The VOLvengers: Wayne Himelsein (Iron Man) & Mike Green (Captain America)

[Music] thanks for listening to the derivative this podcast is provided for informational purposes only and should not be relied upon as legal business investment or tax advice all opinions expressed by podcast participants are solely their own opinions and do not necessarily reflect the opinions of rcm alternatives their affiliates or companies featured due to industry regulations participants on this podcast are instructed not to make specific trade recommendations nor reference past their potential profits and listeners are reminded that managed futures commodity trading and other alternative investments are complex and carry a risk of substantial losses as such they are not suitable for all investors welcome to the derivative by rcm alternatives where we dive into what makes alternative investments go analyze the strategies of unique hedge fund managers and chat with interesting guests from across the investment world so the uniqueness of optionality is that you're really betting in two different variables you're betting in direction and in volatility um and so there's some people many people in the vol world that specifically use volatility to bet on volatility so they're going directionally neutral and making their informed decision about which way they think volatility is going to go or whether volatility itself is expensive or cheap so we don't do that unlike most in the vulnerable space what we're doing is more utilizing both of those variables so we're making directional bets but concurrently with volatility bets right so when you're doing both you haven't neutralized direction right and just making a volvo you're saying i want to make a directional bet and so in that case of the game stops or the teslas or whatever the craziness involved you have to be sure that your direction is good enough your directional magnitude is enough to overcome the vol that's going to go in the other other way and so to speak about it simply if direction is right by 10 points but vol loses by 10.1 points then you're down 0.1 right it's that simple [Music] happy anniversary one year that is one year anniversary to the derivative uh we launched this pod just over one year ago and have had some great guests lots of fun conversation i've most of the time felt not totally adequate talking to the guests but it's been a lot of success so thank you all for joining us along the way and uh what better way to celebrate a whole year of this podcast and bring back the og original guest to celebrate we're joined by the human behind the hedge fund wayne himmelsine and his partner in crime or crime might not be the best part his partner in non-crime uh chart crime maybe uh and also derivative alum mike greene of illogica so thanks for joining us guys thank you for having us yeah thanks for having us jeff no worries and since you're both veterans of the pod here we've already done uh both your backgrounds and bios um so we'll put links to those in the show notes and spare the listeners going through that again although it's quite interesting in both your cases so i recommend going to listen to it if you haven't already um so let's get right to it so as well as a one year anniversary for our pod it's kind of was 2020 was the one year anniversary of you guys going live with investor capital correct yeah yeah it was uh we were running i mean we had some investor capital before but we didn't have it in a co-mingled vehicle um so or at least not as a standalone doing the absolute return uh version we were running a little bit more on the terrorist side um as as overlays to other other strategies so launching the standalone absolute return version uh for our first year it's our anniversary it was yeah it was it's exciting and it did everything that we hoped it would do and uh of course uh we're happy and uh just excited to go on for more i know we should have brought little like anniversary hats or something um i think we were all just very excited to have 2020 over for our society and and now we're you know well into 2021 and scratching everyone's scratching their heads equally so yeah it's kind of a little less to celebrate i guess as weird different but as we're um so what are some of your biggest takeaways in terms of running a fund of stewarding investor capitals through these crazy times uh who wants to start first well i'll let wayne launch on that one and then i'll chime in afterwards yes i mean honestly there's not that much specific um and i mean i've managed uh investor capital for many years i've been in the business for 20 years and done different things had outside capital uh in different phases and so it's you know that experience is not new to me um what's i think more exciting this time and ever since i've been doing the volatility trading i mean it's been since 2012 that logic has been focused on volatility and and building up this the systems and technology and models to to do what we do today as many years of innovation that since that time has started the thing that's gotten me most excited is i'll call just being on the other side of the market right is that where the shared pain of the streets generally speaking is when markets go down right everybody's suffering and everyone's talking about how much did you lose or et cetera et cetera in tragedy or in uh market turmoil so being on the other side of that is just such a nice positive it's almost like a i know it's the good side of wall street i don't want to put it that way but in the sense that um it's a help it's like humane you know everybody's suffering and we're the ones that are up during the time that the suffering is elsewhere happening so to be on that other side is something that i love and appreciate more than anything i've ever done it's not just running money it's not just working with investors but it's being there uh and being the win in the times of disaster uh so i think from that perspective it's a it's a new thing it's an exciting thing and it's something that i i can't wait to keep on evolving in and being you know hopefully hopefully not just amazing during the the worst of times in the market but hopefully doing even better during the rest of the time in the market um which would be of course the best of all worlds and don't sorry mike i'll jump in real quick i've like back in 08 we were had our own managed futures fun classic trend falling did really well back in the 08 crash and we'd be at parties right this was when you were allowed to go to parties um we'd be at parties and people like can you believe what's going on in the market and be like yeah i hope they go to zero and they're right exactly what what are you talking so there was a little bit of like you were the oddball so again you're saying it's fun to be on that other side but you're also a little bit of a an oddball like looking at you weird of like what is that guy's problem he's betting against all of us right exactly not exactly but sort of not exactly but it's it's kind of that there's that it reminds me of that um there's a i guess a german psychological concept sheldon frada yeah which is you know having excitement in others woes you know it's it's not that right it's not like i get happy when people are suffering at all i mean it's quite the opposite but it's just like it's you're the one that's happy at that event where everybody's moaning you know and you know so it's it's just it's weird to be on the other side it's it's but i love it i love providing that service alongside doing what we do in the markets um mike yeah so i would actually frame the same view maybe just a little bit differently i think um the most exciting thing for me is because of the way that we're positioned right where we are effectively in a straddle so when the market goes down we're benefiting when the market goes up you know we should be capturing a portion of those returns it it gives you a a um an ability to actually be relaxed in those situations right so one of the things that we did uh last year that i think you know if you're really honest about it and look back on it it's an incredible luxury we put out a piece on march 26 called policy in a world of pandemics right the the ability to write a piece like that and have the luxury as a team to be able to edit it and think through the processes and have discussions around it as chaos is occurring around us can only occur in this type of structure right so we were able to have the ability to in a somewhat calm and collected fashion compose our thoughts about what we thought was occurring and that's not something that a lot of people had the luxury of doing most people were very busy putting out fires they weren't in a position to observe the market and i mean it'll be like a white paper are you crazy like have you seen the market we're not writing a white paper right now no that's exactly right we got very we were very fortunate to be in a position to be able to put something like that out last year on march 26th um so those are all kind of successes any big not big failures but any failures or things you wish you'd done differently in the year gone by your since launch yeah i mean i the word failure doesn't um kind of fit in my vocabulary in that everything's a lesson to learn right i mean we all make mistakes we're all human um so that the we don't really fail unless we just throw up our hands and say we're done right and so we didn't do that ever nor do i plan to right so with every thing that happens that we don't like or that wasn't ideal it's for us to say what you know what happened here and why how can we make it better um so in that sense i won't say they were a failure i'll say that there were things that weren't ideal and what wasn't ideal is when the summer rally to mike's point we're in a straddle right so we should affect conceptually participate in the ups to a fair degree as much as we do in the downs uh but the difference of the the post market meltdown the recovery environment from june to november uh was one where there was market upside but concurrently this really heavy uh decline or deterioration involved right so of all the the thing we're long is in a bear market right and so we're long vol but on the call side so we're trying to you know participate with the market but getting crushed by vol itself just this major headwind against us um so the lesson you know we in totality we're we're okay but we would have wanted to participate more on the upside and were positioned interestingly in enough calls to do so if vol had started from a lower point right so this lesson of how do you how do you participate better in the upside when vol crush is such a big headwind without getting more long right that's that's the fundamental problem you have in long volume and so the the straddle is ideal if if vol is starting low in the you know historical 16-ish area markets can go up and down and you participate in both directions being in the straddle that's great but this environment of a declining vol and market up capture is one that is incredibly challenging to the to the long vol world uh and so that's something where by no means i would call it you know it that it wasn't perfect but but more so there were so much lessons we garnered from what happened and things we've now have as tools to work with those environments going forward of course there's not that many environments where you're you're fighting a market recovering it always has to be post some crisis so we hopefully we won't have an or you know i guess for the world it won't be another one of those anytime soon but in the next one i believe we'll do better in in the rebound if you will because of the tools we built during this version yeah i would just augment that i think wayne said that very very well i view this summer and through december basically as an extraordinary number of learning experiences where we saw things happen that candidly hadn't really happened in the time period that we have either been active or modeling there's really only comparisons back into the late 90s and early 2000s we spent a lot of time in the past couple monthly letters talking about those dynamics and i think it's given us the opportunity you know similar to the the quote-unquote relaxed uh analysis in march and it was anything but relax i just want to emphasize that but when you're when you're in that situation we've had the opportunity to see things happen that we hadn't seen happen before we've had the opportunity to evaluate conditions that had not really occurred before and to think about the way to structure analysis or testing of our systems that we now are much more robust to and so i've been extraordinarily pleased with the way that we've been able to push forward our both our r d and our product development in that environment and so i had this for later on in my notes but we're talking about now so let's dig into it yeah and i what my note was um you know mike came in you've got an active call book you're owning the straddle a naive look would be as you said like hey these guys probably did well on the call side did really well so can you just dig into a little more of what you mean by by why it was such a tough environment and which i've kind of pretend naively asked you before wayne of like why weren't you long tesla calls why weren't you long game stop calls um knowing the answers are probably because they were insanely or they still are insanely volatile but can you speak a little bit to that of that how the straddle exactly looks when you're buying those calls yeah i mean so first why we're not necessarily wrong or long game stop calls or tesla calls is that we don't trade the you know interesting information or the media names you know we trade off of a model that identifies names that have certain behaviors and those names didn't come up so we wouldn't buy them you know that's that's the the positive is i mean that we're not going to drift from our systematic approach uh i like that it's served me well over many decades so i stick to it but in theory a 100 vol stock wouldn't go into your list for example yeah i mean not so it's going to look at other behaviors that didn't make it um but to speak about that specifically is where you know there's potential upside that vol or that that iv out of the money is incredibly expensive so to say that that's you know the in fact there's probably people that bought call optionality on gamestop once the rally started that while it continued to climb not even didn't go anywhere but perhaps was even down you know at some point because vol's coming in against the positive delta of the call right i've been saying that for a while now that these market makers are pushing all their prices up people are buying these calls they're going to lose money even though they got the direction right they got to end the game right exactly exactly or say conversely for people who when gamestock made some of those incredible highs and people thought oh this great time to buy some puts you know which is great theoretical trade you have limited downside um and and and at that point the stock was so overdone it had to come down but you're paying so much an iv that the stock collapses 30 and there's no money made on that put option because iv contracts so much so the uniqueness of optionality is that you're really betting in two different variables you're betting in direction and in volatility um and so there's some people many people in the vol that specifically use volatility to bet on volatility so they're they're going directionally neutral and making their informed decision about which way they think volatility is going to go or whether volatility itself is expensive or cheap so we don't do that unlike most in the volar space what we're doing is more utilizing both of those variables so we're making directional bets but concurrently with volatility bets right so when you're doing both you haven't neutralized direction right and just making a ball but you're saying i want to make a directional bet and so in that case of the game stops or the teslas or whatever the craziness involved you have to be sure that your direction is good enough your directional magnitude is enough to overcome the vol that's going to go in the other other way and so to speak about it simply if direction is right by 10 points but vol loses by 10.1 points then you're down 0.1 right it's that simple and it's it's so hard to think about because it's a it's a it's complex math it's a it's a partial differential equation it's like so how do you you know you can't you literally those two relate so weirdly right and so you get into vol surfaces and how to model it and but that's the stuff we do so we're not um i don't know where the original question i think i've drifted a bit but because we don't look at those we're looking at this grand concept of how do we get the direction right in the face of all decline and so the bets we're making we we did get direction right in late summer but vol crushed too much it was 10.1 negative versus 10 positive in direction and so even though we said yeah we got the direction right it didn't even help us because vol was coming down so much and i what we weren't willing to do is go more long take a further directional stake to overcome that vol because then if if you if you're wrong and there's an event in the market you're not going to make up on the downside or you're not going to have good down capture uh so that trade-off is always the thing we're trying to balance and even as a point of clarification and mike you can speak this you always do have the puts on it always is a straddle so we're saying here long but it's long the straddle not not outright long well no oh sorry let me just clarify that and then jump to mark john jump to mike is the the straddle what we trade is a is a dynamically tilting straddle so we can be it's a straddle there are always puts on the books but we could be net long or short on that straddle so if we had for example just speak very simply 100 calls and 90 puts same delta we're going to be 10 long quote yeah right but we have put some calls so if the market collapses down 20 tomorrow we're still going to make tremendous convexity on the downside and it's going to overcome right away so you're long both tails but you tilt it in the middle to be able to make directional bets along the way sorry go ahead mike no no the only thing i was going to add to that is i mean to answer the question directly in terms of why we weren't in things like tesla or gamestop i mean first within the single stock options that we purchased we select within the s p 500 so the only time that tesla would have even become available to us december actually as of december right the second component is when we're thinking about those call options on the single stocks while we are selecting for momentum-like characteristics which both gamestop and tesla would have qualified for towards the end of the year the other thing that we're trying to do is we're trying to address the issues of volatility crush that wayne was saying and so we have a natural bias within our selection process to find securities that have relatively cheaper volatility or implied volatility on them themselves right so one of the things we actually wrote about this in a white paper in august talking about sku you know one of the things that has manifested itself this year is that you have seen the pricing of options on stocks like gamestop and tesla to a certain extent and for that matter apple right have exploded to levels that we just haven't seen in a very very long period of time right so the implied volatility on gamestop at some at one point was north of 500 percent right it's incredibly difficult to make any money into wayne's point if you had bought a you know 200 strike put on gamestop when it was trading at 400 yes you would have made money but you would have only made somewhere around 60 to 70 percent relative to the loss of losing 100 right it's just not a very good trade and so that's part of what we're trying to address by selecting at lower implied volatilities and the second thing quickly an easy way to think of that is you're identifying the trades with the most convexity right so you don't have to get the direction and the ball as right you could get either or right yeah i mean given a given a choice i guess um since we're biasing long on our single stocks right the real question is do we get the volatility picture right and that is extremely tricky because vault tends to compress as prices go higher it's unusual to see the sort of all expansion and higher prices that we saw through part of 2020 and again that goes back to some of the challenges and learnings that we had over the course of the summer we just hadn't seen what's referred to as a vol up uh market up type environment again since the late 1990s yeah and sorry i cut you off your second point or did i mess you up you forgot it no the the second point that i was going to hit on um was the one we couldn't ultimately include it and then the second one is the dynamic of we're automatically selecting for lower implied volatility right so we're trying to you know people have heard both of us talk about the dynamics of value investing and the challenges associated with value investing but at the end of the day the price you pay for something the contract that you enter into in terms of that implied volatility is going to affect your expected return yeah to jump into or follow up on what mike just said uh the way i just thought about in my head as an easy um uh way to explain it is a hurdle rate right so if a hurdle if all is our hurdle rate and if you if we found a position that we thought had upside potential of say 10 percent but the hurdle rate on the price of iv or implied vol if that hurdle rate was 9 that's that's not as good as a trade that has an upside of only 8 versus 10 but the hurdle is only four right so it's it's the combo of the two that we're trying to reach what is the most upside convex convexity given the lowest hurdle rate right so a naive way might be to just look at the hurdle rate but then you end up with all these low volt things that might not move at all exactly so that's a selection bias that way exactly so then you want to look at both and find the merging of the worlds i like it [Music] then i want to come back to you mention the value versus momentum so that's kind of implied in your in your book as well that you're tilting towards these momentum names um in november we've talked about there's that huge dislocation from value to momentum so um to me that's kind of like a hidden risk factor in there we're not not so hidden you openly talk about it but it's kind of a risk factor that you're at risk of this big dislocation at the same time you're only buying the options so there's not a you know a short option risk but can you speak to that a little bit about that dynamic and how how you kind of measure that risk and view that risk sure i mean first i i want to start with what you ended with is all the risk we take is non-recourse right so we're always only buying premiums so to the extent we're completely and totally and utterly wrong um we lose a little bit and we're done right so that's the beauty is uh in november sorry so yeah you only can lose the amount of the options you buy the option and the amount we put into any option or any sector exposure is always going to be some fixed percentage of our portfolio and the amount we're going to be totally on the long side is going to be fixed versus the other half of our portfolio which is short all the time right with put options so it's by definition the whole thing is constructed to be i you know balanced that no single risk can hurt us that badly you know in a larger context um that that's the beauty of a straddle of course but so putting that aside is yes the exposure the overexposure to momentum which is an exposure that we chose and we expressed why we chose it did does also pose a risk right if you get that wrong that's an area and and yes we openly talk about that risk and it hit us in november when uh it actually we thought the the ironic part of november was we thought the problem was going to be the election right and what was going to happen and all the uncertainty around that and then the election was fine but then two days later there was the vaccine announcement and of course momentum crushed and all the oversold value or anti-momentum rallied aggressively for one of the greatest factor rotation days on record so what that did is alerted us to not we knew we had this exposure but to how much this exposure can cost us and is it worth it right so if anything it opened up a door of questions and then um mike and i actually got into an interesting discussion around a way to measure what we call factor instability which is the if is there going to be a market where there's more rotation amongst factors um you know perhaps there's so much more risk parity in the market that it's creating factor instability right so if this is a new emerging phenomena then we we got to figure out a way to a signal to identify it and perhaps have some more balance in our book between you could call it growth value or we like to call it momentum and anti-momentum so we have in fact evolved a segment of our portfolio that does have some balancing between it we've reduced some of our momentum book and included an ante momentum or call it the growth value balancing act as a new feature that we're that we that we utilize and we're further developing a way to measure and weight based on the factor instability over time yeah this is one of the things we wrote about in our january letter that helped us in the relatively difficult january period i think for many long fall funds was recognizing this factor in stability and diversifying our sources of return that had as we talked about the unintended benefit actually of stabilizing and lowering the overall volatility of the product particularly in this type of environment which allows us to actually have a better overall profile so it turned out to be one of those win-wins that you know again we've been fortunate to have a number of opportunities in the past year to observe phenomenon that hadn't emerged if you look at our january letter which i know you were perusing before right at the front we we highlight this dynamic of factor instability which has exploded to levels above 2007 2008 and in line with the factor volatility that was experienced in the 99 to 2000 uh time period the ability to take advantage of that i think is is something that you know we i'm not going to say stumbled upon but certainly in working together we came up with a solution that actually ended up making the product significantly better in my opinion what do you think's happening there is it simplistic long short equity funds and factor driven models kind of becoming more risky or blowing up or are people abandoning those strategies and it's causing more factor volatility so my my interpretation of the events that are going on right now is that you still have significant unwinding of long short portfolios i mean obviously melvin capital would be the extreme version of that in this past month but we continue to see consistent um redemptions coming out of the active manager universe the long short universe has struggled in a lot of situations there are obviously some who did quite well coming out of the march time period but in general we've seen a lot of those position on wines and then the factor that i would actually suggest has had the largest impact has been the rise of what i refer to as the noise traders right the retail traders who in one form or another think they've solved something right and so trade with a level of conviction and aggressiveness particularly in the low delta call environment that is creating many of these conditions we described this in our monthly letters you know monday momentum works and then tuesday value works and then wednesday small works and then thursday large works right and so you're getting this rotation amongst factors that is indicative of stress and portfolios um whether that's the ultimate cause you know i think it's going to be very difficult to know until we're a few years past this point but you're thinking that some of that retail momentum and then probably not all the momentum but people seeing the retail momentum and creating more of a cascade on top of it you know the cascade effect is very clearly a component here um i i like to think a lot of i mean i just i agree with everything mike said and then we'll throw on as an addition um a point i mentioned before was this the increase in risk parity trading and you know it's in general like you could say as a the broader market has had a lot of vault dampening over the years right so uh short option short call call rights has been driving fall down enabling um more vault pops when there's unwinds so if you bring that down to the micro version anytime you're dampening vault you're pushing down a spring and the spring effectively wants to pop right so in risk parity by definition they're trading they're dampening the ball across the factors and so you're compressing what would otherwise be natural factor of all by the all the action of respiratory training and then every once in a while there's a pop that's almost like a the system needs to breathe so it's it's reducing what would be natural modulation or variance over time into compressed moments because of the unnatural compression of risk parity i don't if that makes sense yeah it does i think of that in the normal bell curve and the curves even even a normal bell curve is too wide for most people so they squeeze it in creates a taller head right right they want to be a tall head but yeah what does that do pops out the uh the tails when you use it yeah it's leptokurtic is the formal word yeah you you can use the math terms i like my hand motion i love hand motions too my hand motion squeezing but yeah and so i mean one of the things that we've seen and you're familiar obviously with some of the research that we've done in this area jeff but you know we are seeing this phenomenon of increased positive drift right the markets are effectively accelerating upwards and i would highlight the returns particularly in the context of kind of what historical valuations would suggest the expected returns should be right we're seeing an environment in which over and over again the gmos etc of the world say you know returns should be terrible and then of course we get the best returns we've had in in decades right that sort of phenomenon is matched on the other side by the extraordinary negative skew that is appearing in markets right so one of the areas that you know wayne and i have been sharing some research on internally is this issue of you know if you have this positive drift feature that makes calls look really really good and to wayne's point earlier like shouldn't you just be more long the offset to that of course is that we're experiencing very rapid declines and we're experiencing negative skew events with higher frequency and greater magnitude and so part of the challenge in terms of managing a portfolio like ours is how do you keep that straddle somewhat centered so that you're capable of delivering that downside protection at a moment's notice right without you know kind of the big warning of oh a recession is coming or the yield curve is inverted or you know blah blah blah um we're seeing that show up in the data and i would suggest that one of the challenges that a lot of people have is they tend not to think about how does the return distribution change over time they tend to think of the market as a somewhat fixed vehicle our evidence suggests that there's some serious changes that are underway and do you think that's gonna i've been asking this i'm kind of sick of the wall street bad story myself but um like do you think it's going to be does it have power is it going to be a staying force like it's kind of feeding on itself right now it already it seems but what are your thoughts overall on this what'd you call it the uh you had a good word for it i've forgotten already i've forgotten already the noise traders noise yeah i was trying to say retail but it was better than that the noise trailers so yeah are the noise traders here to stay or will the hedge funds the evil hedge funds have the last left i think so you know wayne spends a little bit less time on on this type of research than i do um the term noise traders is drawing from an academic paper that was just published in december by um um his name will come up to me in a second jang at all a university prof uh michigan professor um and the term noise traders is fairly broadly accepted it's people that trade off of information with the perception that the information that they're receiving in kind of an efficient market framework gives them actionable activity to do right to actually execute a trade i would suggest that the frequency of the noise traders and the growth of the noise traders is a feature of a market where people are active with either stimulus checks or a lack of ability to spend in other areas whether that's gambling activity or otherwise we've clearly seen an increase in small accounts opening we've clearly seen an increase in option activity in particular around the retail segment but the concerning thing from my standpoint is that the data suggests that these individuals are on net losing quite a bit in the options world the data suggests that 98 of the trading activity coming out of vehicles like robin hood is losing money and so i i would suggest that this effectively will burn itself out right there is kin there's tinder in the forest and you know lots of of material that can catch on fire right now but we're burning through it and you know i would suggest demand side of the equation from the supply side of the equation right you have you know what would it could it be argued that citadel and all those groups the banks are much less willing to take in warehouse risk right so they're all immediately delta hedging and that's kind of you know the cascade effect is greater than it was 5 10 15 years ago because the supply side of the equation is much more into delta hedging i think that's a general feature of the market that is occurring right we're seeing increased consolidation and therefore you know the quanta when it hits right citadel is a much larger player relative to other players so if they decide that they are not going to provide liquidity then the market needs to step aggressively towards a new level of much higher implied volatility or if they choose not to participate right those areas of concentration have changed the market structure and i think you're hitting on a really important point which is just the general structure of the market whether it's through the rise of passive investing the consolidation of market makers the change in the character of market makers has created conditions of fragility in both directions i use the term inelastic right the market rises more on less money being put in and will fall more on less money being taken out than it has historically exhibited yeah and we had jim carson and uh chris city on the pod couple weeks ago and they were talking about what happens when all that noise flow finds puts right and starts buying all these puts and the the gamma delta hedging on the way down could be right as you're saying could create a faster and more drastic move it's possible i'm a little skeptical that that's going to be as easy for people to embrace right um as much nihilism as there appears to be behind things like our wall street bets there's only so much you can make on stocks going down right you can certainly make a leveraged exposure on puts but it's a better story to say fed printer goes burr market goes up stocks only rise therefore i should buy low delta call options and you know quote unquote screw the hedge funds that are the evil shorters of the universe right i think that's a more compelling story than hey let's bet against xyz company or let's play against the entire us economy and market right is less sexy and you guys should be putting up signs like hey we buy calls too we're not we're not the evil hedge fund well actually more to that point i mean this is exactly why wayne and i chose not to have any form of shorting or short options or anything else right when you short your you have a tremendous exposure both to the downside in the form of the credit factor right you can have your shorts pulled at any point in your ability to maintain your levered position which a short is you can have that taken away from you in a bear market but you can also find yourself exposed to increasingly convex instruments to the top side and so wayne used the very intentional phrase before non-recourse leverage right that's what we do that's why we do what we do is to gain exposure to that and and it is honestly quite unique relative to most of our peers right we don't sell any form of options to defray the cost of being long options that was a very you know intentional choice given the way we see the market developing yeah there was some confusion just around the kind of high net worth space of like hey these funds melvin capital tries to make money on things going down like does this other long volatility profile have the same profile like no not at all they're borrowing money and selling an individual name that could rally right through they have an infinite risk almost on that versus a long volatility as a defined risk yeah it's almost like shorting on an equity basis or an is short vault but long puts is long vol right and that's that differentiated better than that you're you're doing the same thing but one short ball and one's long ball it's i mean one of the things that i would just highlight is that while we we call our firm the absolutely our our flagship fund is the logic absolute return fund absolute return is an asset class where you're typically thinking of being long and short has the most negative skewed distribution of any asset class right precisely because you're constantly trying to run a balanced exposure where you are short roughly the same amount of delta or exposure that you are long and that gives you this negative exposure to the credit dynamic it gives you potentially the negative exposure to something like a game stop screaming upwards our portfolio is constructed so that it exhibits positive skew right so we look nothing like anybody else in our space other than the the two words that follow logica in our name which is capital management no absolutely absolutely i was going to tell you guys after this january paper we got to come up with a numbering system or something you had a few new like i are and there were a few new three-letter acronyms i'm like all right we jumped the shark on the three-letter acronyms four letters how about that yeah four maybe three in a number or three the number there you go [Music] so changing subjects a little bit wanted to ask you both um just basically how it's been working together um you kind of view yourselves as more sherlock and holmes having civilized discourse or tony stark and captain america and it comes to fisticuffs every now and then what's what's the dynamic like can we get 50 50 of those two analogies i i actually think that's a really good way to think about it because there are elements where wayne and i strongly disagree about stuff right and um there are other areas though where i think what we're ultimately bringing and i don't think the tony stark captain america thing is is a terrible way to think about it because at the end of the day we both deeply respect what each of us brings to the table right um tony stark i want to be tony's time yeah there is sometimes debate about that but um uh but at the end of the day i i do think like the really critical thing is is that you approach it like you would any relationship right we bring different skill sets to the table and we have different points of view on some of this stuff but if you approach it from a standpoint of respect you're gonna end up making progress and and that's how i think of 2020 more than anything else yeah what's interesting is that um i've noticed this is that when two people agree on stuff there's nothing more to talk about right so if you know if mike and i had to debate you know should we get shorts involved well no we both are adamantly vehemently against that so that discussion is gone therefore it can't take up any more time so naturally we end up talking more about the stuff that we disagree right because there's so many things that are already agreed and therefore let's move on and so it would if one looked at the the sometimes the discussions it would appear like there's more disagreement but that's just because the pile of agreement 90 of the pie is already a foretold you know or gone story so um the focus on that small the small piece of where we disagree is hard because you know we we come from different places there is so much agreement so we think we'd be aligned but then there's oftentimes something very different we see about some nuance right but the beauty is chopping through that and to mike's point because there's uh respect for each other from an intellectual standpoint um then one of us is not saying something ridiculous that can't be the case so therefore what's going on and let's understand this right um and so that begets interesting conversation right it's like that old uh internet twitter mem the blue or the brown dress like you both think the dress is blue now let's get into the shade of blue exactly but you're arguing that's nice um yeah we're in the shades heavy into the shades and tell the story about blue a little bit more which one did you see by the way i can't even remember that thing that was crazy to me that dress i don't know how they did that i i didn't even see a dress no i'm joking um and tell the story of how you met it was on tinder or twitter or something with a t in an er don't tell our wives no um no we met we met on twitter it was really one of those things where wayne uh tweeted something and i immediately said this is somebody who knows what he's talking about and since he's down in los angeles um i suggested we get together for a cup of coffee we did the obligatory you know let's meet uh for a cup of coffee you know um this is pre-covered right exactly so we we sat down for what we thought could be a 15 to 20 minute conversation and two hours later um we were figuring out various ways that we could work together can collaborate help each other etc at the time i was working with peter thiel the obvious question was is there an opportunity to bring wayne and logica in as an advisor and external advisor to peter's organization and as i dug into wayne's product like it became extraordinarily clear to me that he was doing something that nobody else was doing in the quantitative space but it actually very closely mimicked what i was doing in the discretionary space and the advantage of a quant framework against the discretionary is if you're going to do something in a systematic fashion pre-programming it effectively giving it the ability to make decisions without you constantly having to recalculate what is my exposure where do i want to change this how do i want to do this etc it frees you up to think and at the end of the day you know thinking is what we're really trying to do better than other people so it's you know it worked out extraordinarily well i was able to point out to wayne that he was missing some of the impact of the passive dynamic that was creating at least in my analysis this upward drift and that led to a conclusion that there should be more up capture wayne to his credit embraced that and we found that we had a product that we were able to run with um with almost no time to launch which is rare in and of itself right like most managers you meet someone for a cup of coffee and they're like hey i think you're missing this piece they're like who are you we're just having coffee here um it also reminds me quickly of a story my wife and i when we were dating way long ago we we would go get coffee she'd be like hey do you want to go get a coffee we'd go neither of us drink coffee so we were we were going to starbucks and getting tea to this day we don't drink coffee we drink tea but for two years in there she probably asked me to coffee you know 86 times with fully knowing that i don't drink coffee but anyway um and wayne i think you just presented is your wife kept asking you to coffee the same way jeff the record might show it was yeah 50 50 or like 10 90. yeah we'll see uh-huh and so wayne what was that like where this guy's telling you uh what to do with your model i mean it was as you can imagine this like i've been working on something for many many years and i'm focused on um you know its benefits and its features and then um somebody telling me that i think you know initially i might have thought well you know i'm sure let me think about that but in general i consider myself to be a um very open-minded and very objective and try and not get trapped in my own ego or what what it is that i built quote uh all i'm trying to get to is the best future outcome or the best i guess in the darwinian sense the most the fittest product right or and so a lot of what mike a lot of the points mike made were really compelling so i couldn't just toss it out and i had to go back and look and i understood what you know what he's saying made a lot of sense and it what was interesting is that in the prior years i had run capital in where my volatility trading was more of a risk overlay right so it was i was long fall but more as a tail risk component than as a standalone absolute return and so i hadn't what i realized when mike was saying what he was saying is that i hadn't been focusing in that world right so because i had this basket of other advisors that i was hedging out because i was i'll call it living in the risk overlay world i i didn't have a chance to step out and say and look from the from an outside perspective so to have someone come and tell me all these points which are in and of themselves very valid and and of course rational and and made so much sense but concurrently to realize that hey i have a reason for not being for my eyes not being open to that previously so it all congealed to say oh my god i see it right and so that was an amazing moment for me to know that there was not just validity but why i had been um uh constrained myself in seeing that in the past so i and and the evolution from a terrorist product to an absolute return was so simple it's all the same models all the same trading all the same thesis simply just increased the weighting of the of the up capture of the call book right and so the project was quite simple in saying how much more up capture how much more do we want to weight the long side versus the short side and so a little bit of modeling around that allowed us to launch a product within a month or two you know of that discussion uh because everything was already in its place and i would have loved to been a fly on the wall for that first cop so were you guys actually drinking coffee yes yes was there a waitress or you went up and ordered at the counter uh no that was a counter place it was like i'm envisioning the waitress like coming over and hearing you guys talk this stuff and being like what what what is going on here in l.a you're supposed to be talking about scripts or something yeah it's particularly unusual because it was this i remember the place it's this um kind of outside seating in in the middle of brentwood which is a very uh we were the only ones talking finance in the end right the rest of them had had been done with that for years and years right i also remember that it definitely was coffee because it started to go through me in about 75 minutes into the two-hour conversation and i'm like i gotta get up and go to the bathroom so um definitely coffee and then there was something interesting you said in there when of trying to make it the fittest model which is interesting to me right you're trying to make the something least likely to fail right not the best performing of course not not fittest as in curve fit you're not fittest as in fit to survive yeah which is great because a lot of quants will try to be making the best model whatever that means of the best uh absolutely you know what's funny about that statement is it's it's the beautiful it's a perfect irony is that you want the fittest to not be fit yeah yeah and but those two fits are very different ideas you wanted the fittest to survive and to do that it can't be fit to the data right so to not fit the data begets the fittest model which is ironic this is i it's it this is actually a point where wayne and i um bonded as well right so most people think of evolution as you know survival of the fittest in the context of that's progress the reality is is that fitness is fitness within an environment i've talked at length about this wayne has talked at length about this and fitness in that context is actually fragility right you are exploiting an environment that you've determined looking at the past with virtually no certainty that the future is going to resemble the past right we talk about that explicitly and i'll just say as a funny observation the first time i went to wayne's house i walked in and his house is filled with fossils as is mine right we both have this uh this this fascination with dinosaurs and and um the preservation of history and the the indication of evolution in that context but to think about that properly within a quantitative or a market framework is to understand the inherent fragility in those models i think bringing it back to wall street bets i saw one of those guys who'd made a bunch of money he's like i just bought a triceratops skull like dinosaur bones with their ill-gotten gains or no they're perfectly legal gotten gains but maybe ill-advised games [Music] i wanted to ask you guys so i get some calls doing due diligence on logica and happy to tell them what i know about you guys but some of them have asked um about what they call the two star problem of that you're both strong kind of alpha alpha dogs out there in the money management world how does that coexist so i think we've covered a lot of that but just what would you say directly to the two-star problem sounds like a science fiction novel right i'd say i'm iron man america i get to be captain america how can you lose [Laughter] you get to wear the uh tights all right i'm going to stick with the shield but um no i mean look just from my perspective there is absolutely a challenge that both of us have where we have existed within frameworks where we usually think we're right right and anyone who's been married knows that you know we're not right our wives are right right and so there's an element of that same respect component that you have to ultimately bring to it and say look if wayne is arguing something strongly against me or vice versa if mike is arguing something strongly against wayne you have to stop and say why are they saying this right and offer them the opportunity to respect their point of view sometimes it'll be wrong right i know that i'm wrong a sizable fraction of the time and i know wayne knows that as well but at the end of the day if i'm bringing forward an issue or if wayne is bringing forward an issue there's a reason he's doing that right and as long as you keep that in context you're going to be fine yeah i i very much like what mike said and i guess the only thing i would add is that in the two-star problem is only a problem if the two stars each need to be brighter i guess and and so in this sense i think that um it's two stars where we can both allow for our starship in a way that's that's didn't sound like it not not the starship enterprise don't get excited jeff yeah both allow for our starness to be itself like i want mike to shine where he's great he wants me to shine where i'm great and we each know that each of our shining is going to be um complementary and additive accretive to to what we're doing so why why would we want to stop it you know we both want to foster it right and so i think as long as we look at it in that way and we see it that it's that we're aligned with each other and it's beneficial and if we fight it's because we want to build the fittest portfolio right fittest in the uh evolutionary sense most anti-fragile et cetera um so if if that is to use mike's word the context for the backdrop to everything that we're ever debating each other then it can only work out in a good place um and so i think that that helps two stars work um and i'm looking forward to more of it yeah to me it's a bit of a legacy question right of like you're in some sort of uh tiger cubs or something and two of them right one wants to be short some name stock and get all uh and the other wants to be long so they're having this public discourse about like hey this is why that's a bad idea this is why it's a good idea but right your setup doesn't lend itself to that well the other thing to keep in mind is we're you know we're a systematic shop right we're clients uh at the at the core so where mike and i can have a lot of debates there's a difference between debate and and ideas and innovation and then what eventually makes it into the portfolio right because after all this discussion and potential innovation it then goes to the rigor of quant and analysis and and all the stuff we which could be months of work and r d that ends up saying you know what what we both were debating it wasn't even that as the issue the the data has shown that this is the concern and so it begets a new situation and to actually make it into the portfolio had to have been the outcome or the results of a so-called debate and having made it through the the rigorous quant which then proves that it's something good and so then it is adopted or adapted in that way right that's a good point so mike's not going to convince you hey we need to be 90 percent tilted towards calls yeah i mean let's do it right before the close hit the button right hit the button go i know you know again i think that's one of the areas that is almost a relief for me right and it is there are components of learning to work together in that way as a discretionary manager you're constantly being forced to evaluate how do i want to change the portfolio given the immediate information that's available today right and so one one of the legitimate you know um issues that i think wayne struggled with in 2020 was the frequency of my market observations right you know this is what i'm seeing right as part of that respect i think one of the challenges for wayne is how do i recognize that i hear mike on that right but it's not necessarily going to change our portfolio or our construction or anything else and in a lot of ways that's actually quite you know it's quite important and it's also quite liberating because as a discretionary manager you make a lot of mistakes right you do a lot of things that you're saying okay i need to address this immediate issue right now and you can very easily unseat a portfolio that is very well positioned taking in the latest piece of information so that's actually been incredibly valuable for me to work together with wayne and the rest of the team thinking about okay what are the important steps that we need to make as we think about this and and we've had an incredible amount of innovation i mean wayne highlighted you know the um the diversification into the value factor that we introduced in december that has contributed we also introduced a diversification to an anti-momentum factor that was critical to the ability to hold ourselves following the work the uh the bottoms in march you know we've introduced um components now that we're beginning to look into in our macro overlays there are areas of insight that i can bring to the table but all of those you want to take time to do it right you don't change it in the same way that you would necessarily in a discretionary space i think at the end of the day that's a positive we're building something exactly as wayne referred to it that is you know just to steal a quote-unquote competitor's phrase you know it is anti-fragile to the ex to the environment going forward the uh you reminded me of my favorite one of my favorite west wing scenes um might be a little too blue for for you mike but um yeah they're flying and he's talking about a pilot and he's like the pilot is in a cloud he's relying on his instruments he doesn't he makes an adjustment here he makes an adjustment there and he's like you'd be completely shocked with the number of pilots that come out of a cloud flying completely upside down right so that's if you're like we got to make this change we got to make this change yeah adjusting the knobs you kind of lose your your true noise um i like that one that's a good one joe i'll i'll send you the uh the actual i kind of botched the quote but i'll send you the actual quote and then we've already settled on the uh tony stark and captain america but i had a whole list of duos here bonnie and clyde kirk and spock harry and lloyd from dumb and dumber butch and sundance thelma louise we got any other uh duos we identify with we stick with ones that survive thelma belmont the ways is not good for a long ball right they just either was bonnie and clyde i mean you know in the marvel universe yeah dumb and dumber wouldn't be good for marketing either um although i have you have called me out or i'm not sure if it was you or or somebody else uh reminded people of the story in an interview the dumbest man alive um which is you know we have told repeatedly i think that was actually the title of my rcm segment but yeah yeah who who was that that said that uh alberto vilar amarindo technology fund ten before you spent ten years in jail all right that's a uh it's a good badge of honor [Music] so moving on i wanted to talk a little bit about tweets uh twitter wayne you've been talking a lot lately or just i've noticed lately of kind of i'll summarize this of kind of questioning the use of pure quant and saying it's a mixture kind of math and art or science and philosophy um you know where are you going with that what's your point on all that yeah it's it's i have been saying more on that front as a recent you're right um so i think it's it's been this evolution uh over just from the beginning the decades that i've been a quant when i first started out it was the beauty of math was that everything had to perfectly calculate and there had to be the signal had to be perfect and if i take that on a on a slow and steady growth over time about recognizing uncertainty and of course learning about our our favorite concept and uh non-ergodicity right and everything that happens in the market um that it can't be so rigid uh and then you know i could say that in fact what mike was talking about before about his his uh joining and us working together over the last year and how he worked as a discretionary manager and being so active on decision making so i think maybe that's influenced me more in recent times to really consider what what is a quant right and um and you know why is it what is better about it and so what i've always loved about quant is the the systematic way of dealing with difficult decisions uh what i'll call emotions right and so uh we're gonna mitigate our emotional reactions by having a system we're following i love that part that that's that's why i'm a huge quant if you will i also love math and i love the numbers and the way it is so elegant at times concurrently i understand that markets are ever changing uh and that there's there's reasons to be active at certain moments because there there are smaller sample sizes that don't fit into the models you know when ivy hit a hundred at the bottom of march you know there are only five times in history that we could model that that happened so there's no use of listening to the data right the tails are too fat to adhere to um in modeling um there's uncertainty there within the tail therefore one the the ultimate place to get to i guess is this melding of art and mathematics and so in thinking more about it i've been tweeting more about it and i've been infusing in some way the this thinking into how i do what i do every day um and i i i don't say that i'm at a perfect place i feel like i'm at a much better place than than you know that i was ten years ago and five years ago and two years ago but it's still an evolution therefore i'm talking about it because i i want to try to hone in on the ultimate if that's even possible yeah and that that's a great point on the long ball space especially because there's so few samples in order to build your model if you built a vault regression model right you would have sold vixx at 30 right back in march and got your face ripped off so that's an interesting point um and then mike on your sort of no i know where this is going um you're sort of twitter of late has been a lot of uh you've waited into the crypto world so i mean so i've talked about this on a couple of podcasts and you know yeah i don't want to get into the whole argument i was kind of just wanted to say like what do you know what's your point of doing that so there's two components i mentioned before the dynamic of the macro overlay at logic and so we have two separate components we have exposure in the straddle form which is volatility sensitive and then we have an overlay that is composed of less vol sensitive instruments that we're trading in a delta one exposure one of those exposures is gold right another one is dollar another one's rates um in during a trip i made one of the few trips during the chronovirus experience i had the opportunity to sit down with a number of family offices in in texas and found every single one of them was using the exact same language to explain their diversification into bitcoin where they were selling gold and buying bitcoin because it was quote unquote the superior instrument i came back talked to wayne about it and i said look you know this is something we need to dig into because if people are replacing the gold exposure which the easiest way to think about it is it's like a commodity exposure in our portfolio it has negative dollar characteristics it has positive inflation characteristics something that we pay attention to and in general that portfolio is designed to provide a balance to the overall exposures and a little bit of flight to safety or not there's a flight to safety component of it but if you if you honestly look at the behavior of gold it behaves more like a commodity right so in most risk off events um it has a credit component to it so it is initially liquidated and then recovers very strongly when the fed addresses the credit factor right so it needs to be held and sold and then it can recover extremely well which is helpful to a portfolio that has a high vol exposure which tends to retreat in those environments but understanding that potential for bitcoin to replace gold kind of sat at the center of it and as i dug into it i found some stuff that i thought was important to share unfortunately um when you share a contra crypto take or more accurately a contra bitcoin tape because i think both wayne and i are bullish on the idea of innovation in digital assets and the potential for crypto i mean i i can't imagine a scenario where where wayne would say i don't think math is going to play a more important role going forward um you know our our findings on bitcoin were controversial and negative enough that it basically as i put them out my twitter feed erupted into crypto vitriol and so part of unfortunately what you're seeing is also me try to bait people into saying stuff so that i can identify people i need to mute or block so that i can actually recover my my twitter feed it's frustrating um because it's you know i basically have come out and suddenly i'm you know uh one of my favorite movies is money money python's the life of brian right and i would broadly describe the crypto universe as similar to you know the people's united front of judea who hate nobody more than the romans except for the united people's front of judea right and so like it is just constant vitriol and anger around um you know which one like well he doesn't like bitcoin because he's a failed hedge fund manager who can't make money i'm simultaneously a socialist a um elite member of the 0.1 percent who's benefited from the existing system and therefore continuing to shill it i'm uh have fun staying poor individual i'm a statist i'm a totalitarian i'm a capitalist pig like a lot of hats it i i you know basically i'm everything that that uh my wife has ever said negatively about me in a moment of anger uh gets compressed into my twitter feed for the past three weeks so we're working our way through it and hopefully i'll be able to come out the other side and not have to spend nearly as much time cleaning up my twitter feed and wayne are you ever like stop digging the hole or you're just let him let him go um honestly i'm i'm busy with so much other stuff i don't really i i yeah it's i i don't focus on it um i mean i i think yeah no mike's his own person i want him to do what he wants to do and to the extent he does stuff that uh or that he's inspiring innovation or stuff for me to think about i'm happy to think about it i mean going back to the the original questions uh on you know the gold and the rates and the pieces of our portfolio that um are there for you know you mentioned the word flight to quality uh that was my original purpose in adding those assets were flight to quality related and how they had uh using certain mathematical tools how they show a strong negative relationship to falling equity markets right and the the worse equity markets fall the more those things tend to have life in them as flight quality or safe haven assets um and so you know to me the the whole question whatever is going to go on positive or negative about bitcoin i really boils down to that one simple question is does it have the strength to be counter equity market falling right if so i'm interested if not whatever it's just noise so to the extent it replaces a piece of the portfolio or it has a potential to until it demonstrates the ability to have that feature it's it's therefore just talking and and debate rather than being utility a utility to the portfolio but it's curious to me you think you being you guys have these optionality minds of like just seeing it as pure optionality like who cares what what's behind it there's huge optionality there i could argue maybe not so much anymore with it so expensive but and or which i talk with a lot of trend following managers about it like why isn't this in your portfolio right like you don't have to believe in it but there's a there's a no that that's a very good features on it like put it in the portfolio and trend follow it right absolutely but then i'd say to the extent that in in our portfolio it has to meet that certain feature of flight to quality to replace the gold position right so to the extent it does then it's looking for not just optionality but for a certain type of behavior right then as far as the optionality goes yes it may be optionality but we go back to our original conversation today is what's the price of that optionality yeah what's the iv you're paying for that directional bet and if it's that you know if options on bitcoin are that expensive then you're not going to get the payoff because your hurdle rate is through the moon right so all of the stuff would come into play but you're right as as price volume behavior studies it doesn't matter what the thing is it's just taking advantage of a trend and so we do think that way but in this case it's got a more specific utility for us that may or may not be the case it currently is not yeah and well i was going to say crude oil is not going to go to zero but it went negative but um yeah actually right it's it's got a little risk that it could literally just be zero tomorrow sure exactly [Music] rapid fire questions biggest twitter pet peeve from people you follow or your followers i think mike just covered some of his but i'll just say any for you wayne i i honestly i love twitter um my only pet peeve would be the i'll call it the echo chamber is that the just by virtue of we follow who we like therefore there's a lot of repetition of ideas and people tending to focus on you know what what they think and whoever said or or confirmed what they think rather than looking outside for other views and i i wish it was a little bit more democratized in that way um for you know being more open to other views and i see some debates at different times where i i wish the people would be more open to hearing each other um not that not you know that's just very large scale thing but it it's just i i want to use i like to read sometimes people who have nothing have very contrary opinions to mine and read their timelines and think about things they say so if there's you know i i i guess i feel like too many people get trapped in just sticking with who they want to follow for how much it confirms what they already think yeah which is a worldwide problem right that's a whole facebook and you're in your bubble it's so hard though i'm i've read some of this stuff on my twitter feed and i'm like i don't want to follow that guy listen to what he's saying right so it's hard to find the smart intelligent not crazy dissenters from what you believe exactly that's a really good differentiation it's not just any dissenter but it is centered with with the rigorous intellect that you could think about you know that would talk about why and you could pursue those other ideas more more robustly um are you guys moving on anything like clubhouse or any of those i don't even know what that is so apparently i'm not moving on it i i i was invited on by a friend um so i have logged on and i immediately logged off saying oh my god i can imagine nothing worse than people speaking in isolation and everyone following along right it's it i think it's a remarkable business model if you think about it people have played it very well dan mcmurtry who's a friend of mine and and was one of the early uh he's super magatu on twitter very well followed young guy he i think he's nailed it right which is clubhouse is basically the velvet rope room in the club right i think clubhouse was was unintentionally or perhaps intentionally designed to allude to this but it's the equivalent of somebody's thing hey i was at the club with p diddy last night no no you weren't you were in the same building but he was in the vip room right you know with a bottle with a bottle service and sitting behind a velvet rope that you're not allowed behind but the story gets told i was in the room right and i so i actually find clubhouse the little bit that i've seen of it i i was remarkably disappointed all right we won't look for you on there and especially you wayne you don't know i haven't used it yet either so i'm not one to talk um and then what we're saying here with coved remote work if you guys had to go work together somewhere remote which which would it be santa monica or san fran or somewhere else monaco or caimans any votes i i i've personally fallen in love with stay at home i mean it's strange to say but i i love i've got this awesome little office space here it's it's uh it's in my basement it looks like i've got i feel like it's my bat cave um one day we're gonna have a special episode where you reveal what is in that uh 1970s russian file cabinet behind you yeah that will not be revealed on in in a public forum [Laughter] no i'm just kidding um yeah so i i just i i love this space and i love the fact that i can go up in the middle of the day and see my family and all that i've gotten really really used to it and i've been actually questioning whether it makes sense to go back to an office honestly i know this is happening everywhere and people are talking about it but um so i'm a big fan of uh the continued remote and maybe having an office every few days uh just to connect and you know once or twice a week i don't know so we're thinking that through but i don't think mike's leaving san fran i don't think i'm leaving santa monica so i'm not sure that that's going to be a possibility um but luckily we've gotten very used to and accustomed to the the the remote work and now it's so natural that it doesn't feel like you know initially actually when mike joined he'd be oh is this going to be a problem that you're up north and we're here uh but now we see that not only is it a problem that's actually we could all be more productive and more efficient in doing it this way and what sorry go ahead mike yeah i know i was just gonna say so first of all i don't know if i'm gonna leave california or not i've expressed some reservations about california at this point but um i tend to agree with wayne i mean we look we were incredibly fortunate to have the pandemic hit and create the work from home environment because if if we were trying to build logica under normal circumstances we would have spent an incredible amount on airplanes we would have had to have traveled under under difficult circumstances to places like europe places like australia etc and as it exists today um you know we really lucked out that we were able to you know wayne and i can wake up in the morning have a a meeting in europe followed by a meeting in chicago followed by a meeting in new york followed by a meeting in california followed by a meeting in singapore all without leaving our house yeah and you know that's um it it's it's proven to be remarkable now at the same time i think it creates challenges for most firms if wayne and i were not older if we were not more well known within the industry if there wasn't a known quantity around us as entities i think it would be more difficult but it has actually provided extraordinary cover for us to build the firm without having to spend as much money or waste as much time in transit as we otherwise would have i was gonna i'll just ask you guys both because you deal with allocators all day like do you think that will stick i was pleasantly surprised that allocators were so willing to go on zoom and do videos and not travel so i'm curious if that will stick right it used to be you had to do an on-site visit you had to do this um so i'm wondering if that's going to leave the due diligence process for a lot of these firms any thoughts i i think as always some will get you know some will adapt and say hey the same as what we're saying is this is and you know this is very achievable and we can get more done this way and and so they see the light and and we'll be able to and we'll continue doing more of that going forward others can't wait for it to get back to normal i i have generally heard both views um and you know so i think there's still you know even during the pandemic there's one institution that continues to ask us when when they can do the office visit and i i continue to push it back i'm like no i'm not i'm not ready for you know those meetings right now uh but it's like they they want to do it during the pandemic it's so important for them to do office visits um and so i think it's the whole spectrum but if i had to guess more people will be open and that's what it feels like to doing more uh remote odd and getting at least a lot of the heavy lifting done and maybe just a one a quick office visit at the end just to confirm that it's a you know there's a bunch of living people at a location yeah and you also have the addresses both of you right santa monica is like ah let's let's do that office visit right exactly you were in somewhere in new jersey or something they might say yeah yeah let's skip it right exactly right yeah um the nfa nfa's famous for doing their uh florida audits in january and february surprise surprise the only thing that i would i just want to add to that i mean i i so so very quickly like i agree with wayne in general on this but i think the real challenge is not people like wayne and i who have done this for a very long time the thing that worries me most about the move to work from home is that it's it's harder on the younger people coming into the industry because they don't have the opportunity to sit in casual conversation with people who've been doing it for a long time and so if i'm going to push back on wayne in terms of whether we'll have an office or not i do think that there is a component at which we need to be thoughtful about how do we bring younger people into the organization how do we give them the opportunity to model um our behaviors and our insights and to develop those in in casual conversation that's the group i'm most worried about i'm not paradoxically for guys like us this is heaven and i also think the worst possible condition for young people yeah a few uh in our office and other offices i know if they're just like working from home in their little apartment in chicago or manhattan that's like they're miserable um and they really miss that interaction that's a broader theme of like where do all the next layer you know the chicago guy like the old trading floor and that's where most everyone i know came out of the trading floor and learning the ropes the old-school way um you know that's all computers now or even remote as you're saying like where does that next layer of talent come from but that that's for another podcast yeah are wall street bets right yeah right straight out of wall street beds the um i was reading that article on chris cidel that he would stand outside wall street and hand out his trade record i'm like i would love to have heard some of the comments from the guys of like get this out of my face um cool and i'll finish with uh we've already asked you your favorite star wars characters so i'll stick with the um marvel theme favorite marvel character besides iron man and captain america since we've covered them well i was going to say iron man [Laughter] i'll give you iron man wayne you got a favorite um i mean it was also iron man but i'll think of another favorite i can go harry potter character instead if you'd prefer no i love the marvel universe um trying to think um yeah i don't know this second i can't i i love them all i i'll say hulk i just i have a thing for hulk and uh one for one reason is my little four-year-old boy has been wearing um a hulk outfit recently running around the house smashing stuff nice um i yeah um that's it's given this hulk a new meaning to me um it's this little hulk and uh outside of that i just that power it just kind of is so dominating um i i i just there's something about that that i like andy's like a nuclear physicist right right exactly exactly i have a brain up there too there you go all right guys it's been fun thanks so much for your time uh i'm sorry i just had to ask wayne does he have the whole cans yeah yeah the outfit didn't come with the hands but it did come with a the head piece so it's just yeah i'm going to say very hot i'm going to send you a pair of the hands he'll love them yeah those are good whack them together they go hulk smash it's it's good oh that's great yeah uh all right guys it's been fun thanks so much we'll uh talk to you soon and keep up the good work thank you jeff thank you take care thanks [Music] you've been listening to the derivative links from this episode will be in the episode description of this channel follow us on twitter at rcm alt and visit our website to read our blog or subscribe to our newsletter at rcmults.com if you liked our show introduce a friend and show them how to subscribe and be sure to leave comments we'd love to hear from [Music]

Channel: RCM Alternatives

Views: 3,306

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Id: d8Lts5HTZbc

Length: 81min 5sec (4865 seconds)

Published: Thu Feb 25 2021