Show Us Your Portfolio: Jerry Parker

[00:00:00] [SPEAKER_02]: Welcome to Excess Returns. We'll be focused on what works over the long term in the markets.

[00:00:05] [SPEAKER_02]: Join us as we talk about the strategies and tactics that can help you become a better

[00:00:09] [SPEAKER_00]: long-term investor. Justin Carbonneau and Jack Forehand are principals at Bolivia Capital Management.

[00:00:14] [SPEAKER_00]: The opinions expressed in this podcast do not necessarily reflect the opinions of

[00:00:17] [SPEAKER_00]: Bolivia Capital. No information on this podcast should be construed as investment advice.

[00:00:21] [SPEAKER_00]: Securities discussed in the podcast may be holdings of clients of Bolivia Capital.

[00:00:24] [SPEAKER_02]: Hey guys, this is Justin. In this episode of Excess Returns, Jack and I talk with Jerry

[00:00:28] [SPEAKER_02]: Parker, trend follower and founder of Chesapeake Capital Corporation, about his personal approach

[00:00:32] [SPEAKER_02]: to investing in his portfolio. Jerry walks us through his investing goals in his portfolio

[00:00:36] [SPEAKER_02]: and why trend following works for him and his clients. The use of trend and risk management

[00:00:40] [SPEAKER_02]: techniques are paramount in his approach, and Jerry explains why these two discipline

[00:00:44] [SPEAKER_02]: trading methods are important in helping to limit human biases and emotions and are built

[00:00:49] [SPEAKER_02]: to handle many different types of market environments. We talked to Jerry about his new ETF,

[00:00:53] [SPEAKER_02]: the benefits of trend in an ETF wrapper, and more about how Jerry approaches financial

[00:00:57] [SPEAKER_02]: decisions with respect to his children in the past, charitable giving and more.

[00:01:01] [SPEAKER_02]: As always, thank you for listening. Please enjoy this discussion with Jerry Parker

[00:01:04] [SPEAKER_02]: of Chesapeake Capital Corporation. Hi Jerry, how are you? Thank you very much for joining us again.

[00:01:12] [SPEAKER_01]: Hey, thanks for having me. It's good to be here. Good to see you guys again.

[00:01:15] [SPEAKER_02]: In this discussion, we wanted to have you want to talk about your personal investment strategy

[00:01:23] [SPEAKER_02]: in portfolio. This is one of the episodes or one of the things that we do on excess returns,

[00:01:28] [SPEAKER_02]: is we like to have investment professionals on like yourself that have been in the markets

[00:01:33] [SPEAKER_02]: and talk about how you think about your own personal portfolio, how you invest your own

[00:01:38] [SPEAKER_02]: money, some of the unique things that you might do or consider given that you are in

[00:01:44] [SPEAKER_02]: the business of investments and providing the types of strategies that you provide to investors.

[00:01:50] [SPEAKER_02]: A lot of times when we sit down with folks like yourself, the strategies actually are very

[00:01:56] [SPEAKER_02]: different and unique because of those circumstances. It's probably not like a 6040 portfolio or

[00:02:02] [SPEAKER_02]: something like that, that a lot of investors might be in. You take a different approach to

[00:02:05] [SPEAKER_02]: investing just at the outset. Anyways, thank you for coming on. Thanks for being open with

[00:02:12] [SPEAKER_02]: us and our audience. I think this is going to be a really good discussion.

[00:02:16] [SPEAKER_02]: Great. Before we get into the strategy and the specifics, let's start at a higher level.

[00:02:26] [SPEAKER_02]: Almost like a financial advisor would start with talking to a potential investor, which is when

[00:02:30] [SPEAKER_02]: you think about your own personal portfolio and investments, what do you consider to be

[00:02:37] [SPEAKER_02]: the biggest goals and objectives with your money?

[00:02:43] [SPEAKER_01]: I made a lot of money early on or halfway through my career. Ever since then, it's really

[00:02:55] [SPEAKER_01]: just preservation. You just don't want to cope backwards. It's really a pride and ego type

[00:03:02] [SPEAKER_01]: of a thing. You want to be moving forward all the time and increasing your wealth.

[00:03:09] [SPEAKER_01]: That could be part of that's going to be invested in my own trading and funds that I have, ETFs,

[00:03:15] [SPEAKER_01]: mutual funds, private fund, creating, supporting new funds and products that I want to come out with.

[00:03:22] [SPEAKER_01]: So I'm very keen on these new ideas and new products being successful, not just

[00:03:28] [SPEAKER_01]: put substantial amounts of my money in there. I want to support them and get them going,

[00:03:33] [SPEAKER_01]: but also I want to make money. But really, I think when you have a lot of, when you make good money

[00:03:41] [SPEAKER_01]: and you start, you're like, wow, I'm really making some good money here. My goal was like,

[00:03:48] [SPEAKER_01]: hey, let's don't go backwards too much. These drawdowns become very personal when you have

[00:03:54] [SPEAKER_01]: a certain amount of wealth and then you suffer through the drawdown. The clients will be complaining

[00:03:59] [SPEAKER_01]: and you're like, let me tell you, I feel probably as much or more than anybody because usually with

[00:04:05] [SPEAKER_01]: my funds, I'm usually one of the biggest, not the biggest investor in the fund.

[00:04:11] [SPEAKER_02]: Do you think when you were younger, you understood the true power of compounding?

[00:04:17] [SPEAKER_01]: Oh, no, I didn't understand a lot of things. I think one of my problems was,

[00:04:25] [SPEAKER_01]: I didn't have mentors in my, I'm making money. I'm building a big business or a business and

[00:04:33] [SPEAKER_01]: the money is kind of coming in and we're really growing. And I remember telling my wife,

[00:04:37] [SPEAKER_01]: she was like, how much are we worth? And I told her, and she was like, totally shocked.

[00:04:42] [SPEAKER_01]: She's like, oh my God. I'm like, yeah, no, we just hit a really good spell there in the

[00:04:47] [SPEAKER_01]: mid 2000s. But I didn't have mentors or family members who were helping me with this.

[00:04:55] [SPEAKER_01]: And so I didn't understand a lot of things about the pressures of wealth and all the

[00:05:02] [SPEAKER_01]: things that come with it. And I was very naive and unprepared for the family stuff,

[00:05:09] [SPEAKER_01]: friends stuff and diversification.

[00:05:12] [SPEAKER_02]: And yeah, well, that's, yeah, I think that that's probably a challenge that a lot of

[00:05:19] [SPEAKER_02]: people face when they have success earlier in their careers. And it's like they have to kind of learn

[00:05:24] [SPEAKER_02]: learning by doing or hopefully you have the right people around you to

[00:05:29] [SPEAKER_02]: help guide you and steer you in the best possible direction. We were talking before we

[00:05:36] [SPEAKER_02]: jumped on and it's your birthday soon. I'm not going to say exactly when it is because

[00:05:40] [SPEAKER_02]: I don't know if you want that out, but happy birthday by the way. Thank you.

[00:05:47] [SPEAKER_02]: But what that also means is that you are going to be a year older and that probably means a year,

[00:05:56] [SPEAKER_02]: it definitely means a year closer to retirement. Now you may not be planning on retiring any

[00:06:03] [SPEAKER_02]: time soon just given what I know about you and given the things that you're involved with

[00:06:07] [SPEAKER_02]: some of these new partnerships and business lines that you're launching. But do you ever

[00:06:15] [SPEAKER_02]: think about retirement and how you want your sort of optimal retirement to be? I mean,

[00:06:21] [SPEAKER_02]: do you envision yourself out in the golf course hitting the golf ball or

[00:06:24] [SPEAKER_02]: you know going on cruises multiple times a year or doing tons of traveling? I mean,

[00:06:29] [SPEAKER_02]: what do you, how do you think about that?

[00:06:32] [SPEAKER_01]: Yeah, I don't think about retiring honestly. Yeah, I just can't imagine not getting up every morning and

[00:06:42] [SPEAKER_01]: digging into the markets and seeing what's going on in my portfolio and having clients and having a

[00:06:47] [SPEAKER_01]: fund and being in the game. You know, I don't know. I sort of think about people in the

[00:06:54] [SPEAKER_01]: business obviously there are people in this business who are older than me and they're

[00:06:58] [SPEAKER_01]: old and they're really seemingly just doing as well as they've ever done. So that's what I think

[00:07:04] [SPEAKER_01]: about maybe I want to be like that. I'm just consumed you know with my interest which is

[00:07:11] [SPEAKER_01]: the business and trading the markets and systematic trend following and worldwide and

[00:07:19] [SPEAKER_01]: stocks, the currencies, commodities, interest rates and just being part of that, you know,

[00:07:25] [SPEAKER_01]: being a relevant human and keeping abreast of everything that's going on in my portfolio and

[00:07:30] [SPEAKER_01]: watching the world unfold. What I've done for almost 40 years, I just can't imagine not doing

[00:07:36] [SPEAKER_01]: that it but you know I work out a lot too and so I get on this treadmill and I've done it for

[00:07:42] [SPEAKER_01]: over 20 years. These weightlifting and yoga and treadmill and I just say to myself every

[00:07:50] [SPEAKER_01]: now and then you know I'll bet you one of these days I'm going to step off that treadmill and say

[00:07:55] [SPEAKER_01]: this is it. You know, I'm just going to enjoy life. I'm going to eat a lot. I'm going to drink a lot.

[00:08:00] [SPEAKER_01]: I'm going to turn my back on all my diet and fitness and maybe I'll do the same thing you know

[00:08:07] [SPEAKER_01]: with trading and say okay today it's a not and it may not even be a bad period. It may just

[00:08:13] [SPEAKER_01]: be you know I'm at the top of my game but I've lost the intensity but I doubt it you know

[00:08:20] [SPEAKER_01]: but that's I think would have to be something like that just all of a sudden become a get to a certain

[00:08:27] [SPEAKER_01]: age or mentality that's I've never experienced before and say hey you know I'm done it's over with

[00:08:35] [SPEAKER_01]: but I don't plan on that happening. It's I'm having too much fun and believe it or not

[00:08:41] [SPEAKER_01]: what I have done for all these years I do it because it is the most fun thing to do and that is

[00:08:48] [SPEAKER_01]: sit in front of the computer and watch the markets and talk to my friends about trading or what

[00:08:54] [SPEAKER_01]: and what is proper trading and yeah just too much fun. Can't stop.

[00:09:01] [SPEAKER_03]: Well you've kept our perfect streak going because we obviously we tend to talk to

[00:09:05] [SPEAKER_03]: pretty driven people on the podcast but I don't think anybody yet has said they're going to

[00:09:08] [SPEAKER_03]: retire in the traditional sense. I think everybody has said you know I'm going to keep doing this to

[00:09:12] [SPEAKER_03]: some degree so and I think it's such a huge part you know for all of us you know I think about

[00:09:16] [SPEAKER_03]: this myself too like it's part of our purpose in life I mean keeping your mind going doing

[00:09:20] [SPEAKER_03]: something you love it it's part of your purpose and if you kind of just flip the switch

[00:09:23] [SPEAKER_03]: and turn that off like I think that would be pretty problematic for me. Yeah like I said

[00:09:28] [SPEAKER_01]: you'd have to all of a sudden become another person you know a different type of person so

[00:09:34] [SPEAKER_01]: I it can happen and it wouldn't be anything wrong with it like I said it could be when I

[00:09:38] [SPEAKER_01]: am at the top of the game or I'm in a big losing streak and I've just had enough but

[00:09:45] [SPEAKER_01]: yeah I don't know anything can happen but I I doubt if it will happen. I don't really have a lot of

[00:09:51] [SPEAKER_01]: outside interest I like to play pickleball I like to go to nice dinners I don't play golf so

[00:10:00] [SPEAKER_01]: yeah I have to find something to to to fall in love with and I don't see that thing on the horizon.

[00:10:09] [SPEAKER_03]: Before we ask you about your portfolio I want to ask you about the way most people traditionally

[00:10:13] [SPEAKER_03]: build their portfolios you know they get their stocks they get their bonds they get an allocation

[00:10:16] [SPEAKER_03]: between the two they get a glide path and that sort of ends up being their portfolio

[00:10:20] [SPEAKER_03]: they invest for the long term and I know you invest in a very different way so I was wondering

[00:10:24] [SPEAKER_03]: what do you think are the flaws in that 6040 stock and bond portfolio?

[00:10:29] [SPEAKER_01]: Oh wow well this is like a softball you know I could hit this one out of the park although you

[00:10:35] [SPEAKER_01]: know it's not that many people who will kind of agree with me you know but the the flaws are

[00:10:41] [SPEAKER_01]: long only you know sometimes like last year we got to be short the stocks we got to

[00:10:47] [SPEAKER_01]: be short the bonds there's no place to hide in 2022 in a traditional portfolio because

[00:10:53] [SPEAKER_01]: everything got crushed so you've got to have shorts that's like one of the most important

[00:10:59] [SPEAKER_01]: things I learned and it keeps reappearing I trade a lot of single stocks but I also

[00:11:06] [SPEAKER_01]: short a lot of stocks as well so on a bad day like today or the past this month has been kind

[00:11:11] [SPEAKER_01]: of bad for stocks you know you really love to come in with some nice shorts on just two

[00:11:19] [SPEAKER_01]: two markets is not enough you know the stocks and the bonds you need to have some currencies and

[00:11:22] [SPEAKER_01]: come out in some commodities those are great markets they trend well I don't believe that

[00:11:28] [SPEAKER_01]: stocks are inherently better or better trenders or better performers in any way they're just

[00:11:35] [SPEAKER_01]: the same as the bonds and the currencies and commodities so I'm very conservative you

[00:11:41] [SPEAKER_01]: know I majored in accounting I was in a public accounting and I wanted both I want to have both

[00:11:48] [SPEAKER_01]: tremendous safety which is what you get with the sort of the systematic diversified

[00:11:54] [SPEAKER_01]: CTA trend following exposure and then I want to have a good upside and no compromise on being

[00:12:00] [SPEAKER_01]: incredibly safe and the diversification gives you both you know with the safety of the laws and

[00:12:07] [SPEAKER_01]: assurances and then you're monitoring all these markets and you're looking at your

[00:12:13] [SPEAKER_01]: trend following systems that are going to get you along in short the markets that are moving

[00:12:18] [SPEAKER_01]: and so you have some good opportunity to make good money so I have nothing in my portfolio

[00:12:26] [SPEAKER_01]: that sort of buy and hold or long only except you know too much real estate

[00:12:31] [SPEAKER_01]: I think this happens the older you get and you keep buying property and oh yeah

[00:12:38] [SPEAKER_01]: you should buy the property next door wow you know I've done that a few times as well so

[00:12:44] [SPEAKER_01]: people always advise you to do that when it comes up for sale buy the lot next door or buy the house

[00:12:50] [SPEAKER_01]: next door so too much real estate and you know it violates a big principle which is it's not

[00:12:57] [SPEAKER_01]: liquid and I can't take a small loss like I can with my futures trading and trend following

[00:13:04] [SPEAKER_01]: trading so but yeah that's kind of an issue I think in my portfolio I without a lot of good

[00:13:11] [SPEAKER_01]: planning I've sort of ended up with a lot of liquidity for half my assets you know in the funds

[00:13:18] [SPEAKER_01]: and then the other half is in real estate and Florida real estate has done well and real

[00:13:24] [SPEAKER_01]: estate in general has done well but that's going to end one of these days and I kind of know

[00:13:29] [SPEAKER_01]: better which is be prepared to take a small loss and get out and not hold on to things but now I'm

[00:13:36] [SPEAKER_01]: with the real estate I'm not able to do that with a significant part of my portfolio

[00:13:42] [SPEAKER_03]: well I want to dig into the real estate a little bit more later but I want to ask you a little

[00:13:44] [SPEAKER_03]: bit more about the stocks and bonds why do you think you know one of the things that's been

[00:13:47] [SPEAKER_03]: interesting to me as we talk to people you know we've talked to people who run risk parity

[00:13:51] [SPEAKER_03]: strategies we talked to Corey Hauston who does return stacking we talked to you with trend

[00:13:55] [SPEAKER_03]: following like when you look at these strategies they all seem to have better risk adjusted return

[00:13:59] [SPEAKER_03]: characteristics than any variation of a stock and bond portfolio but yet the vast majority

[00:14:04] [SPEAKER_03]: of individual investors are running the stock and bond portfolios I'm wondering why do you think that

[00:14:08] [SPEAKER_01]: is it's um they don't know a lot about anything other than that long only at the media tells them

[00:14:16] [SPEAKER_01]: that's great and you just got to hold on to it and buy the dips and they're in it with all of

[00:14:25] [SPEAKER_01]: their friends as well so if we all lose when stocks go down or bonds go down we're all losing so I

[00:14:30] [SPEAKER_01]: don't really feel that bad an investment in a cta or an alternative you know you could be out

[00:14:37] [SPEAKER_01]: there on your own and underperforming and you'll feel really bad about it um yeah so you notice

[00:14:44] [SPEAKER_01]: the obvious answer is I think um easy to do it's really difficult to lose a lot of money too

[00:14:52] [SPEAKER_01]: in stocks and bonds historically which I think um branching out into other types of investments

[00:14:58] [SPEAKER_01]: and you put yourself people probably had some bad experiences with uh some bad alternatives

[00:15:05] [SPEAKER_03]: yeah it was interesting and we'll talk about this a little bit later with your ETF though

[00:15:08] [SPEAKER_03]: is a lot of these unconventional type strategies are now becoming accessible to your average

[00:15:11] [SPEAKER_03]: investor so you could argue maybe part of the problem probably not the majority the problem in

[00:15:15] [SPEAKER_03]: the past was these types of strategies were hard to were hard to accept access you know they were

[00:15:20] [SPEAKER_03]: in hedge funds or they were in places where your average investor couldn't get to them but

[00:15:23] [SPEAKER_03]: you know now we're seeing so many ETFs come out that do run these types of you know more

[00:15:27] [SPEAKER_03]: multi asset strategies so maybe that'll help over time to get more people to think about

[00:15:31] [SPEAKER_01]: these types of things people love the ETFs and so that's really helped us to

[00:15:38] [SPEAKER_01]: take our program and put it in that particular wrapper they love the ETF it's great liquidity and

[00:15:47] [SPEAKER_01]: it's great tax tax treatment I think so they tell me and it's anonymous I think you know people

[00:15:52] [SPEAKER_01]: it's a stressful thing to call up and say Jerry I want to invest in your fund you got to talk to

[00:15:57] [SPEAKER_01]: people you got to talk to me then you got to call me up later fire me and take your money back

[00:16:01] [SPEAKER_01]: it's so embarrassing and then this is just so you can buy it you can sell it and

[00:16:09] [SPEAKER_01]: I actually have friends and I have a friend who bought the fund recently and I think

[00:16:15] [SPEAKER_01]: just the ease of operation and not having to ask anybody not to ask his accountant or his other

[00:16:21] [SPEAKER_01]: advisors to make this big commitment to the private fund I think was just so much easier just

[00:16:26] [SPEAKER_01]: sort of going to his account and buy the ETF so it's really a magical thing not only you know

[00:16:32] [SPEAKER_01]: usually the fees are lower than a mutual fund or private fund as well so yeah you would think that

[00:16:39] [SPEAKER_01]: people and you know there's been huge success my friend Andrew with his managed futures ETF he

[00:16:46] [SPEAKER_01]: raised a billion dollars last year and so we're all hoping that we're gonna have similar

[00:16:51] [SPEAKER_01]: good fortune one of these days but yeah I think that's a really good thing that these strategies

[00:16:59] [SPEAKER_01]: are available and in something that people want to invest in and feel comfortable investing in and

[00:17:05] [SPEAKER_01]: so I am really really happy I think we need to do more you know we need to do to do more of

[00:17:11] [SPEAKER_01]: these we should do a stock only long short trend following stock only long short commodities

[00:17:17] [SPEAKER_01]: maybe so I think we'll actually come out with more we're pretty fired up and happy and excited about

[00:17:23] [SPEAKER_03]: this opportunity I'm just curious about your evolution as an investor I mean if you look

[00:17:28] [SPEAKER_03]: back at the beginning I know you were in the turtle trader trading program pretty early so

[00:17:31] [SPEAKER_03]: maybe this wasn't true but did you start out as kind of a stock and bond investor and then

[00:17:35] [SPEAKER_03]: you had an evolution or is this something you've pretty much always been doing so obviously

[00:17:39] [SPEAKER_01]: I was really interested in investing and I um in my 20s and so I was in public accounting

[00:17:47] [SPEAKER_01]: out of college and I would watch wall street week and I loved wall street week Marty's why

[00:17:54] [SPEAKER_01]: he was on wall street week he was writing books newsletters I would read these newsletters and

[00:17:59] [SPEAKER_01]: it was all stock focused and centered but then I started reading about trend following

[00:18:05] [SPEAKER_01]: and I would say yeah well I love this trend following this really sounds good you know it

[00:18:10] [SPEAKER_01]: just really spoke to me with the small losses and going with the trend this objective way of looking

[00:18:16] [SPEAKER_01]: at the markets not predicting following price and then you know you sort of get more into it and

[00:18:22] [SPEAKER_01]: you learn about leverage and currencies and shorting and you're like I was like very open

[00:18:29] [SPEAKER_01]: minded I was like oh okay I like this shorts obviously that can work get up trends on the short side

[00:18:37] [SPEAKER_01]: and I thought in the diversification with the currencies commodities and interest rates I

[00:18:42] [SPEAKER_01]: thought this was just great stuff you know I too was heavily influenced and kind of

[00:18:48] [SPEAKER_01]: polluted and corrupted by the wall street and you know stocks and long only in 60 40

[00:18:54] [SPEAKER_01]: and this is how stocks act and stocks are so much different than the other markets which

[00:18:59] [SPEAKER_01]: I don't believe but I too am kind of always catching myself falling back into that trap

[00:19:05] [SPEAKER_01]: of how we're sort of raised you think a certain way about stocks in the market you know that

[00:19:12] [SPEAKER_01]: bothers me when people say the market actually 300 markets and a lot of currencies come out

[00:19:17] [SPEAKER_01]: of me so I don't like to hear the market as if you know the stocks are the center of the

[00:19:22] [SPEAKER_01]: universe so I rebel against that and I don't really like it but yeah I've you know I was just totally

[00:19:32] [SPEAKER_01]: I believed and loved you know trend following and thought it was the greatest thing ever when

[00:19:37] [SPEAKER_01]: I first read about it and so I never really went through a phase of value or buy and hold

[00:19:44] [SPEAKER_01]: in 60 40 and all the traditional stuff although I did have some of that in my head

[00:19:50] [SPEAKER_01]: and there has been times obviously where I thought owning stocks and buying whole was a good idea

[00:19:55] [SPEAKER_01]: but I try to fight against that because I really don't agree with that you alluded to this a

[00:20:01] [SPEAKER_03]: little bit earlier but can you talk about how at a high level how you think about constructing

[00:20:04] [SPEAKER_01]: a trend following portfolio to manage your money well I think I've just gone to an extreme

[00:20:10] [SPEAKER_01]: you know I took the philosophy and tried to understand it and I just said then I want

[00:20:15] [SPEAKER_01]: to be an extremely diversified trader I want to trade individual stocks trade hundreds of markets

[00:20:23] [SPEAKER_01]: and create a very diverse safe portfolio of longs and shorts and then I want to let those

[00:20:32] [SPEAKER_01]: profits run in a sort of a classic extreme way and you know you have to be more long term

[00:20:39] [SPEAKER_01]: these days and then that means you're going to have a lot of volatility and a lot of profit

[00:20:45] [SPEAKER_01]: give back and it's going to be very painful and your clients are going to hate hate it

[00:20:50] [SPEAKER_01]: I'm going to hate it but it's kind of like the right thing to do based upon our analysis

[00:20:55] [SPEAKER_01]: and our back test and our research so we have to do it and yeah so I sort of pride myself on

[00:21:04] [SPEAKER_01]: being the being willing to do all the hard things and the uncomfortable things which it

[00:21:10] [SPEAKER_01]: mainly is just sitting with very big winning positions and not getting out too quickly I mean

[00:21:16] [SPEAKER_01]: in my opinion that's 95% of it and that's what people rebel against even everyone everyone gets

[00:21:23] [SPEAKER_01]: out of their good positions too quickly people talk about it all the time whenever I talk to

[00:21:29] [SPEAKER_01]: people I can see people in the audience just shaking their head yep that's my big mistake

[00:21:33] [SPEAKER_01]: regardless of what your strategy is you know people got out of you know Apple and Amazon obviously

[00:21:39] [SPEAKER_01]: too quickly we all we all do it so you need to really fight against that but I just think

[00:21:48] [SPEAKER_01]: more of a systematic approach rules-based approach and it's just always spoke to me

[00:21:54] [SPEAKER_01]: and something I've just done for so long that it's just second nature I can't imagine not being

[00:22:00] [SPEAKER_01]: that person now and I sort of really get a kick out of debating and arguing with people on Twitter

[00:22:08] [SPEAKER_01]: and spaces and podcasts and whenever I get the opportunity to be the one person standing up

[00:22:17] [SPEAKER_01]: for this crazy strategy that really is frustrating because the big profits you know we definitely

[00:22:25] [SPEAKER_01]: let nice profits turn into small profits or even losses because we say to ourself

[00:22:32] [SPEAKER_01]: it's the right thing to do it's following these rules and sometimes the rules just fail tremendously

[00:22:38] [SPEAKER_03]: but we have to keep doing it well we're value investors so you're definitely see us nodding

[00:22:43] [SPEAKER_03]: our heads in terms of getting rid of winning positions too quickly that's something I think

[00:22:48] [SPEAKER_03]: all of us do in value yep how do you so the major asset classes you're invested in would be

[00:22:53] [SPEAKER_03]: stocks bonds commodities and currencies that's right okay and then how do you think about within

[00:22:59] [SPEAKER_03]: those how many different things like obviously there's a lot of currencies you can invest in

[00:23:03] [SPEAKER_03]: there's a lot of commodities how do you think about like how broad to be within those a lot

[00:23:08] [SPEAKER_01]: of it just is going to depend upon how many markets are in that category so there's about

[00:23:14] [SPEAKER_01]: 50 60 commodities 50s 50 60 currencies 30 40 bond interest rate futures and ETFs I can get my hands on

[00:23:26] [SPEAKER_01]: and then there's a thousand stocks so you can overwhelm your portfolio with the stocks

[00:23:32] [SPEAKER_01]: because there's so many of them so I try to have more of a balanced portfolio and say how many

[00:23:37] [SPEAKER_01]: there are lots of stocks I can get a lot of diversification I tend to

[00:23:43] [SPEAKER_01]: do mostly commodity related stocks but I try not to overwhelm the portfolio with too many stocks

[00:23:51] [SPEAKER_01]: but right now it's about I'd say 50% I'd say because there are so many stocks to choose from

[00:23:57] [SPEAKER_01]: a met from a mathematical and a system building objective backtesting point of view

[00:24:03] [SPEAKER_01]: you can justify half your portfolio being in stocks stocks are worth it because you're just

[00:24:09] [SPEAKER_01]: going to get so much more diversification you know like right now we're long uranium

[00:24:15] [SPEAKER_01]: lithium coal these these are sort of commodity related stocks where the commodity doesn't

[00:24:22] [SPEAKER_01]: exist in the futures so if we're not in some of these companies we're not going to participate

[00:24:28] [SPEAKER_01]: in that particular commodity move so there's some real diversification out there

[00:24:35] [SPEAKER_01]: if you dig deep and cultivate this portfolio approach where your bottom line is strictly

[00:24:43] [SPEAKER_01]: 100 strictly diversification so it is true that all my stocks are down today thankfully

[00:24:50] [SPEAKER_01]: I've got some shorts and I'm flat some stocks but over time you know stocks they

[00:24:56] [SPEAKER_01]: have their own personality they're not going to necessarily look like the s&p

[00:25:00] [SPEAKER_01]: on a long-term basis and so you can really get some and then you overlay the trend following

[00:25:04] [SPEAKER_01]: piece on top of it then the stocks really start looking different from the benchmarks

[00:25:11] [SPEAKER_01]: there's there is true diversification like last year we were short every bond future possible

[00:25:19] [SPEAKER_01]: no diversification in that sector along the dollar no diversification in that sector

[00:25:27] [SPEAKER_01]: commodities were more of a mixed bag but stocks you know a lot of longs a lot of shorts and so

[00:25:31] [SPEAKER_01]: sometimes the stocks will actually give you more diversification than the other markets so

[00:25:37] [SPEAKER_01]: and it's sometimes around COVID it couldn't have been worse I mean probably long

[00:25:41] [SPEAKER_01]: every stock in the portfolio they all got crushed and so it's just one of those things where

[00:25:49] [SPEAKER_01]: if you can dream it up it's going to happen eventually in the markets and you just

[00:25:53] [SPEAKER_01]: need to be prepared for it you mentioned the individual stocks and that's something that

[00:25:58] [SPEAKER_03]: makes you unique you know among trend followers like I don't think a lot of trend followers do

[00:26:02] [SPEAKER_03]: the individual stocks a lot of them are doing indexes what do you think are the big advantages

[00:26:05] [SPEAKER_03]: just you have more things to choose from when you're looking for the trends you're looking for

[00:26:10] [SPEAKER_01]: right I mean you know by definition the index is an average and you know you can

[00:26:15] [SPEAKER_01]: it's going to have a muted move it's not going to give you that outlier move that

[00:26:20] [SPEAKER_01]: if you trade at all 500 of those stocks you know you'd be long some of them you'd be flat

[00:26:25] [SPEAKER_01]: be short some of them because they're all having their own trends so I think the legitimacy of

[00:26:30] [SPEAKER_01]: overlaying a trend following strategy on top of something like the S&P index is a little shaky

[00:26:37] [SPEAKER_01]: it doesn't make a lot of sense to me you you forego the diversification you could possibly get

[00:26:42] [SPEAKER_01]: by trading them individually you're not going to get the outlier moves and we had Tesla

[00:26:47] [SPEAKER_01]: a few years ago that was just an amazing one of the biggest trades of all time

[00:26:52] [SPEAKER_01]: and having that buried inside an index well at the time it wasn't even in the S&P but you know

[00:26:59] [SPEAKER_01]: having having these thick moves kind of muted and buried inside of an index doesn't work for

[00:27:04] [SPEAKER_01]: trend following if you have an opinion on the market and if you're long only and you think

[00:27:11] [SPEAKER_01]: that the market itself is going to go up okay sure fine but we're sort of hunting these

[00:27:15] [SPEAKER_01]: outlier trades and trying to you know make a lot of money on maybe 10% of our trades

[00:27:21] [SPEAKER_01]: 10% of our positions so it really lends itself more to break an open-ed index and trading each

[00:27:28] [SPEAKER_01]: individual one and we have a sizing algorithm that we'll use which is going to have a

[00:27:33] [SPEAKER_01]: beneficial impact on our profitability as well so you just lose all of it no CTA would trade

[00:27:41] [SPEAKER_01]: the dollar index you know not going to trade the dollar in a trade 30 40 different currencies

[00:27:47] [SPEAKER_01]: somewhere up somewhere going down lots of diversification no no CTA is going to trade the

[00:27:52] [SPEAKER_01]: commodity index in lieu of grains crude heating oil unleaded natural gas coffee sugar cocoa with

[00:28:01] [SPEAKER_01]: these huge moves this year and yet you throw up this stupid S&P index or these stock indexes

[00:28:07] [SPEAKER_01]: for some reason they embrace them I can't I taunt them and criticize them and make fun of them

[00:28:15] [SPEAKER_03]: they're smart just to ignore me I'm curious you mentioned before you recently brought an ETF

[00:28:20] [SPEAKER_03]: to market and I'm just wondering how did that process work with your strategy I mean are you

[00:28:24] [SPEAKER_03]: able to pretty much do everything in an ETF format that you're able to do with your

[00:28:28] [SPEAKER_03]: overall strategy or did you have to adopt adapt it somewhat to the ETF market we didn't really

[00:28:33] [SPEAKER_01]: adapt it very much you know we have those acquired fund fees so we eliminated two or three different

[00:28:42] [SPEAKER_01]: ETFs but it is a daunting task because I think it was like one of the first times if not the

[00:28:48] [SPEAKER_01]: first time ever that a ETF was created with a combination of a lot of futures and a lot of

[00:28:57] [SPEAKER_01]: securities so it was difficult to find a market maker and with the infrastructure to

[00:29:05] [SPEAKER_01]: handle that this to hedge that portfolio and but it is over 300 markets and so on days where we have

[00:29:14] [SPEAKER_01]: shared creation you know we have additions or redemptions there's a lot of you know activity

[00:29:18] [SPEAKER_01]: to do the adjustment trades to account for the new equity you know in 300 markets and a

[00:29:24] [SPEAKER_01]: lot of those are not in the US so it is quite a hassle and we earn our 100 basis points but

[00:29:34] [SPEAKER_01]: we were really happy to we would go to the market makers and say look if you want us to

[00:29:40] [SPEAKER_01]: eliminate some markets and or make it easier for you find that they were like no no no

[00:29:46] [SPEAKER_01]: keep doing what you're doing we can handle it and so far it's been really good it's a very

[00:29:50] [SPEAKER_01]: unique product and I mean literally we interviewed you know a handful of market makers and we have

[00:29:57] [SPEAKER_01]: found one willing to do it so very unique product very unique project so hopefully we get some credit

[00:30:05] [SPEAKER_03]: for it yeah you know we had an ETF at one point it was much more plain vanilla than yours it

[00:30:10] [SPEAKER_03]: was just long lonely stocks but it was a huge learning process like understanding all the

[00:30:13] [SPEAKER_03]: things that go on behind the scenes to make the ETF work the custom create and redeems and

[00:30:17] [SPEAKER_03]: everything the market maker does I mean there's a lot to it behind the scenes that you know a lot of

[00:30:21] [SPEAKER_01]: individual investors who invest in ETFs don't see oh that's right there's so much going on and

[00:30:27] [SPEAKER_01]: it's such a busy busy thing I try to insulate myself from that so I'm sitting in my little

[00:30:34] [SPEAKER_01]: cubicle just worrying about the markets and just trying to find maybe some more stocks to add

[00:30:38] [SPEAKER_01]: or subtract and looking at the systems and everything and so I try to farm all of that

[00:30:46] [SPEAKER_01]: admin and all that other work out to other people so that's that's one of the benefits of being

[00:30:51] [SPEAKER_01]: the CEO I guess and but I'm very appreciative of all those people involved it's a lot of work

[00:30:59] [SPEAKER_03]: and so in your liquid portfolio outside of in the trend following strategy do you do anything

[00:31:04] [SPEAKER_03]: else or is it pretty much all invested you know in your funds or you know in strategies you run

[00:31:09] [SPEAKER_01]: using trend following well it's pretty much that Aaron I have other traders and hedge funds and

[00:31:17] [SPEAKER_01]: friend followers that I invest in as well people that I know and I try to maybe start up CTAs and

[00:31:25] [SPEAKER_01]: I interviewed them pretty heavily make sure that they kind of agree with me on the fundamental

[00:31:29] [SPEAKER_01]: principles of proper trading what it all means but yeah I do some of that as well

[00:31:38] [SPEAKER_01]: and then yeah then that's about it I think yeah I really dislike paying high fees

[00:31:46] [SPEAKER_01]: so um yeah I try not to at one point I had a I had all of my investments in a sort of fund

[00:31:53] [SPEAKER_01]: of funds and we actually were running it as a fund of funds and with a lot of hedge funds a lot of

[00:31:58] [SPEAKER_01]: CTAs but I sort of stopped doing that when I sort of realized all the fees that I was paying

[00:32:05] [SPEAKER_01]: but yeah I guess I am very much cash CTAs and real estate pretty much

[00:32:13] [SPEAKER_03]: I'm wondering what are your thoughts on leverage you know we've had a lot of people who run sort

[00:32:16] [SPEAKER_03]: of absolute return type strategies with minimal drawdowns and you know we've talked a lot with

[00:32:20] [SPEAKER_03]: them about the idea of applying leverage and maybe you know levering up the return a little bit

[00:32:24] [SPEAKER_03]: you know when you have that consistency I'm just wondering how do you think about the

[00:32:27] [SPEAKER_01]: idea of leverage with your portfolio well leverage is inherent and necessary for the

[00:32:32] [SPEAKER_01]: CTA trend following portfolio because so many of the markets are that we trade the currencies and

[00:32:40] [SPEAKER_01]: the bonds have very low volatility so we have to raise those up we lower the stocks

[00:32:46] [SPEAKER_01]: and fit the commodities in there just so and I think that the initial choice of leverage for

[00:32:55] [SPEAKER_01]: CTA program is the most critical choice you know you really need to follow your system

[00:33:02] [SPEAKER_01]: and follow those rules and then that's going to be severely impacted by your risk so if you're

[00:33:09] [SPEAKER_01]: trading too large and risking too much it's going to have a negative impact on your ability to

[00:33:14] [SPEAKER_01]: follow those rules and you know some people I know are out there you know 20 or 30 negative

[00:33:21] [SPEAKER_01]: months no big deal but that would be a big deal for me and it would make me really

[00:33:26] [SPEAKER_01]: probably deviate from my plan so for me personally I need to choose a amount of leverage an amount

[00:33:34] [SPEAKER_01]: of risk that is you know typical day is 50 basis points plus or minus really really small not

[00:33:40] [SPEAKER_01]: not getting too crazy so I think there's nothing more important to any investor regardless of how

[00:33:45] [SPEAKER_01]: you trade or manage your money is to get that daily you know what am I living with daily

[00:33:54] [SPEAKER_01]: 1% plus or minus per day on average or something even less than that

[00:34:00] [SPEAKER_01]: that's the one discretionary I don't believe in discretion I believe there are right ways to do

[00:34:06] [SPEAKER_01]: things wrong ways to do things we should pursue those things I don't think everything

[00:34:10] [SPEAKER_01]: is created equal I never would say personally oh there's many ways to do things you should just

[00:34:16] [SPEAKER_01]: do what makes you feel good I hear this all the time it's the worst advice ever I'm I'm not saying

[00:34:22] [SPEAKER_01]: I'm doing things correctly I can always learn and get better but that's my pursuit as a human

[00:34:27] [SPEAKER_01]: being as professional to get better every day not to sort of say well you know I hear what

[00:34:33] [SPEAKER_01]: other people are doing maybe it's better but my way is fine too no I'm going to research that

[00:34:38] [SPEAKER_01]: and make sure that I'm not missing something so I'm very down on you know kind of even the idea

[00:34:48] [SPEAKER_01]: of you should trade something you should manage your money in a way that is that you could

[00:34:54] [SPEAKER_01]: actually do it you know because I think that that just allows people to to to manage your

[00:35:01] [SPEAKER_01]: money and trade in a way that is suboptimal because someone has told them it's okay if

[00:35:06] [SPEAKER_01]: your rules are sketchy and not that great because it's what you like you know then you

[00:35:11] [SPEAKER_01]: shouldn't trade you should give your money to someone else who's disciplined it can hang in there

[00:35:14] [SPEAKER_01]: and suffer volatility and drawdowns and not deviate from the plan but the one area that I would say

[00:35:22] [SPEAKER_01]: is totally a discretionary is your choice of leverage and Richard Dennis told me in 1983

[00:35:28] [SPEAKER_01]: you know everyone thinks they can handle more volatility than they can handle

[00:35:32] [SPEAKER_01]: and that's the one thing I've learned over the years is that whenever I got into trouble

[00:35:38] [SPEAKER_01]: it was totally due to trading too large too much leverage too much ball and then it impacted my

[00:35:44] [SPEAKER_01]: discipline of following my rules and so it's just really those two things are really the most

[00:35:50] [SPEAKER_03]: important yeah that whole idea of you know knowing what your limits are and the rule of

[00:35:55] [SPEAKER_03]: motion plays in investing that that's such a huge part of no matter what strategy you follow

[00:35:59] [SPEAKER_03]: you know we've had long only guys on here and his trend following like understanding what your

[00:36:03] [SPEAKER_03]: limitations are as a person is such an important part to setting your personal investment strategy

[00:36:07] [SPEAKER_03]: and it goes both ways you know obviously people who are running long only have the problem of

[00:36:10] [SPEAKER_03]: I'm going to lose a lot of money I'm going to panic I'm going to sell people who use more

[00:36:14] [SPEAKER_03]: that there's more trend following type strategies that are more consistent have the problem

[00:36:18] [SPEAKER_03]: of if I'm judging myself against the s&p 500 I'm going to cause myself problems because

[00:36:22] [SPEAKER_03]: that's not the type of strategy I'm running so I just think no matter what the whatever way

[00:36:27] [SPEAKER_03]: we look at it like this emotional part becomes a huge part of everything I think one thing that

[00:36:32] [SPEAKER_01]: people need to really ask themselves is maybe they're just not cut out for managing their money

[00:36:38] [SPEAKER_01]: or they're not cut out for trading so don't do it I mean I think that's fine you know

[00:36:44] [SPEAKER_01]: but that is like a given no we're all going to do it we're all going to be able we're all

[00:36:48] [SPEAKER_01]: going to be in charge of our money and so let's just find a process that we can handle

[00:36:55] [SPEAKER_01]: and we'll do it will be consistent even if it's a process it's not very good I would like to suggest

[00:37:00] [SPEAKER_01]: that if you're not good at it if you can't suffer if you can't stick to something when you lose money

[00:37:08] [SPEAKER_01]: get out of it don't even manage your own money give it to someone else you're not

[00:37:12] [SPEAKER_01]: set up to do it mentally and I don't think there's enough people admitting admitting to that

[00:37:19] [SPEAKER_01]: um it's I think it's really dangerous to try to fool yourself into thinking that

[00:37:28] [SPEAKER_01]: lots of things work and everything is created equal it's not true there is right ways and wrong

[00:37:34] [SPEAKER_01]: ways to do everything in life we should be pursuing those right ways and sometimes we just

[00:37:39] [SPEAKER_01]: not cut out to to to manage even manage your own money or yeah just a couple more for a hand

[00:37:47] [SPEAKER_03]: effective just and I want to go back to the real estate because you mentioned you probably have

[00:37:49] [SPEAKER_03]: maybe 50 percent of your assets or something like that in real estate is that is that properties

[00:37:54] [SPEAKER_03]: you own for your own enjoyment is that income based real estate what is that now it's like

[00:37:59] [SPEAKER_01]: properties I own you know around the country um New York Florida fun places to go building

[00:38:06] [SPEAKER_01]: memories with my family that's fun you know um beach houses and things like that so it's

[00:38:13] [SPEAKER_01]: I think what happens though over time you just um collect these things and then it's not a well

[00:38:20] [SPEAKER_01]: thought out plan at least not in my situation then you start to see the you know the cost of ownership

[00:38:25] [SPEAKER_01]: you know as relates to uh real estate taxings and upkeep and insurance oh my gosh insurance

[00:38:33] [SPEAKER_01]: you know feel sorry for me for having homes in Florida because yeah I've heard there's been

[00:38:38] [SPEAKER_01]: big problems in the insurance market in Florida right now yeah yeah so I'm really to do it over

[00:38:44] [SPEAKER_01]: again you know I would sit down and have more of a plan and talk about the problems of ownership

[00:38:50] [SPEAKER_01]: and maybe you know the sort of the uber model of don't own things just rent things or airbnb

[00:38:57] [SPEAKER_01]: things or go to right really nice hotels I think it's really difficult to get rid of these things

[00:39:04] [SPEAKER_01]: in your life you know that's I guess is what I'm saying uh people get used to them your family loves

[00:39:09] [SPEAKER_01]: them you have these memories you have these times you spend time together and it just needs a lot of

[00:39:16] [SPEAKER_01]: these purchases are emotional you know hey this will be fun and it's a small part of our network

[00:39:22] [SPEAKER_01]: but then after 20 30 years you add them all up it's a big part of our network each and one

[00:39:28] [SPEAKER_01]: individual was small but I you know once again I'm great on the processing and the rules based

[00:39:35] [SPEAKER_01]: and thinking ahead as relates to the trend following piece not so good as related to the

[00:39:41] [SPEAKER_01]: real estate piece um these were emotional fun things that oh crap now they kind of add up

[00:39:49] [SPEAKER_01]: and now what are we going to do with all of this and it's a real hassle

[00:39:52] [SPEAKER_01]: with the overhead and keeping keeping these places you know functioning properly looking nice

[00:39:58] [SPEAKER_03]: you know at a high standard yeah I know to your point like once you once you get the joy out of a

[00:40:04] [SPEAKER_03]: place like that it's like you just don't want to get rid of it you know even if you're not using

[00:40:07] [SPEAKER_03]: it as much or whatever I'm sure it can be difficult to to get rid of it once you've

[00:40:10] [SPEAKER_03]: you know once you've enjoyed the time in it yeah and you got family members who are

[00:40:15] [SPEAKER_01]: you know maybe a subtle pressure as well but I think the good part for you is because

[00:40:20] [SPEAKER_03]: you're running trend following in the other half of your portfolio you know you're doing a really

[00:40:24] [SPEAKER_03]: good job of managing risk there so if there were to be some sort of you know problem in the real

[00:40:28] [SPEAKER_03]: estate market or something at least you're not you know long stocks in the other part of your

[00:40:30] [SPEAKER_03]: portfolio at least you've got you know at least you've got that solid consistent return that's

[00:40:35] [SPEAKER_01]: right and uh although I am always looking for some real estate stocks to short to sort of head

[00:40:41] [SPEAKER_01]: to myself maybe one of these days you know after I'm long gone maybe in you know 50 years

[00:40:48] [SPEAKER_01]: there will be more the ability to short individual real estate properties or cities or you know there'll

[00:40:56] [SPEAKER_01]: be more uh financialization of real estate to where you can really hedge yourself better but um yeah it's

[00:41:05] [SPEAKER_01]: a lot of it is I tell my relatives like don't buy you know it's too late we're going to have a

[00:41:09] [SPEAKER_01]: downturn in this real estate like don't do what I do just do what I say so but yeah

[00:41:17] [SPEAKER_03]: just one more for a hand it back to Justin do you do anything in like venture capital investing in

[00:41:21] [SPEAKER_03]: startups you know angel investing you do anything like that no I don't I don't do anything I talk

[00:41:27] [SPEAKER_01]: bad about it actually because uh you know it's not uh transparent not marked a market uh can't

[00:41:34] [SPEAKER_01]: take a small loss so I don't really like those type of things I I tell the ideas that um I think

[00:41:40] [SPEAKER_01]: there have been studies where people have said uh private equity is you can get the same returns

[00:41:46] [SPEAKER_01]: from private equity in same similar correlation just by with the small stocks leveraging up small

[00:41:53] [SPEAKER_01]: stocks or something like that so I really haven't done a lot of that and when I did do it I I failed

[00:42:00] [SPEAKER_01]: at it so um I've never had a good attitude towards those type of investments when you

[00:42:07] [SPEAKER_02]: think about your overall net worth do you consider the business at all and what the you know the income

[00:42:14] [SPEAKER_02]: that's coming from the business now and in the future or is that sort of separate you know not

[00:42:19] [SPEAKER_02]: really on the balance sheet because that's just what you've done for so long you don't really

[00:42:24] [SPEAKER_02]: consider it part of the overall I guess net worth value well there's you know these trading

[00:42:31] [SPEAKER_01]: businesses can uh you know make a lot of money and kick off a lot of money manage

[00:42:36] [SPEAKER_01]: money for clients so it's going into my bank account which I am then including into my net worth

[00:42:42] [SPEAKER_01]: so oh yeah I think it's a great um people always ask me like um you know how do I trade my money

[00:42:51] [SPEAKER_01]: to make a lot of money now with Richard Dennis we were making about 200 a year with a tremendous

[00:42:58] [SPEAKER_01]: risk and leverage and you really could create a lot of wealth just by trading but my wealth came

[00:43:07] [SPEAKER_01]: not from my trading very much because as soon as I left that turtle program we were just trying to

[00:43:13] [SPEAKER_01]: make 15 or 20 percent I kind of went you know in 1988 I went from making 200 percent a year to

[00:43:22] [SPEAKER_01]: instinctively realizing that I only want to make 15 or 20 it wasn't like I didn't realize

[00:43:29] [SPEAKER_01]: that we were being crazy people you know trading with such leverage but um I made my money by

[00:43:36] [SPEAKER_01]: managing other people's money really not so much managing my own and leveraging it up and trying

[00:43:41] [SPEAKER_01]: to make 200 percent so getting into a good solid business especially hedge funds and managing

[00:43:48] [SPEAKER_01]: money and getting that incentive you know that was pretty sweet back in the day that two and 20 thing

[00:43:54] [SPEAKER_01]: was pretty darn sweet and um that's how you really do well is um you know when you get when you make

[00:44:03] [SPEAKER_01]: that money and you put it in your bank account and then even if you do trade it and put it

[00:44:07] [SPEAKER_01]: into your funds you know you want to have clients and you want to have a volatility

[00:44:13] [SPEAKER_01]: that's pretty low and this consists in 15 20 percent a year so you're not going to get too

[00:44:18] [SPEAKER_01]: rich you're just going to maintain your wealth but uh yeah so I got wealthy by thanks to other people

[00:44:27] [SPEAKER_01]: managing billions of dollars that was that's the way to do it speaking of 200 percent a year

[00:44:33] [SPEAKER_02]: not that this is doing this anymore but had you had you ever considered or looked at bitcoin

[00:44:38] [SPEAKER_01]: or any of the cryptocurrencies? Of course I love them I trade them I I oh I left out that I created a

[00:44:49] [SPEAKER_01]: fifth category currencies commodity stocks bonds crypto so I trade ether and bitcoin futures and

[00:44:59] [SPEAKER_01]: a handful of stocks that are in would be considered in this particular industry

[00:45:06] [SPEAKER_01]: so I separated it out and I think they're wonderful um I am a fiend and I'm obsessed with diversification

[00:45:14] [SPEAKER_01]: so I'd love bitcoin I it's it's a perfect market for a trend follower to trade you can't even pretend

[00:45:21] [SPEAKER_01]: to understand it um you can't even ever feel guilty by taking a loss because no one knows why

[00:45:27] [SPEAKER_01]: what these markets are really about and where they're going to go and what makes them go up and

[00:45:31] [SPEAKER_01]: down so it's the perfect trend following market but I really yeah I hope it can expand and right now

[00:45:39] [SPEAKER_01]: the stocks that I trade are sort of overly correlated to bitcoin itself so hopefully over time that

[00:45:49] [SPEAKER_01]: companies that are involved in blockchain and crypto are not still correlated to ethereum

[00:45:57] [SPEAKER_01]: and bitcoin itself that would be a big improvement from my portfolio's point of view

[00:46:03] [SPEAKER_01]: with assets I don't think you should be afraid of these things at all especially if it's futures

[00:46:10] [SPEAKER_01]: you know um I think that's what happened is um old hedge fund guys like me we didn't understand

[00:46:17] [SPEAKER_01]: how to set up a bitcoin account and uh but as soon as they come out with the future like oh

[00:46:23] [SPEAKER_01]: we're all in on that I mean we trade futures all day long and uh it was just so easy to trade and that

[00:46:29] [SPEAKER_01]: yeah I think it's wonderful I hope they I can hope it keeps growing so this fifth sector that I have

[00:46:35] [SPEAKER_01]: really becomes material like the currencies and commodities with assets like that that has

[00:46:41] [SPEAKER_02]: a lot more volatility like does the band your buy and sell you know triggers do they adjust

[00:46:49] [SPEAKER_02]: based on the amount of underlying volatility of the asset or how does that

[00:46:52] [SPEAKER_02]: sort of look different maybe than traditional assets that you're in

[00:46:59] [SPEAKER_01]: uh no the band doesn't need to change uh what needs to change is the size of the position

[00:47:07] [SPEAKER_01]: so the typical cta well I'd say like maybe I'll like all of them they size the positions

[00:47:14] [SPEAKER_01]: inversely to the volatility so our positions in high volatile markets are really small

[00:47:20] [SPEAKER_01]: and our positions in uh markets that have low volatility like um short-term interest rate

[00:47:27] [SPEAKER_01]: our position would be really large so when you look at the two positions the euro dollar or the

[00:47:32] [SPEAKER_01]: bond versus the bitcoin essentially it would be the same position risk wise because one is

[00:47:39] [SPEAKER_01]: bitcoin is traded really small bonds are levered up really high to make it kind of the same thing

[00:47:45] [SPEAKER_01]: the same potential profit the same risk and that's the genius one of the geniuses of trading stocks

[00:47:53] [SPEAKER_01]: and bonds and currencies and commodities with a trend following program it's not just um

[00:48:01] [SPEAKER_01]: trend entries and trend exits it's the sizing as well back in 19 uh

[00:48:09] [SPEAKER_01]: oh I forgot the year but anyways it was um we made 15 percent and it was the early 90s 93 yeah sorry

[00:48:18] [SPEAKER_01]: and it was all in coffee we made 15 percent in coffee and I had this one client who was very large

[00:48:26] [SPEAKER_01]: and it was the sovereign wealth fund and they were like hey we why did we break even

[00:48:30] [SPEAKER_01]: and then all your other clients made 15 percent I said because you didn't trade coffee you told us

[00:48:35] [SPEAKER_01]: you couldn't trade commodities and um and I said you know and they and they said well um

[00:48:42] [SPEAKER_01]: and I said to them I said remember I told you that they said well commodities are very volatile and

[00:48:47] [SPEAKER_01]: I'm like yeah they're volatile but we will size them smaller because they're volatile will trade

[00:48:53] [SPEAKER_01]: them smaller and you get the same impact uh and um they said oh okay start trading commodities

[00:48:59] [SPEAKER_01]: so people get religion once they miss out on profits and they miraculously all of a

[00:49:04] [SPEAKER_01]: understand this sizing algorithm and philosophically how it works and it's just beautiful

[00:49:10] [SPEAKER_01]: you can a trend follower can throw any market uh into the portfolio unlike buy and hold you know

[00:49:18] [SPEAKER_01]: your maybe you can throw gold in there maybe now you know we can throw bitcoin in there

[00:49:23] [SPEAKER_01]: because it has a history a positive history of buy and hold um but with cta's you can

[00:49:29] [SPEAKER_01]: throw any market in there and trend following with its entry exit and sizing algorithms it converts

[00:49:36] [SPEAKER_01]: them all into profitable contributors not just uh diversification helping with diversification but

[00:49:43] [SPEAKER_01]: um corn which is would be a total failure on a buy and hold level it uh is just as equal

[00:49:51] [SPEAKER_01]: a contributor profit wise as any stock or any any other market as long as you use trend

[00:49:57] [SPEAKER_01]: following so that's one of the big huge benefits of trend following is there's no dead markets

[00:50:02] [SPEAKER_01]: that everything contributes uh diversification wise and profit wise

[00:50:08] [SPEAKER_02]: the last couple questions here are kind of going to bring us back out of the strategy

[00:50:12] [SPEAKER_02]: I guess discussion and more about some of your views on um giving and gifting and things

[00:50:17] [SPEAKER_02]: like that so the first one is and you know this can kind of be somewhat of a delicate

[00:50:22] [SPEAKER_02]: subject with some people I don't think this is going to be necessarily for you but this idea

[00:50:26] [SPEAKER_02]: of your views of um leaving money to your children or grandchildren or children like some

[00:50:34] [SPEAKER_02]: some of the guests we've had on you know their ultimate goal for their kids has been you know

[00:50:39] [SPEAKER_02]: putting them through college then after that they feel like they've given them at least the

[00:50:43] [SPEAKER_02]: you know help pay for education and then they're sort of on their own others you know

[00:50:48] [SPEAKER_02]: they do have a view that they would like to leave something to their children if money is

[00:50:53] [SPEAKER_02]: lost over or their grandchildren so I'm just wondering do you have any views on that yeah I mean

[00:51:00] [SPEAKER_01]: I think um I'm sort of in the middle you know I wasn't um more a small smaller gifts um to the

[00:51:10] [SPEAKER_01]: children you know nothing too crazy um I think it's like I said earlier I think it's very

[00:51:15] [SPEAKER_01]: important and if some people I've met over the years they kind of grew up with wealth

[00:51:21] [SPEAKER_01]: and from day one and their parents grew up with wealth so they so to have this sort of mentoring

[00:51:26] [SPEAKER_01]: relationship with people who um like my dad ran a gas station so all of a sudden I'm making millions

[00:51:34] [SPEAKER_01]: of dollars you know I need help and I have friends who they had three or four generations of really

[00:51:41] [SPEAKER_01]: being wealthy and going to country clubs and you know knowing exactly what to do and having

[00:51:46] [SPEAKER_01]: an experience tolerance so I think that's really important to talk to people get a mentor

[00:51:50] [SPEAKER_01]: in that regard if you get you know fortunate and you start making money and have these

[00:51:55] [SPEAKER_01]: decisions to make about how much to believe and how much to gift to people um and I definitely

[00:52:02] [SPEAKER_01]: you know my wife and I we we um our parents didn't really help us a lot you know they didn't

[00:52:08] [SPEAKER_01]: help us and uh we had to figure out the world on our own kind of and it worked out great

[00:52:14] [SPEAKER_01]: you know we both did really well and so when you take that away from your children uh you

[00:52:19] [SPEAKER_01]: know that's a negative so you don't want to take that away you want to make them struggle and

[00:52:23] [SPEAKER_01]: learn how life is but then on the other hand you love them and you want to help them and

[00:52:28] [SPEAKER_01]: you don't want to not give them a leg up in life and help maybe with the first house or

[00:52:34] [SPEAKER_01]: whatever but um it's a really difficult thing and it's different for everybody and it's probably

[00:52:39] [SPEAKER_01]: different for every child um but people who have are part of families with multiple

[00:52:46] [SPEAKER_01]: generations of wealth they've gone through this and they know it they're still making mistakes

[00:52:51] [SPEAKER_01]: possibly but it's but if you're making money and creating wealth as a first time person in your

[00:52:57] [SPEAKER_01]: family like me you really need some you really need to seek out guidance do you have any causes or

[00:53:04] [SPEAKER_02]: charitable organizations that you view yourself supporting I think uh you know everybody needs

[00:53:13] [SPEAKER_01]: to find those and they're out there and we do and we it's really um part of a good part of life

[00:53:21] [SPEAKER_01]: and my wife is very uh charitable and interested in in certain things and that really helps too to

[00:53:30] [SPEAKER_01]: have a wife or spouse who can help in those areas and becomes really interested in in that and

[00:53:38] [SPEAKER_01]: um and I think like investing in the community and knowing people and you know I've done it both ways

[00:53:46] [SPEAKER_01]: I've supported international organizations and tried to really make a difference all around the world

[00:53:51] [SPEAKER_01]: let's say um and then um I just felt like maybe I was gonna have more influence if it was closer

[00:54:01] [SPEAKER_01]: to home I think that really helps you know one of the things that I've come up with these

[00:54:07] [SPEAKER_01]: kind of ideas one is like I love to invest I love to give money and things where I'm not going to get

[00:54:13] [SPEAKER_01]: a receipt a charitable donation receipt I think so many times in life you you need to just um

[00:54:20] [SPEAKER_01]: help people give people what they need give them some cold hard cash when they need it

[00:54:26] [SPEAKER_01]: and it's not tax deductible and um and you may never hear from them again and I think

[00:54:31] [SPEAKER_01]: that's what you want to that's where I've gotten a lot of felt good about some of the

[00:54:36] [SPEAKER_01]: giving I've given millions of dollars away and then wondered was was that really a good

[00:54:42] [SPEAKER_01]: investment and then sometimes I'll give thousands of dollars away to someone who needs it for a meal

[00:54:47] [SPEAKER_01]: or to get um to get a uh to get a car so they can start earning a living with uber and I and so

[00:54:56] [SPEAKER_01]: sometimes you feel like oh yes some of these smaller gifts are the most important ones because

[00:55:01] [SPEAKER_01]: you've had that human connection and it was kind of off the off the wall off the beaten track you know

[00:55:08] [SPEAKER_01]: and something yeah I think it's sort of counterintuitive some of the best gifts where we there's no way

[00:55:14] [SPEAKER_01]: we're going to ever get a receipt so we could write it off on our taxes and I think that's

[00:55:18] [SPEAKER_01]: where the rubber meets the road if you're willing to help your fellow man in that particular

[00:55:22] [SPEAKER_01]: way um you'll I really want to feel good about these investments and you sort of want to call

[00:55:31] [SPEAKER_01]: them investments and other people and other organizations and sometimes it's um that's

[00:55:37] [SPEAKER_03]: that's the best way yeah yeah you know in general like I found that too like you know versus doing

[00:55:44] [SPEAKER_03]: something yourself with somebody you know or somebody you personally can help versus just

[00:55:48] [SPEAKER_03]: writing a check and having to kind of go off to some charity you know though that's obviously

[00:55:51] [SPEAKER_03]: very good as well but you know sometimes doing that directly in your life can be can be the better

[00:55:55] [SPEAKER_03]: approach um as we uh as we wrap up we have two old questions we want to ask you before we are

[00:56:00] [SPEAKER_03]: before we're done here and one is about the idea that not everything you invest money in

[00:56:04] [SPEAKER_03]: is for financial gain and sometimes it's just for your own enjoyment and we've probably

[00:56:07] [SPEAKER_03]: touched on a lot of this already with your houses and maybe with pickleball or something

[00:56:10] [SPEAKER_03]: like that but I always use the example of my my sailboat you know my I have a racing

[00:56:14] [SPEAKER_03]: sailboat I love racing it I go out on Wednesday night my friends will have a couple beers

[00:56:19] [SPEAKER_03]: we'll race around the buoys we'll come in you know and go to the bar afterwards it's just a great

[00:56:22] [SPEAKER_03]: experience for my life but it's a terrible investment I mean obviously you have to dump a

[00:56:26] [SPEAKER_03]: bunch of money into it I'm gonna lose money when I sell it versus what I paid for it

[00:56:29] [SPEAKER_03]: I'm just wondering if there's anything like that for you in your life anything that you

[00:56:32] [SPEAKER_03]: invest a good amount of money in not for a return but just for the enjoy you get out of it

[00:56:37] [SPEAKER_01]: oh it's all this you know things that revolve around family hanging out with my

[00:56:42] [SPEAKER_01]: kids and grandkids and my wife so I will have a big boat as well and um yeah it's just all about that

[00:56:50] [SPEAKER_01]: and building these memories with your family going on big trips or vacation homes and boating

[00:56:59] [SPEAKER_01]: yeah it's all it's all about that and wanting to have have those memories and have

[00:57:05] [SPEAKER_01]: have that fun with those people that's that's sort of my hobby having the big dinners you know I love

[00:57:11] [SPEAKER_01]: to have the big dinners with the big wines and we if we had some epic times together you know whether

[00:57:21] [SPEAKER_01]: it'd be with friends or with family uh yeah I think wine has always been a big part of

[00:57:29] [SPEAKER_01]: really nice wines and dinners they're really really fun I remember going to New York you know like I

[00:57:36] [SPEAKER_01]: said I came from a really small town and humble background but I remember my first big New York

[00:57:42] [SPEAKER_01]: dinner you know I come into New York and go into a big restaurant probably you know business

[00:57:46] [SPEAKER_01]: related and being kind of a fish out of water and then seeing what goes on at this table and all

[00:57:51] [SPEAKER_01]: of this fun and this food and the service and the wine and I'm thinking that's what I like boy

[00:57:57] [SPEAKER_01]: this is who Jerry is he really enjoys having this you know in the conversation and

[00:58:03] [SPEAKER_01]: yeah it's that's what I really enjoy doing as much as anything and I had one of those last

[00:58:09] [SPEAKER_01]: night as a matter of fact so uh yeah it's really really fun very nice well um we just want to

[00:58:17] [SPEAKER_02]: before his last question we want to wish you a very happy birthday we hope you have a great

[00:58:21] [SPEAKER_02]: meal on uh on your birthday and just sort of imparting if you could impart one lesson

[00:58:29] [SPEAKER_02]: on the building of your actual well portfolio to the average investor what do you think that would be

[00:58:35] [SPEAKER_01]: well I think the most important thing is a rules-based process you know let's sit down and

[00:58:41] [SPEAKER_01]: come up with some rules and follow those rules and try not to deviate from them and

[00:58:47] [SPEAKER_01]: like I said earlier the um the amount of risk that you take is going to be somewhat influenced

[00:58:54] [SPEAKER_01]: influence your ability to stick with your rules there's nothing more important than

[00:58:58] [SPEAKER_01]: a rules-based approach even if it's going to be buy and hold or 60 40 you know how you're

[00:59:03] [SPEAKER_01]: going to do it how you're going to rebalance um I think uh you know over time that's going to

[00:59:09] [SPEAKER_01]: serve you better get away from the emotional responses as much as possible and um you

[00:59:15] [SPEAKER_01]: know selling at the wrong time buying at the wrong time um but yeah I think there's nothing more

[00:59:20] [SPEAKER_01]: important than following a good set of rules that you need probably you're going to take some time uh

[00:59:27] [SPEAKER_01]: and coming up with what those rules should be no you're gonna have to talk to some people and

[00:59:32] [SPEAKER_01]: do some research but um yeah that's got to be rules-based in my mind well that was great

[00:59:39] [SPEAKER_03]: well thank you so much for joining us we really appreciate your time yep thank you Jerry

[00:59:44] [SPEAKER_02]: yep take care guys this is Justin again thanks so much for tuning into this episode of XS Returns

[00:59:51] [SPEAKER_02]: you can follow Jack on Twitter at at practical quant and follow me on twitter at at JJ Carboneau

[00:59:57] [SPEAKER_02]: if you found this discussion interesting and valuable please subscribe in either iTunes or

[01:00:02] [SPEAKER_02]: on YouTube or leave a review or a comment we appreciate it. Justin Carboneau and Jack Forehand

[01:00:07] [SPEAKER_00]: are principles at the Lydia Capital Management the opinions expressed in this podcast do not

[01:00:10] [SPEAKER_00]: necessarily reflect the opinions of Lydia Capital no information on this podcast should be

[01:00:14] [SPEAKER_00]: construed as investment advice securities discussed in the podcast may be holdings of clients of

[01:00:19] [SPEAKER_00]: Lydia Capital.