Show Us Your Portfolio: Eric Crittenden

[00:00:00] Welcome to Excess Returns, where we focus on what works over the long term in the markets. Join us as we talk about the strategies and tactics that can help you become a better long-term investor. Justin Carbonneau and Jack Forehand are principals at the Lydia Capital

[00:00:10] Management. The opinions expressed in this podcast do not necessarily reflect the opinions of Lydia Capital. No information on this podcast should be construed as investment advice. Securities discussed in the podcast may be holdings of clients at the Lydia Capital.

[00:00:19] Hey guys, this is Justin. In this episode of Excess Returns, Jack and I sit down with Eric Crittenden, founder and chief investment officer of standpoint asset management to talk about his personal portfolio and its all-weather approach to investing. Eric explains how he

[00:00:30] thinks about generating returns, giving the amount of risk he is willing to accept, and how building a diverse stream of returns can be instrumental in achieving long-term results. We dive into the details of the standpoint multi-asset fund, the importance of risk

[00:00:41] management, his systematic macro sleeve of the portfolio, and get Eric's thoughts on goals, legacies and much more. As always, thank you for listening. Please enjoy this discussion with Eric Crittenden of standpoint asset management. Eric, thank you very much for joining us again today. My pleasure.

[00:00:58] I say again today because this is the second time we're trying to record this. So this time it's going to work for us, but we appreciate your patience in doing this with us. These are a little different than our normal Excess Returns episode because what

[00:01:13] we like to do with these short-term portfolio, I guess themes is talk to professional investors like yourselves, people that are actually running strategies, but talk to you about how you actually do your own personal investment strategy and portfolio and how you kind of just think

[00:01:33] about investing your goal and a bunch of different things sort of around that. I think we'll definitely have a chance to get into the strategies I think that you're running at standpoint because I probably reflected in your personal approach, but we'll

[00:01:50] kind of get into that. So I guess to start, we like to start kind of at a higher level and just ask you when you think about your investment in your portfolio, what are you trying to achieve with those investments would you say?

[00:02:05] Yeah. So before I go in then I should probably give you a disclaimer. My personal mandate is to invest only in the fund that I manage. So 90% of my liquid net worth goes into that and then

[00:02:19] the balance into a couple pieces of real estate. So hope that doesn't derail the conversation, but that's probably unusual compared to most people. So when I'm talking about my personal investments, that is the fund itself. On that point, how do you think about risk

[00:02:38] with that? Just in the sense that if you were sitting down, and I can understand why you do it, which I appreciate. I mean, you want to be invested right along by your clients in the

[00:02:50] strategy that you run because you have high conviction, but from a sort of risk standpoint for your own personal wealth, your wealth is obviously tied to how well the fund does. So the fact that almost all your investments are in the fund, a financial advisor might

[00:03:06] say, wait a minute. That's actually you're adding too much risk to your personal portfolio. I mean, what would you say to that? Yeah, I would say 98% of the time that's good advice. Let me answer your first question because I think it'll segue nice into answering this

[00:03:22] question. So the first question I believe was what do I think about when I try to manage my own money? Like what are my goals? What trade-offs am I making? Why do I do what I do? Since my personal investments go into the fund, it's the same

[00:03:38] answer for both. So here was my mentality when I left my previous firm back in 2018 at a two-year non-compete, which is a lot of free time to sit down and think about what do you really want to

[00:03:51] do? And what I wanted to do with this program, the way I like to invest, is I wanted to maximize what I call the true wealth per unit of risk. Let me define true wealth for you. So that's your

[00:04:06] compounded return after you've paid all the transaction costs, all the slippage, commissions, all the fees, all the taxes and after inflation. So when everyone's been paid in the ecosystem, what's left over at the end each step of the way? And then finally at the end of the marathon.

[00:04:26] So I wanted to maximize that per unit of pain. Now pain to me is how far backwards do you go along the path traveled? So essentially maximum drawdown or maximum decline, which is a kind of

[00:04:41] a close cousin to standard deviation or other risk metrics. So I'm trying to maximize what am I truly making after everyone's gotten paid relative to how much pain I have to endure

[00:04:52] along the way? Does that make sense? No. Okay, so that was my mentality. So now that's pretty simple to say of course everyone wants something like that, right? The real question is how do you do it

[00:05:05] and how risky is that? And I don't know if you guys want to get into that but we can at some point. How did you on the pain threshold of that? I'm just curious when you thought of obviously

[00:05:17] had a lot of time to think about this. So when you thought about this, the risk side of it, the pain side of it, what in your mind is the maximum you're willing to accept? How far willing

[00:05:29] you're about, you know, you're tolerant I guess in terms of that you're willing to go backwards. So this is one area where I did have to compromise a little bit on because my appetite for risk I

[00:05:42] think is or my willingness to absorb downside risk is probably higher than your typical advisor investor in the marketplace. So I invest in the fund and I calibrated that to have realistically 20% downside, you know, in the worst of times. Now could it be worse than that?

[00:06:04] Absolutely. I don't have control over the sequence risk and the path traveled but we do have, we can exert some control over how much risk we take in the portfolio on a day-to-day

[00:06:13] basis setting us up for some sort of an outcome when times become difficult. So when I look at the empirical data of what we do and I try to simulate it going back to say 1970 and I run different Monte

[00:06:26] Carlo simulations and different scenario analysis, you know, I come back with something like 18 to 22% worst downside. Again, it can get worse than that if we stumble across a market environment that's significantly more painful than what we've seen since 1970 but we're doing the best

[00:06:42] with the information that we have. So I would say that that is kind of the downside risk outlier constraint that we've attempted to apply to the program we're running. So in short 20%.

[00:06:55] You know, I know you're a pretty young guy and got a ways to go to retirement and I think like we'll kind of get like that, you know, trying to minimize the downside risk isn't very important

[00:07:08] I think for people that are sort of in or nearing retirement in terms of, you know, managing sequence risk. But the question that I want to ask you is, you know, just when you think about 20 years from now, when you are retired or maybe you'll still be working,

[00:07:24] probably still be working hopefully. But what do you think about in terms of like what your, I guess optimal retirement life might look like or do you not really think about that at all

[00:07:34] at this point? I think I'm already there. I'm 52. I structured this business to essentially be my dream job. So my philosophy is try to find the overlap between something you're really good at, something the world needs, something the world's willing to pay for and something you enjoy doing.

[00:07:52] You know, you know, if you only get three of the quadrants, it's like a hobby or a vocation or a job or whatnot. But if you can figure out a way to get all four of those quadrants

[00:08:01] to overlap, then it's something you really enjoy doing. It's productive people are willing to pay you for it. And you're good at it. Then go try to own that small piece of real estate. And that's

[00:08:13] really what green standpoint was for me. I hope it is for my partners and co workers. I think it's close for them but not exactly right on the spot. So this is my dream job. This is how

[00:08:24] I choose to spend my time whether I'm getting paid or not. So if I have to roll into retirement, I have no problem doing this workload every single day. It's a lot of fun for me. So

[00:08:35] I know that's an unusual answer. Most people are like they're straining to get to some point where they can take some time off and go boating and fishing. But I'm pursuing my passion here.

[00:08:44] This is the kind of stuff I used to do on Saturdays and Sundays. Now I just get to do it every day of the week. What's interesting, and you know, we obviously get a certain

[00:08:53] type of person on this show as your portfolio podcast but the answer you just gave is the answer we've gotten 100% of the time. Really? Nobody's retiring. Everybody's going to work,

[00:09:01] you know, loves what they do and they're going to keep doing it. I bet if you ask the general population, you're going to get a very, very different answer than that. But I mean, we're getting very motivated people who believe in what they're doing. So it's

[00:09:10] interesting that we get that pretty much every time. That's cool to hear. Okay. I wasn't expecting that. Yeah, okay. No, I wasn't either when we started doing it. It's been it's been interesting to hear that but the way I feel as well. I think the one

[00:09:22] split wrinkly though is that a lot of people we ask sort of say like, they never want to stop working. They always want to continue to work. What Eric said was like, he actually already effectively kind of is not really you're working but this is exactly what

[00:09:36] you're going to continue to do because you love doing it and you've structured it in such a way that you can do it almost for the rest of your life or as long as you're mentally able

[00:09:44] to. I don't know. There's a little difference there maybe. Well, that's fair. Yeah, I stopped doing the work. I don't want to do that. I mean, they're not good at don't enjoy doing

[00:09:53] or the compensation is low or whatever and just retain the stuff that it's in that sweet spot of those four overlapping circles. And I encourage anyone to at least strive to find if you know, see if that's possible in their own life because it feels really good.

[00:10:08] So before we get into what the fund does because the fund is the way you manage your personal portfolio. So we want to dig into the strategy. I want to ask you about the

[00:10:13] way most people do this because one of the things that struck me about what you just said in terms of how you manage your money is it's very different than the way your typical person

[00:10:20] does it. Your typical person will have stocks, they'll have bonds, they'll have some sort of glide path probably that will be their retirement portfolio. They might use a target date fund or something like that. I mean, that's the most common way. So what do you think are the

[00:10:31] flaws with that approach that led you to go a different direction? Flaws, that's not the word that I would use to describe that approach, which is pervasive across the industry. I would just say that it's incomplete. By my calculus, it's incomplete. There's a lot more

[00:10:47] diversification out there that can be had. Ray Dallio is always talking about the utopia portfolio is getting 8, 10, 12 uncorrelated return streams that all have positive expected return, but they have different risks at different times on the downside. And

[00:11:04] if you can blend those together, you're going to get that utopian return stream. That's approximately correct. With stocks and bonds, you've got two, and they're not always uncorrelated. And then if you look at the other things that are convenient

[00:11:18] available like venture capital, private equity, real estate, they're all highly correlated with stocks, especially when stocks are going down. So the base rate statistics and the empirical data is what I pay attention to. And it tells me to go a different direction, to go source

[00:11:36] other forms of returns that over the long term are positive, but they're uncorrelated with what you're already doing. So I would say that if you've got a stock and bond portfolio and you're operating on that glide path principle where you're 80% stocks, 20% bonds when you're 25,

[00:11:51] and then it's 50-50 when you're 50, and then it's 70% bonds, 30% stocks when you're 70, so on and so forth. I don't think that's flawed. I do feel like it's incomplete though. There's a lot more diversification out there that you could bring into the portfolio that

[00:12:04] really moves the needle. So can you talk about what your strategy is, what you're doing that's different than that? Yeah, so there's a couple of different ways to approach this. When people look at my portfolio or what we do, they generally see about 50% exposure to global equities.

[00:12:23] Beyond that, they usually see about 30% exposure to a laddered treasury bill portfolio. So at first they're like, okay, well I'm okay with that. I don't really know pay for it because it's freely available in the marketplace for the most part, but nothing too crazy.

[00:12:38] And then they look further and they see that we have a systematic global macro program that invests in things like grains, soft commodities, energy markets, metals markets, both precious and industrial metals, bonds, currency, so on and so forth.

[00:12:53] And you could think of each one of those sectors as an uncorrelated return stream. You know, a systematic trend approach to grains is totally uncorrelated with a systematic trend approach to metals or to currencies or to even soft commodities. Even inside of the soft commodities

[00:13:10] space where you've got things like coffee and sugar and cocoa, they're uncorrelated with one another. So we are able to pretty simply engineer uncorrelated return streams that we believe have a positive expected return going forward and bring them into that portfolio that I described

[00:13:29] earlier, which is approximately 50% global equities and 30% T bills. And we end up with six, seven, eight in some cases, nine or 10 uncorrelated return streams. And that's why we have low, I think relatively low volatility but still attractive annual returns.

[00:13:49] So is the idea, in terms of having the stocks and bonds and then kind of adding these other things too, the idea is accounting for investor behavior. The idea that people do follow what stocks and bonds are doing and they do, if you get too far from that,

[00:14:02] like with maybe like a straight risk parity approach or something like that, it's hard for people to stick with. Is that the idea? That wasn't the inspiration. But it is a nice side effect in the sense that, yeah,

[00:14:13] if we just took our macro program, which has done very well for five years now and offered it on a standalone basis, it would be an uphill slog because it moves very differently from the stock market. There could be times where the market's up for the year

[00:14:24] and our macro program is not up for the year and the phone's ringing off the hook. And every advisor is getting calls from their clients. It's why it's so hard for individual investors and advisors to stick with what we call true diversifiers like,

[00:14:38] say, gold or managed futures or market neutral or anything that could underperform the stock market for some period of time that gets their investors to become nervous. But when you blend all this stuff together into something more all-weather,

[00:14:53] a lot of that pain and fear and statement risk, that's what we call a statement risk, tends to go away. That wasn't our primary motivation. Again, my primary motivation was to maximize wealth per unit of risk by my definitions long term. This, in my opinion,

[00:15:10] is the way to do it. A nice side effect is that it tends to be less stressful for investors because it doesn't deviate that strongly from what they're already familiar with. Do you use 401K's IRAs, like tax deferred investments as well as taxable investments?

[00:15:26] Can you elaborate what do you mean by that? You invest in a 401K account or an IRA? Yes, I do. Okay. I was asking the question because I'm curious about this idea. This seems to me like this would be a good portfolio from the perspective of sustainable

[00:15:39] withdrawal rates. Because you're managing the drawdowns relative to say a 60-40 portfolio, I would think, I don't know if you've done any work around this, but I would think this would have a higher sustainable withdrawal rate because of the uncorrelated streams in there. Is that fair?

[00:15:51] So there's a paradox there. Yes, I've never come across anything that is better at surviving scenario analysis to demonstrate sequence risk going forward. So you would think that the 401K or the retirement industry and even some of the ERISA

[00:16:09] industry would be very enthusiastic about something like this, but they're the least enthusiastic of any slice of the industry for some reason. And I've yet to determine what that is, but the answer to your question is yes. It's very good at minimizing sequence risk, this approach.

[00:16:26] But the people that want and need to minimize sequence risk have shown the least interest in it so far. Yeah, I wonder if that's just because in the media, we're all kind of taught about stocks

[00:16:35] and bonds and so that's what investors demand, I guess. And so the industry doesn't ring this kind of stuff. I don't know. It's always been interesting to me because this is, in a lot of ways, especially around the period where you're retiring where sequence risk is

[00:16:45] at its best, at its highest. This is the type of thing you want to be invested in, I would think. Yeah, in fact early on when we were first starting, was that four and a half years ago,

[00:16:56] advisors would, they liked our fund and they liked our strategy, but they would put it in their growth accounts and not put it in their more conservative accounts and say, well, I can only

[00:17:04] use this with my really aggressive investors. And I would point out that, well, if you strip away all the labels and you just look at the results, they would look at it and say,

[00:17:14] well, yeah, that makes more sense for the most conservative investors. So why am I doing it the other way around? Well, there's something sociologically or psychologically that has people taking anything that is considered an alternative investment and just keeping it as far away

[00:17:27] from their conservative investors as possible, even though if you just look at the underlying numbers and data, it's actually a really good fit. So on the equities and bonds, are you using futures? So for equities, we use ETFs. And we did that because the tax consequences of using

[00:17:46] futures are considerably higher. And we are not tactical with the buy and hold equity component. So it made far more sense to use ETFs to get that exposure for the global equities. Very small management fee and a lot of these funds are charging three basis points.

[00:18:03] Excuse me. So there's no meaningful drag there that scares me. And if you use futures, which is fine, you're going to get the same total return assuming that you combine it with T-bills in the proper proportions. But you have to roll them four

[00:18:19] times a year, which means that you're realizing any gains or losses and that creates taxable events every year. And that tax rate really eats into what I was talking about earlier, like true wealth, true wealth creation. If you can defer those gains till the end

[00:18:35] and do proper tax loss harvesting along the way, the ETFs make a much better way of getting your exposure. And then on the fixed income side, we use a ladder treasury bill portfolio

[00:18:45] and there's nothing we can do to make those tax efficient. We do use bond futures, but that's in the macro program. But we don't consider bonds to be a buy and hold investment.

[00:18:57] I'm just curious. I know you're using indexes on the equity side, but I want to ask you about some other things other people do in their portfolios. For instance, factor investing. What are your thoughts on things like that? Maybe like investing in those value and other

[00:19:09] risk factors as a way to enhance returns. You're not doing it to fund, but do you have thoughts about that in general? Yeah. So this is something I struggled with early on during

[00:19:15] that two year non-compete where I had a lot of time to sit on my hands and do research. My background is, it's pretty quantitative. It was mainly long short equity and systematic macro. So I've spent hundreds of months of my life studying factors over the years

[00:19:36] and developed some pretty compelling programs that I was proud of and thought I would be using in this program. But what I found is that when you are blending our macro program with other asset

[00:19:49] classes, it blends most nicely with simple market cap weighted indexes. And simple market cap weighted indexes are much more tax efficient. They're much more fee efficient and transaction cost efficient than factor-based stuff. So while the factor-based stuff, the research there is pretty

[00:20:12] compelling. And I think there's a lot of good ideas there, but they just didn't play as nicely with our macro program as plain vanilla market cap weighted indexes. And that's a long conversation

[00:20:24] as to why it has to do with what happens during recoveries. In other words, when our macro program goes out of favor, equities tend to be rallying after a correction or after a bear market. And it's

[00:20:37] the junk equities, the ones that are the most beaten up that tend to do the best and you've got those in the market cap weighted indexes. So but I won't go into that because that's

[00:20:48] beyond the scope of this conversation. So in short, there's a lot of good research in the factor world, some compelling stuff. But the market cap weighted indexes for us beat them out because of the lower taxes, the better blending with our macro program and higher capacity too.

[00:21:06] But that's such an important point because how everything plays together from a correlation standpoint is so important. Investors I think tend to look at these things on an island like different things they're investing in. There might be something that generates

[00:21:16] a great return but it doesn't make sense for your program because it doesn't work well with the other stuff that's already in your program. And I think that's something people miss. They tend to look at these individual line items and miss the entire putting the whole

[00:21:25] package together. It's a really important point. In fact, sometimes I show people our program and they look at it and they're like, I like it. It's really nice. But I wish you would just offer the macro portion on a stand-alone basis that I would prefer to buy that.

[00:21:39] So I'll carve it out, kind of doing performance contribution analysis and show them that well, it can have down years when the stock market's up and they're like, oh yeah, I can't do that. So essentially what I show them is that you

[00:21:51] wouldn't buy the equities from us. You wouldn't buy the T-bills from us and you probably wouldn't hold on to the macro portion from us. That would create dysfunction between us. But when I blend the three together, you get this nice all-weather curve

[00:22:04] and you're like, that does solve problems for me. So it solves problems for me personally Eric because that's how I want my money. I want that true wealth over time to invest. I think it also solves problems for advisors because now they get something. Why is it?

[00:22:17] It might be a little more complicated to explain. That's a lot easier on the nerves as you're going through time, the path traveled. You can answer this from the perspective of yourself or the program, but I'm just wondering

[00:22:26] what are your views on international diversification? That's been a big subject of debate because it's worked so badly for such a long period of time. But in theory with the data, it makes a lot of sense and I'm just wondering both with respect to the program

[00:22:37] and just your views in general, like what are your views on that? Yeah, so our macro program is global and it's liquidity weighted. Right. So therefore we made our equity program global and also liquidity weighted. Like you, I've looked at the empirical data going back into the 1920s

[00:22:56] and the US can and does go out of favor and stay out of favor for long periods of time. It's been strongly in favor and there's a lot of relatively undervalued markets out there.

[00:23:09] Maybe AIs change the game forever. I don't know, but we would have felt that way in the past and then just signed up for a 10 year flat period in the US where international small

[00:23:18] caps or Asian markets are just ripping higher for 10 years. So I don't know. I don't know what's going to happen in the future. I prefer not to just bet it all on one country. A US could go

[00:23:31] off the rails. There's some crazy stuff being talked about in DC right now. I don't want to take that risk. So I want my opportunities to be unconstrained and I want to be able to go

[00:23:42] to where the trends are, where the returns are and source that diversification. So for that purpose we're going to be international and not cram it all into North America or the US. We may pay the price for that. The US may continue to outperform. Maybe it's different

[00:23:58] this time. I'm just not willing to make that bet. This is one of the things that's the hardest for individual investors is when you go through a period this long where something doesn't work, it's very hard to convince them that the long-term data

[00:24:10] still supports that. I'm still a big believer in international investing, but like some other things, we obviously had stocks and bonds also outperforming for 30 or 40 years. When it's 30 or 40 years and it's a really long period of time, it's hard for people to see that that still

[00:24:23] makes sense even though it hasn't been working. Yeah. A couple of examples I use that people are generally surprised by bonds. From 1940 to 1980, bonds lost money in real terms. Corporate bonds, US bonds, five years, 10 years, 20 years, they all lost money in real terms.

[00:24:42] If you're able to get into a time machine and go back to 1981 and try to convince people to be enthusiastic about making money in bonds, you would have failed. But that was the beginning of a 40-year bull market that was breathtaking. So base rate statistics matter to set

[00:25:01] expectations. I know that recency bias is very powerful. That's why I choose not to try to convince people about the merits of an individual asset class. It's another side effect benefit of just going all-weather is that we got so much stuff in our

[00:25:16] portfolio from so many different sectors and countries and whatnot. We don't really give people the opportunity to drill down on one thing and say, I want that out of the portfolio it's underperformed for six years. In the trend part of what you're doing,

[00:25:30] the macro part of what you're doing, do you do trend stuff with equities there or do you just have the buy-in-bould equities and that's it? Great question. So the same indexes that underlie the ETFs are also in the macro program.

[00:25:48] So in a structural bear market, we'll be getting signals to go short, those same indexes on the macro side, which is great because we can essentially implement hedges against the buy and hold equity portfolio without having to adjust the buy and hold equity portfolio.

[00:26:06] I mean, we don't have to sell stuff into a declining market. We don't have to generate tax consequences or the transaction costs. It's easier to trade these futures tactically than it is to trade the ETFs in my opinion. It's cheaper.

[00:26:21] Futures contacts are great because any contract that's open somebody has to be long and somebody has to be short. There's two sides to the contract. So it's a symmetrical two-way market. So what that means is that in a bear market, you won't see us aggressively

[00:26:38] at all liquidating our ETFs unless we have redemptions. We won't be selling it just because the market's going down. But you should be able to take some solace that if the market's really

[00:26:47] going down that you should start to see short positions building up in the same indexes just over on the macro side of the portfolio. Yeah, interesting. That's something I've seen with the managed futures ETFs that have come out. Some of them use everything and then some

[00:27:02] of them have I think excluded stocks and bonds to try to couple them with a stock and bond portfolio. So I was always curious about like, I think your explanation makes a lot of sense. I was

[00:27:11] always curious about what the best way to do that was. Yeah, both of those are defensible. Corey Hofstein over at Newfound does really good research actually and he recently pointed out that in his replication efforts, including stock indexes made replicating the beta of managed

[00:27:30] futures much more feasible and I agree with him on that. And then there's people that say, you know what? I don't need any stocks. I just want all the other benefits because people already have their stocks. I can see both sides. In fact, I struggled with that really

[00:27:46] early on like which am I going to do? And in the end it was a simple answer. I want to maximize true wealth over time after fees, taxes and inflation. The way to do that is to

[00:27:56] include them this way. Having that North Star really made a lot of these decisions easy for me. I know the answer to this with respect to your program but I was wondering in general,

[00:28:05] one of the things you hear from investors a lot these days is, you know, the market is expensive or you know, expected returns are really low for the future. Like how do you think people should think through that in terms of if that means anything in terms

[00:28:16] of how a portfolio should be constructed? Okay, so a couple things. I don't disagree but also I haven't been hearing that since 1995. So really smart people that I know the agonize over evaluations have all been left behind me almost all of them.

[00:28:36] So and they got what they wanted. They didn't want to take that risk and they got returns commensurate with their posture. That being said, you know, overpaying for things is probably,

[00:28:50] you know, it's not something to be proud of. So how do I sleep at night knowing that I've got a lot of money in ETFs that are in indexes where we've got Nvidia and every other potentially

[00:29:01] overvalued stock in there? Same answer that I just gave you for the previous question. We've got those same stock indexes in the macro program where we're tactical. And if they start to go down, we will start building short positions without that.

[00:29:16] I would be scared, you know, not terrified, but I would be scared that, you know, because we know one of these days we're going to get an unwind evaluations are going to go down to some level

[00:29:27] that the market's more comfortable with. Well, that could be that could be starting today. It could be three years from now. It could be 30 years from now. We don't know. So that's how I,

[00:29:37] you know, sleep at night is knowing that I have those indexes in the macro program and we could just end up being short. And if we get a revaluation and valuations come way down,

[00:29:46] I'm banking on the fact that we'll have enough short exposure in the macro program to offset a lot of that for us. Yeah, I think what you said at the end gets it the reason this is

[00:29:54] troubling for individual investors is, you know, they tend to view valuation as some sort of timing indicator. And you know, valuation tells us very little about what's going to happen in the next year, the next three years. That's the problems if it does have value,

[00:30:05] it's more long return, but your average investor's timeframe is much shorter, which I think makes it very hard to do anything with the fact that the market's expensive. I don't know if that makes sense. Yeah, I've done a lot of research on valuation

[00:30:16] and timing and quantitative research, and there's just nothing there guys. There's no signal in that noise. After the fact, you know, when you get to the ultimate valuation and then it finally does correct, it's obvious. But along the way, it's not obvious until it's too late,

[00:30:33] you've already eaten it. Just one more for me before I hand it back to Justin. I want to ask you about leverage in general. Obviously, inside of futures, leverage is implicit. People tend to hear that word. They tend to get scared. I'm just wondering if you

[00:30:45] talk about like in your with respect to your personal portfolio, how do you think about leverage, the right ways to use it? How much to use? How do you think about that topic in general? Yeah, so for me, leverage or non-leverage is the dependent variable in the equation.

[00:31:00] I target a certain level of risk. So we have a portfolio, we have a pool of capital, and I want a certain level of risk. So I'm going to go put the positions on and they're proper waiting so

[00:31:11] that I achieve that level of risk. Then I'm going to look and say, all right, does that have us using some leverage? Or does that have us holding a disproportionate amount of cash? Because

[00:31:20] sometimes, if the market's very narrow and risk is really high, you'll see us with tons of cash that will go into T-bills. If the breadth is really good and statistical risk is low,

[00:31:32] you could see us using a modest amount of leverage. So for me, leverage is an output. When people look at our program like institutional types, CFA's that really want to get down and

[00:31:44] they calculate the leverage use, they don't walk away saying these guys use a ton of leverage. We're considered pretty tame in our world and the macro world, but there will be some from time to

[00:31:56] time. So where do you think a strategy like this actually fit within an investor's portfolio? You obviously use it for almost 100% of your personal portfolio, but the reality of it is most investors are going to have, like we talked about, they may have 60-40, they may have

[00:32:14] other asset clout that they may be invested in. But what got me here, I was looking at the fact sheet and you guys have a breakdown of how the fund can be coupled with the 60-40 and different

[00:32:33] percentages. So can you just talk to where this might fly into an overall allocation and what type of risk and return statistics that might provide? I can attempt to. It's a messy topic. We're still kind of waiting on the marketplace to tell us

[00:32:51] where we fit into the portfolio. We're just following our North Star, which is maximized true wealth per unit of risk. I can tell you that my hypothesis in the beginning was as follows.

[00:33:04] I've had dozens of advisors over the years tell me that if you can give me something that's got about 80% upside capture to the stock market, but only 40 or 50% downside capture, you will clean up. That would be absolutely fantastic. And I've modeled that out and

[00:33:27] that's really difficult to achieve. Very few funds have been able to do it. This particular all-weather approach was the closest thing that I could come up with that got pretty close to being able to deliver that. So I went back to the advisors and showed them

[00:33:44] that and they're like, hmm, that's actually very compelling. But that's not what I meant. They meant 80-40 every single day with 100% correlation to the market, which is not us. But the reason I tell you that story is because there's a reoccurring theme

[00:34:02] with advisors for what they describe as the ideal alt and it's somewhat related to that. They don't need it to outperform stocks in a bull market, but it's got to offer something. It's got to be somewhat compelling in terms of returns. Don't get left too far behind during

[00:34:17] the good times. You also have to offer me something on the downside. When stocks are down 30, 40, 50%, you can't be down 28 or 35 or whatnot. You've got to do meaningfully better than the stocks over time and you can't kill me with taxes and you can't charge 4% expense ratio.

[00:34:39] So I feel like we assembled a product that met those parameters and requirements and I'm waiting for the marketplace to tell me how they're using it. And that's starting to happen. I mean, a lot of people just say we have an alt's bucket, we stick it in there,

[00:34:55] we have two other funds with a total, you know, 20% allocation to alts. Some people say that. Some people look at us and say, well, you're just a, you're an equity program with a diversification overlay. So we put you in the equity bucket because we're 65% correlated

[00:35:09] with equities. Our beta is only 0.3, but our correlation is 65, which you would expect. Other, some people have to slammed us into the bond bucket, which I think is a very bad idea

[00:35:19] because we're not a good, you know, hedge for a deflationary episode. But some people do it anyways. And then there's a whole bunch of other people somewhere in between. So unfortunately,

[00:35:31] I don't have a great answer for where we fit. If you want to be different, which we do, you're going to be different, which means you may not fit in very well in the beginning until if Morningstar or someone else created an absolute return category or an all-weather

[00:35:46] category, I think we'd fit nicely into that. But they don't have it. So right now, they stick us in long short equity before they stuck us in macro. I think that part's out of

[00:35:55] our control. We're just going to follow our North Star and do what we do. And hopefully, the marketplace will figure out the best way for them to utilize us. How do you think investors, this is kind of coming above the strategy for a second

[00:36:11] because your strategy has delivered very good returns and done a very good job of managing downside risk since it's been a live strategy. But, you know, all investment strategies will go through periods of like relative underperformance, whether it's relative under

[00:36:26] performance versus the market or relative underperformance versus maybe it, what it's historical performance actually is over time. So just how, if you were giving advice to investors around dealing with those periods of underperformance and trying to make it through those periods,

[00:36:46] just generally what would you, what type of advice would you get? I think the best way, well it depends on how much time you have. To do a good job of that, I think you have to get people to view things objectively and think about the trade-offs.

[00:37:02] So this thing is causing you pain. It's been underperforming either itself or, you know, a comparison benchmark for some period of time and that's causing you some sort of psychological pain or social pain. If you get rid of it, it's going to solve problem X

[00:37:21] right now, immediate. But you're giving something up and what is it you're giving up? So if you can get them to think about what that is and agree what you're giving up, they may look at that and say, well that's even more painful.

[00:37:34] You know, I'm a firm believer that every decision in life is basically a trade-off. You get something, you give up something and there are potential unintended consequences, both positive and negative. So you can get someone to walk through that. I think that

[00:37:48] rational people, which are the only people you have a chance with, can see it from a different perspective and tell them don't make a decision right now but think this through. And also tell them why you wouldn't do it and be honest. You walk

[00:38:04] through that same example and say, look I feel the pain too. And here's what I get if I liquidate it and move on. Here's what I'm giving up and here are the potential unintended consequences

[00:38:12] and they have all those in their mind and they calculate, it's kind of intuitively going to calculate a net present value of that whole thing and then make a decision. What you'll find is

[00:38:21] you know, some fraction of investors 30%, 50%, just want to get rid of the pain right now. Damn any other consequences and just let them go. That's my advice. When you're looking at a strategy, so this is for any strategy out there,

[00:38:40] what is the first thing that you look at in terms of risk and return statistics? The statistics? I look at the Calmar ratio. What's the return and what was the drawdown

[00:39:02] over some period of time? Because if it's too good to be true, I'm going to go down that road and figure out what's happening here. If it's atrociously bad, I'm going to ask them,

[00:39:14] is there anything that could have been done about the drawdown or is that just a natural risk? And then I'm also going to look at how we integrate into with what I'm already doing. Because something can have a terrible Calmar ratio but be incredibly valuable to what I'm

[00:39:27] doing. It's an ingredient like a jalapeno pepper. Nobody eats those on a standalone basis, but if you mix them in with the burrito in the right proportions, it really enhances and improves the burrito. So you can't look at it on a standalone basis only unless

[00:39:42] you're just going to invest in it. I don't know if that's a good answer, but that's one. No, it is because and the reason I asked that is because I was looking at your website and you

[00:39:49] have this table that shows your fund versus a bunch of these other different asset clattes, stocks, bonds, and you have the annualized return on there, which I think is what most probably 90% of investors look at the trailing one three five year return,

[00:40:05] ten year returns if they're available. Many investors don't look at things like the sharp ratio or the Calmar ratio or the upside downside capture. A lot of that does get lost and it's not investors. It's just the way investors, not necessarily advisors. I'm

[00:40:21] talking about most investors now retail investors look at that stuff. It's just like things like the sharp ratio are important. What type of return are you getting for the amount of risk that you're taking? You guys have a sharp one since actually

[00:40:39] being alive, which is pretty impressive. I didn't realize all these bonds assets actually have negative sharp ratios because they're down. Well, some of them even if they're up, they have a negative sharp ratio because they've underperformed the risk-free rate of return. I like William Sharp the way he

[00:40:59] did the sharp ratio. I don't like the denominator. Volatility is not a symptom of risk. It's not risk itself, but the ratio is so popular that you pretty much have to use it in your communications. It's pretty good. It's just incomplete. I prefer some mixture of drawdown, semi-standard

[00:41:16] deviation and standard deviation, something like that. You're right. People look at the returns first and it's fair because if we look inflation, spend what? 4.5% for a while now and people are looking at the returns and it's like, hey, you made 5% annualized, but I'm actually going

[00:41:32] sideways because inflation has been almost 5%. I get it why they look at it, but you're right. They really should at some point consider what they're... Again, it's a trade-off. You want to make 30% annualized returns by buying Ethereum? Well, you got to be ready for 90% drawdowns.

[00:41:49] Outside of the investments you have in the fund, do you do any other type of investing, whether it's private equity, real estate? Do you have any of the exposure to that type of stuff?

[00:42:02] I own some real estate down in Southern Arizona. I don't know if you guys know who Peter Zion is, but he's got a really compelling thesis around reindustrialization in the US and the relationship with Mexico that I find to be very compelling.

[00:42:18] So I own some real estate in Southern Arizona. I'm in the market to buy some real estate in North Scottsdale right now. That'll round out my real estate portfolio. It may be Puerto Rico.

[00:42:29] I do do diligence trips to Puerto Rico and I look at real estate there and I'm 50-50 on whether buying something there or not. I'm not a big real estate guy and I'm not talking about multimillion-dollar properties. I'm talking about relatively humble properties.

[00:42:46] So beyond that, no, I don't do any venture capital or private equity. I look at a lot of the deals. There are some compelling deals flow that I see in the high net worth space.

[00:42:56] Some stuff that's kind of eye-popping, you're like, wow, I just love to get those returns, but they're very fragmented. They require a lot of work. They're very illiquid. They certainly

[00:43:06] wouldn't work in the fund. And I'm happy to just invest in my own program. So I don't do any of them, but I do see them and there are some that are quite compelling. What is your view on

[00:43:20] home ownership? Do you want a home? Do you rent? How do you look at that? So I own one home down in Southern Arizona. I'm considering buying one here in North Scottsdale. I'm not happy about the prices, mainly because it's 500 bucks a square foot and I'm looking at

[00:43:35] it and it sold for $200 a square foot, not too long ago. So I don't like to be the guy that that buys after things have tripled. That being said, if you need a home and it makes economic

[00:43:51] sense, you buy when you need. So I just don't happen to need right now. So I'm being choosy and picky about potentially buying something. How do I feel about home ownership? It's kind of the

[00:44:04] same way I feel about Ivy League college education. I think that it went from being an absolutely fantastic idea in the 80s to you're paying a premium in a lot of ways now to go down that road.

[00:44:19] That's a normal cycle, right? So the inflation is affecting everything. Rents have been going up dramatically, especially here in Scottsdale, Arizona. I've been a homeowner before. It kind of sucks. It's another full-time job because there's always something breaking or

[00:44:36] creaking or invading your home or something. So it's not all it's cracked up to be, in my opinion. Now if you have a wife and kids and two dogs, then yeah, you're going to want a yard and all

[00:44:48] that other stuff. So it's a personal decision. Trade offs again. What are you getting? What are you giving up? So I know what I'm giving up by taking ownership of a property. And in

[00:45:00] my current situation, I'm not getting a lot out of it, which is why I'm not in a hurry to buy. I feel like at one point in this country, home ownership and probably even when I was,

[00:45:11] even though I bought at like, at the peak in 05 or whatever it was during the during the housing boom and then the subsequent bust, but it seemed like it was attainable. Even then, while house prices were expensive, it seemed like home ownership was attainable for

[00:45:28] young professionals. And now I just, I leaped around here with prices. It's just, it seems like it's getting out of reach for people that want to buy starter homes. And you wonder how that impacts just overall things in this country because I think home

[00:45:44] ownership is an important driver of sort of growth to something. Anyways, probably off topic, but just make that comment. It's a great topic though. And it's three times worse in Canada. So you want to see how it's going to work out here? Just watch Canada and what they're

[00:45:57] going to go through in the next, you know, 5, 10 years. I'll tell you a quick story. When I was 17, I lived in San Jose, California. My dad bought a house, I think for, I think it was under 100,000, I think it was $80,000, three bedroom, two bathroom house.

[00:46:14] He could probably sell that thing now for $1.2 million. Back then, I got a construction job making, I think it was $19.50 an hour doing like roofing and just doing grunt work, back breaking grunt work for people that actually knew how to do construction.

[00:46:34] If you try to go get that same job today, it pays about $28 an hour, but the house prices are up 10X or more 15X. So I thought it was hard then, you know, that was 89 or 1990. Imagine what it's like now. Becoming unattainable? It became

[00:46:52] unattainable like 10 years ago. It's out of control. So I understand why young people are demoralized, they're doing the math. And I think I heard a statistic the other day. If you make more than

[00:47:04] 400 grand a year, you're in the top 1% in America and the median household income is like $69 or $71,000 a year. And then you look at the median home prices, interest rates, food costs, the math doesn't work guys. It's impossible. It just doesn't work.

[00:47:21] And something has to give. And I don't know what it is, but these people are not making it. What is your view on... I know you don't have children, but in terms of you have any

[00:47:35] thoughts on... We'd like to ask a question about wealth and how people think about giving money to people in their family, whether it's their children or other relatives, and how they just think about that in general. Do you have any thoughts on that?

[00:47:53] So this is a dangerous topic. I grew up in such a way that I was around very wealthy people and very poor people at the same time. And I was somewhere in the middle, definitely didn't

[00:48:12] grow up wealthy, but wasn't destitute either. And I was a very curious kid. So I paid attention to outcomes and I also studied psychology and sociology early in my college career. It's very interesting to me to think about incentives and unintended consequences.

[00:48:33] And from what I've seen, the current belief I hold is that... This is kind of a controversial statement, but I believe that subsidies kill. Subsidies... Not always. Some subsidies are very well thought out if they're temporary and they're aligned with proper incentives. Necessary and

[00:48:52] compassionate and good. The majority of them are not thought out very well. They're done under duress with no consideration for unintended consequences. In my personal experiences, I've seen subsidies cause far more problems than they solve. And that even applies to the wealthiest

[00:49:10] families I've known that spoiled their kids. The subsidies just took away their ambition and they ended up not doing well in life. So I would say that in this context, it really

[00:49:23] is messy and it depends on the person and the circumstances. If you want a rule of thumb... If you have money and you want to help your kids, and I don't have any kids so I'm not an expert

[00:49:34] on this topic, but from the outsider's perspective, I would say do what you can to alleviate suffering and get rid of obstacles. But don't just pay them because they're alive. What did I say? Assign incentives with productive behavior.

[00:49:55] Alleviate suffering but enable accomplishment. It's probably a lot harder than it sounds, parents aren't objective. They all think they're kids or good kids and they're the most beautiful kids and they're the smartest kids and whatnot. So where you're not being, it's hard to be

[00:50:08] objective when it's your baby. But I've seen what spoiling people does and it just kills their ambition and actually sets them up for failure. That's been my experience. There's no good universal rule. Having an estate hanging over their head that they know they're

[00:50:26] going to inherit is enough, I think, to keep them from... In other words, they would have made different decisions along the way that might have been a lot more fruitful if they didn't have

[00:50:36] a $10 million estate that they knew was coming to them in 15 years. So don't do that to them. If I had kids, I would spend money on good food, good sleep, like a productive environment where you

[00:50:50] get good food and good sleep. I would try to eliminate any unnecessary obstacles and then beyond that, I would align any subsidies with incentives towards what I thought was productive behavior and I would ruthlessly cut them off if I saw that those incentives were leading to unproductive

[00:51:09] behavior. I find that a very strong answer for someone that doesn't have children, children though. Well, thank you for that. What I said, when you have kids, you're kind of, you're blinded by the whole thing. Yeah, totally. Right? Yeah. And I have lots of nephews and

[00:51:22] nieces and dozens of cousins and I've seen the trials and tribulations and the successes and the failures and I've tried to learn from it. I'm a pretty observant person who can be

[00:51:33] contrary in at times, but I just trying to get to what I think that any base rate truths that are durable, I want to find those. The rest of it's just all a mess. Yes. Speaking, I mean, Jack and I

[00:51:46] both have kids so like you don't want, we give our kids things because we want them to be happy. We don't want them to have to suffer or feel left out. But is that really ultimately the

[00:51:58] best thing? I think the character is built by sometimes just not always obviously getting what you want, having to work for it. What do you do with a situation like social media where we all

[00:52:10] know it's toxic? It has doing all kinds of damage, but if you take their social media away from them, but the other parents don't from those kids, well now your kids are going to be getting

[00:52:20] kicked at school and made fun of because they don't have social media so you're like, how do I win here? It actually requires coordination amongst a society in order to make it work.

[00:52:30] And as life becomes more complicated, you get more and more of these issues where you can't, you don't really have agency over the problem. It requires coordination and that's a mess. The Attorney General, they were going to fix it by putting a disclaimer that social media is bad

[00:52:48] for you. Those things have a tiny, tiny amount of impact, but again, it's the juice isn't worth the squeeze. It's going to cost you a couple billion dollars to push all that legislation through

[00:53:00] and it'll get through to six people. I was just thinking about investing when you were talking about that because in investing you have kind of the ideal world and then the behavioral world where you're dealing with real people and if a parent is kind of the same thing,

[00:53:11] like going back to your thinking about taking social media out of, taking it away completely or taking the iPads away completely, like in the real world doing it all the way is very,

[00:53:20] very hard. Kind of finding that middle ground, like kind of like you have with your fund in a lot of ways, like that's what you've got to do where your kids aren't watching it as much

[00:53:28] as their friends are, but they have some exposure to it and trying to get that right balance. I think there's like a correlation there. Yeah, I think it's like a similar thing. Right. So if I was optimizing for that, if that was my true North Star,

[00:53:40] if I had a gaggle of kids, two-year-old, a four-year-old and a six-year-old and you're like, all right, well, you see all these challenges of an intractable nature. What are you going to do?

[00:53:51] Well, I would scan the US and try to find a community that I could move to where this has a chance of working and that might be somewhere in Idaho or New Hampshire or something. I don't

[00:54:02] know. I'm just making stuff up at this point, but I would look at the base race statistics and say, well, if I'm raising my kids in Huntington Beach, California, or Brickle, Miami, I've got no chance of eliminating these distractions because no one else

[00:54:19] in the neighborhood, I don't know, I'm not picking on those two cities. I'm just making stuff up. So my first goal would be to get out of this situation and go somewhere where we do have a

[00:54:29] chance. And that's going to be like a cultural thing. You're going to have to find like-minded people. And I'm sure these communities exist. In fact, I know they do. I just can't tell you

[00:54:37] where they are because I can't remember. But I remember Texas and a couple other places where people said, you know what? We want to get rid of a lot of things. We want to get rid of sugar, processed foods, extreme dependence upon pharmaceuticals to manage symptoms,

[00:54:58] social media. Now, you might get there and say, get me away from these people. They're too crazy. I don't know. But that would be my goal would be to go investigate that. Because if you

[00:55:09] don't get rid of the problem in the first place, or at least the allure or the temptation, well then you've really got an uphill battle. So I don't know. I know we have to go on to a different topic, but I would recommend 13D research did something

[00:55:21] called- I believe it's called technology in the teenage mind. I do a separate podcast with Ben Hunt where we talked about this a lot. And it's just when you think about

[00:55:29] physically what this stuff is doing the kids brains and I'm not smart enough to talk about it. But when you read through that, it's really crazy. It's terrifying. The dopamine addiction, the serotonin addiction, it's absolutely terrifying. We're going to look back on this episode

[00:55:45] a hundred years from now and say, what on and sugar too, refined carbohydrates. We're going to look back and go, we were insane. We'll look back and be just as judgmental as we are looking back when they were giving kids heroin in the 1800s. And everyone was walking

[00:56:01] down the street with a gun drunk. I mean, it's going to be that bad. But here we are living right through it. We're not going to end on this question because we want to end on a positive

[00:56:10] question that we're going to ask. But in terms of thinking about your career and the biggest mistake that you made, what would you say that was? And what did you- What would you- What have you learned from that? Yeah. So the biggest mistake I ever

[00:56:24] made, I was in my 20s. I was probably 25 or 26, maybe a little bit younger than that. I was following a couple of different options markets and the model that I built at the time

[00:56:37] was right seven times in a row. Seven times in a row. I think it was Nasdaq options. Yeah. So my coworkers and several of my friends thought this is great. This guy never loses.

[00:56:51] So let's pool our resources and bet it all on the eighth time. And I was uncomfortable with this. I kind of knew better. I was young and dumb, but I still- I'm just not a risky person.

[00:57:05] But the peer pressure and the social pressure actually beat me that time. And we pooled that money and we went all in and both of you guys know exactly what happened. Lost everything. And everyone was mad at me even though

[00:57:20] they were far more enthusiastic about doing this than I was. I learned a very valuable lesson about both the markets. Anytime you go all in, you deserve to fail. And two, perhaps more importantly, the social pressure and the peer pressure

[00:57:38] is always there. And the history revision after the fact is always there. So you need- You're responsible for your decisions. It doesn't matter how easy the people around you are

[00:57:49] making it for you to make a mistake. It's still 100% accountable on you. So I only had to learn it once. You know, I'm pretty good at learning vicariously through the failures of others. I don't really-

[00:57:59] I'm not that guy that needs to keep blowing up in order to learn my own lessons, but that was one and that hurt a lot. As we wrap these up, we always like to ask a question that

[00:58:08] gets us this idea that not everything you invest in is a good investment financially. Like I would use the example. I have a racing sailboat and a racing sailboat is a horrendous

[00:58:16] finance investment, but I get a lot of fun out of it. I go out with my friends on Wednesday night. I have a beer. Like I really enjoy it. And I'm wondering if there's anything like that in your

[00:58:23] life that you spend money on that may not be the greatest decision financially, but you get a lot of value out of it in your life? Well, I pay for my healthcare out of pocket so that I can go to doctors that want to treat

[00:58:34] root cause issues rather than layer me with prescriptions to manage symptoms. That's one thing and that's not super cheap. I spend a lot of money or relative to other people, I spend a lot more money on food. So I'm very picky with what kind of food. I mean,

[00:58:51] I used to weigh 240 pounds and I'm not a tall person. I had high blood pressure, high cholesterol. I was a wreck when I left my previous firm. So I weigh 180 now. I used to be an insomniac. I fall asleep in seven minutes every night now and sleep the

[00:59:06] whole night through. So changing my diet to get rid of 80% of the sugar, most of the omega-6 fats, the trans fats, increasing omega-3, getting more vitamin D has completely changed my body from feeling terrible to feeling good every single day. So I spend a lot more money on

[00:59:29] food than most people would approve of. And the other one is sleep. The quality of my sleep is up 1000X from where it used to be. Like I mentioned, it used to be an insomniac for my whole

[00:59:38] life. Now I sleep like a baby and also take naps in the middle of the day, which a lot of people criticize. They view it as being lazy and then I'll ask them, do you meditate? And they say,

[00:59:48] yes, every day. I'm like, well, so do I. I call it a nap. It's better than your meditation. So some people would look at that and say, well, that's unproductive. You know, Warren Buffett would say I'm spending way too much on food. You can just go to

[00:59:59] Arby's or whatever junk food place he owns and drink a diet, or a cherry Coke and eat a Big Mac or whatever. I found that doesn't work for me. And that spending the premium, well you call it

[01:00:10] a premium. I call it a discount though because my health is so much better and I'm saving so much. I'm going to save so much money on healthcare costs going forward. So those would

[01:00:19] be my three answers. I don't have any fancy racing cars. I drive a 12-year-old Camry and love it. I don't have any of the toys and trinkets. There's no $30,000 watches on me.

[01:00:32] I'm pretty frugal, but I will spend money. And then for other people, I tell them, don't ever sometimes buying the cheapest is the most expensive thing you can do. That applies to food, underwear and socks and education. Like, do you want the cheapest possible education for

[01:00:51] your children? Obviously not. Do you want the cheapest possible residential real estate to live in? Obviously not. So in some ways, you want to spend what other people are going to consider a

[01:01:01] premium. Jack, your example is if that creates peace and harmony in your life and it's manageable, it's a trade-off, right? You went through the mental calculus and you said, well, this is what I'm giving up, X dollars. You can compound that through time, Warren Buffett

[01:01:14] style and Sarah, this is costing me $1.4 million or whatever over 20 years. That's 20 years, right? But the utility you're getting out of it, if you could place a value on that, obviously that value is higher. So the question is just be disciplined about it. You

[01:01:32] can't do that in every aspect of your life. Otherwise I'd be eating Reese's Peanut Butter cups for breakfast and chocolate ice cream for dinner. Just be smart about it. Yeah, that's the one thing I do spend money on. And I would also say that I would

[01:01:43] say most people who have boats would tell you that they do not do that calculation because they don't want to know. Which is probably true for me too, I probably have not performed that calculation nor do I want to perform that calculation.

[01:01:55] So Eric, we like to ask our guest for one parting question, which is if you could impart one lesson you've learned from building your portfolio to the average investor, what would that be? Don't get ahead of yourself. If you do a good job of blocking and tackling

[01:02:10] in the initial housekeeping, if you do a good job of those things, you'll be better than 90% of all investors because they don't do a good job of that stuff. They jump it and go straight to the complexity, the most exciting stuff,

[01:02:21] the stuff everyone else is talking about. If you just do a good job of the basics, you'll be better than most. And then also to get to the actual base rate statistics first,

[01:02:33] one of the questions you guys brought up was that most people put their money in equities because they compounded 10, 11% a year for hundreds of years or whatever. That's a base rate statistic. And then you can adjust that the way I do for true wealth.

[01:02:46] You can say after fees that I'm going to pay, the taxes I'm going to pay, the transaction costs I'm going to pay and get to a net-net-net number. If you do that for all asset classes, it'll look quite a bit different than some of the

[01:02:58] convenient portfolios that are out there available for people. So find out what the actual base rate statistics are for things. I consider that good housekeeping and getting the blocking and tackling correct. And you already be ahead of the game because I'll tell you,

[01:03:11] there's a lot of valuable information in getting the basics right that most people just overlook. Good stuff, Eric. Thank you very much. It's been a great conversation. Hope you have a great summer. Please come back on the podcast. It's always a pleasure

[01:03:26] talking to you. My absolute pleasure. It's always fun. Thanks guys. Appreciate it. Thank you. Take care. On Twitter at at practical quant and follow me on Twitter at at JJ carbono. If you found this discussion interesting and valuable, please subscribe in either iTunes or on

[01:03:48] YouTube or leave a review or a comment. We appreciate it.