Practical Lessons from Cullen Roche

[00:00:00] It's one of the few things I think that Bogle got really wrong across his life. A lot of monetarists describe the Fed as like Chuck Norris, that basically Chuck Norris doesn't have to actually kick your butt. He just has to come in and threaten to kick your butt.

[00:00:14] The older I get, I feel like the more I realize, the less I know about all of this stuff. I sort of had this aha moment about, well, my real investments are in myself and the things that I can control and my own really spending for future production.

[00:00:32] Welcome to Two Quants and a Financial Planner, where we bridge the worlds of investing and financial planning to help investors achieve their long-term goals. Join Matt Zeigler, Jack Forehand and me, Justin Carbonneau, as we cover a wide range of investing and planning topics that impact all of us and discuss how we can apply the future.

[00:00:44] We're going to help them in the real world to achieve the best outcomes in our financial lives.

[00:00:47] Jack Forehand is a principal at Validia Capital Management. Matt Zeigler is managing director at Sunpoint Investments. The opinions expressed in this podcast do not necessarily reflect the opinions of Validia Capital or Sunpoint Investments. No information on this podcast should be construed as investment advice. Securities discussed in the podcast may be holdings of clients of Validia Capital or Sunpoint Investments.

[00:01:04] So Matt, today you become a macro expert.

[00:01:07] Finally, I've always wanted to become a macro forecaster. A macro forecasting influencer.

[00:01:14] Yeah, I've got to get my newsletter.

[00:01:17] You know, yeah, bearish Ziegler.

[00:01:20] Like, what can I be? I need a good newsletter name.

[00:01:23] Maybe somebody can suggest a good one.

[00:01:25] And it's good because I've wanted to know where inflation is going to be going and where the economy is going to be going.

[00:01:29] So it's good to get you on to tell me all of that this time.

[00:01:32] I'm ready to make some bold calls and, you know, memorialize them on the internet.

[00:01:37] It sounds like there's nothing better to do with my time today.

[00:01:40] And what's cool about the person we were talking about today, and we're going to talk about our lessons from Colin Roche, is he's basically the opposite of bold calls, which is great in the macro space.

[00:01:48] Like, Colin, we've had people on the podcast who predict macro things and people who do it very well.

[00:01:53] But Colin is very humble in that perspective.

[00:01:55] And like what Colin's really good about is he understands the plumbing.

[00:01:58] He understands how all this works.

[00:01:59] And when we've had him on, it's been more like talking about how it works and what we can learn from it versus saying, like, here's what inflation is doing.

[00:02:06] We've had him on, you know, a full episode to talk about how the Fed works.

[00:02:09] We had a full episode to talk about how inflation works.

[00:02:11] We had a full episode to talk about, like, what happened with Silicon Valley Bank behind the scenes.

[00:02:15] Like, he's great for that kind of stuff.

[00:02:16] And that's why I believe he's the most, I believe he's the guest who's been on Access Returns the most.

[00:02:21] I think he's been on probably seven, eight times now.

[00:02:23] Not surprised at all.

[00:02:25] And he is like the, I've thought of him for, I mean, probably like you.

[00:02:30] Like, he's one of those, like, Meb Fabers where he's just kind of been there writing stuff my entire career.

[00:02:35] And so I look at Colin as the, he's like the plumbing general contractor of the finance industry.

[00:02:42] He can tell you with specific examples how all these little funny corners of the system work.

[00:02:48] Whether it's, you know, the QE to inflation link and the transmission mechanisms between all these things with balance of payments, all the MMT stuff.

[00:02:56] Like, he can break all that stuff down.

[00:02:58] He can say it into a way you understand.

[00:03:00] And without it making any, like, insane projections about stuff, he can be like, well, pretty sure if you flush that toilet up there and you haven't fixed that sink over there, it's going to be a mess.

[00:03:11] But maybe if you tweet these things, you'll be all right.

[00:03:14] And that's why we love Colin Rux.

[00:03:15] It's funny, like, the next time there is some sort of crisis in the economy or something goes wrong, it's going to be like, better call Colin.

[00:03:20] Get him in here and explain what's going on.

[00:03:23] Really the roto-rooter of this entire industry.

[00:03:26] I'm sure he was.

[00:03:27] Kerfer, he was the roto-rooter of macro.

[00:03:30] Do you have a septic tank in your economy?

[00:03:33] Yeah.

[00:03:33] We're going to get him some good marketing clinics.

[00:03:35] Well, those guys have had to have the roto-rooter in different times, and those guys get paid very, very well.

[00:03:40] They make the big dollars for what they do.

[00:03:42] It's a dirty job, but it is a good gig.

[00:03:44] Move over $2.20.

[00:03:46] Yeah.

[00:03:47] So the first thing we're going to talk about, and this is something that really changed my mindset.

[00:03:51] I hear all kinds of things from people, so not a lot of stuff changes my mindset.

[00:03:54] But here's Colin talking about this idea of all-duration investing.

[00:03:57] I wrote this paper called All-Duration Investing last year.

[00:04:00] And the goal of that approach really was to build an understanding of asset allocation that really is very similar to the way that most fixed-income investors think of things,

[00:04:09] especially the way that fixed-income investors build bond ladders.

[00:04:12] Because the beauty, I think, of building something like a bond ladder or understanding bonds in a sort of really simplistic way is that you understand the time horizon of the instrument specifically.

[00:04:24] So, for instance, when you buy a three-month treasury bill, you know all the information you need to know about that instrument.

[00:04:30] And the key aspect of that is actually that you know the time horizon.

[00:04:34] And I think this is the thing that makes investing so hard in general, that we don't know the time horizon of our liabilities going out really far.

[00:04:42] We also don't know what the time horizon of the stock market is.

[00:04:45] We don't even know what the time horizon of certain strategies are.

[00:04:48] And so, and especially once you start mixing a lot of assets together, you know, what is the time horizon of a 60-40 portfolio?

[00:04:53] It's, this creates all this uncertainty that people have trouble navigating holding these instruments in part because they just don't know what the time horizons of them are.

[00:05:02] And so, the goal of my paper was really to assign time horizons to specific asset classes.

[00:05:07] And so, people can then compartmentalize these instruments in a very specific manner where they know or at least have some sense of the general time horizon.

[00:05:15] So, for instance, like the stock market in my model is a 17-year instrument.

[00:05:19] A 60-40 portfolio is a 12-year instrument.

[00:05:22] The global financial asset portfolio is actually closer to like a 9- or 10-year instrument.

[00:05:26] The aggregate bond market is like a 5-year instrument.

[00:05:28] And so, you can do this, you can assign these time horizons to every single asset class.

[00:05:32] You can even do this, interestingly, for like alternatives and things like that.

[00:05:36] Like, you know, thinking in terms of, it was interesting when I ran the model that a lot of instruments that actually look like insurance, they literally act the same exact way that insurance does.

[00:05:46] So, for instance, like I own life insurance.

[00:05:48] I own a 20-year term life insurance policy.

[00:05:50] That instrument is something that I know will generate a negative real return over the course of my life, assuming I survive the full 20 years.

[00:05:57] But if I die at year 10, that thing is going to provide a huge asymmetric real return.

[00:06:02] And when I ran the model and plugged in a lot of different instruments, things like gold and managed futures and ultra-long treasury bonds, they all exhibited those similar sort of characteristics where in very specific environments, they oftentimes created these weird, large asymmetric returns.

[00:06:19] So, for instance, like managed futures typically do it when the stock market goes down a lot or volatility is really high.

[00:06:26] The situation with like treasury bonds is typically that during a deflation or really rapidly falling interest rates, long treasury bonds provide this sort of really big asymmetric insurance-like hedge.

[00:06:36] And so, you can block out all these instruments, though, across specific time horizons to then begin to think of them in a proper asset allocation sense where you're then matching the assets with specific liabilities and specific time horizons really to give you just more certainty across all of those time horizons.

[00:06:52] So, I was just at the Astoria Advisors Conference in New York City last week, which was great.

[00:06:56] And he talked about this idea.

[00:06:57] And I think this is so eye-opening when you think about it this way.

[00:07:00] Like if you try to think about matching the duration of your assets and your liabilities, and the problem you run into is like with things like the stock market, like what is the duration of my assets?

[00:07:09] Like bonds are easier, but like what's the duration of the stock market?

[00:07:12] What's the duration of gold?

[00:07:14] Like there's a lot of things you hold that is very hard to figure out what the duration is.

[00:07:18] And in this paper he wrote, he made an attempt to figure that out.

[00:07:21] He did a really good job of saying like, I believe the stock market was something like a 17-year asset when he figured it out.

[00:07:26] But like when you think about it that way, then you can think about it better relative to your liabilities.

[00:07:33] There's so much of this where it's just, you know, to the degree I have a love language, he's speaking one of my love languages here.

[00:07:38] I knew you basically could have done the whole podcast in this first clip.

[00:07:41] We might not get through this.

[00:07:42] No, no.

[00:07:42] Well, this is, and we've talked about this ad nauseum.

[00:07:45] This is the calendar cash flow balance sheet approach that I will preach forever in my financial planning work.

[00:07:52] Because it basically says you have to understand a calendar before he can talk about time horizons or like asset liability matching or any of the stuff that he gets into within the logic of this, which is so good and so useful.

[00:08:03] He got to know the calendar.

[00:08:04] And once you know the calendar, you can understand, am I running a surplus or the deficit in my cash flow, in my budget, whatever you want to call it?

[00:08:11] And then is that turning into more assets on my balance sheet or more debt on my balance sheet?

[00:08:17] And then we can run it in reverse too.

[00:08:19] So if over the calendar, I got to pull stuff out, I got to know what to pull out and when to meet my deficit in my cash flow statement.

[00:08:27] This is that logic.

[00:08:28] This is if you're going to build this giant asset in your portfolio of like all stocks, you got to understand that's got a 17 year duration tied to this thing.

[00:08:37] So how you're going to select on your calendar, how you're going to turn monetize that equity allocation into filling part of the deficit on your cash flow.

[00:08:46] It's really useful to understand same way.

[00:08:48] Like where does the savings account fill into what it can plug into that deficit?

[00:08:52] The other thing that he said in this that I absolutely love is that it also gives you stuff with weird asymmetric return distributions.

[00:08:59] So he uses the example of the term life insurance policy, and that's great.

[00:09:02] You can have a 30 year limited liability, small piece of the cash outflow in your plan.

[00:09:08] But if you die in year 10, you have this asymmetric payoff of this giant cash asset that then gets created to offset, you know, if you're trying to offset your income for your spouse or whatever it is.

[00:09:20] You can solve for these types of problems.

[00:09:23] This all duration investing is maybe one of my favorite things ever from Colin.

[00:09:28] So actually useful.

[00:09:30] Yeah, it really fits in with like the bucket type approach.

[00:09:33] It makes you think about things the right way.

[00:09:35] So for instance, if I have money, I need to spend the short term.

[00:09:39] I can think about it like I'm invested in T-bills.

[00:09:41] That's where the money is coming from.

[00:09:42] I'm not touching my stocks.

[00:09:44] My stocks are my long term investment.

[00:09:45] You can think about it when you start matching those things together.

[00:09:48] I just think like the mental accounting of it is much better for people when you're kind of matching.

[00:09:52] What are my liabilities in the future?

[00:09:53] What am I investing in?

[00:09:55] It just fits in these buckets and it makes it easier.

[00:09:57] I think it's much cleaner.

[00:09:59] I like to liken it to I like to liken it.

[00:10:02] That's a fun one.

[00:10:03] I would liken it to it's the toolbox.

[00:10:06] And it's understanding that sometimes you need the hammer.

[00:10:09] Sometimes you need a screwdriver.

[00:10:10] Sometimes you need a screwdriver and you're like, do I need the Phillips head or the flathead or the funny little star shaped one?

[00:10:14] And it gives you tools to then solve those problems.

[00:10:17] You don't always know what you're getting into when you walk into the situation.

[00:10:21] So having this flexibility, having a framework for thinking about it can be crazy useful.

[00:10:26] And he doesn't get into it here, but like once you map over your asset class assumptions and everything else onto this, this is where you can say, Jack, overlook spending the T-bill account.

[00:10:35] Stocks just gave you, you know, twice or three times what you're expecting.

[00:10:38] You can pull a little out of here to pay for this here and you need a framework.

[00:10:43] This is a framework.

[00:10:45] Yeah.

[00:10:46] What was interesting to me too is like something like gold, like the things that don't have cash flows are very interesting to think about in terms of what the duration of them is.

[00:10:52] And I think what he did, I think he looked at the idea of, because one way you can look at this is like, how long of a period do I need to hold this thing to be pretty confident?

[00:10:59] Like I'm going to get a return.

[00:11:01] And I think that might be a good way to look at a gold type thing from a duration perspective is, you know, he ended up somewhere in a decade plus, I think, with gold.

[00:11:08] And it's something similar to stocks, I think.

[00:11:10] But that's another way to look at it, I think, when you don't have something that's actually producing cash flows where you can use to calculate the duration of it.

[00:11:17] And whether you map this back, like you should look at what he does and they should map it back against a permanent portfolio, map it back against the global financial assets portfolio, map it back against something like what Jared Dillian writes about with the awesome portfolio.

[00:11:31] There's, there's other logic in structuring that balance sheet and understanding these time horizons and how you're going to map it back against your liabilities.

[00:11:39] Incredibly useful.

[00:11:40] But yeah, I won't take the whole episode discussing that one clip, even though I could.

[00:11:45] So this next one might be the number one lesson I've learned from Cullen.

[00:11:47] And there, if we remember back in the day, now it's kind of accepted now, but back in the day, there were so many economists out there when the Fed was doing quantitative easing that were talking about how this is going to be a major inflation problem.

[00:11:58] Some were saying maybe it's going to boost inflation some, but other people were saying like, this is really going to lead to like very high levels of inflation.

[00:12:04] And it never did.

[00:12:05] And here's Cullen explaining why.

[00:12:06] What something like quantitative easing does at an operational level is pretty simple.

[00:12:11] It basically, so think of it outside of all of the government's other actions.

[00:12:15] Actually think of it inside of a situation where the government is running a surplus.

[00:12:18] So the, the government is actually taxing more than it's spending in this environment.

[00:12:23] And then you have the Fed is out there doing quantitative easing.

[00:12:25] Well, what's technically happening is that the aggregate government is issuing now fewer bonds.

[00:12:33] They're actually taxing more than their, than their spending.

[00:12:36] So they're actually taking money out of the private sector to a certain degree.

[00:12:39] And what the Fed is doing then is the Fed is taking the composition of the existing private sector assets.

[00:12:45] And they're merely changing them because what quantitative easing does is quantitative easing involves the Fed expanding their balance sheet.

[00:12:52] They create reserves or deposits and they swap them.

[00:12:56] They go out and buy bonds.

[00:12:57] And so the, the Fed is actually buying the bonds, taking them out of the private sector, putting them on their balance sheet, which is functionally.

[00:13:05] It's not a balance sheet that's in the economy.

[00:13:08] So they're removing these bonds and they're swapping them with cash.

[00:13:11] So it's almost like a situation where they're essentially swapping your bond account into like a checking account, a deposit account now.

[00:13:19] And the question is, is like when you, if you were to swap a savings account for a checking account, well, would you go out and spend more money?

[00:13:28] I mean, in all likelihood, you know, in your mind, you have the same exact amount of money.

[00:13:32] You actually have lower income because now you're earning less interest on your account.

[00:13:36] And so what the Fed does is at an operational level is very similar to that operation of changing a savings account into a checking account.

[00:13:45] And so outside of the rest of the government's actions, there's no real operational reason for this to cause high inflation, even though, you know, we kind of get into the whole discussion before about definitions.

[00:13:56] And like the government is technically creating more money, but they're also removing bonds.

[00:14:02] And so, you know, just because they're adding more money, does it mean that we have more financial assets?

[00:14:07] No.

[00:14:08] So that's really the kicker there is that at the Fed specific level, they're not doing anything that on its own should cause a lot of inflation.

[00:14:18] Whereas my tone has been very different in the last like three years since COVID was initiated, mainly because not because of what the Fed was doing, but because of what the government, the Treasury was doing.

[00:14:30] The Treasury spent, you know, $3 trillion in 2020 and then 2021 again.

[00:14:36] And so these were real measurable balance sheet increases where the government is now they're literally printing new bonds and issuing them.

[00:14:45] So they're they're issuing new financial assets that the private sector now holds on their balance sheet.

[00:14:50] So in a way, if you if you think of it, if you wanted to say that the government prints assets or think of it, a better example is thinking of the Treasury as as literally printing money rather than bonds to finance their deficits.

[00:15:03] Well, that's the situation where you actually have a huge increase in the private sector financial asset balance.

[00:15:12] It's not so much about what the Fed is doing.

[00:15:14] It's more about what the aggregated government is doing.

[00:15:17] And so the Fed, in a lot of ways, they come in after the fact and they change the composition, but they don't necessarily increase the composition on their own.

[00:15:24] Let the record show that my newsletter never predicted that QE would cause inflation back in the day.

[00:15:31] In retrospect, you're in retrospect.

[00:15:32] You wrote after that.

[00:15:34] All right.

[00:15:35] You wrote three years later.

[00:15:36] Okay.

[00:15:38] It's a good way, you know, to build the archive of the newsletter that didn't actually exist and be like, here are all my correct market calls that never existed in my newsletter.

[00:15:44] I like that idea.

[00:15:46] I mean, until people realize you can't do it in the future like that, you probably get a lot of money at launch for that.

[00:15:50] Hey, call one of those newsletter farmers.

[00:15:52] Let's get this thing rolling.

[00:15:52] So there was this.

[00:15:54] I feel like.

[00:15:57] I came into the industry pre financial crisis, so I'm I'm just into the industry when this happens.

[00:16:05] And one of the greatest gifts that you can have at the start of a of a career is to see all the experts and everything that you think people knew or is being handed to you as like, we know these things to watch.

[00:16:17] Pretty much all of it be proven wrong.

[00:16:20] You know, I guess that's a really powerful way to start your career.

[00:16:24] His initial papers and some of the old MMT stuff and everything that came out after the great financial crisis and explaining why this isn't inflationary, why this is an asset swap.

[00:16:35] Maybe one of the most valuable things like I could have learned about economics.

[00:16:38] I think I only could have learned it in that in that period following the great financial crisis.

[00:16:43] Did you have that experience, too, with his work?

[00:16:45] Yeah, I did.

[00:16:46] Like, it was really eye opening for me.

[00:16:47] And it took me a little bit.

[00:16:48] It took me a while.

[00:16:49] Like, I was kind of the who cares what camp I'm in because I know nothing about this stuff.

[00:16:52] But like, I believe those economists that said that for a long period of time.

[00:16:55] And then I was like, this is not happening.

[00:16:57] And then I came across Cullen and like he had a really clear explanation as to why it wasn't happening.

[00:17:02] And at the time, like still a lot of people are not listening to him.

[00:17:04] Like a lot of these economists were still calling for this to be inflationary for a really, really long period of time.

[00:17:08] And then eventually they agreed, you know, they were wrong.

[00:17:11] Yeah.

[00:17:14] Funny watching like MMT and the whole, like all the, you know, like the mint, the coin stuff, like all these funny things that he unpacked the logic of that I learned because of him.

[00:17:25] So this whole idea of QE as an asset swap where you're just swapping, you know, an asset with duration for an asset with no duration.

[00:17:32] That's why it's an injection of liquidity.

[00:17:34] That's why it's an important backstop function in the economy and banks for clearing things.

[00:17:39] The turnaround of this too, because we learned that from this type of logic.

[00:17:46] When there was QE in or in, uh, in COVID when, when all that sweet, sweet stimmy was getting passed out.

[00:17:53] This was also one of those things where you're like, oh, this is what they didn't do before.

[00:17:57] This is cash for clunkers on giant steroids.

[00:17:59] This part actually should be inflationary in some way.

[00:18:03] Not that you could have known how much, but.

[00:18:05] He also basically without predicting that or making a bold call about that.

[00:18:10] He was right again.

[00:18:11] That's the type of stuff where you're not just swapping assets.

[00:18:14] You're actually putting new money into the system.

[00:18:16] And that has inflationary impacts.

[00:18:17] That's right.

[00:18:18] Like if you put money in people's pockets, they're going to spend it.

[00:18:20] Um, you know, and that, that was the difference here.

[00:18:22] And it's something, by the way, a lot of people got wrong again, because I think people learned the lesson about QE.

[00:18:26] And they're like, well, you know, that wasn't inflationary.

[00:18:29] So nothing is inflationary.

[00:18:30] And then, so then when all the fiscal stimulus came out, a lot of economists were like, eh, it's not going to be that big of a deal.

[00:18:34] And then it ended up being a big deal.

[00:18:36] So like Cullen's ability to differentiate those two things was really important to differentiate QE from actually like writing checks to people and putting it in their pockets.

[00:18:43] Those are two very, very different things from an inflation standpoint.

[00:18:47] Very, very different and very, very useful for just understanding two basic functions of what the Fed and the Treasury can do.

[00:18:52] Real powerful.

[00:18:54] So this next one is another topic we've talked about a lot on the podcast.

[00:18:57] And we've had, this is probably the one that we have maybe the most smart people disagreeing on.

[00:19:01] We've gotten really, really smart people who have taken both sides of this, which is this idea of, do you need international diversification?

[00:19:08] Or do you get enough from your U.S. multinational companies you own where that's not necessary anymore?

[00:19:13] So here was Cullen's take on that.

[00:19:14] Cullen It's one of the few things I think that Bogle got really wrong across his life was that, yes, there is a large contribution, especially from a revenue perspective, if you just own something like the S&P 500.

[00:19:27] But the real, I'd argue the real benefit of owning international stocks is that, well, you're not only reducing your domestic stock exposure risk, you're also giving yourself a currency hedge.

[00:19:38] And that's one of the biggest, I think, contributing positives of owning international stocks is that you're really dampening the effect of the potential currency risk that you have in your domestic equity portfolio by owning some of these foreign entities.

[00:19:50] And so, you know, is it necessary?

[00:19:53] And, you know, what's the right size?

[00:19:55] You know, that's a much trickier debate.

[00:19:57] But I would argue that from a basic, you know, position of sort of reducing home bias and reducing currency risk, you should own, everyone, I think, should own some international stocks just to avoid that position.

[00:20:08] I mean, you can look at, there's a lot of historical evidence to support, you know, these arguments against home bias.

[00:20:14] I mean, the classic one is looking at, you know, like the Japanese stock market in the early 1990s, really, though, that whole 20 year period that the Japanese equity investor who owned, say, U.S. stocks, you know, diversified massively outside of the topics or the, you know, the any of the large Japanese indices.

[00:20:35] They insulated themselves from a lot of domestic risk.

[00:20:38] And, yeah, you know, I think it's easy to look at the United States and say, oh, well, our economy is so big and so strong, like we're not going to turn into Japan or we're not going to turn into, you know, we're not a failing empire like the U.K. was back in the early 1900s, like, you know, or the early 1800s, whatever it was, you know.

[00:20:53] But I think that's really that's like poor risk management, in essence, in the sense that we especially coming out of COVID, I think one of the big lessons from COVID is anything can happen.

[00:21:03] I mean, nobody predicted global pandemic that was going to like shut down the global economy for a year.

[00:21:08] And you just never know what's going to happen.

[00:21:10] And I think that diversification is essentially, you know, the process of spreading risk around and having a lot of home bias results in a lot of domestic equity and domestic currency risk that can easily be hedged away.

[00:21:23] Yeah, there are a couple of interesting things here.

[00:21:25] One is we haven't heard a lot about the idea of the benefit of a currency hedge.

[00:21:29] You know, that's something we haven't heard from a lot of people, but that is a valid point.

[00:21:32] I mean, that is a valid reason to invest internationally.

[00:21:37] I want like I need to talk to somebody who just trades FX and does this stuff.

[00:21:41] I'm really curious if Brent Donnelly or something like that has a strong perspective on this.

[00:21:46] Yeah, I mean, it makes sense.

[00:21:47] And it makes sense in the the currency and the non home bias case, too.

[00:21:52] None of us want to think of what it would have been like to live in Japan in the 90s and going through that stuff and having just domestic investments versus having international investments.

[00:22:01] Where you get the currency hedge and you get the foreign stock exposure.

[00:22:04] But those are those scenarios where you're like, yeah, this has happened before.

[00:22:08] And it's happened in more than one country and more than one place.

[00:22:11] Shouldn't you think about it from time to time?

[00:22:13] Because I mean, when it works against you, it works against you.

[00:22:16] Now, granted, when it works for you.

[00:22:19] Hello, good old US of A last 10 years.

[00:22:22] It's felt pretty good.

[00:22:23] It's been a losing.

[00:22:24] It's been it feels like a sucker's bet.

[00:22:26] But man, even what the lost decade like 2000 to 2010, just having that emerging market exposure for the first part of that made a huge difference.

[00:22:34] It's hard to deny.

[00:22:35] And I always I always struggle with the now do Japan because to some extent he mentioned the now do Japan in there.

[00:22:40] Because to some extent, like if you go back to the 80s, I mean, Japan really was considered like bulletproof to some to some extent.

[00:22:47] Like no one would have ever.

[00:22:48] Now, Japan was not the United States, but no one would ever have predicted that Japan would have had the kind of returns it did.

[00:22:54] So my newsletter predicted those returns.

[00:22:57] You were like, you're like, this Japan, we got to short this thing.

[00:23:03] Exactly.

[00:23:03] But but yeah, like so on one hand, like nobody would have predicted that like for Japan.

[00:23:08] And you could say, well, nobody would predict that from the United States now.

[00:23:11] So maybe we're not looking at that clearly.

[00:23:13] Like on the other hand, I look at all the advantages the United States has.

[00:23:16] And I'm like, could the United States really have like a 30 year period like Japan did?

[00:23:20] I mean, I don't have the answer to it.

[00:23:22] But if at least the case we have to look at, it's not like some emerging market that had like some collapse.

[00:23:26] Like Japan was a major, major country in the world economy when this happened.

[00:23:33] I take your point.

[00:23:34] And I think that that's a really important thing.

[00:23:36] And this is where you probably at a starting point, you might do the global financial assets portfolio.

[00:23:41] You might think about what's the total market cap and how much U.S. versus international I have as a starting point.

[00:23:46] And then in many cases, it's OK to like dial it back from there.

[00:23:51] You can dial it up, too.

[00:23:52] But in many cases, you can dial it back from there and just say the Japan scenario seems lower for the U.S.

[00:23:58] for a whole bunch of reasons, interest rates, demographics, innovation, all that stuff.

[00:24:02] Tied together.

[00:24:03] But then it doesn't mean you should just completely zero that out.

[00:24:08] And, you know, U.S. stocks forever.

[00:24:11] I'm with you on that.

[00:24:13] There's always like a middle ground here, too.

[00:24:15] Like it's not like you have to.

[00:24:16] If you hold zero international assets now, you have to go all the way to the global market portfolio.

[00:24:20] There's something in the middle you could do here.

[00:24:22] Yeah.

[00:24:22] Like MedFavor.

[00:24:23] Dial it back.

[00:24:24] Dial it back.

[00:24:25] Really like split the difference.

[00:24:26] Like you don't have to get all the way there all at once.

[00:24:28] It's OK.

[00:24:29] Yeah.

[00:24:30] Small moves are OK.

[00:24:30] MedFavor has this thing he always talks about where he's like, what would you think about if you put five times more of your money in one country than any other country?

[00:24:37] And then he's like, well, that actually is the global portfolio because the U.S. is so much bigger than everybody else.

[00:24:42] Like you can look at the U.S. versus all countries together.

[00:24:45] But if you look at the U.S. versus any individual country, you know, if you're in the global market portfolio, you have way more money in the U.S. than you do anything else.

[00:24:52] And I always think about stuff like this, too.

[00:24:54] You know, maybe I need more friends from like Chile or something to be like, hey, so what's that 401k looking like these days?

[00:25:01] You know, how's that asset allocation looking?

[00:25:03] Really genuinely curious.

[00:25:04] And it's funny because like in you talk to European people, they at least have a more Europe focused thing or that people in other countries, especially smaller GDP countries like the eurozone or even like I hear from some people that I know in South America and stuff like they tend to default take a more international focus right from the get go.

[00:25:26] So it's really interesting to think about that from the opposite perspective, too, because I don't think there's a lot of Italian people who are like, no, I only own these five Italian stocks, whatever Italian fang is, you know?

[00:25:37] Yeah, I just hope like 30 years from now, we're not being like now do U.S.

[00:25:41] Like it is the example of like things that went wrong or everything seemed like it was going to go right.

[00:25:45] The only other point I want to make on this before we stop is Larry Swedger, we just had the podcast, and he he also agrees with Colin about the benefits of international diversification and that people should be doing it.

[00:25:53] But he also made this this point that markets across the world are becoming more correlated now, like the Internet international stocks are more correlated with the U.S. than they used to be.

[00:26:03] And what that means is the diversification benefit is less.

[00:26:06] So he was arguing like you need to do other things for diversification as well, because things are moving in unison more than they did in the past.

[00:26:14] I think that's super important.

[00:26:16] And I think a lot of this, you know, save this for a feature newsletter episode.

[00:26:21] But the just the idea of like, yeah, it's we are de-globalizing.

[00:26:26] But at the same time, that means companies across country borders are going to figure out more things on how they work together.

[00:26:31] They're probably going to be more tied to each other more and more.

[00:26:34] And then it becomes the function of just like, are you investing in things that are growing or have, you know, exciting value opportunities that you think will get arbed out?

[00:26:42] The logic feels like it's evolving.

[00:26:45] And I think Swedra's points on this are actually incredibly, incredibly important for people who are asked allocating capital.

[00:26:51] So the next one is going to be the opposite of your macro newsletter, which is Cullen talking about how he how he as he gets older, how he recognizes how little he knows.

[00:26:59] I, you know, the older I get, I feel like the the more I realize, the less I know about all of this stuff.

[00:27:07] And so it's this weird sort of journey in finance and economics where, you know, you typically think that, like, the the old guys are the ones that know everything.

[00:27:16] And the more I find myself becoming an old guy, the more I just sort of realized how little I know about all this stuff because it's so friggin complex.

[00:27:24] And so, you know, I would say that one of the mistakes I made when I was younger was just pigeonholing myself, whether it be inside of like certain, you know, political cliques or whether it's even like certain strategies where you can find yourself in a attracted to like a very specific niche type of strategy.

[00:27:45] And what you'll find is that you can go through really long periods of time where that strategy doesn't perform well at all.

[00:27:51] And so to me, being super open minded, not only on the political side, but on the economic and finance side, especially on the investing side is really important just because you have to be positioned in a way so that you can kind of navigate all environments.

[00:28:06] And that's I think to a larger degree, it's it's why I've become very attracted to like all weather portfolios, because I kind of know that I don't know what's going to happen in the future.

[00:28:15] And I want to to a certain degree, at least with a big chunk of my assets, I want to diversify so much that I've always got components of my portfolio that are weathering any type of environment.

[00:28:29] So, yeah, being being open minded to me is like a superpower in finance and economics.

[00:28:36] This has been the case with me, too. I mean, I would say, like, I thought I was smarter.

[00:28:40] I knew thought I knew more when I was younger, when I actually knew less.

[00:28:44] And part of it is just markets humbly. You know, you think about like these things that can't happen, like in the factor investing world, there were so many things I believe strongly.

[00:28:51] And I guess the core of that is still there. But around the edges, there's so there's so much stuff that changes over time and things just happen in the market.

[00:28:57] Things happen in the economy. You're like, well, that will never happen. And then it happens.

[00:29:00] You look at covid or whatever. You just you realize, particularly in the macro world, like you can never say never.

[00:29:06] And you just have to recognize I don't know everything, things that I think are obvious or not obvious.

[00:29:11] The more you do that, the more you look at the other side, the more you become humble, the better off you become.

[00:29:16] So since teenager, maybe even preteen, there's been this there's this Operation Ivy song from like the late 80s.

[00:29:23] And it's a knowledge. All I know is that I don't know nothing.

[00:29:26] I've been singing this song basically since middle school.

[00:29:30] All I know is I don't know nothing. And somehow I keep knowing nothing.

[00:29:35] Like it keeps getting worse. And it's an amazing thing to think.

[00:29:39] What oppression statement. What a great way, you know, as, you know, little punk rock kid, like looking at authority and being like, if I don't know nothing and you don't know nothing, then nobody knows nothing.

[00:29:50] And then we all have to be figuring it out all the time. So maybe be nice to each other.

[00:29:54] This is a really important lesson. And I think it's it's kind of a beautiful thing when you realize you're on that curve of like you are going to know less and less.

[00:30:02] You're going to know more and more in general terms.

[00:30:04] You're going to know less and less in specifics. So just approach it with humility. Be kind to others. All I know is that I don't know nothing or hurt.

[00:30:13] And he mentioned this and this this sort of leads you to the risk parity slash permit portfolio in a lot of ways, because that's the those are the types of portfolios that are set up to be OK in any economic environment.

[00:30:25] And, you know, a lot of us thought inflation was never going to come again. Inflation came. It might be dead now. It might go back up. We don't know.

[00:30:32] But like those types of portfolios are really good when you think about them in this framework, because they don't require predicting anything.

[00:30:37] All you're really predicting is that the future is uncertain. And if you believe that these are actually decent portfolios to hold.

[00:30:44] Just don't die. The survival strategies like find the survival strategies where you just don't die and you just don't die by spreading out your bets.

[00:30:52] It's it's such a simple concept, but that's the core of the humility. I agree. I love I love that aspect.

[00:30:58] So given all your pop culture references in the podcast, when I saw this one, I'm like, this has to come in because there were there were like probably 50 clips from Cullen's interviews we could have used here.

[00:31:06] And the Fed being like Chuck Norris is something that had to go in.

[00:31:09] You're doing God's work with this clip, Jack. What can I say? Run this.

[00:31:13] So here's Cullen talking about how the Fed is like Chuck Norris.

[00:31:15] A lot of monetarists describe the Fed as like Chuck Norris, that basically Chuck Norris doesn't have to actually kick your butt.

[00:31:22] He just has to come in and threaten to kick your butt.

[00:31:24] So once you know what Chuck Norris is going to do to you, you you kind of just back off.

[00:31:30] You say, OK, you know, I don't want to mess with Chuck Norris.

[00:31:33] But and that's a lot of what the Fed does is the Fed comes in and they say, OK, we're going to set interest rates at, you know, four percent by the end of 2023.

[00:31:41] That's our goal. And you see this in things like the two year Treasury bill, for instance.

[00:31:47] The two year Treasury bill will front run what the Fed is essentially trying to do.

[00:31:53] So, you know, for the last year or so, the two year Treasury bill has been a much higher interest rate than the overnight rate.

[00:32:00] And that's because the market is getting this, you know, verbal communication from the Fed about where they're going to go.

[00:32:06] And the market is then front running them. So it's kind of like, you know, going back to the dog walking analogy.

[00:32:12] The Fed is telling the dog, you know, hey, this is where we're going and we're going to let you kind of wander out there a little bit.

[00:32:20] And that's the market, you know, front running them and basically setting prices.

[00:32:24] And so, you know, the Fed doesn't have to come out and say that the Fed doesn't have to come out and actually set interest rates at three percent for the market to actually price in and expect at three percent interest rate.

[00:32:37] So a lot of this is a is a threat almost. It's this, you know, Chuck Norris effect.

[00:32:42] I love this idea. You know, Chuck Norris doesn't have to beat you up.

[00:32:44] He just has to tell you that he's about to beat you up.

[00:32:46] And that's basically enough. And, you know, the Fed is like that.

[00:32:49] And if you think about forward guidance and the way the Fed works, you know, you see the market reacting all the time to the Fed not doing anything, but just saying, here's what we're about to do.

[00:32:57] And the market reacts to it. So the Fed does have that kind of power.

[00:33:00] Now, I take issue, some issue, small issue with Mr. Roche on this one, because I think it's really important that you clarify which Chuck Norris specifically you're referencing to the Fed.

[00:33:11] I mean, I don't know how old Colin is. Like, is this a Walker Texas Ranger era thing? Is it sidekicks?

[00:33:17] Delta Force, one or two. Lone Wolf McQuaid, personal favorite. Like, there's lots of stuff.

[00:33:24] The Octagon, Octagon, great Sunday morning, like on TBS watching or whatever as a kid.

[00:33:29] So I think the one that is the most Chuck Norris as the Fed, because of the dog walking analogy, it's got to be Top Dog.

[00:33:39] Do you ever see Top Dog in all of its glory?

[00:33:41] I've seen a lot of the other one you talked about, but I didn't see that one.

[00:33:44] Probably because it was really bad. But with his dog walking analogy, if the Fed is walking the dog, not controlling the dog, like the dog has a mind of its own, but it's there behind it, like on the leash, you just have to have the threat of the leash pull.

[00:33:57] And Top Dog, maybe not the number one movie in the Chuck Norris oeuvre, but I think it actually fits the, you know, the Fed as Chuck Norris pretty well.

[00:34:09] Colin, feel free, weigh in in the comments. If you have a different Chuck Norris in mind for which Chuck Norris is Fed Chuck Norris, I would love to know.

[00:34:18] I think you check into the detail of like, which Chuck Norris are we dealing with here? Because there's different Chuck Norrises.

[00:34:22] Hey, and Game of Death, Return of the Dragon, like Chuck Norris has chops too. This is not a Chuck, we are not a Chuck Norris hating podcast or newsletter.

[00:34:35] We are very pro Chuck Norris around here, so we take this very seriously.

[00:34:39] He did have a lot of similar movies, Chuck Norris, and there's a common theme among his work, it does seem like.

[00:34:45] I'm not going to lie. I was looking at movie covers when I knew we were going to talk about this, and I was like, wow.

[00:34:51] A, I'm terrified how many of these I've actually seen, and B, I'm equally terrified, if not mortified, by how many I'm like,

[00:34:59] I don't know if I can remember what part came from which of like these six different movies that I'm looking at the cluster.

[00:35:05] Because I can mostly separate them by these are the 80s movies versus the 90s movies, where you're just like, oh yeah, that was grainier.

[00:35:12] So that one has to be in this era, but God, if you tell me what happens in Delta Force 1 versus 2, damn divino.

[00:35:20] Where does the whole like Chuck Norris doesn't have to beat you up, he just has to tell you to beat you up thing come from?

[00:35:25] That like is like a viral thing for a long time, but I don't know, like that wasn't from a movie or anything, right?

[00:35:29] It's just like somebody put it on social media or something like that?

[00:35:31] That's a great question.

[00:35:32] What was the origination?

[00:35:34] I don't, I can't tell you off the top of my head what the actual like source of that whole meme and then that video clip that went everywhere was.

[00:35:40] Because I feel like it had to be rooted in something else, but okay.

[00:35:44] That's, that's a rabbit hole for the viewers to go down.

[00:35:47] We'll get back to that.

[00:35:47] It was a beautiful episode.

[00:35:48] You just ruined my day.

[00:35:50] To the viewers.

[00:35:50] You just ruined my day.

[00:35:52] But I'm not paying attention in something else.

[00:35:54] I'm going to be like, what is the, yeah, there's a Reddit out there.

[00:35:57] Just ask ChatGPT if there you go.

[00:36:01] So we have one more on the Fed that kind of plays with this as well, which is we talked about this a lot in the podcast and I've kind of thought about it.

[00:36:06] And it's interesting that people even like Colin who know a lot about this, which I certainly don't think about this too.

[00:36:11] But here's Colin talking about the idea of automating Fed policy.

[00:36:13] And the question is, is, you know, could they do something that was more automated or didn't involve quite so much discretion where, you know, they were having an impact in certain ways that are necessary, but not quite relying on, you know, kind of the man in the tower approach where it's like, you know, how do you, you know, how do you view the weather today?

[00:36:36] What direction is the wind blowing in that seems to be a lot of what they're doing is they're sort of, you know, they're they're going on this sort of rear view mirror data approach.

[00:36:46] And then they're making guesses about the future.

[00:36:48] And then they're saying, OK, this is what we think we should do.

[00:36:50] And personally, I think a lot of things like I think interest rate policy could be automated to some degree.

[00:36:58] You know, a lot of some theorists think that you should just set the overnight rate at zero percent and just leave it there and leave it there forever.

[00:37:05] I don't go that far, but I think that you could create something like, you know, I've written in the past about a modified Taylor rule.

[00:37:12] Taylor rule is basically like an automated overnight rate that would sort of systematically change over time.

[00:37:18] And I think something like that is smart.

[00:37:19] I tend to defer towards I'm not like a big anti-government guy, but I am.

[00:37:24] I tend to I tend to approach the the world of policy in a lot a similar way to the way I approach portfolio management, that I tend to view a lot of discretion as being bad.

[00:37:38] I think that the more systematic you can be, the more that you can create a system and a process that's automated to a large degree, the better the outcomes will be in general.

[00:37:48] Yeah. And I don't know. I mean, I'm not smart enough to know the pros and cons of this, but it is interesting to think about.

[00:37:53] Like, you know, if the the two year will a lot of times lead what the Fed is doing, the market will tell the Fed in advance what's going to happen and you'll see it happen.

[00:38:00] So, like, could you just put that together and say there's some degree of automation of Fed policy?

[00:38:06] Now, I'm sure there's a lot of problems with that.

[00:38:07] Like, obviously, you don't want I mean, you probably wouldn't want to like fluctuating every single day, like the Fed funds rate based on what's going on in the market.

[00:38:13] So you'd probably have to do some sort of in between thing.

[00:38:16] But it would be interesting. Like if you did do that, what would be the positives and what would be the negatives?

[00:38:20] This is one of those like fascinating thought experiments, because I think you could do it.

[00:38:24] But it's one of those things that I don't think anybody would actually be comfortable with it happening.

[00:38:28] There would be that weird car on autopilot thing. All your monetary base are belong to us.

[00:38:34] Like, can this thing get hacked? Can something go wrong with us? What are the safety mechanisms?

[00:38:39] But yeah, I mean, how many times, especially you in quant land, like just have a simple rules based framework that you're operating from and be very, very careful when you're going to override the system.

[00:38:52] If we could get halfway there, that probably wouldn't be a bad thing for markets in general.

[00:38:57] Yeah, I love it too. But I think you're right about the idea.

[00:38:59] Like people like people like having somebody sitting there like they can look huge, your own pal or somebody's watching over this whole thing.

[00:39:05] Like if you just got rid of the whole, you know, the Fed completely and you just automated this whole thing, there would always be the risk.

[00:39:12] If like self-driving cars or whatever, you trust them, you know, the stuff's right.

[00:39:15] But like think something could go horribly wrong and suddenly we've got some sort of mess on our hands.

[00:39:20] So probably some combination of the two, maybe like the Fed is there, but they have guardrails around what they're doing.

[00:39:24] You know, there's some degree of automation, like a blend of discretionary and quant.

[00:39:28] Maybe that's the right answer, but we all know this is not a this is not happening.

[00:39:32] I mean, Powell did his own little Chuck Norris this week and basically said to Trump, like, you're not firing me.

[00:39:37] So I think the Fed is going to be around for a while.

[00:39:39] I think the Fed is going to be around for a while in its current form, whatever manifestation of Chuck Norris is in its soul.

[00:39:46] So in these last two, we're getting back to our show is your portfolio with Colin.

[00:39:50] And it's really, really good.

[00:39:51] Like he's really thoughtful about how he builds his personal portfolio.

[00:39:54] But this is talking about how he thinks about differentiating saving and investing.

[00:39:58] I think it goes back to that concept of really properly structuring your savings versus your investing.

[00:40:07] And that was one of my big aha moments was that I used to spend so much time obsessing over stock picking and building my portfolio in just the perfect way where I was doing just hours and hours of research every day on instruments and entities.

[00:40:26] And once I sort of had this aha moment about, well, my real investments are in myself and the things that I can control and my own really spending for future production rather than, you know, obsessing over things that really are controlled by the market and whatnot.

[00:40:45] That freed me up to really, I think, think of these things in a very proper time horizon and more holistic sense where I was then thinking of my income and my personal investments are really the core.

[00:41:00] They're the key aspect of financial success.

[00:41:02] And then the savings that I generate from that income and allocate into a diversified financial plan and asset allocation.

[00:41:11] It's all sort of secondary.

[00:41:13] And I think a lot of people, I think, think of these things backwards where they think of the stock market as some place where they get rich.

[00:41:18] And really, the place where you're going to get rich is investing in yourself, in your own future output, in your own future production so that then you can generate, you know, optimize your income in a way where then you have the flexibility to protect what you've made by then diversifying it across all of these sort of secondary markets like stocks and bonds and all the other instruments we talked about today.

[00:41:40] What I really like about this, and I mean, you've talked about this a million times on our various podcasts, was his focus on human capital and differentiating your investing from your human capital.

[00:41:49] And this idea that so many people think they're going to get rich in the stock market.

[00:41:52] And sure, a small group of people do get rich in the stock market, the people that bought Amazon at the beginning.

[00:41:56] But the vast majority of people that get rich, get rich because of their human capital, because of something they did.

[00:42:02] And differentiating those two things is important.

[00:42:05] Understanding that you're trading your time for something else.

[00:42:09] And then after you've traded your time for something else, you went to work, they gave you the paycheck.

[00:42:14] If you don't consume it all and there's some leftover, you have to ask the question of what do I do with the leftover?

[00:42:20] And if you own your own business or if, you know, you do something where you can put it back into your human capital, that return you get on the exchange for your time, in many cases, is the most valuable thing for you to get right first.

[00:42:33] Once you have that figured out, what to exchange your time for, for something that both satisfies you as a person.

[00:42:40] I don't think you should go out and sell yourself into something horrible just to make a buck.

[00:42:44] You find something you enjoy.

[00:42:45] You're a very profitable podcaster, Jack.

[00:42:48] I'm a very profitable newsletter writer.

[00:42:50] You know, we'll wave this magic wand for a second.

[00:42:55] But the idea is you're trading that human capital first.

[00:42:58] That's your first return.

[00:43:00] After that, figuring out what you're going to do with the leftover, that's where all the other things come into play.

[00:43:04] And that's where you can start to thinking about, um, what are you going to do with this money?

[00:43:09] And if it's going to go into financial capital, sure, obsess over the instruments and entities, as he puts it, all you want.

[00:43:15] Do that to the degree that that makes you happy with your excess human capital time to go out and spend on this.

[00:43:19] But the reality is like your job, your business, your career path, and that mechanism in most years of our lives, especially as we're saving money, is the most powerful thing.

[00:43:30] The most important thing to pay attention to.

[00:43:32] Not, you know, I don't know, trading crypto in the break room or something.

[00:43:37] The stories that we've heard over the last few years where you're like, you're focused on the wrong thing if this is where you're making your money.

[00:43:43] I'll stop trading crypto in my basement now.

[00:43:45] Um, it hasn't gone that well from there anymore.

[00:43:47] Oh, okay.

[00:43:47] I only trade it in my parents' basement, so.

[00:43:50] Better, right?

[00:43:51] I'd go to their house every time I need to trade my crypto.

[00:43:55] So I could get, you're like, mom, I'm here to trade the crypto.

[00:43:58] I've got the full experience.

[00:44:00] I'm going to be downstairs with my memes, donks.

[00:44:04] The other thing, it reminded me of that whole thing Jason Buck talked about, which is the idea of like thinking about your portfolio as savings versus investments.

[00:44:10] And there's a, it's a double-edged sword because if you think about your portfolio too much as savings, you probably don't take enough risk.

[00:44:16] But I do think, I do like that idea because I think if you use the word savings, you know, if you think about what you're doing in your human capital, like separately, and you think about, you use the word savings, you do tend to put a little more emphasis on protecting your money.

[00:44:29] And maybe you won't be trading crypto in your mother's basement or, or whatever.

[00:44:32] You, you might like at least think twice before you make some sort of crazy aggressive move with your portfolio.

[00:44:37] I got to put it up on Twitter.

[00:44:39] I haven't done that yet, but I put it up on cultish creative today.

[00:44:42] I shared my, my five capitals note card.

[00:44:44] That's the source like a for pretty much all of my client work for years, but also behind the intentional investor episodes that we do.

[00:44:53] And it's this idea of like that human capital is tough.

[00:44:57] That's the number one capital you have to worry about.

[00:45:00] But then from there, as you think about it, whether it's savings versus investment, or you start to figure out the terminology for this, you go like, okay, with my time away from work, but I'm not trading it for human capital.

[00:45:10] Then what do I think about social capital?

[00:45:12] What do I think about intellectual capital?

[00:45:14] Maybe I'm going to work, but I'm creating these, you know, lovely YouTube videos or the many, many back issues of my very successful newsletter or all your very successful prior podcasts.

[00:45:24] Like the intellectual capital, the things you make, the, uh, the spiritual capital or the wisdom, the things that you get passed on from your elders and you want to pass on to your kids or whoever else.

[00:45:33] All of these layers interplay with each other.

[00:45:35] And if you can just figure out the words that you need in your life to attach to them, you can be so much more intentional with how you spend your time, allocate your money and just get what you want out of life.

[00:45:46] Like that's really the beautiful thing that Cullen ties it all back to.

[00:45:49] And I think that's probably a good segue into our last clip, right?

[00:45:53] Yeah.

[00:45:53] But this also gets at the idea of like how much more talented you are than me, because when we do these podcasts, I'm like, I'm doing all this preparation.

[00:45:59] I've got these extensive prep documents in front of me.

[00:46:01] You're like, yeah, I wrote three words in a note card.

[00:46:05] This is, you can do an hour and a half off the three words in a note card.

[00:46:09] This is the power of extreme ADHD and knowing that.

[00:46:12] Yeah.

[00:46:13] A lot of work does go into them too.

[00:46:15] But then like the focusing thing is here are the threads that you pull on because these are the threads that actually matter.

[00:46:22] And, and having words to describe the things that actually matter, which is the core of what Jason Buck does when he talks about investment versus savings and understanding the differentiation.

[00:46:31] Understanding those words that help you choose.

[00:46:33] Maybe not just between like good and bad and right and wrong, but between like, I like this more for me.

[00:46:38] I like this less for me.

[00:46:40] Nuance counts for everything.

[00:46:41] And here's to both of us doing way too much podcast prep in our lives.

[00:46:46] If I was going to write three words in a note card to myself, it would be like, don't screw up.

[00:46:49] And we put three words that I would need to the podcast.

[00:46:53] So a little, little bit different than you.

[00:46:55] I used to harass my brother when he was like a cross country runner.

[00:46:58] And I'd be like, remember, I'd give him this like pep talk.

[00:47:00] Jack and be like, you just got to run faster than everybody else.

[00:47:06] Just, yeah, don't screw up, Jack.

[00:47:08] Just don't screw up.

[00:47:09] It'll be fine.

[00:47:10] So this last one gets, gets back at the all duration thing we talked about at the beginning,

[00:47:13] but he also added a bunch to it here.

[00:47:15] So this is my favorite part of show is your portfolio.

[00:47:18] Everybody we talked to, we always asked them, what are your goals with your portfolio?

[00:47:21] So here's how Colin answered that.

[00:47:23] Yeah.

[00:47:23] I think starting from a real financial planning foundation, I think the key question for everybody

[00:47:30] is understanding, like Ken French said that risk is uncertainty of consumption.

[00:47:35] And so as we navigate our financial lives, I think the thing that's really difficult for

[00:47:40] people to compartmentalize is the time horizons over which they're going to have certain assets.

[00:47:44] And that's, to me, that's really become time has become sort of the essential aspect of

[00:47:47] managing all this, especially, you know, when I had kids, I think kids really screwed up the

[00:47:53] way that I think about all this stuff, because when you have kids, you, you create a lot of

[00:47:58] short-term burdens for yourself that you didn't previously have, but you also have to start

[00:48:01] thinking in this sort of like multi-generational perspective.

[00:48:04] It completely transforms your mentality from thinking solely about yourself and like your wife

[00:48:08] to thinking then about other people and their time horizons.

[00:48:11] And so now, you know, in a weird way, having kids kind of kicked me in the butt because

[00:48:15] it, it motivated me in a way to start thinking about things in not just a sort of hyperproductive

[00:48:21] short-term time horizon, but also this weird sort of, you know, unpredictable long time

[00:48:26] horizon with this multi-generational time horizon.

[00:48:29] So, you know, my, my goals essentially are to create certainty of consumption across various

[00:48:36] time horizons.

[00:48:37] And, you know, we can, we'll kind of get into how I actually build the, you know, the, or

[00:48:41] quantify the liabilities and then match certain assets to it across specific time horizons.

[00:48:45] But, you know, in a general sense, that's what I'm doing is looking at things in very specific

[00:48:49] time horizons to try to optimize consumption over all of these time horizons, including time

[00:48:54] horizons that are incredibly unpredictable where, you know, in the, in the longterm, my, my own

[00:48:59] retirement plan, perhaps my demise, perhaps, you know, how my wife going to navigate my

[00:49:05] demise and then how my children are going to navigate, you know, potentially inheriting

[00:49:10] some money or benefiting from what I can produce in my lifetime so that they can create greater

[00:49:14] predictability across their own consumption time horizons.

[00:49:17] The thing that really hit me about this is, and you don't have kids yet, but like how much

[00:49:21] I agree with him on the thing about how kids change me, how, how it just changes the way

[00:49:25] you view all of this stuff, like how you view your timeframe different, like how you

[00:49:29] view like things existing beyond you different, like how you even view risk differently.

[00:49:34] Like my kids call it, like I've always talked about the podcast, like my retirement savings,

[00:49:38] I kind of consider that like an emergency fund to some degree because I plan to work forever.

[00:49:42] So I'm willing to take risk in that.

[00:49:44] Like it doesn't, it doesn't really bother me, but like my kids college fund, like I look

[00:49:47] at that a lot differently, like, because you like see their faces when you see the college

[00:49:50] fund, you're like, I can't do anything aggressive there.

[00:49:52] I gotta, I gotta be smart about that.

[00:49:53] So that's what hit me is how much like kids can change the way you look at things in investing.

[00:50:00] When, so I know I said before, we do the calendar cashflow balance sheet exercise.

[00:50:04] That's like the bread and butter of my client work.

[00:50:08] The thing that gets left out is before we even talk about those things is we ask the question

[00:50:14] of who's on the team.

[00:50:16] So if it's parents with kids and it's, it's who are you financially responsible for?

[00:50:20] And who are you emotionally responsible for in some way?

[00:50:22] We want to understand who all those people are.

[00:50:25] And then that calendar, that cashflow, that balance sheet, just like you and your situation,

[00:50:30] every person that matters to you financially or emotionally has a calendar tied to them

[00:50:34] too.

[00:50:36] And now you start to understand like, okay, I've got to think about my kids, five to nines

[00:50:40] to pay for their college differently than I think about my own retirement account because

[00:50:45] of just what the needs are and when on both of our different calendars.

[00:50:48] And then if you care about doing the right thing for those other people in your life that

[00:50:51] you're financially or emotionally responsible for in some way, this helps focus you.

[00:50:56] It's literally the first thing we talk about and go over when we get together with clients

[00:51:00] and review this stuff.

[00:51:02] Cause that who, especially when you push calendars across generations, just getting your intentions

[00:51:08] on that stuff right happens.

[00:51:09] Like you probably personally prioritize the money going into your five to nine in a different

[00:51:13] way too, I would expect.

[00:51:15] Yeah, definitely.

[00:51:16] There was this thing, uh, and I think it was Daniel Crosby who talked about it.

[00:51:19] There was this thing where that when they presented people, well, they showed people pictures of

[00:51:23] their kids or people that were important to them.

[00:51:25] Like they made less bad financial decisions because if I'm like about to make some sort

[00:51:29] of financial decision and I look at my daughter and I'm like, well, this could really impact

[00:51:32] her.

[00:51:33] Like I'm going to be less likely.

[00:51:34] Like I should really just put on the screen when I'm trying to like in front of me all day,

[00:51:37] like I have pictures of my kids.

[00:51:38] So I'll probably make better decisions.

[00:51:40] Don't screw up pictures of kids.

[00:51:42] I'll let you decide which ones higher.

[00:51:43] That's my new podcast.

[00:51:46] No more outlines, just a picture of my kids and it don't screw up thing.

[00:51:49] That's it.

[00:51:49] Everything else will take care of itself.

[00:51:51] Extra Chuck Norris style.

[00:51:52] No, but, uh, I do think it's very valuable.

[00:51:56] And this is in, in how her shield stuff on future self.

[00:52:00] He basically points out with ourselves and then it, you can extrapolate it out to others.

[00:52:04] And there's others research about this.

[00:52:05] Daniel Crosby writes about this too.

[00:52:07] All the behavioral psychology guys look at them and what they say about this.

[00:52:10] It's hard for us to empathetically connect with different versions of ourselves and others

[00:52:15] at different points in time, whether we're decision-making for a group or decision-making

[00:52:19] for us as individuals.

[00:52:20] It's actually cognitively hard for us to think about those things.

[00:52:25] So if you know you care about somebody and thinking about them and that progression over

[00:52:29] time is a guiding principle to help you guide those decisions is an incredibly useful exercise

[00:52:34] to figure out ways to force yourself to work through.

[00:52:38] Otherwise it's, let's be honest, it's super easy to just be myopic in the moment, not give

[00:52:43] a crap about anything else and rolling for it.

[00:52:45] I mean, that's, uh, you know, not the way either of us live our lives.

[00:52:49] Clearly we just, you know, focus on everything else besides trading meme stocks in mom's basement.

[00:52:57] Exactly.

[00:52:58] Well, uh, the meme stocks in mom's basement is probably a good note to wrap up on.

[00:53:02] Uh, we will see everyone next time.

[00:53:03] Hi guys.

[00:53:04] This is Justin again.

[00:53:05] Thanks so much for tuning into this episode.

[00:53:08] You can follow Jack on Twitter at practical quant.

[00:53:11] You can follow me on Twitter at JJ carbon and follow Matt on Twitter at cultish creative.

[00:53:17] If you found this discussion interesting and valuable, please subscribe in either iTunes

[00:53:21] or on YouTube or leave a review or a comment.

[00:53:24] Also, if you have any ideas for topics you'd like us to cover in the future, please email

[00:53:28] us at access returns pod at gmail.com.

[00:53:31] We would like this to be a listener driven podcast and would appreciate any suggestions.

[00:53:36] Thank you.