think it's a problem.

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I think it's, made, it's on purpose,

but it's a pretty conservative strategy.

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It's conservative in many ways.

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It's conservative because

it has low volatility.

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It's conservative because it's

only using biggest assets around

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because, Brown was thinking about

something that, was fail safe.

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It wouldn't blow up.

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But there, he, preached this,

late seventies, early eighties.

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And, eventually there's more things that

we can do with our portfolio, right?

352

:

There's more, going on now that

didn't exist then, and that maybe

353

:

you can bring into your strategy.

354

:

And I was trying to find something that

was, more, I wanna say balanced, but,

355

:

really, that was equivalent to a 60 40,

at least in most people's minds, right?

356

:

Something that was, medium risk.

357

:

Let's call it medium risk, but yeah,

something that was equivalent to a 60 40.

358

:

and every time I tried to build

a portfolio, design, a portfolio

359

:

that was matching 60 40 volatility,

I was losing the balance, right?

360

:

Because you have to have more stocks.

361

:

If you have to have more stocks, then

suddenly those stocks are running

362

:

the asylum, as you were saying.

363

:

Then if I add diversifiers on the other

side, I get more tracking error, and

364

:

then people are gonna ask questions

when those diversifiers are not working.

365

:

So it was, it was a tough challenge.

366

:

I, think I built a portfolio that was,

it's still on now, it's transitioning to a

367

:

return stack version of the portfolio, but

it's something that was, let's say, around

368

:

50% equities or 60% equities, and then the

rest was, an all-terrain defense, right?

369

:

But.

370

:

If you want more volatility and you

don't use leverage, the only way to

371

:

do this is to get more stocks in.

372

:

And then when stocks fall,

your all terrain defense is not

373

:

gonna recoup all those losses.

374

:

It's just gonna be more, you have

more trust on the fact that it's

375

:

gonna work, better than just bonds,

because bonds can also fall sometimes.

376

:

And all-terrain defense

is gonna work more times.

377

:

It's gonna, it's gonna work against

those stocks, but it's not really

378

:

gonna, recover the loss that you got.

379

:

It's just gonna, what's the word

I'm looking for a word that it's

380

:

not Rodrigo but it's like you're,

look, you're like diluting your

381

:

risk in a more efficient way, but

it's not really, you're not really

382

:

balance things, balancing things out.

383

:

That's.

384

:

And every

385

:

Rodrigo Gordillo: Yeah, that, that.

386

:

Rafael Ortega: into, okay, so maybe

we get defensive equities and maybe

387

:

we do some, momentum thing on top.

388

:

And I was just trying lots of

things to find balance and with,

389

:

with, traditional strategies.

390

:

It's just now I think

it's just impossible.

391

:

Like you, you're never gonna,

you always have to take more risk

392

:

in the form of cycle risk and.

393

:

Rodrigo Gordillo: So let me, lemme

pause there for a second and just

394

:

show an old, an oldie, but a goodie.

395

:

We've been talking about

this already, right?

396

:

But this one just shows a chart of

gold, global equities, commodities,

397

:

and 10 year treasuries, right?

398

:

Roughly speaking, I don't

, this is:

399

:

Roughly speaking, they all make the

same amount of return, but obviously

400

:

the paths are wildly different, right?

401

:

So which one do you want to

choose is is always the question.

402

:

And from the perspective of risk balancing

these, again, we talked about long-term

403

:

treasuries, I'm using the 10-year.

404

:

If you run a simple equal risk

contribution analysis to try to make

405

:

sure that we balance things off,

you're looking at 42% in treasuries,

406

:

29% in trend following here, 15% in

global equities, 12% in commodities

407

:

to get a hundred percent portfolio.

408

:

And of course the 10,000 foot view

of that is that you get this smoothed

409

:

out line that kind of crosses in the

middle of everything, but actually

410

:

slightly outperforms over the long term,

mainly due to the rebalancing benefit,

411

:

That, that diversification premium.

412

:

Now, while this line looks amazing, right?

413

:

let's, this is a, I was trying to think

about a different way of explaining

414

:

to people why is it that an equal risk

portfolio is generally going to not

415

:

provide the returns that a high risk

portfolio like equities is gonna provide?

416

:

And the reality is that it's not

true over many decades, right?

417

:

If you think about the

equity risk premium, right?

418

:

What's the equity risk premium?

419

:

depends on, global equity,

risk premium, what is it?

420

:

3.5%,

421

:

4% above cash, right?

422

:

So it's say notional, we're

looking at 6% annualized, right?

423

:

Term premium, is two, 3%.

424

:

when you actually look at all

these returns, they all at the end,

425

:

as we can see from this graphic,

roughly make the same return.

426

:

The problem is that by diversifying

you're clustering that return

427

:

around that long term more often.

428

:

And sadly, a 60 40 investor, an 80 20

investor tends to see more double digit

429

:

years than you do when you're balanced.

430

:

And that's painful.

431

:

And that reduces risk and

reduces, long-term returns.

432

:

So you have to wait a long time to

be able to say, okay, we did it.

433

:

We did the same or better

than with lower risk.

434

:

And the reality is that

it's boring for most people.

435

:

When you create this portfolio and

you have a 4% volatility portfolio,

436

:

you're constantly apologizing

for not putting enough risk on.

437

:

And the reality is that you're up

until recently, you were limited

438

:

as to what you could do in terms of

giving people what they wanted, which

439

:

is, look, I'm used to, a standard

deviation in my portfolio of 12%, 15%.

440

:

Like I'm okay with that.

441

:

I'm okay with the

drawdowns that I've seen.

442

:

Can you give me that?

443

:

And the answer was no.

444

:

The answer was no.

445

:

This, you get this is the maximum

balance portfolio you can get.

446

:

and so anyway, I thought I'd paused there

and show people what we were, what we're.

447

:

Rafael Ortega: the, that graph, because

I, love it because, it makes so much

448

:

sense and then no one likes it in real

life because in life, I like to sometimes

449

:

show this and people will always choose

that dark blue line, then show it

450

:

starting in 2010 and then that just

451

:

Rodrigo Gordillo: Right.

452

:

Rafael Ortega: flat.

453

:

great risk return, like gr great,

sharpe ratio, but it's just boring.

454

:

It just gives you a couple percentage

points, while some of the other

455

:

strategies in this, exactly that

point in time, it's gonna be stocks,

456

:

Rodrigo Gordillo: Yeah,

457

:

Rafael Ortega: you those double

digit deterrence and like

458

:

incredibly high sharp ratios.

459

:

And it doesn't matter how many

times you show this, people are

460

:

gonna be okay when they see it.

461

:

And then after a couple of

months of, low volatility, low

462

:

returns, they're gonna ditch it.

463

:

Rodrigo Gordillo: exactly.

464

:

Rafael Ortega: just the way it is And,

465

:

Rodrigo Gordillo: and it, and to their

credit, if they feel they're leaving

466

:

money on the table because they can

take more risk, it's, a problem.

467

:

Rafael Ortega: that's exactly the

problem I, I was running into.

468

:

I wanted to add more diversification

because I knew it worked.

469

:

I, thought the portfolios were

gonna be, more resilient more

470

:

all-weather and I was, all in on that.

471

:

But the more diversification you add,

diversification works so well that

472

:

volatility goes down and the volatility

goes down, eventually returns go down too.

473

:

then I wanted a bit more volatility

and a bit more return and I

474

:

needed to have more stocks there.

475

:

And then I was losing that balance

and then I was going back and forth

476

:

between those two things, right?

477

:

More volatility always meant,

that you had to sacrifice returns.

478

:

And then when you had more stocks in, I

was saying that I was all weather, but

479

:

I wasn't all weather 'cause I had 50

to 60% equities in my portfolio, right?

480

:

way that a 50 to 60%, equity portfolio

is gonna be all weather because then

481

:

you would need a leveraged defense,

Something that was not just a mix of gold

482

:

bond, bonds and, and trends following

and other alternative strategies.

483

:

Though that was gonna be an all-weather

defense, but not an all-weather portfolio.

484

:

was the problem.

485

:

Rodrigo Gordillo: Yeah.

486

:

Rafael Ortega: And then when you came up

with the return stacking, paper that I.

487

:

was my second aha moment where I saw it.

488

:

I couldn't unsee it.

489

:

I remember guys did a, late livestream

or maybe an episode, I'm not sure.

490

:

And I went on the chat and asked,

you were saying, you know how return

491

:

stacking, we'll talk about this now.

492

:

like how it can create some

tracking error, whatever.

493

:

And I think I said something

like, okay, but what if you don't

494

:

care about the tracking error?

495

:

Let's talk about a theory.

496

:

and think one of you like

brushed it off a bit, okay, maybe

497

:

Rodrigo Gordillo: Yeah.

498

:

Because 99% of our

audience cares about that.

499

:

Gonna fuel lunatics like us.

500

:

Yeah.

501

:

Rafael Ortega: I emailed you like,

okay brother, we need to talk

502

:

because if I can do this, this is

what I've been looking for, right?

503

:

I can create a portfolio.

504

:

I can finally create a portfolio that

is truly diversified, that is using

505

:

everything that we know we can use.

506

:

So that means not only

assets, but also strategies.

507

:

We can try to balance those things out.

508

:

It's gonna be a great long-term,

sharpe ratio portfolio.

509

:

It's gonna be stable, it's gonna

be all weather, and then we can

510

:

get it to the volatility that

people actually want, right?

511

:

And if they want an 8%

volatility portfolio, we can

512

:

do that without losing balance.

513

:

If you want a 12% volatility

portfolio, we can now do that.

514

:

And it's not losing balance, right?

515

:

You're not getting, you're getting

more risk, you're getting more,

516

:

you're getting exposure, which is

what you want, but you're not getting

517

:

it through a concentrated cycle risk

bit, which is what you do when you

518

:

have a 50 to 60% equity portfolio.

519

:

And I, that I went crazy around the

idea and, luckily, and a half or

520

:

something later, we finally did it.

521

:

And we have, portfolios on that

can actually implement these,

522

:

these concepts in, Spain.

523

:

So very grateful

524

:

Rodrigo Gordillo: Yeah, and more, most

of the battle that I saw you fight

525

:

is a battle that we fought originally

too in Canada is you're not just

526

:

fighting a battle of ideas, but you're,

running into operational roadblocks.

527

:

compliance teams don't want you to do X,

Y, Z, the even platforms don't even have

528

:

the capability of providing you what you

want or you being able to invest in US

529

:

ETFs that you, that use gold and stuff

like, it's just been a constant struggle

530

:

and you've mostly fought through all that.

531

:

tell us a little bit about that journey.

532

:

Rafael Ortega: Yeah.

533

:

So the thing is that, I mean

it's counterintuitive, right?

534

:

I'm trying to say that I'm building

something that is leveraged.

535

:

It's a hundred percent leverage, but it's

actually a balanced, allocation, right?

536

:

And that goes against everything that

everyone has heard in, or everyone that

537

:

you get, that's learning about investing

will, will get as that association that

538

:

leverage more leverage means more risk.

539

:

to be fair, all that's equal.

540

:

Yeah.

541

:

more

542

:

Rodrigo Gordillo: Yeah.

543

:

Rafael Ortega: more risk.

544

:

it all depends what

we're comparing, right?

545

:

'cause I think, everyone would understand

that if you have a very risky thing and

546

:

a very unrisky thing, and sometimes you

can leverage the unrisky thing and it will

547

:

still be less risky than the risky thing.

548

:

But anyways, the, the thing here is

that, I found that the solution to this

549

:

problem is how you frame it, right?

550

:

People think more leverage means,

more risk, more leverage means

551

:

that you're chasing higher returns.

552

:

That's not what we're doing, right?

553

:

We're using leverage

after we're diversifying.

554

:

So the right order is you

have a certain amount of risk.

555

:

Now we are diversifying and we're adding

true structural diversification to

556

:

different assets and different strategies.

557

:

So we're bringing volatility down

and because volatility is down, your

558

:

returns are down, and we're using

leverage to recover the exposure

559

:

you lost through diversification.

560

:

So we're using leverage

after we're diversifying.

561

:

And again, this is another of the things

that I think everyone in the world

562

:

should be using because if you do the

math and match, amount of added exposure

563

:

so that it matches the, risk through

added exposure matches the reduction in

564

:

risk you get through diversification,

you're doing that thing that, the phrase?

565

:

Eating your cake or what is it?

566

:

Rodrigo Gordillo: I, you are, yeah,

you're having your cake and eating

567

:

it too, having your diversification

cake and eating, eating it too.

568

:

Yeah.

569

:

Rafael Ortega: so it's, that

is the right order, right?

570

:

We're reducing risk and then we're

using leverage to recover the lost risk.

571

:

Another way to see it is that you're

actually, this is, okay, this is

572

:

from a, all-terrain, point of view.

573

:

If you look at it from a traditional

portfolio where you have, stocks

574

:

and bonds you're adding, more

diversification through stacking,

575

:

that is defensive leverage.

576

:

You're adding more

defense to your portfolio.

577

:

So if you do it right,

and if you do the math.

578

:

Most of the times, you're not

really adding that much risk.

579

:

It comes with, with, its, what's the word?

580

:

With its, contra or

581

:

Rodrigo Gordillo: Yeah, it's, you can say

counterpoints, it comes with this off,

582

:

with, its, there's other offsetting things

that happen by when you use leverage,

583

:

but not necessarily in the same way.

584

:

Rafael Ortega: you will

have, error, right?

585

:

It comes in the form of tracking error.

586

:

It comes in the form of your volatility

is gonna be more stable, which, sounds

587

:

good until you see it live, right?

588

:

That you're actually getting hurt

more, very little, but all the time.

589

:

Rodrigo Gordillo: Yeah, more often.

590

:

But,

591

:

Rafael Ortega: it more.

592

:

Rodrigo Gordillo: yeah, so that's, the

thing I wanted to, 'cause we've chatted

593

:

about this a lot, and this is, this

comes from Corey's saying that risk,

594

:

cannot be, trans cannot, be eliminated.

595

:

It can only be transformed.

596

:

And so how do you, talk about that?

597

:

Rafael Ortega: Again.

598

:

I think the way to make people

understand this is to do it

599

:

in the right order, right?

600

:

So the right order should be how much

risk are you willing to take in the

601

:

form of volatility, in the form of

expected drawdowns, et cetera, right?

602

:

Once that is clear, then how do

we take that risk and how do we

603

:

do it in the most efficient way?

604

:

If you build a portfolio, again

that is just stocks and bonds, you

605

:

are taking a lot of market risk.

606

:

I've heard you say many times that

when you look at S&P 500 and you

607

:

use an ETF, that ETF is unleveraged.

608

:

But if you look at the companies

beneath the ETF and you look at

609

:

the leverage within the companies

in the ETF, you're actually using

610

:

three times leverage, right?

611

:

If I remember right.

612

:

Something

613

:

Rodrigo Gordillo: Yeah.

614

:

Three to one.

615

:

Four to one.

616

:

Yeah.

617

:

Rafael Ortega: you're taking market

cycle risk and we don't have that

618

:

market cycle risk because that tends to.

619

:

Crash.

620

:

eventually, like once every, whatever

years, it will, it, we will get into that

621

:

part of the cycle where stocks just don't

work and you get those big drawdowns.

622

:

You want to take that risk

and that risk is the risk that

623

:

you're diversifying, right?

624

:

So you wanna add other things that are

gonna move in different ways, ebb and

625

:

flow in different moments, and it's

the same amount of risk, but if you

626

:

take the risk in smaller doses, the

same amount of risk, it is much better

627

:

than just feeling like there's no risk,

which is how a 60 40 portfolio feels

628

:

when everything is going your way.

629

:

And then one day, you don't know when,

it's gonna come and it's gonna hurt you.

630

:

And there's a man, how do

you say this in English?

631

:

There's a.

632

:

asymmetry in the way

returns come right with that

633

:

Rodrigo Gordillo: Yeah,

634

:

Rafael Ortega: understands where

10%, draw down you, you're back

635

:

at zero with 11%, but a 50% draw

down needs a hundred percent.

636

:

So the same amount of

637

:

Rodrigo Gordillo: to break back.

638

:

Rafael Ortega: way to take that risk

is to try and do it in smaller doses.

639

:

Smaller doses makes a lot of sense

until you feel it when the other

640

:

person is not feeling it, right?

641

:

And that's what happens.

642

:

Rodrigo Gordillo: So, you know

what, Corey and I yesterday, were

643

:

having we're looking at how to

tell this story about this, right?

644

:

This idea that there's an, there's.

645

:

There's risk inequities and there's risk

in all-terrain or equal, we're looking

646

:

at an equal risk portfolio of assets.

647

:

And so what I, wanted to see is how

often you're in drawdown in, in the

648

:

S&P 500 on a daily basis, right?

649

:

So how often are you hitting new

high and started losing money

650

:

versus how often you're in drawdown?

651

:

I think we did trend following.

652

:

We did gold.

653

:

What's fascinating, there's a drawdown

in recovery chart that we often use.

654

:

I'll see if I can find it here,

later, but, which is you start

655

:

losing money and then you recover.

656

:

and if it's zero, it means you're

making new highs all the time.

657

:

So the top of the chart is flat as

long as you're making new highs.

658

:

And when you we're looking at trend

following and trend following is, could

659

:

you guess how often on a daily basis the

SocGen Trend Index, is making new highs?

660

:

Rafael Ortega: I would

say very little, right?

661

:

Because I feel it's like you're

losing all the time and then

662

:

suddenly you get that big win.

663

:

I think what.

664

:

Rodrigo Gordillo: Yeah, it's like

it's around 12% on a daily scale.

665

:

It's around a third on a monthly scale.

666

:

And when you look at the chart,

when you actually look at the

667

:

S&P500, it is like making new highs.

668

:

It feels, I haven't done the

actual numbers, but it just, it's

669

:

flat that chart of drawdown and

recovery is flat most of the time.

670

:

And then you have 2008 and

you just lo lose and lose and

671

:

lose and it's a massive drop.

672

:

But you never see that in the

history of the SocGen index.

673

:

You never see that lose and lose.

674

:

draw downs in recoveries, draw downs in

recoveries, draw downs in recoveries.

675

:

and so I think that tracking error

676

:

Rafael Ortega: I was asking even you get

it to the same level of volatility, so

677

:

it's like it's structurally different.

678

:

Rodrigo Gordillo: Is

structurally different.

679

:

There is, there's some, like you're

just getting more, it's, look,

680

:

it's the skewness of the S&P500,

Then you have the big fat tail.

681

:

The moment you start adding

diversification, you add bonds and

682

:

equal risk, you add gold and equal

risk, you add some diversifiers,

683

:

you now have a more consistent like

series of drawdowns every year, right?

684

:

So you'll see your, your, like the area

under the curve for those that remember

685

:

statistics, is roughly the same between

a diversified portfolio and the S&P500.

686

:

It's actually less, but roughly the same.

687

:

The difference is that area under

the curve is showing up every

688

:

year more often, and most of the

area under the curve happens in

689

:

big abrupt losses for the S&P500.

690

:

So the experience here is,

something that is important, right?

691

:

The experience is how often do

you feel like you're winning

692

:

versus your alternative portfolio,

693

:

Rafael Ortega: I think I'm lucky here in

being to communicate this because I've

694

:

been talking about the permanent portfolio

for so long, and that is something that

695

:

Rodrigo Gordillo: right?

696

:

Rafael Ortega: people, I would

say in the investing community

697

:

in Spain at least know about.

698

:

Even if they don't believe in

it or they don't use it, they

699

:

know about it because we've been

talking like for a very long time.

700

:

Sort of everyone knows that this

is like an all-terrain solution

701

:

and they've seen how it be behaves

just behaves differently, right?

702

:

Sometimes it's in a drawdown when

the S&P or in, Europe, most people

703

:

use the MSCI world as the reference,

but, stocks are going up and this

704

:

might be flat or going down because I

don't know, bonds are down or gold is

705

:

down or something else is going on.

706

:

So they, they're used to this idea.

707

:

And then from the permanent

portfolio to, a return stacked opera

708

:

portfolio, which would be like our

most, I, now, I, never say risky.

709

:

I'd say it's just the most efficient

portfolio, but, our most efficient

710

:

offering would be like a 12%

volatility, portfolio that is a mix

711

:

of stocks, bonds, gold, and then

trend carry and other diversifiers

712

:

that would be smaller position like

Bitcoin or arbitrage or whatnot.

713

:

And so they, they're used to seeing

that this thing is its own thing, right?

714

:

the difficulty now is, explaining what

a trend following is, which again, I've

715

:

been talking about this for longer, but

maybe carry is something that people

716

:

hadn't been introduced to lately,

and starting with a drawdown is never

717

:

Rodrigo Gordillo: Yeah.

718

:

It's tough.

719

:

Rafael Ortega: but they've seen,

drawdowns in gold and they've seen

720

:

drawdowns in long-term bonds, which is

something that, everyone was saying,

721

:

like, why do you have long-term

bonds in the permanent portfolio?

722

:

Why do you have gold?

723

:

So we're used to explaining, having

odd things in the portfolio that

724

:

everyone knows that you shouldn't have.

725

:

But,

726

:

Rodrigo Gordillo: Yeah.

727

:

Everybody knows that you

shouldn't have right now.

728

:

Rafael Ortega: Everybody knows.

729

:

I've, learned that,

one, two things, right?

730

:

Diversification works.

731

:

The second would be that, things

happen and then the experts show

732

:

up, It's always that way around.

733

:

So yeah, never trust the experts.

734

:

Rodrigo Gordillo: Yeah.

735

:

I don't understand why you own gold.

736

:

It's lost nothing.

737

:

It's lost money.

738

:

you should have known.

739

:

We should.

740

:

Let's get out of it.

741

:

X post.

742

:

Rafael Ortega: the

other way around, right?

743

:

Like gold is an all time high.

744

:

So

745

:

Rodrigo Gordillo: Why

don't we buy more gold?

746

:

Rafael Ortega: would you

own 25% on your portfolio?

747

:

Or 20% out of 200 even in a off-road

portfolio, obviously you have to.

748

:

Rodrigo Gordillo: Yeah, and I have,

let's see if I can share this one here.

749

:

yeah, this is from the an A

brochure, the All Terrain portfolio.

750

:

So we run a couple of model

portfolios, ourselves in the return

751

:

stack, website returnstack.com

752

:

website.

753

:

But this is just an expert of the

simplest all-terrain portfolio.

754

:

I think it's levered 150%.

755

:

It's basically all world, seven to 10

year treasuries, gold, and the, like

756

:

some commodities and a CTA index.

757

:

And this is another thing that I,

think we get trapped into is, I

758

:

think the nomenclature is clearly

appealing, this idea of all terrain.

759

:

But I think what the, what,

it projects is never lose.

760

:

And this is an important distinction.

761

:

I think you, I think the idea

of saying all-terrain is just

762

:

a more efficient portfolio.

763

:

You're still in a four by

four going through some rough

764

:

terrain and you will fall.

765

:

The issue is, are you gonna

get stuck in the ditch?

766

:

And we've used a lot of imagery

here on you and me, when talking

767

:

about the off-road investor and

all-terrain, and I think the important

768

:

thing is it is a four by four.

769

:

I think we can get outta most ditches.

770

:

you don't want to be driving

a Ferrari in this environment.

771

:

And and this just shows.

772

:

Rafael Ortega: pot holes, right?

773

:

And when you drive through

those, you're gonna feel it.

774

:

if you've ever

775

:

a four by four, going through a,

offroad path, it's not driving,

776

:

a, Tesla to the supermarket.

777

:

It's very.

778

:

Rodrigo Gordillo: Yeah.

779

:

That's right.

780

:

That's right.

781

:

And it, really is like when you look

at the year over year here, that the

782

:

all-terrain does experience shallower,

annualized losses and less of them.

783

:

and you're getting a, the sharpe

ratio of this simple portfolio here is

784

:

around 25, 24, sharpe points higher, so

more efficient for every unit of risk

785

:

you're getting more units of return.

786

:

But in this case, the example

here is to lever it up to the

787

:

point where it has the same risk

as a traditional 60 40 portfolio.

788

:

So the thing about this small edge

is that over, over time, you see the

789

:

value, drawdowns are lower and so

on, but in any given year, you're

790

:

like, why are we doing this again?

791

:

it seems like we're getting

the same returns, but it's a

792

:

lot more complex to understand.

793

:

And what I've found is that, where this

really becomes abundantly clear is when a,

794

:

an asset class that people are overexposed

to really goes through a, not a two

795

:

month or three month, but a significant

series of, years, whether they're flat or

796

:

down, where you see the value of all the

other pistons in the motor, doing well.

797

:

And it doesn't always

happen that way, right?

798

:

Like it, what tends to happen is you have

these shallow losses in gold and recovery,

799

:

shallow losses in bonds and recovery,

shallow losses in equities and recovery.

800

:

And it just chugs along and

adds a little bit of value.

801

:

It's super different.

802

:

and then there will be a prolonged

bear market in equities where you see

803

:

the all-terrain, especially something

like this, just chug along positively.

804

:

And that's when you see the value.

805

:

it does take time to see the, long-term

value here and it requires a lot of faith.

806

:

And so a lot of education

807

:

Rafael Ortega: you have to be careful

with the way you frame that too, because

808

:

if we say that, I think I've said

sometimes like the overall portfolio

809

:

needs a crisis in order for you to

see, like a big difference, right?

810

:

Rodrigo Gordillo: why you have it.

811

:

Yeah.

812

:

Rafael Ortega: when you say a crisis,

people are gonna think, know, a, a 10%

813

:

draw down is a crisis or a 15% draw

814

:

Rodrigo Gordillo: Yeah.

815

:

Liberation day draw down.

816

:

Yeah.

817

:

Rafael Ortega: you need a really

tough scenario to see that huge

818

:

difference to appear, right?

819

:

Because if not, you just see that it

juggles along at that level of volatility.

820

:

And it can be doing that for, I've, run

the back test suit, so, I can see you,

821

:

you can get maybe four or five years where

it does the same thing that a equally,

822

:

equally volatile stock and bond portfolio.

823

:

And so the question there is, why am

I using this expensive, solution that

824

:

is so complex when a very simple one

can give you the same, returns, right?

825

:

it's because in your backpack,

you have a lot of things there

826

:

that you just didn't need.

827

:

That doesn't mean that you're not

gonna need them in the future.

828

:

Like the sensible thing

is always to be prepared.

829

:

You need to be prepared always.

830

:

And if we don't get a terrible,

831

:

I hope we don't get that

terrible car market right.

832

:

we're gonna do okay too.

833

:

you, it's not that bad.

834

:

but yeah, sometimes I find myself

thinking do I want a, like a

835

:

terrible bear market for equities?

836

:

So, that, people see the value of this.

837

:

but yeah.

838

:

Rodrigo Gordillo: No.

839

:

that's that.

840

:

Yeah.

841

:

Don't we all, I, my anecdote to that

is that I was doing this stuff in

842

:

'08, and I remember the phases of

emotions, Phase one, OC September, like

843

:

Lehman goes down September, October.

844

:

I'm feeling so good, right?

845

:

I've been talking about

it for a few years.

846

:

Portfolios are doing great.

847

:

everybody's losing their minds.

848

:

Clients don't even know what's,

my clients didn't know it.

849

:

Like, why is everybody so worried?

850

:

'cause they were looking at portfolios

in different light and, and so the

851

:

first was relief and satisfaction.

852

:

We want that.

853

:

And then you, have January, February, and

advisors aren't showing up to their desks.

854

:

Associates are having to talk to

clients that are crying on the phone.

855

:

Family and friends are losing their jobs.

856

:

And then you're like, crap, I really

need this to turn around right now.

857

:

It, is, there is, it is a double-edged

sword to I wanna show the value of this,

858

:

and this is important, but also I don't

want to ever have to use those tools.

859

:

I hope I never have to show you

what, how important those tools were.

860

:

I just need you to trust me

so that when it does happen.

861

:

And so by the end of it, I was

just begging for things, to change.

862

:

And then when things changed,

then the markets roared 80% and

863

:

you're still making 9%, 10% a year,

especially when I was non levered.

864

:

So it is, as an all-terrain, provider and,

investor, you go through these emotions.

865

:

At the end of the day, it ti it

comes down to does it, is it a sound,

866

:

philosophical, fundamental investment

strategy that works over time?

867

:

And I, I think it's tough to,

once you take the red pill,

868

:

tough, to say no, it doesn't.

869

:

and even this year, I'm looking at just

eyeballing the kind of the off-road

870

:

portfolio, versus an 80 20, right?

871

:

80 20 year to date is up again.

872

:

And I had a draw down,

around 13% drawdown.

873

:

and, in a recovery, and I'm looking at,

and, an iteration offroad roughly around

874

:

the same risk, actually lower risk, down,

less peak to trough and flat for the year.

875

:

And they seem identical, but the

reality is that one is a levered

876

:

portfolio and the other one isn't.

877

:

Right?

878

:

And the risk of, hey, it's a

levered portfolio, that's risky.

879

:

Again, if you're using defensive leverage.

880

:

Not so much, it had a shallow draw down.

881

:

It's now back to break even.

882

:

And and there were tools in there that

the 60 40 didn't have like gold, right?

883

:

That really helped offset a lot of the

losses on the, on the levered side.

884

:

And so the question is, what

would've happened if this continued

885

:

to go down 20, 30, 40, 50%?

886

:

Would they continue to be in tandem

like we saw in this shallow loss?

887

:

And history has shown us that no.

888

:

It's, very, it becomes a very different

portfolio, in a continuation, but

889

:

hopefully we'll never see that.

890

:

Hopefully we'll just compete,

like hopefully the ultra

891

:

terrain is able to compete.

892

:

Hopefully the ultra terrain gives

what people need in terms of what

893

:

they care about, which is, am I

gonna have enough returns to make,

894

:

my, to pay my bills when I retire?

895

:

Or, grow to get a good

retirement nest egg.

896

:

But again, if they, if it does happen,

it's important to understand the moving

897

:

parts and the value that they add.

898

:

If God forbid anything really bad happens.

899

:

Rafael Ortega: it's funny 'cause I

was thinking that's exactly what's

900

:

taken me now full circle to, okay.

901

:

I can't convince everyone to be an

all-weather investor because it, people

902

:

are just not built in their mind for that.

903

:

They like taking risk.

904

:

they believe in stocks and, they're

value investors or they're whatever, I

905

:

don't know, they, want stocks and they

want businesses and they believe in

906

:

the markets and they're capitalists.

907

:

So whatever they, have in their mind.

908

:

you still can use, diversification

without sacrificing returns, right?

909

:

You couldn't do it before.

910

:

You can do it now.

911

:

And that's what I was saying, right?

912

:

You can add to a hundred percent

portfolio that, a hundred percent

913

:

stocks, whatever kind of thing you're

doing, a hundred percent stocks, you can

914

:

add some diversifiers on top of that.

915

:

And if you do the right amount,

you're not gonna feel the difference

916

:

and you're just gonna get that

extra return from the stacking.

917

:

So even if you're just looking at

returns, return stacking makes sense.

918

:

If you're looking at, maybe

you want a little less risk.

919

:

Not concentrate your defense on bonds,

then you can use return stacking to have

920

:

a more diversified defense, which is

what I was trying to do before, but now I

921

:

think I'm doing it more efficiently again.

922

:

add more defense to that

defense that we did.

923

:

We didn't do that before with stacking.

924

:

Rodrigo Gordillo: Yeah.

925

:

Rafael Ortega: There's so many other ways

to use stacking that when I put myself in

926

:

other kind of investors' boots, my mind is

exploding because I just can't understand.

927

:

If you know about it,

why wouldn't you do it?

928

:

I just don't see a world where in a

couple of decades this the norm, right?

929

:

Everyone will use

930

:

Rodrigo Gordillo: Where it's

not, where it's not standard of

931

:

care for the financial industry.

932

:

Rafael Ortega: using 20.

933

:

I see that.

934

:

if you have a any

version of a 60 40 right?

935

:

Like your indexed stock in one portfolio,

you can easily add 10, 15%, stack.

936

:

Without affecting your overall risk

and just get some extra returns.

937

:

Not like it, will happen eventually.

938

:

You're adding things that are,

they make money over time.

939

:

we know that not all the time, but

now you can get a diversified set

940

:

of things that make money over time.

941

:

You put them on top of

your traditional portfolio.

942

:

Tracking error is gonna be minimal.

943

:

Volatility wise, it's gonna be

almost the same, and you're just

944

:

gonna get some extra returns.

945

:

Rodrigo Gordillo: Yeah.

946

:

And, but ca and the thing is that, the

caveat to all of that is that, we're

947

:

saying it will, but the reality is

that, you look at some diversifiers,

948

:

A QR went through a three year period

where their, alpha sleeve just lost

949

:

money, and now it's killing it again.

950

:

Like it's, it depends on timeframe.

951

:

There will be losses,

there's no guarantees.

952

:

But, again, these are sound, a

lot of these are very sound ideas.

953

:

even if you're a hundred percent equity

investor and you decide to stack some

954

:

bonds, the question is, term premium

going to exist in the future if you're

955

:

able to stack an extra 1% just by

doing a hundred percent equities?

956

:

20% bonds.

957

:

Alright.

958

:

You're adding diversification.

959

:

Do you believe in term premium?

960

:

Do you believe that bonds are

gonna make returns above cash?

961

:

Especially if you're taking duration risk?

962

:

it seems like a reasonable thing.

963

:

if

964

:

Rafael Ortega: I know, we, we have to,

965

:

Rodrigo Gordillo: Yeah,

966

:

Rafael Ortega: we have to,

967

:

Rodrigo Gordillo: we have to Yeah.

968

:

Temper expectations.

969

:

Yeah.

970

:

Rafael Ortega: I feel like that

stock investors never do this, but

971

:

okay, let's temper expectations.

972

:

Rodrigo Gordillo: Yeah.

973

:

Let's us do what we.

974

:

Rafael Ortega: but, I can see a world

where one of those diversifiers can

975

:

fail on you even in the long term, but

the more of them you add on, you know,

976

:

the more probable is than, you know

that, than a series of things that have

977

:

made money over time in the long term.

978

:

If you add them together and you

have a diversified set of them, will

979

:

eventually probably make some money

and that will be something that will

980

:

be on top of what you are doing right

now and it won't affect your portfolio.

981

:

Rodrigo Gordillo: Yeah.

982

:

Rafael Ortega: so.

983

:

Rodrigo Gordillo: And

I, think you're right.

984

:

I think the big unlock for guys like you

and me who both started on the All-Terrain

985

:

camp and were like, this is the only way.

986

:

when you take that away for a second

and okay, investing is a religion.

987

:

Everybody has their own religion

and, their, they're all, they're

988

:

value investors, but there's a bunch

of, there's a bunch of like sects

989

:

within value investors too, right?

990

:

and there's a, there's all

terrain investors in there.

991

:

There's a bunch of sects.

992

:

So everybody has their own point of view.

993

:

The, big unlock here is saying, okay,

let's not try to shove all terrain

994

:

down the throat to be down people's

throats, but rather the realization

995

:

that, oh, this is just a tool.

996

:

And, if we can provide tools for

advisors and investors to apply their own

997

:

religion in a much more efficient manner.

998

:

Then we should help 'em do that.

999

:

And I think we're, we both

later in our careers, have

:

00:59:27,559 --> 00:59:28,819

been like, okay, you know what?

:

00:59:28,819 --> 00:59:32,089

Let's empower the world's population.

:

00:59:32,239 --> 00:59:33,409

You're gonna tackle Europe.

:

00:59:33,769 --> 00:59:38,629

We'll tackle the, anglosphere,

to just do a little bit better.

:

00:59:39,079 --> 00:59:43,909

And I think that's, you're, you

are coming at it now that's what

:

00:59:43,909 --> 00:59:45,469

you're gonna start offering soon.

:

00:59:46,149 --> 00:59:49,869

and, it makes total sense to me,

and I'm actually quite, pumped about

:

00:59:49,869 --> 00:59:53,079

it, from this, how it's gonna work

in, Europe from your perspective.

:

00:59:53,706 --> 00:59:53,926

Rafael Ortega: Yep.

:

00:59:55,119 --> 00:59:55,629

Rodrigo Gordillo: All right.

:

00:59:55,899 --> 00:59:56,919

we covered a lot.

:

00:59:56,919 --> 01:00:00,189

Is there anything that I, that

you think would be useful?

:

01:00:00,189 --> 01:00:01,599

Any parting words?

:

01:00:02,446 --> 01:00:02,566

Rafael Ortega: I.

:

01:00:06,696 --> 01:00:06,936

Yeah.

:

01:00:07,626 --> 01:00:10,896

maybe I, it's more of a question

that I'm asking you, but,

:

01:00:11,679 --> 01:00:11,979

Rodrigo Gordillo: sure.

:

01:00:12,426 --> 01:00:17,406

Rafael Ortega: I'm seeing, more interest

in return stacking portable alpha.

:

01:00:18,096 --> 01:00:22,446

the last couple of months have

been pretty crazy with, lots

:

01:00:22,446 --> 01:00:25,296

of shops opening up new ideas.

:

01:00:26,676 --> 01:00:30,816

I understand there's a, one of the reasons

why this hadn't happened before was, had

:

01:00:30,816 --> 01:00:33,936

to do with, the regulation in the States.

:

01:00:34,710 --> 01:00:39,870

I, we're looking at how this is evolving

in, Europe, but like, how, do you

:

01:00:39,870 --> 01:00:44,550

see, first of all, the landscape in

the States in the rest of the world.

:

01:00:45,318 --> 01:00:45,618

Rodrigo Gordillo: Sure.

:

01:00:45,930 --> 01:00:46,890

Rafael Ortega: things in Canada too.

:

01:00:48,766 --> 01:00:51,256

How do you, see this evolving States.

:

01:00:51,424 --> 01:00:51,904

Rodrigo Gordillo: Sure.

:

01:00:51,964 --> 01:00:52,264

Yeah.

:

01:00:53,746 --> 01:00:56,896

Rafael Ortega: The transition to

other markets like Europe, where,

:

01:00:57,946 --> 01:01:01,426

I've started, as you were saying

before, we, found a way to operate,

:

01:01:01,816 --> 01:01:04,306

but like we've had to go through many.

:

01:01:05,914 --> 01:01:07,504

Rodrigo Gordillo: We're, going

through loopholes right now to

:

01:01:07,504 --> 01:01:10,384

get you the exposure that you

need with your bank, right?

:

01:01:10,894 --> 01:01:17,704

So it's, I think, like anything new,

it's been around for 40 years, right?

:

01:01:17,974 --> 01:01:19,594

I think I've, used this analogy before.

:

01:01:19,594 --> 01:01:24,304

There's a bunch of, for people who don't

wanna die of a heart attack, there's a

:

01:01:24,304 --> 01:01:29,044

bunch of tests that have been approved

and been recommended for doctors

:

01:01:29,044 --> 01:01:31,174

to give their, patients for years.

:

01:01:31,774 --> 01:01:36,064

in order to, assess whether you're

a high risk for heart attack or not,

:

01:01:36,184 --> 01:01:39,034

that are not being done by the vast

majority of doctors, even though

:

01:01:39,034 --> 01:01:40,174

they've been around for 20 years.

:

01:01:40,654 --> 01:01:46,894

And so it requires, in this case and some

experts to bang down the door and say, no,

:

01:01:46,894 --> 01:01:51,154

everybody needs to get their a OB numbers.

:

01:01:51,154 --> 01:01:55,921

And they, everybody needs to get their

lp, sorry, LP little a numbers checked.

:

01:01:55,921 --> 01:01:56,881

And these are things that.

:

01:01:57,481 --> 01:01:59,551

Nobody really knows about today.

:

01:01:59,551 --> 01:02:01,771

They just care about cholesterol,

total cholesterol, even

:

01:02:01,771 --> 01:02:02,701

though it's a good indicator.

:

01:02:02,701 --> 01:02:05,401

But our maximum indicator

it's, it takes decades, right?

:

01:02:05,551 --> 01:02:10,741

And, portable alpha has been around

for 40 years and it's taken a few

:

01:02:11,041 --> 01:02:16,201

people, trying to say the same thing

in different ways and communicate.

:

01:02:16,201 --> 01:02:19,891

And then when it becomes important,

there's a groundswell right now, if

:

01:02:19,891 --> 01:02:23,491

you look at how many times the word

portable alpha has been searched, it's

:

01:02:23,491 --> 01:02:27,211

gone from nothing to, an insane amount

in the last two years, especially.

:

01:02:27,758 --> 01:02:29,648

probably we helped in

a little bit in that.

:

01:02:30,413 --> 01:02:32,723

Now institutions have to pay attention.

:

01:02:33,263 --> 01:02:37,013

Like we know for a fact that

Morningstar is having to think about

:

01:02:37,013 --> 01:02:41,673

a new category that's going to put

all portable alpha people in there.

:

01:02:41,703 --> 01:02:45,033

And then the next question

is who's behind the curve?

:

01:02:45,033 --> 01:02:49,743

And I think the usage structures behind

the curve, they have these weird rules

:

01:02:49,803 --> 01:02:55,893

about, how one can invest in derivatives

and it makes it really difficult and

:

01:02:55,893 --> 01:03:01,293

really expensive to provide the best

possible, stack because of that.

:

01:03:01,293 --> 01:03:07,083

And I'm sure that'll slowly start to

change, because there's going to be too

:

01:03:07,083 --> 01:03:12,723

many people that matter to them, forcing

them to lighten up a little bit, right?

:

01:03:12,723 --> 01:03:13,833

So that groundswells is coming.

:

01:03:13,833 --> 01:03:15,843

People are asking more and more about it.

:

01:03:16,263 --> 01:03:20,793

once a category in Morningstar, exists

and other platforms will have to

:

01:03:21,123 --> 01:03:28,023

think about it as well and categorize,

there's a reticent from existing funds

:

01:03:28,023 --> 01:03:30,963

that have been using portable alpha

from ever to saying the word leverage.

:

01:03:32,463 --> 01:03:33,153

I think these,

:

01:03:33,405 --> 01:03:33,675

Rafael Ortega: I,

:

01:03:34,203 --> 01:03:36,718

Rodrigo Gordillo: yeah,

de-stigmatizing is gonna be huge.

:

01:03:37,005 --> 01:03:38,895

Rafael Ortega: it everywhere.

:

01:03:38,895 --> 01:03:40,330

And I know what it is.

:

01:03:40,340 --> 01:03:40,690

Right?

:

01:03:41,055 --> 01:03:41,745

But before I,

:

01:03:42,218 --> 01:03:42,508

Rodrigo Gordillo: Yeah.

:

01:03:42,615 --> 01:03:46,965

Rafael Ortega: were not saying

it you can find it, right?

:

01:03:46,965 --> 01:03:49,125

That you'll eventually find, this fund,

:

01:03:49,908 --> 01:03:51,968

Rodrigo Gordillo: and the goal

here is to de-stigmatizing.

:

01:03:52,245 --> 01:03:54,075

Rafael Ortega: to a benchmark, and

then you actually end up finding

:

01:03:54,075 --> 01:03:57,195

out that it's doing stocks plus

something and then that's why

:

01:03:57,645 --> 01:03:58,935

they're getting those returns, right?

:

01:03:59,295 --> 01:03:59,925

So

:

01:04:00,528 --> 01:04:00,818

Rodrigo Gordillo: Yeah.

:

01:04:01,335 --> 01:04:04,335

Rafael Ortega: I see it everywhere,

but I see people using it and

:

01:04:04,335 --> 01:04:05,925

not saying they're using it.

:

01:04:06,405 --> 01:04:10,845

And again, that going back to what

I said before about being very

:

01:04:10,845 --> 01:04:14,275

transparent on, okay, this is what

we're doing, and we explain it

:

01:04:14,348 --> 01:04:14,638

Rodrigo Gordillo: Yeah.

:

01:04:14,775 --> 01:04:19,425

Rafael Ortega: that you don't get scared

and, you see it's okay and it works.

:

01:04:19,440 --> 01:04:21,900

And, is exactly how works.

:

01:04:22,040 --> 01:04:22,260

Think

:

01:04:23,308 --> 01:04:23,598

Rodrigo Gordillo: Yeah.

:

01:04:23,738 --> 01:04:27,708

And I think a bigger unlock is also

Like anything, portfolio construction

:

01:04:27,708 --> 01:04:31,098

can be anything, portable alpha

can be any sort of iteration.

:

01:04:31,548 --> 01:04:35,178

Keeping it as simple as possible with

the one plus one that, that we've

:

01:04:35,178 --> 01:04:39,498

really focused on talking about Lego

blocks, I think, again, bringing

:

01:04:39,498 --> 01:04:43,128

it down to a level where people can

understand it, understand what they

:

01:04:43,128 --> 01:04:44,418

can put in and what they can take out.

:

01:04:44,808 --> 01:04:51,228

And being upfront about what the

stacks are is the big unlock versus

:

01:04:51,348 --> 01:04:52,938

we just, how do we outperform?

:

01:04:53,118 --> 01:04:54,378

We, just do overlay stuff.

:

01:04:54,408 --> 01:04:55,398

Just trust us.

:

01:04:55,458 --> 01:04:57,858

We're gonna, we're gonna

just do our own thing.

:

01:04:57,858 --> 01:05:02,208

And you just need to, batten down the

hatches and, investing it long term.

:

01:05:02,778 --> 01:05:04,848

We're trying to be like open kimono.

:

01:05:04,998 --> 01:05:06,198

Here's exactly how it works.

:

01:05:06,198 --> 01:05:10,848

You should know and let's really

understand what the risks that

:

01:05:10,848 --> 01:05:13,608

you're taking by using portable

alpha return stacking leverage

:

01:05:13,608 --> 01:05:17,178

are, and dispel some of the myths

and understand some of the risks.

:

01:05:18,678 --> 01:05:22,338

it's gonna be a long, journey to get

brought at auction, but I, like I

:

01:05:22,338 --> 01:05:26,388

said, 40 years from now, I'd be shocked

if everybody's portfolio doesn't

:

01:05:26,388 --> 01:05:27,798

have at least a little bit of this.

:

01:05:27,798 --> 01:05:27,998

That's

:

01:05:28,310 --> 01:05:28,605

Rafael Ortega: see it.

:

01:05:28,605 --> 01:05:28,665

Rodrigo Gordillo: Yeah.

:

01:05:28,665 --> 01:05:34,575

Rafael Ortega: Hopefully Europe moves

a little faster and I can introduce

:

01:05:34,575 --> 01:05:38,235

things because right now I'm seeing

that I'm always the first person to

:

01:05:38,235 --> 01:05:45,015

ask, or the first person in anything

that is portable alpha esque in Europe.

:

01:05:45,105 --> 01:05:46,005

Now in Canada too.

:

01:05:46,065 --> 01:05:47,595

I think I'm, one of the biggest.

:

01:05:48,003 --> 01:05:48,293

Rodrigo Gordillo: Yeah.

:

01:05:48,795 --> 01:05:52,365

Rafael Ortega: So I'm, trying to

be there at the forefront of, it,

:

01:05:52,365 --> 01:05:56,670

but really enjoying it because

I think we're very, early and,

:

01:05:57,573 --> 01:06:00,603

Rodrigo Gordillo: Very early and it's

exciting and you see that like when

:

01:06:01,353 --> 01:06:03,603

you put things together and you, I'm

like, oh my God, this is so good.

:

01:06:03,603 --> 01:06:06,723

We just need to give it, we just need

to show it out and give it some time.

:

01:06:07,083 --> 01:06:12,393

And it's always it always, because of the

operational burden of doing something new,

:

01:06:12,393 --> 01:06:15,393

it's always, you're putting things out

two years later than what you want it to.

:

01:06:15,453 --> 01:06:17,883

Like we wrote the paper in

:

:

01:06:17,883 --> 01:06:19,353

something at the end of:

:

01:06:20,073 --> 01:06:25,653

Had we done that, the visual obvious

story would immerse, would emerge.

:

01:06:25,743 --> 01:06:29,223

And what's happened is it took

everybody two years to, to let

:

01:06:29,223 --> 01:06:30,243

us do what we needed to do.

:

01:06:30,243 --> 01:06:34,293

And we launched at the teeth of a,

drawdown in some of these stacks, right?

:

01:06:34,983 --> 01:06:38,103

we're just gonna have to muddle

through and keep on telling the story.

:

01:06:38,793 --> 01:06:40,713

And you're a good partner

to have in Europe.

:

01:06:41,475 --> 01:06:41,835

Rafael Ortega: Let's see.

:

01:06:41,835 --> 01:06:42,635

Let's see how it goes.

:

01:06:42,685 --> 01:06:44,305

We'll keep pushing it.

:

01:06:44,955 --> 01:06:47,373

Rodrigo Gordillo: Okay,

Rafa, this has been awesome.

:

01:06:47,613 --> 01:06:48,783

we should do this more often.

:

01:06:48,843 --> 01:06:53,613

Your English is much better than

my Spanish, which is, which is

:

01:06:53,613 --> 01:06:56,673

incredible, for somebody that

hasn't done this in English.

:

01:06:57,513 --> 01:06:58,353

thanks again.

:

01:06:58,353 --> 01:07:02,913

We will, if anybody wants to find

you work and they find you on social

:

01:07:02,913 --> 01:07:04,593

media and on your websites and so on,

:

01:07:05,160 --> 01:07:09,570

Rafael Ortega: I'm on Twitter

mostly at Paton, which is,

:

01:07:10,200 --> 01:07:14,610

R-I-V-E-R-P-A-T-R-I-M-O-N-I-O.

:

01:07:16,320 --> 01:07:18,810

we'll have it down there the links,

:

01:07:19,498 --> 01:07:20,198

Rodrigo Gordillo: in show notes.

:

01:07:20,550 --> 01:07:23,970

Rafael Ortega: and then if you wanna

read about Return Stacking in Spanish,

:

01:07:24,060 --> 01:07:29,470

you can actually find me if you look

for Return Stacked Portfolios.es

:

01:07:29,490 --> 01:07:31,590

that's the Spanish, webpage.

:

01:07:31,680 --> 01:07:37,410

And there we're basically talking about

return stacking and doing, covering all

:

01:07:37,410 --> 01:07:40,650

the, on the stuff that you guys are doing.

:

01:07:41,010 --> 01:07:44,550

Trying to bring it again, the main

difference is that we're looking at

:

01:07:44,550 --> 01:07:46,590

retail investors instead of, advisors.

:

01:07:46,590 --> 01:07:51,540

So that's why I some of ideas.

:

01:07:52,113 --> 01:07:55,353

Rodrigo Gordillo: Yeah, I, would

definitely encourage people to go to

:

01:07:55,353 --> 01:07:59,193

the site and there's a little button

on your Chrome that says translate and

:

01:07:59,193 --> 01:08:04,533

does a pretty good job of just try to

read a few and read it from a different

:

01:08:05,043 --> 01:08:07,506

angle, that, that Rafa is really good at.

:

01:08:07,506 --> 01:08:11,676

So definitely visit the site,

read some of the blog articles

:

01:08:11,676 --> 01:08:12,906

we'll have you on more often.

:

01:08:14,226 --> 01:08:16,236

and, keep doing what you're doing, man.

:

01:08:16,296 --> 01:08:17,166

You're doing God's work.

:

01:08:18,246 --> 01:08:19,236

Thanks for joining today.

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About the Podcast

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


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