ReSolve Riffs with Robert Cantwell on the Active Management Renaissance & ETFs

this podcast is brought to you by the resolve long horizon investing master class a 10 part evergreen podcast series where adam butler mike philbrick and rodrigo gordio of resolve asset management global explore an advanced investment framework specifically designed to steward quasi permanent capital with humility and balance from the science of decision making to all weather portfolio construction to the value of diversified alpha and tail protection this series provides a comprehensive capital management roadmap to improve outcomes for wealthy individuals advisors family offices and institutions managing less than 10 billion dollars to listen to the series or read the transcripts on demand please visit investresolve.com forward slash masterclass alternatively you can find it on your favorite podcast player by searching for resolve dash masterclass well can you believe it's another friday fantastic these are rolls like my groovy opening tune there my guys yeah cheers yeah memorial day this weekend so i found gluten-free beer it is possible is it any good wow is it flavor feed too or is it i can't quite tell but the second beer has gluten in it so i don't know if it really counts drinking a gluten one free before it yeah there it goes i do feel like that may defeat the purpose put off the uh the intestinal discomfort for one beer sounds reasonable yeah so just before we get started i want to make sure that everyone understands we have lots of wide ranging conversations on this particular video podcast and nothing that you're going to hear from these four scallywags is advice it is purely financial entertainment so make sure you keep that in mind and um that should get us started and and uh robert welcome to the show and i think i think to get us started um you might be a slightly uh less known guest for for everyone on on that tunes into the show so i'd love you to give your history where you're at what you're doing how you got there and give us a sense of who we're talking to and then we're gonna pepper you with all kinds of fun things questions and whatnot so you guys for bringing me with you um so i my my investment career started uh coming out of school i got i got into it through the institutional side so i worked at a private equity firm elevation partners for about six years or so and uh that firm took a little bit of a unique repo approach and they said we're going to take guys out of private equity and we're going to take guys that are operators and we're going to put them together they're going to equal partners running a private equity firm and we're specifically going to go and invest in media companies whose business models are being upended by the web and the original idea was well let's take really big brands like forbes so we bought half of forbes and then let's turn them from a legacy magazine company into the number one online destination for everything financial and business news that turned out to be an incredibly difficult investment thesis to actually execute but while we were doing that we learned that there were a number of new uh media business models forming around the web and we could just invest in these pure play new businesses as opposed to trying to turn the old ones around so we ended up investing in companies like yelp we were early investors in facebook and that ended up being a very good outcome uh for for the firm after that i spent a couple of years at a long short hedge fund uh what was cool is a lot of companies we've been studying privately at elevation were then coming into the uh into the public market uh so that was the first half of my career was everything was institutional um institutionally related uh after that you know that one of the early insights i had was i was sort of envious of the operating partners at elevation you had guys from apple from electronic arts bono from u2 who is as good of a businessman as he is a singer and i looked at that and said well gosh how can i get the operator experience so i can be both the investor and the operator sitting at that table one day and um i was fortunate where a good friend and colleague of mine from elevation michael praiseman started his company everlane so this was back in 2010. this was before even instagram was acquired by facebook to give you some sense of where the early dtc direct consumer brands were starting to think about how to position themselves so whenever lane was founded e-commerce on the web was already really efficient you had amazon you had ebay you had craigslist so if you knew what you were going to buy there was a low price and fast shipping available to get it but if you didn't know what you were going to buy that more curated boutique experience of going into premium stores this works for excuse me particularly well in fashion retail that part hadn't yet really been figured out online so everlane was formed with the concept of how do we create a store uh that is inspiring where we help people find the products that they're gonna buy that they didn't even necessarily have an intention of purchasing when they came in here and along the way we ended up building really the modern version of j crew and the reason we were able to do that was because gap and j crew were sitting there with thousands of stores with tons of debt and they were treating the internet like an outlet store and we did the opposite we said hold on the website is the very first place customers are interacting with you that should be your most premium product your most premium customer experience not an after thought liquidation channel for all the stores that were operating in and so we were able to build this brand everlane completely online and a couple hundred million dollars in revenue later the brand was then big enough to start opening physical stores so we ironically had completed the full circle uh and so i stepped i stepped away there a couple of years ago uh and in finding my way back into investment management i was really curious about finding an opportunity to build a company as opposed to an opportunity simply to manage money and this i'm sure we'll speak a good bit about uh but i was really fascinated by um this question of why hasn't every single mutual fund converted its fund into an etf it's more liquid it's more tax efficient and they can probably charge a lower price to all their investors and if if all of them should be doing it but none of them are doing it something's going on and what i've found so far is that the average mutual fund has seven or eight different share classes attached to it each one of those share classes has a different price or fee structure and they're able to discriminate based off of the investor they're selling that fund into whether it's a school an individual a financial advisor and charge them a different fee and that price discrimination gets them that extra 20 bips or so of margin that flows through you know their income statement and drives a lot of their operating margins because if they were to take the fund to make that same fund available as an etf and they'd have to price it the lowest common denominator well all those investors would just say well what do i need this exotic mutual fund class for i can just hold the etf version of this and we'd all be better so i was seeing the gap j.crew story play out all over again where they're not treating the modern vehicle as the premium vehicle and what that does is it creates a vacuum in the marketplace for new brands to form and so that's what i'm trying to do with upholdings which is really to be a pure play actively managed uh etf company and we've only got one today compound kings and we're only going to have one for the foreseeable future because every we're a small company so all of our resources have to be poured into you know picking the best stocks and managing that portfolio really well uh i don't believe we're going to be the only folks doing this uh other people are going to come just like we saw in the direct consumer expansion over the last decade on the um in fashion lifestyle uh but i'm excited to hopefully play a big part of that um uh tidal wave and renaissance of actively managed product uh over the next decade rob just before we get into the product and you know how you think about concentration and all that fun stuff i want to ask you a question about the cost of an etf you said something that has always been curious for me this idea that etfs cost less to run than a mutual fund um why is i it doesn't seem to me that it should in in any way we we've looked at structures before i mean running running an etf is pretty expensive um and it seems to be just as expensive as mutual funds the only difference is that for some reason from a i don't know um just a just doing what what has been done in the past mutual funds charge more than etfs and if you run an etf you can't charge more than 60 beeps like what what why is it cheaper if in fact it is or is it just pricing cheaper for culture well i think it's scale so look if if you're going to run um you know smaller fun strategies that have have caps on them i completely understand why you'd use a use a mutual fund or an interval fund to do that because you can keep the capital capped uh and as you've pointed out it's easier to be more exotic uh and potentially manager aligned with the fee structure but at scale i mean my rough from having you know worked with all the potential interviews so i was running a hedge fund uh for a couple of years and i'll give a little background of how i got here and then i'll get to the answer of what do i see on the operating expense side for an etf versus a mutual fund so i opened after i left everlane a couple of nice friends said hey you know robert that was that was really cool how you helped allocate capital for a young growth company you've invested in other companies in the past can you do cool investing stuff for us and the easiest and lowest cost way to start managing money for other people is to open a hedge fund it's unregulated it's very relatively low overhead from a legal standpoint the challenge is you can only have accredited investors so everyone's got to be rich already and uh so this was something i started doing i was doing it for five to ten people right after i got past person number 10 i took the same sort of you know 30 page subscription agreement i took the 50 page llc operating agreement i put the pages in front of the investor and i said you know these are all the things you're supposed to read here are the things that are really important and they're like robert i'm not going to read any of this um i'd like to just invest with you and i was you know that was one of my moments where i was like you know what they're absolutely right like we have the internet why is this the process and so that's what started me down the the trail of you know there's opportunities to register this as a 40 act fund and i can do it as a mutual fund i can do is an interval fund i could do it as an etf and uh so i talked to the i talked to the uh intermediaries you'd have to talk to to registered as a mutual fund and distribute it as such and if you look at the gross margin structures of artisan or t row these are all public companies today they have 60 to 70 uh gross margin uh where they run their funds and the math that i was getting from quotes of these service providers that as we would scale kind of showed me the same thing where as i grow um my long-term gross margin would get to you know mid-60s or something like that um right starting around the time you get to about a billion dollars in capital under management and um now on the etf side uh a brief sort of side story and again i'm sure this is well troddened uh research for for a lot of um a lot of your community is a lot of a lot of the sort of the pioneers and the cowboys uh five to ten years ago opened up their first etfs and i'll use the guys at alpha architect that even introduced all of us like they were cowboys coming out with etfs before it was known that that could be a way to really grow assets under management and they did a great job they got there with you know a handful of funds that they have and they got to a certain size and they said you know we could keep growing our funds or hang on a second we have this regulatory infrastructure that we built that would allow someone else to run their etf on our original investment and i think one of the big differences in the etf world versus the mutual fund world is this army of cowboys that have gone out there and built these very robust regulatory operations and trading platforms are competing with each other they're experiencing their own economies of scale and when i look at building the same etf and getting that magical billion dollars of assets under management the gross margin is like 80 to 90 so you're looking at 10 to 15 bits of pickup from operating an etf at scale uh presumably there's there continues to be you know improvements to that scale as the whole industry continues to evolve and if you're pitching that up against the mutual fund as we talked about in the beginning the challenge the mutual funds has is their price discriminating to get themselves closer to 80 bips and i look at that and say well i can charge 60 bits and still ultimately get to a 15 to 20 point operating margin long term knowing how much leverage there is uh at the gross margin level so i you know we're getting a little into the income statement here uh but that's my experience so far no that's useful and so um uh compound kings i guess is then an etf by it's just by upholdings could could you explain that sort of since we're in the structure uh rabbit hole how how did because it's a little bit confusing to me yeah yeah well what just one let's just tie that down quick just so yeah um yeah so uh upholdings is a we're a federally registered investment advisor uh you know i'm sure much like resolve and so upholdings is the brand upholdings is the uh is the powerhouse of doing enormous amounts of research and picking individual stocks that we think can outperform the s p 500 uh that's what upholding's responsibility is compound kings is today the sole vehicle through which to access the stock picking and research of the upholdings house got it and you know as you've pointed out i'm the you know young entrepreneur that's sitting here banging the etf drum you know crazily and it's possible that i'm gonna get into this business and ten years later i'm gonna have a private fund an etf a mutual fund and interval fund i'd like to believe that everything can be done with the etf uh but i'm not so close-minded to know that you know i'm going to learn a bunch of things along the way i wonder if if at some point that's all going to move to some sort of blockchain type fund management as well hopefully yeah then we're talking you talk about being liquid right now every etf it's you know it's it's constrained to a country it's constrained to market hours i would love my fund to be unconstrained to ours unconstrained to geography i guarantee you every cfo of a publicly listed company would love to have themselves globally listed at any time you talk about improving your liquidity that would be something i mean today we're having a fight look what's happening right now between china and the us and these chinese listed securities that are like uh i don't know the us is being confusing let's do a listing in hong kong let's do a listing in shanghai and we'll do a listing in london that stuff is absolutely going to be relics when securities are trading on blockchain yeah agreed i'm not going to go down that rabbit hole anymore because i want to jump into i want to get into the investing nuts and bolts of of uh the can't well brain the the concentration versus diversity uh the reason for it why it's so important today why it's much more important today than in in in the past in your view and and how you view that and maybe how you are sort of walking through the screening process to boil those those ideas down boil the ocean down to a reasonable set of ideas that you think are meaningful yep sure um we'll start with the simplest stuff which is you wanna you wanna pick industries that have some good secular tailwinds behind them uh in which you see companies grabbing large chunks of market share uh going very far back there's a very high correlation between the amount of market share you have and the level of operating margins you're able to sustain over long periods of time so i'd say at a high level we start there and so what that means is you're looking at at businesses that have very large end markets and you know there's a lot of companies in the us that serve both the u.s and the rest of the world and there's a lot of companies in china that serve primarily china and do a little bit outside of there but those are the two largest end markets that we currently you know seen have access to and sometimes we'll take a peek at growth companies in south korea or in south america but usually we fail to see those technologies uh do well outside of their own borders so they're it's a little bit less interesting to us because it's it's constrained it's not unconstrained um beneath that you then want to know that you've got a business model that can generate cash and when you're investing in companies sometimes that are you know pre-public but late stage private or recently public it's a very dynamic time for a business uh often they'll be profitable certainly profitable at the gross profit level uh usually profitable after subtracting their marketing expenses but after you take out r d and g and everything else sometimes these companies are unprofitable while they're still in higher stages of growth so i would say we focus on companies that are near generating positive cash flow or are already generating positive cash flow and then the second feature of that is do they have things to do with that money because you know we have an investment horizon where we want these companies to be putting this capital to work for us as opposed to you know sending it back or buying back shares or anything like that so those are the really the two core features of a compound king is is it or can it make money and then when it makes that money does it have good places to put it how do you source those ideas like what kind of technical or social infrastructure do you lean on in order to narrow that down but also ensure that you've got i mean you're talking about opportunities in china and in south yeah yeah so it's a pretty good question um as i said as i mentioned where we like to start at the industry and so you start with an industry that you like and you put the key players in it and you take a look at what's happening to market share within that industry so i'm gonna we'll pick on uh digital advertising for a second google has obviously built a very you know strong competitive mode for very many reasons but then you had social media advertising come along uh and then you had the rise of tick tock and youtube is having a renaissance where you know creators are getting paid so within this digital advertising universe there are kind of three segments of money spent you've got search advertising uh you've got uh performance advertising on social media and then you've got brand advertising and the youtubes and the tick tocks of the world and uh what's happened here is uh amazon has entered the game and amazon said hold on a second we have a ton of organic traffic to our site why are people going on google searching something clicking a google ad and then coming to amazon to purchase from us and so over the last five or seven years you've seen pretty significant deterioration in uh google's online advertising market share you've seen amazon take a lot of that market share you've seen facebook miraculously hold share that entire way and then so those that's what's happening at the majors and then you look you know what about the companies that weren't public yet so pinterest not too long ago was a private company they were starting to gain share kind of you had so you had the second tier of you had twitter and you had linkedin and then the third tier of snap snapchat and pinterest and we're paying very close attention to how is it that market share gains are happening at different sort of sizes within the digital advertising ecosystem and for a period of time pinterest was showing some pretty tremendous growth and was available at a pretty darn cheap price uh in the public market and there was a time a year ago where pinterest was a phenomenal stock for us to own that got caught up in the hullabaloo of all the stocks that got carried to insane valuations back in december and january and so we had to get rid of it but facebook continued to out deliver continued to sustain its market share position and it was available at a better price than it's been in the past handful of years and so now facebook is obviously a more attractive investment to us so it the screening as i mentioned it kind of starts at the industry level we're willing to invest in anywhere from the majors to the emergence but we're really stubborn about the price that we're willing to pay and whether or not those companies are gaining share within their industries holding it flat or losing it all together yeah so let me be a little clearer because i'm i'm interested in sort of the um what what software databases um social um connection networks or infrastructure right are you using it because you know i'm sort of thinking gixx there's what 60 odd gigs sub industries and we haven't done sub industries in a long time but like this this is a fairly broad there's a lot of data here so where do you start from a data standpoint how do you drill in um to make sure that you're you know because there's like this type one error this type two error right type one error um you're zeroing in on an industry that seems interesting turns out it isn't type 2 error you're ignoring an industry that is actually really interesting but just didn't show up on your uh on your radar right so how do you how do you manage that trade-off from a process standpoint and what sort of infrastructure do you use to um to optimize that yeah um i'll answer the last part first and then i'll talk about you know the specific tools and you know pieces of software that are we actually use so uh this is i think this is a little bit of a strength but also a weakness of compound kings is that you know as the portfolio manager captain kings is going to be a bit limited to industries in which i have some amount of expertise which is advertising commerce enterprise software uh and a little bit of payments so and also i'll say you know thesis wise or as active management goes i believe that anyone can make money in any category that they're an expert in however the investment strategy that you run needs to be appropriate for the types of opportunities that those industries afford you so if i was an energy investor i'd kind of have to be a long short investor that runs a neutral portfolio because there's so much turmoil taking place over the losers versus who are the new winners going to be that is difficult to just invest in the compounders or invest in the winners so i think each i think industries can have different sort of investment um strategies attached to them um so i'm a bit beholden to the industries that i know you know as we get bigger over time and need to find more opportunities i think it's about hiring experts within those areas to then skewer through and come up with whether or not there are attractive investment opportunities um to talk about specific tools um i mean it's as simple oh it's not as simple but i mentioned we like to start with operating statistics but when we don't use operating statistics and we potentially start with market stats on how things have traded and we screen for how stocks have traded relative one another i'm running excel with cap iq plugins and you know we've got long long lists of the operating stats we follow a stat that i really like is gross profit minus marketing uh as i previewed earlier companies that will likely become cash generators in the future but may not yet today are typically growing their gross profit minus marketing uh very quickly um so that is like one specific screen that like we'll we'll track pretty closely sometimes we're relying on things like share prices in our friday recap earlier today i shared talked about the s p 500 it's been up 14 since the beginning of the year if you were to take the basket of cloud services stocks that do infrastructure that do business as an operating system like a workday or a service now or you take the individual application providers like a docusign or navalera that entire bucket of businesses is down 20 or so since the start of the year so you have basically a whole category of businesses whose fundamentals are going to grow faster than the s p 500 whose valuations have pulled back 30 from where the s p has performed that now is an area where we're going to spend a lot more time figuring out if we're allocated enough uh into the category does that get more into the specific screenings i think the the if i could distill the sort of salient thrust of your point there like you have a certain expertise that's largely a function of your background and um you're gonna lean on that fairly heavily and and the prior there is that this category is a growth category and therefore you know you're looking for long opportunities you're looking for long tail outcomes and um you can therefore you know you know what the investment style is and you know what your expertise is and and you're looking for the vend where that venn diagram overlaps um which yeah that was a much cleaner way of saying it yeah good um so my understanding one of the things we talked about sort of pre-show was that um you have strong conviction in the view that a concentrated style is um is a well positioned for the etf structure right the active etf structure because i think that's it's potentially not with any sort of arc um concentrated etf investing is sort of almost anathema right so you're almost inventing a new category here um but uh how do you how do you overcome some of the rules like some of the concentration regulatory rules around um you know concentrated positions in mutual funds and etfs and then one when you get past that i'd love to understand how you manage a portfolio of concentrated positions because it really is a very it's a totally different way of thinking about the problem than what we're typically used to so yeah start with why the mutual fund structure is useful for your style it's a big topic uh let's get the easiest part out of the way first which is the legal requirements and what are the concentration rules and limits and stuff like that so uh the minimum is the irs has a rule that says any position that is five percent or greater no more than fifty percent of the fund can be made up of positions that large so as the lawyers like to say that means you know in a concentrated fund you can have two quarters or 10 nickels depending on how you want to concentrate at the the top end of it so that's the irs requirement the sec actually takes it a step further and says you know no more than 75 of the fund uh can look like that or no more excuse me 25 and so under the sec's designation we are technically a non-diversified fund under the irs's rules we are a diversified fund and you don't want to trip the irs rule because if you do then you then they call you a company and then that fund is paying taxes at the corporate level just like it's a company as opposed to a fund holding stocks and other businesses so that's the quick uh those are those are the league rules now um speaking to an investment strategy for us where everything is heavily researched based it's about finding what we believe are disjointed opportunities in the market uh alibaba at 15 of our portfolio we are putting our money where our mouth is saying that that security is undervalued relative to the size and intrinsic value of the business i don't actually this is where the etfs have an enormous advantage over the mutual fund is that that pricing discrepancy exists today alibaba could rally 50 over the next 12 months their fundamentals could deteriorate there's no way i'd want to be holding a 20 position in alibaba with deteriorating fundamentals and the etf allows me to exchange those shares for another businesses shares without doing what the mutual fund did which is well to do that you'd have to actually sell the shares outright pass that capital gain down you know to your fund investors and they'd be paying taxes along the way as you move between those positions so if if your intention is a highly concentrated performance strategy i don't know of any other vehicle that allows me to do that um so seamlessly so just just just so i can pull on that a little bit so yeah the implication there was that because you're running or the intention is to run a relatively concentrated strategy that aligns with the imperative of being able to be nimble and when you want to be nimble you don't want the tax tail to wag the investment strategy dog right so the active etf allows you to be nimble without having to be um driven by or um motivated by the the tax consequences of those moves exactly on the other hand how do you feel about the disclosure requirements you know giving away sort of the the portfolio holdings in such a rapid way which is sort of avoided in the in the more traditional mutual fund stance so far i like it i mean yeah transparency is something you you've sort of prop pride yourself on yeah so i it's helped kathy hasn't it i would think i mean it's now like bloomberg breaking news when you know she makes a rotation in her portfolio and it she it happens during the day it gets reported at the end of the day uh but i don't think it's interesting you know the other other folks at the advantage etfs that i've had conversations with about this is when i talked to a couple of mutual fund people originally they're like oh you're gonna have to share your portfolio and you're gonna get front run when you're trying to you know build positions and i i went to an etf conference and i asked every single person i could find there if they've ever been front runned and i wasn't i wasn't hearing the theoretical problem that was laid out by a lot of the a lot of the uh traditionally active guys so until it's a problem again we have the there is a non-transparent etf option that's available it's not switching a flip uh flipping a switch i screwed that up didn't i i thought you said we have lots of dyslexics on our team yeah i never understood sometimes i get my mers wicked up too but within three months we could work at the sec and we could flip back to a non-transparent fund so my i would say my stance on it is be as customer friendly as possible unless the market really prevents that from being feasible and if it's going to be better for our clients ultimately to run it non-transparent because we start running into you know stuff like that we can always turn it on but by default until it actually becomes a problem i think it's silly to solve for that well also if you're if you're primarily holding um ultra large caps you know like if you're holding alibaba and and facebook then you're unlikely to run into any sort of flows issues right like the underlying liquidity is is sufficient yeah we'll see i don't want to sound too much like a trader here but it's been a very volatile market of the past 12 months and six months ago you know pinterest airbnb and uh etsy were our three largest positions and those were great stocks to own and we owned them in much smaller positions today because their valuations don't warrant a lot but it's because i think those large conglomerates are so undervalued um in the current market and that's why they're up there but if if we think that there's a similar mispricing taking place in other securities and those things feel more fairly valued i i aspire not to be shy about moving the portfolio there do you have the the do you have the opportunity and and um i guess proclivity to to sort of go down the cap spectrum is that something that you would be interested in into mid caps or um small caps even is that or is that something you're more a big time but i actually think as you just laid it out i think the market that we're in right now is the the big caps have the below average multiples the mid caps have above average multiples and the small caps have nosebleed multiples so i we almost need to see a little bit of a reversal there uh for the i think the portfolio to start reconstituting around people ask us because airbnb was a private investment for us one other cool feature about 40ac funds is up to 15 of the fund can go into private companies and now that airbnb is public you know and the investors have been like cool robert can you like make another private company investment for us and it's like the the rise of the specs like the volume of ipos that had happened like there's no good ones left like you gotta wait for like the next class the multiples on modern vintages for for pe and virtually every sector have just been yeah yeah it's untouchable it is untouchable yeah for sure um okay so i can i can see you're absolutely bursting at the seams to talk about your true passion which is clearly this this extraordinary research process right this deep research just like heavily involved so let's let's hear it man what's what goes into what goes into this um into this process a good way to ask the question um other investors a lot of other active investors sometimes they'll have um they have really well honed answers to that question a couple buddies mine had a large hedge fund they always say our the number one most important thing to us in making investment is we talk to the five people that know more about this company than anybody else i've always thought that was like a really cool approach because it sounds very simple but it's very difficult to execute you have to figure out who those people might be you have to get them to talk to you and you have to attempt to understand they have decades of context and they're explaining it to you and you have months of context and so you may not even be understanding the profundity of the things that they're even sharing with you but i i respect this as respect to simplicity that approach so i i mentioned that because speaking to people in and around the companies that you want to participate in is really important um and we usually start with customers so like we what we want the products to be highly valued uh by the customers themselves whether it's enterprise software whether it's amazon retail whether it's you know netflix you know shows and this and that as you start with customers uh then we'll usually speak to people that have worked uh at the company uh and so that's on more the qualitative um uh human to human side on the on the financial modeling side i think there's there's some funny quotes somewhere i don't remember terrible remembering quotes but they always say you know the best alpha that you can have is a longer time horizon uh than in the market uh uh or than the current participants in the market and so any time that we're valuing a business we're valuing the business off of its share count uh you know free cash flow generation uh in five years you know 2026. so every company that we're looking at in our portfolio we're looking at how is that company valued relative to our best guess or our range of outcomes of what it's going to be worth five years from now um and that way you know when stocks trade so they talked a little bit about some of these cloud services companies you know trading down a little bit and let like valuations off 30 but you know they miss revenue targets by like one and a half or two percent that's those are the sorts of opportunities that the market presents to you where if you're just focusing on managing your portfolio off of 2026 numbers you you care enough about the quarters to track what's happening competitively with these companies but you don't care so much about the precision of the growth rates to be trading your position too aggressively uh so you talk to the people uh you get your own numbers right and then i think the last piece of the process is that's the portfolio manager's sizing responsibility which is how big is the market the company's in that can usually be a big position how attractive is the price relative to what you think the thing is going to be valued at in five years and you know those two elements usually drive how big of a waiting you're usually willing to give to a single position in the portfolio so dig into that five-year cash flow forecast a little bit for me because yeah i think obviously you've been around long enough to understand but but for the benefit of people um listening obviously prices of equities prices of any asset are a function of the current expectations of investors right the average of current expectations of investors so if you think an asset is undervalued or overvalued it means you've got a variant perception your your view is different than the markets so i guess i'm curious what do you feel are the sources of your variant perceptions what what insights are you trying to bring to the research process that allow you to see into the future in a way that the average market participant isn't um there's there's two there's two pieces there so i'm gonna i'm gonna i'm gonna separate the the philosophy of seeing things that you know quote the market may not see uh and then separately again like before talk about some of the tools and other things that we think about and getting to that year five number um so i for me it's less about having a variant perception to the market the best way i can sum it up so far is that uh the market demonstrates fear uh around different categories at different moments in time and if you've built a company for long enough you know that every company faces all sorts of weird things over the duration of its life it is not a smooth you know straight line up to success and if you've done your work to know that the quality of the business is high enough you don't get too scared about rapid gyrations and valuation so honestly the best example of this is airbnb with the pandemic so a little bit of history on airbnb airbnb raised a ton of money in private markets uh in 2015 there was a little bit of bubble happening in private markets they hadn't really gone public yet once some of these companies started going public their valuations it got totally crapped on so airbnb kind of was stagnated at this 40ish billion dollar valuation from 2015 that was clearly overvalued all the way up you know into 2018 the businesses fundamentals had started to grow into that number but it lost all the attraction of the venture investors that were grinding up you know the price of that business over time uh early investors were getting really tired because they said you know normally when we invest in a company that's successful there's been some sort of realization event that's happened already so it fell airbnb as a private company essentially became less liquid the bigger that it got and the irony is that the underlying business actually grew up into that valuation so the first time we bought private shares is a 40 billion dollar company and we kept buying a little bit we bought a little bit more at 45. and then uh corona happened and everyone was afraid that no one would ever travel again uh airbnb is priced i think silver lake did a deal at 18 billion dollars or something like that with warrants and even in the private the little liquidity that was happening in the private markets we were able to go in there shortly after silver lake and buy more airbnb at 25 billion dollars because if you're focusing on the five year or the seven year or the ten year number for a business like that whose market share position didn't change during certainly the beginning of the onset of the pandemic there was simply a call it exogenous industry shock that happened as the investor you're like okay well i can never predict what's going to happen at the industry level presumably that's going to be boom and bust or whatever but now all of a sudden i'm getting this asset at 25 billion dollars it took a very short number of months for them to become public in the market to say dear god that wasn't the right price look at how quickly this company has recovered they're coming back to their booking levels far faster than we thought it traded up to 100 to 120 billion dollars it's back at around 80. it's probably a little bit overpriced now you know i wish it was a 50 billion dollar company and i could own more but you don't get to pick you know the market picks um so i share that experience because i don't know at which moment in there was quite the variant perception to what the market was giving because my approach is you know do i like the thing and is the price better now than it was before no that's a that's a totally fair point actually and i i may have i may have painted you in a into a corner where there's actually no corner i mean the reality is there's there's you've got a list of companies you've got a cash flow forecast um the growth rate is is reasonably um stable they have quasi-monopolistic qualities like airbnb for example or alibaba like a lot of the a lot of the companies you that you mentioned have sort of quasi-monopolistic qualities in their segment right so if you if you understand the size of their potential market and you can observe the growth rate and draw some error error terms around the trajectory of revenue growth and acknowledge some hiccups along the way like like a global pandemic right then you've got a reasonable sort of band of where you'd like to own the stock and then it becomes this sort of waiting game i guess right where like i i know the stock is i love the stock here it's trading here i'm gonna sort of stink bid maybe not like systematically stink bid but i am waiting on the sidelines with capital to capture this opportunity when it comes along right now liquidity event or whatever so i guess i want snowflake i want to own snowflakes so badly but i can't i can't buy it yet yeah so so you're sort of profiting off the volatility of the market right like there's there's there's events in the market that cause through that have almost nothing to do with fundamentals most of the time that cause um the valuations to fluctuate dramatically and you want to be there to capture yeah those those major those major drops and and accumulate when you're presented with those opportunities right so it's it's less about having better forecasts and more maybe about um being more flexible in your investment approach so you're sort of waiting for the for the for the ball to hit you in the strike zone rather than than than swinging at every at every pitch right is that is that a reasonable kind of way to so so how do you manage how do you manage aum like you've got you got opm and you're waiting for fat pitches and you just happen to be in a six to 12 month period where you know so there's capital flowing in but there's no fat pitches how do you manage that excess cash or how do you manage the strategy in that type of environment yeah so again this is where the i have been i didn't even know the etf could do all these things uh until i started managing one publicly but i've been very pleasantly surprised to know that it actually offers you a couple of tools and options with that so the the default for most etfs are money comes in you get some creation units uh that then buys everything in your fund in exactly the proportion that your fund currently owns it um so it usually doesn't go to cash it usually goes to you know buying all these shares at current prices and you know as we talked about sometimes even things in our own portfolio are prices where we don't really want to own more of them and uh one of the cool things about the etf is you can say hey in lieu of i'll keep picking on airbnb because they're really expensive for a while in lieu of airbnb when a new investor buys the etf go ahead let them buy all the shares that are in there but for that airbnb piece i want their cash instead and what that does is that prevents that new investor and then you know by by extension you know the whole group of fund investors from having to share in a very expensive share price acquisition and now the follow-up part of your question of well what do i do with that cash it's very heavily dependent on what what's currently out there what's currently available i i shared a little bit earlier about how cloud service is a little bit cheaper so that's an area that those are like two and a half percent positions for us that we're pushing up to three to three and a half percent uh with prices where they are so it's heavily dependent on what's what's going on we'll either leave it in cash we'll put it in a in sort of a high cash yielding bdc uh if we think the credit's really good uh or we'll use it to buy more of our other stocks in the portfolio accordingly so that raises a few interesting things to deal with right like one of the it's a transparent etf you could conceive of a situation where investors are observing that you're they're paying you a fee but 35 or 50 of their portfolios in cash just because there's no there's no opportunities right you that is a legitimate value right you're you're adding value by keeping this in cash because the cash is really a call option on the ability to buy the stocks you want at cheaper prices but optically it may be unpalatable right so yeah do you do you foresee that how do you foresee managing around that you guys are good you're getting getting all the good ones so uh so with the sec we said in our prospectus that we would seek to not have more than a 10 cash position under you know regular sort of market circumstances technically we have the ability to move the whole portfolio of the cash uh if we wanted to um there's a good uh again uh borrowing from my uh uh buddy that runs a hedge fund um there's there's this analysis that they always share because hedge funds have they're always trying to keep their investors in their funds and there's some staff where a very small fraction of days or weeks of market performance drive 80 plus of eventual market returns so if you're swinging in and out of the market that violently there is a very high chance you're increasing the odds that you're going to miss the small fraction of days that drive 80 of the eventual upside that exists in the market so first off i don't i don't believe in being that active because i don't think anyone can be that's i just don't think the odds and the probability stacks up really well in your favor uh in light of that um so uh for us with like managing a cash position i think of it as in the beginning of this year we did have a pretty high cash position as a result of those airbnb flows we were getting we were getting kind of high we're in that eight to 12 percent range and we were looking i felt i say uh as a manager for the analysis i just shared i i definitely felt pressure to allocate that money but on the other hand i didn't get pushback from any investors that said hey what the hell you have our money like go put it to work i think you know as you very eloquently laid out it's like hey but you've articulated that you have the strategy of owning these good businesses you like and then along the way you need to have some of that optionality you know cash powder to be able to grab them uh you know when something happens to the price yeah and like i guess um the positions that you have in the portfolio just based on names that you've mentioned even though you may have a large cash position the overall beta of the portfolio is going to be well over one right even even even with uh so in other words that sort of market timing element is less of an issue because you've got some nice implicit leverage like beta style leverage on the underlying positions so even if you've got a 20 or 25 cash position you're probably got a beta to the market greater than one um yeah well we only have a two and a half cash position right now so we're not we're definitely not pushing the cash out vote in fact i'm going to take this so far as i don't know that it it's too practical to talk about things that don't exist yet but the conversation i'm having with you know the guys at alpha architect that i work with right now is this portfolio related to the s p is cheaper than it's been not on an absolute value basis but on a relative value basis and i look at that and say well what about gearing up the fund a little bit so as opposed to having a two percent cash position what would it look like to take on five to eight percent debt to get a little bit of gearing in the portfolio to drive a little bit excess return as well i don't know if that's something that you guys have explored and other strategies oh yeah i mean we certainly we're in the future space most of it so we are plenty of leverage but we are highly diversified only the the etf allows you to use or whatever regulatory framework the etf it's a transparent etf allows you to use as much as 150 leverage i think is that did i get that right i don't know the answer to that yet okay yeah yeah we'll have leeway but it'll be pulled on i think it was 30 but it's somewhere in there yeah but a lot of that's going to depend on how expensive is that debt because presumably it gets more expensive the more and more of your assets that you encumber and then this also gets to you know etf volatility where this is a publicly traded fund assets can evaporate out of that thing so you got to be real careful about uh you know how much you're borrowing against that because that's that's that's how a fund blows up um is borrowing money can't can't pay back well you'll pay it back it's just not going to have a very nice effect on the other securities that are going to be liquidated in an opportune time to pay it back so financially if you're taking leverage in this environment you're unlikely to want to take on leverage in any environment cost of capital has never been cheaper so exactly yeah well by the way not to get into the inflation thing but people just kept peppering us with what are you gonna do about inflation what do you do about inflation and i've always said the best thing you can do with inflation is borrow money long-term low-cost money so if that's the best thing you can do in inflation how is that something you might be able to reflect at the fund level so that's a that's that's where my head's been at risk yeah well let's get into inflation you you we chatted before the show and you clearly have an interest in macro so um where are you how do you think about macro where do you think we are in the macro cycle and um how are we transient how are you navigating i liked what i liked what carl icahn said the other day where he was basically like uh make no mistake it's here and no one has ever been able to forecast anything with a high level of accuracy so having the fed sitting there saying you know transitory or saying it's coming back down why would why would they even take the risk of screwing that up why don't they say we don't know what's going to happen it's obviously happening but if it happens for a persistently long enough amount of time then we will take action that to me is like the uh the correct like long-term oriented like let's align people around as the data comes we will make decisions as opposed to nope it's going to be different in the future well i think i think that comes from the from the realization that inflation is not just a number it's also it's fueled by people individuals and what they believe the future inflation is going to be so if the fed comes out and says we have no idea look at that that runaway number it might be run away or it might be uh uh just you know a couple more months if they say it might be runaway then individuals will act that way and i can i can tell you from south america from peru i've seen runaway inflation get worse when the wrong words come out of the leadership right so i think they i think their only choice is to always say that it's transitory inflation like when will you hear them say oh this is you know what this isn't trans story this one's legit we're going to have massive inflation in the next couple years they're never going to say that they have to say transition it's been complemented by the fact that they have been so successful at job owning the market and this may be another step in them just job owning the market with respect to no it's not we know better than you uh we'll save you at any price all the all the the number of times through the last god what is it more than a decade now where we've seen central banks actually state things that they will do or see or say and they have not needed to even do anything about them because the job owning in and of itself has accomplished the goal from a market stability perspective so i think that that that's part of it which is a very dangerous situation right it does set the stage for the system itself to reach sort of a position of criticality where it's denied deny deny and a sudden realization of a new paradigm so it's a really interesting game that's being played of chicken if you will between you know the the central banks and and the markets themselves i think i mean rodrigo that's pretty convincing man that's like the fed's only shot at keeping inflation low is trying to keep expectations low mm-hmm you're absolutely right i mean that that's the textbook thing which is inflation's is an expectations driven uh result or a large portion of it is but also you've got a massive fiscal shock right so we know there's a demand shock because we've got deficits in the public sector which materialize as credits in the private sector a chunk of that flows through the economy so that is a major demand shock and they've already said that they're going to blow this demand through the economy through infrastructure spending so there will be a massive uptick in demand the question i'm i'm struggling with is when we do see inflation the treasury still needs to finance its deficits so will the fed play chicken with the treasury like is if is the fed gonna say i'm i'm no longer gonna buy these treasury bonds in order to help fund these deficits i don't think so so the treasury will continue to to have implicit permission to fire host funds for the economy and then the only policy response is through taxation so that the taxation channel is the only potential moderating channel and we have a wealth distribution that is such that those at the very top with zero marginal propensity to spend and who are capturing the excess profits in the economy have an ability to [Music] modify tax policy through regulatory capture that wasn't present in other episodes like the one that we're currently in right like in the 1920s the capital classes had been neutered by the great depression so their ability to engage in regulatory capture and and alter tax policy was massively moderated right they just didn't have the resources to do it now those at the top of the food chain have the resources to manage the laws in whatever direction they want so the tax channel is vulnerable to regulatory capture the fed is not going to play chicken or not going to blink in a game of chicken with the treasury so how exactly are we going to moderate the inflation impulse i have a uh you're you're taking me down another path here which is i um i think the business model of the united states uh government is very flawed um and requires some pretty significant restructuring and i think it a democrat in a democracy it's going to take a very long time to restructure it so can i this ties back to the inflation stuff a little bit but permission to continue okay this is free free form conversation man organic let's go this is the good stuff it always takes an hour to get to good stuff so um uh 90 plus of government receipts federal government receipts are tied to salaries whether that's uh payroll taxes and employers are paying whether that is income taxes that individuals are paying on their base salaries and bonuses and everything else and the issue with this is that anyone that's made money or become wealthy or whatever in the past few decades has done so building a business building equity not paying themselves a penny of salary because that's one of the worst if you're the cfo of the business you're looking at this being like how can i incentivize all my employees you know long term with equity pay them as little cash today because the company doesn't have any cash to pay them yet and that way we grow the company as much as possible we build equity for everybody and that's also very tax efficient because they're only paying you know fifteen percent long-term capital gains et cetera the other on by the way there's lots of other rules out there like qualified small business income uh that prevents uh business builders from having to pay any taxes at all on the first 10 million dollars in equity that they generate for themselves so now those are those are great things to have for the incentives of building businesses and making america competitive but for a government that only gets money off of salaries for the most part uh it is at an enormous disadvantage to i'm gonna pull in our friends across the pacific here of china if you look at tax receipts at the chinese government they've got income taxes 30 or 40 of their receipts they've got vat that magical european thing where suppliers are having to you know pay you know taxes uh along supplier chains that obscene regressive tax policy exactly yes uh name it for what it is uh they do not yet have but are talking about introducing a property tax at the federal level or at least distributing it at the state level a lot of what they're doing is stealing from things that have worked really well in the u.s and they're just frankly a bit faster at implementing them and then they have consumption taxes uh and then of course there's capital gains and other traditional things like that so if you look at their you know pie chart of government receipts that is a that government is a diversified holding company and if one of those segments sucks they've got three other segments doing other things you know to help them and so this is my like issue and concern with like u.s government business model is that they're heavily exposed to one source of cash and that one source of cash is not anywhere where anyone that is deploying capital is trying to deploy more you know you hear the circular argument of salaries haven't grown in however many years oh but the government only collects money off of salaries and they're talking about are they going to raise taxes on salaries or not i'm just like it's not going to fix the problem so i think it is an extremely it's obviously a very political problem to solve but i think unquestionably for the u.s to you know either maintain our number one position or be competitive over the next 50 years i think that pie chart has got to change from 90 salaries to less than 50 salaries and 50 other ship so is it this is a case of probably their needs yeah but that that's only going to be accomplished through crisis it's it's a a crisis necessity change type scenario and it's a crisis may be just i mean we've we've seen an escalation like in and these these um emergent uh crises like the the storming of the capital type um phenomena and and occupy wall street and so these types of phenomena are accelerating in their frequency and as the wealth distribution continues to get steeper and steeper this is likely to get these types of crises are likely to explode more frequently and more violently and and so though that might be the type of urgency or crisis that you're referring to but does it lead agreed but does it lead to a more socialist state less competitive state rather than the emergence of some sort of reaction that is more entrepreneurial in some way right so when you see that the transition of societies over time there seems to be that you know the us dominance followed by or the uk's dominance followed by them falling to the next uh leader the u.s may be falling to china do you think that the u.s has what it takes even in that crisis what choice are they going to make are they going to make the choice to placate the uprising with more socialistic uh driven programs which is which maybe are not going to drive the kind of entrepreneurial fervor that's required one of the you know the uh i think the economics professors let's let's leave aside uh capital gains you know for a second because that's that's clearly the hot one that people are deciding whether or not should be taxed a little more heavily or close loopholes or whatever at a minimum on the salary versus consumption side there's the theory that says you should be taxing more aggressively at the consumption level than at the salary level to have a more prosperous society and purely from an efficiency game and you know diversifying government revenues and all those things you could certainly start to see how hey how do we figure out how to you know salaries aren't even growing so dear god why are we taxing those anymore uh they're only ironically making it less attractive to then continue to use salaries as an incentive tool uh and instead you know start to pull on things like consumption tax or something else like that well it certainly puts the taxation back into the consumer's hands right you get to choose on a consumption tax how much tax you'd like to pay really is that right well those are the bottom half a luxury tax or a consumption tax or what i mean is more of at some level of spending that ticks up to be rather onerous so if you would like to own lambo instead of a honda civic you are going to pay a much larger tax on that particular item so that that the consumption tax is more more tilted towards the higher net worth or higher income folks who are spending that money because it's as you say you you want to keep the lower end of um the the socio-economic strata relatively tax free or neutral or in this in the sense of a consumption tax but as you go up the consumption stack you're going to tax it more i don't know how you do that but it seems to me to make sense because then you're allowing you're putting taxation into the hands of the consumer you would like to consume how much would you like to consume here's your tax bill if you'd like to save that money oh sure i'm i'm sorry it's not the way i'm not just suggesting a c way please propose another way well let me know i mean the the the only the what's missing in that is that you're not taxing away that portion of a person's income and or wealth that was gained through community support through pure pure luck or happenstance through you know um lucky timing of of birth or well well hold on a second or let's say so i'm i'm sitting there i have a million dollars it's a windfall or 10 million dollars i can do a couple things with it one i can invest it if i invest it that actually is not a horrible thing for the economy and for those around me um i can also spend it and if you do have a consumption tax at higher levels of of consumption you will push more of that to investment i would suppose because if i'm a if i'm a consumer and say well okay now maybe i will drive a honda civic rather than lambo because the lambo is not 10x it's 30x because there's a 20x attack i mean and if we continue down this path what will happen is that jeff bezos will own 99 of all wealth and therefore we don't need to worry about a consumption tax because there's gonna be no one else earning any income sure right so this is just purely a function of the pareto mechanics of wealth accumulation so this well no but there is there is an uprising there's no place for that is there's a matrix moment that comes you know what i think at the end of the day the way to do this a lot of this in the debris distribution is the estate tax right we've talked about this in the past the fact that you've mentioned it just briefly but the idea that the problem is it's a very american ideal that you you work hard you get you do the the right thing you have a meritocracy you reach the american dream you don't get lucky you work hard and that's why you become a billionaire where in fact i think very few that are at the top will not recognize that they've gotten really incredibly lucky right timing my business you know a little bit of smarts a little bit option sure but a large portion of that money is pure luck that should be redistributed to society now it seems like the right thing to do and it seems like something that even it sounds like a terrible idea right let's take a moment right so this is because nobody believes that that there's any luck involved but the problem with trying to convince the rich to do that is that okay let's assume that i'm going to be okay with at death my family doesn't get anything 80 goes back to the government what is the government going to do with that and more specifically is there any link between taxation and government spending right now in the united states no reason for it so like the government you can just cancel the wealth it'll literally just cancel it's ones and zeroes that is removed from the financial system yeah deflation because we're managing the total amount of money in the system in order to target a certain level of consumption relative to the ability of the economy to produce you're burning tokens amount of consumption available exceeds what the economy can produce that creates inflation if the if the amount that the economy can produce exceeds what can be consumed that is that's deflation so the idea is you want to create enough money and put it in the hands of the right mix of people so that your your spending matches your your productivity and you want to expand the money supply in at the rate of productivity growth to mike's point you get mod productivity growth through investment right so that's a that is a fair point but there's there's a large amount of capital that was earned but that was was just you know earned through luck and that the correlation between the ability of a person who was able to earn money through you know one segment of their life in a certain way and their ability to turn around and then compound capital at a similar rate or even an above average rate in a different context is pretty well near zero it's it's not like we don't have examples of this though the uk does this the uk has substantial inheritance taxes of in in the 30 to 50 range so it's not like this experiment isn't being done and i'm not sure the uk is a shining no no i i agree the challenge is always jurisdictional arbitrage anyway right there is a property tax or the state tax that nobody pays except those are the in the middle income bracket in the uk it's paid it's there there's very very few ways to escape it as i understand it in in the uk system yeah and well the uk system is a lot flatter than the us system yeah and ultimately i think the reason there's not going to be any buy-in from the billionaires is because they would argue as i would possibly you know this is a good argument is that you can give the money nobody's going to burn the money so i'm just going to put that that idea to the side um but instead of giving it to the government who uses inefficiently you have the the gates foundation that is using their money to actually do do good outside of the united states and globally with the vaccines and whatnot they're they're more efficient they've run a business they run their foundations like a business they can do a better job right similar thing that baseless is doing and in a way elon musk right so the the utility of those billionaire dollars might be seen as being more efficient than any government can pull off by estate tax so there's an argument for that that's the argument i would make if i were when i became a business there's concerns i have about the perversions that happen when that money gets into government and all of the kickback scenarios and the the money will shift a power dimension to government in a way that i'm not sure how that works out but hold on actually and i want to know is what would bono say yeah that's what i was going to say yeah like is he going to do what rob has to say and i want the bono stories i'm going to first say that i have a lot of respect that the three of you uh work together and work together so well because in that bit that we just heard those were three very different prioritization of values three different opinions about the way to fix it and i'm very impressed because it is not very common uh in our country at the moment to have that many difference of views still smiling uh and laughing with each other at the end that's what puts a smile on our face man that that's what makes resolve go around i can tell you that was a very cool thing to see jump in with your thoughts but give this giveaway i may say i'll i'll say that um i i believe uh i have all the ability to point out the problems uh i am wildly incapable at knowing any of the solutions uh but i like the way you posed the question uh which is uh what would bono do uh you know the one of the funniest things about him he his business instincts his product instincts are really good um this one time we were in a meeting and um god this guy there was there was some promoter trying to sell us some kind of ripoff american idol show and they're like oh it's so valuable we just need 300 million dollars to make the first two seasons you get to own it forever it's going to be amazing and they they didn't have any sort of direction over how it would differentiate or what market it was tapping into that was really big and you know obama would do this thing because he normally wears sunglasses and and sometimes if you really wanted people to pay attention to them uh you know he'd take off the sunglasses and sort of set them on the table and use these really pale blue eyes and i can't do an irish accent but he'd say like you know the dirty secret about u2 is that we were the world's most successful christian rock band but we never ever ever told our fans that you know we let them create the illusions we let them create the mantras you can't you can't put it in their faces like that you know that was that was our version of going after the biggest market in the goddamn world christianity what can we bring it was really funny and sweet and beautiful uh anyway he had he had all sorts of little you know sayings and things like that now you know the other thing about him i think um that uh that he gets a lot of credit for is that he has been as successful with both getting both liberals and conservatives to open up their wallets for uh for causes that he can get that he can kind of unite people around i mean apple is still selling red products today i think that's likely to go away you know at some point in the near future that deal existed because of that guy uh so i think i think he had a very unique ability at uh not overly joining one side and uh finding a finding issue or call it solutions specific enough that he could get people to join with them and there didn't have to be any sort of like party line debate about it so that's something that i often think about and you know sort of conflict resolution and things like that is how do we narrow the issue to something so specific that everyone can agree enough to move forward on it in some way or the other that's brilliant actually that that that is a way that's the way change has been done if you think about certain circumstances there's always one pinpoint of agreement and then it grows from there yes right in the door yeah it's a that's a really it's a that's a mind-blowing insight actually it's obvious it's mind-blowing because it's so obvious when you think about how change occurs and how waves of those of that that sort of the overton window of public discourse on a topic how that happens it's usually from one thing that everyone can agree on and then that agreement sort of grows so what are we what is that what is that policy plan that can bring people together at the moment does anyone have any insight reese's peanut butter cops are better than mars i think they're getting their own infrastructure i think they're getting there you know republicans just moved their number up you know they're able to take some time with it it feels like it's it feels like it's starting to happen like i'm getting politics less in my facebook instagram you know drudge report huff post like it's all kind of cooling off a little bit so you know what that's actually that's the competition so and you know once the pandemic news kind of rolls off over the next year or so what are we going to do with all our spare time right like we spent four years obsessing over trump we're gonna go talking right outside exactly like you know go go play with your kids go go swing a baseball bat go kick a soccer ball and go get a tennis ball but it'll be kind of nice just to go back to normal i mean the quote that richard actually sent us through slack yesterday i think works here convincing someone to change their mind is really the process of convincing someone to change their tribe if they abandon their beliefs they run the risk of losing social ties you can't expect someone to change their mind if you take away their community too you have to give them somewhere to go nobody wants your world you torn apart if loneliness is the outcome right so i think if you're trying to do a wholesale change and like your tribe is wrong come to my tribe or just your tribe is wrong and they don't have a tribe the people that they've known they've communicated with that they've texted with twitter read it whatever you want and then all of a sudden you break their brain then it's not going to work and and i i like the idea of finding a a single point of commonality and working through that and then you know slowly but surely one at a time hopefully creating either a new tribe or or uh neutralizing the extremes right yep totally i'm starting i don't know what you guys i'm gonna be listening to every single youtube are you youtube youtube now through the lens of christianity sunday bloody sunny it's like i feel like what was the movie set when they were the kids dead and through the whole thing yeah they realized that sixth sense yeah at the end of the movie you have the realization oh jesus bono is the architect of the matrix amazing so um anyways this has been great um robert this is you know i uh i honestly had no idea what i to expect coming on because i had not done very much homework but this has actually been really interesting and um i thank you so much for volunteering your time on a friday afternoon to come out and chat with we can be get we can we can off-road quite a bit as you've seen and um it's often hard to know where the conversation goes so yeah adam as as casual and as interesting as advertised very cool thank you for letting me uh yeah good luck man with the uh the highly concentrated portfolio approach we're big fans of that and it's it's a battle out there but you got the right guys with alpha architect there where can our audience find you uh that's a good question i think you know we've been very pleasantly surprised uh every friday we release a short little video it's three minutes long and we'll put on youtube and twitter and linkedin and in it we basically condense the research or the insight from the week we're doing all sorts of we talked about that research stuff we were doing before and the idea is on friday what's the one largest takeaway that we had as an investment team from the week and that's something that we share publicly and a lot of early investors have been thanking us for it and encouraging us to keep doing it um so i'm going to use that as the as the first place to to experience us um but yeah we're just up holdings on on twitter or youtube this is yeah so two things on that uh what was what were the insights for the week this week in in uh 30 seconds or less and because i've seen you also talk about what are you the top questions coming from the field um sort of you know your your top cop either clients or in your research meeting so two-part question which terrible thing to ask but one what what did you discover this week and what's what are the top questions coming from the field for you yeah it's like quarterly earnings calls equity analysts just jamming them all in uh the uh uh the the quick insight from today was about um i mean the s p 500 has had a killer start to the year uh and it hasn't been the fang stocks it hasn't been which were historically the largest driver of s p returns over the last you know five to ten years um so uh it has been about some of the valuation dislocation that we've seen we sort of pick the cloud services segment specifically uh because the cloud infrastructure providers the uh the enterprise software makers and the specific application developers uh have all traded down like you know 20 30 since the beginning of the year while the sp is up 15 so when you see a 35 valuation dislocation between one basket of securities and another and this cloud services segment by the way their customers are mostly the s p 500 so if the companies in the s p 500 are doing well and these guys are growing their revenue 30 plus over here that means that they are in effect extracting cash from the successful businesses in the s p 500 so that was the thing that we kind of talked about today uh and uh starting to look at some of the valuations of um of those businesses for potential investment and the second part of the question is what is the most common question you get uh these are ridiculous i mean the technic these technically the answer to this question it's either should i buy bitcoin or i don't understand arc can you explain it to me those are the two most common questions we don't always answer them because they're not go ask ark if you want to know what ark does and you know we're not a commodity fund so go ask a commodity investor if you want to know what to do with uh bitcoin but technically those are our two most asked questions very cool all right all right well we'll have to cover those in the next round yeah there we go i had a couple of questions that i that i that i didn't get to ask but we're we're past the time and that will leave some questions for next time so here we go i'm gonna leave him i'm gonna hang him hang him before the commercial and as always all of you who are listening like hit that like button share share these with with um friends family share them proliferate them everywhere so that we can get more great guests like robert on and uh robert thanks again for coming and joining us and we look forward to seeing you in the future very good luck man have a great weekend have a great long weekend yeah yes indeed and to all of you listening have a great weekend and join us again next week this episode is brought to you by resolve asset management inc separately managed accounts available for u.s and canadian investors while diversification is often discussed it is important that it actually be delivered through the suite of resolve global mandates offered at varying risk levels we aim to strike the balance between global diversification appropriate risk balance and directional alpha our portfolios are designed to safeguard and profit across many economic regimes including periods of negative growth shocks or unexpected rising inflation periods in which in our view the traditional 60 40 portfolios may fail to deliver adequate returns for investors resolve to improve your portfolio click on the link in the description to reach out to a representative and assess which resolve mandate is right for you you

Channel: ReSolve Asset Management

Views: 306

Rating: 4.5555553 out of 5

Keywords: straddle, adaptive asset allocation, alpha, asset allocation, asset management, diversification, equity momentum, evidence based investing, factor investing, financial plans, global equity, hedge fund, liquid alternative, machine learning, managed futures, momentum, mutual funds, portfolio management, portfolio optimization, quant, quant investing, risk parity, security selection, systematic investing, tactical asset allocation, trend following, wealth management

Id: QFy01w9666o

Length: 89min 2sec (5342 seconds)

Published: Sat May 29 2021