Practical Lessons from Jerry Parker

[00:00:00] January the 2nd, we started with a million dollars each. So right out of the bat, sink or swim. You know that we were in a different office. There was very little communication. Here's your million dollars and you better follow our rules.

[00:00:14] I made a lot of money early on or halfway through my career. And so ever since then, it's really just preservation. You know, you just don't want to go backwards.

[00:00:27] I'll just hold on forever and it will get very uncomfortable. But it just has a tendency overall to make more money. The trades all start out with the same risk and the same expectation.

[00:00:38] But as they get going, you know, these handful of 5 or 10 percent of your trades per year are going to just be outrageously large and dominate the portfolio.

[00:00:50] People are not interested in over time. They're interested in today and the trades I have on right now.

[00:00:57] 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.

[00:01:02] 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 them in the real world to achieve the best outcomes in our financial life.

[00:01:12] Jack Forehand is a principal at Validia Capital Management. Matt Zeigler is managing director at Sunpoint Investments.

[00:01:17] The opinions expressed in this podcast do not necessarily reflect the opinions of Validia Capital or Sunpoint Investments.

[00:01:22] No information on this podcast should be construed as investment advice.

[00:01:25] Securities discussed in the podcast may be holdings of clients of Validia Capital or Sunpoint Investments.

[00:01:30] So, Matt, today we are trend followers. I always hope we're going to be Ninja Turtles.

[00:01:34] What are we doing trend following?

[00:01:36] Well, it's actually a lot cooler than being a quant guy, I think.

[00:01:39] Because, you know, nobody, as the quant guy, nobody ever looks at you as, like, doing the cool stuff.

[00:01:42] But I feel like the trend followers actually get to do really cool stuff.

[00:01:46] Like, I've never shorted soybeans in my life, but I bet it's an enjoyable experience.

[00:01:51] I hope, at least at some point, to trade some orange juice futures.

[00:01:55] Like, that's just one of those things.

[00:01:56] And I feel like it's a Philadelphia-adjacent rite of passage.

[00:02:01] You know, I need the full dupe.

[00:02:03] You know, can we be a dupe brothers at some point, me and you?

[00:02:06] Can we get into that?

[00:02:07] Absolutely.

[00:02:07] All right, all right.

[00:02:08] So, like, after we make a bajillion dollars, we can be Duke and Mortimer or whatever.

[00:02:12] I'm ready.

[00:02:13] We've got some work to do on the bajillion dollars side of it first, but maybe someday we'll get there.

[00:02:19] Details, details.

[00:02:20] You don't need money to make money, Jack.

[00:02:23] So, if anybody hasn't figured it out yet, we're going to talk about Jerry Parker today.

[00:02:26] And we've interviewed Jerry Parker two times on Excess Returns.

[00:02:28] We did one standard interview about trend following with him.

[00:02:31] And then we also did a show-of-share portfolio where he talked about how he manages his personal investment strategy.

[00:02:35] And we're going to put both of those, a bunch of clips from both of those in the episode today.

[00:02:39] And there's so much to learn from Jerry that I was excited to do this because he may do things very differently than I do them.

[00:02:45] But a lot of the rules, when you think about it, apply just as much to my world as they do to his.

[00:02:50] And it's really cool to see somebody like him who's been crazy successful at doing this thing, part of this iconic club of the Turtle Traders and this, I don't know, movement?

[00:03:03] Like, what do you call it?

[00:03:05] But it's amazing to see something that's been successful that's so counter to the Warren Buffett stuff and whatever else.

[00:03:13] It's fascinating.

[00:03:14] I love this stuff.

[00:03:15] So you mentioned the Turtle Trading Program, and we are going to start there today.

[00:03:18] So here's a clip of Jerry talking about the Turtle Trader Program and about the importance of following a system.

[00:03:24] January the 2nd, we started with a million dollars each.

[00:03:27] So right out of the bat, sink or swim.

[00:03:30] You know that we were in a different office.

[00:03:32] There was very little communication.

[00:03:34] Here's your million dollars, and you better follow our rules, and you're fully equipped, and you better not lose too much money.

[00:03:42] Yeah.

[00:03:44] You must have been nervous hitting that first trade button, I would imagine.

[00:03:47] Yes.

[00:03:48] Or maybe not.

[00:03:49] No, no.

[00:03:50] I was extremely nervous.

[00:03:51] And, I mean, these were also the nicest people I had ever met as well.

[00:03:56] So after like a week of trading, Rich, I think, was in Florida, and he called us all on the phone.

[00:04:03] So we were all 12 of us, we were in this one room, and all the phones started ringing, you know.

[00:04:08] And Rich would speak to everybody for like a couple of minutes.

[00:04:12] And so he gets to me, and he's like, okay, how do you think it went?

[00:04:16] And I was like, well, we went okay.

[00:04:19] And he goes, well, how many trades did you do?

[00:04:21] I said, I probably did like 10.

[00:04:24] And he said, well, how many do you think you should have done?

[00:04:26] And I said, probably like 20.

[00:04:28] And he was like, yeah, yeah, that's right.

[00:04:31] Just don't let it bother you.

[00:04:33] Don't get nervous.

[00:04:34] Just give the praise.

[00:04:35] It's not that big of a deal.

[00:04:36] So he should have like yelled at me, because that was the major rule.

[00:04:40] Like the first and most important rule is do the trades.

[00:04:44] You cannot miss a trade.

[00:04:45] This is interesting because like they went through this program,

[00:04:49] and the program had very specific rules you had to follow.

[00:04:53] Wow.

[00:04:53] And then at the end of this, like, and these were guys that were very,

[00:04:56] like Jerry's inclination as a person, you can tell,

[00:04:58] is very much somebody who wants to follow the rules.

[00:05:01] But yet when they came out of the back of the system,

[00:05:03] like he talked about, like, how many trades are you supposed to do?

[00:05:06] Like, and when the guy called him to ask about how many trades he had done,

[00:05:08] and he had done like half of them.

[00:05:10] So it just shows it's really, really hard.

[00:05:12] Like even when you get trained in a system, when you really are a believer,

[00:05:16] when like you're as a human being, you're naturally inclined to follow a system,

[00:05:19] it's still really hard to follow the system.

[00:05:22] I love that story about how he did half the trades,

[00:05:25] and the guy was kind of disappointed in him,

[00:05:27] or he was disappointed in himself for like he hadn't followed the thing all the way through.

[00:05:32] Because part of this and learning the system was learning to be uncomfortable

[00:05:36] with the things that kind of go against your intuitions in the system.

[00:05:41] Hearing the way that that training starts right off the bat for those guys,

[00:05:45] where it's just like, here's what were they seated with,

[00:05:47] like a million dollars or something like that at the time.

[00:05:49] Yeah, I think it was a million dollars. That's right.

[00:05:50] Yeah, so it's like you get a million dollars and then you're expected to do,

[00:05:53] and what did he say, like 20 trades in a week?

[00:05:55] Was that like kind of the exercise?

[00:05:58] Yeah, I think it was a week.

[00:05:58] Should have done 20 trades. I think that's right.

[00:06:01] So just the idea that here you are,

[00:06:03] you've been doing totally other things in your life up to this point,

[00:06:05] but now you learn this system and they're like,

[00:06:07] here's the money you're putting at risk.

[00:06:08] Here's the capital.

[00:06:10] And we expect you to do this 20 times this week.

[00:06:13] And oh, by the way, that might mean 20 failures.

[00:06:17] Hopefully small failures,

[00:06:18] but just think about what that does with your head

[00:06:21] and how you have to get those reps in with that system

[00:06:25] before this even starts to feel remotely like an acceptable strategy.

[00:06:29] I just, it feels bananas.

[00:06:30] And that gets into the whole idea between the difference between,

[00:06:33] you know, backtesting or paper trading in the real world.

[00:06:35] Like once you turn on, like, it's like a game, I guess,

[00:06:38] for people who are in sports.

[00:06:39] Like once you go to the real thing, you can have practiced all you want,

[00:06:42] but like it's a completely different thing.

[00:06:43] You're seeing the emotions of losing money.

[00:06:45] You're seeing, you know, numbers coming across your screen

[00:06:47] where the P and L is going down.

[00:06:48] Like that's a completely different thing.

[00:06:50] And probably for them, even though they were trained,

[00:06:52] like until you experience that,

[00:06:54] you're not going to understand what it's really like

[00:06:56] and you're going to make some mistakes because of it.

[00:06:57] Yeah, I think that's where the accountability comes in.

[00:07:00] And this whole idea of even having to call in

[00:07:02] and have the conversation or pass the phone around the room

[00:07:04] or whatever it meant in those times,

[00:07:06] because this is what, the early to mid 80s at this point.

[00:07:09] And just this idea of we are throwing you into the deep end with,

[00:07:14] you know, we don't think you're going to sink.

[00:07:16] We taught you how to swim in some basic stuff,

[00:07:17] but we are throwing you in and expecting you to perform.

[00:07:21] And part of expecting you to perform is rumbling with the discomfort

[00:07:25] that you're going to go through in this crazy, crazy experience.

[00:07:29] It also seemed that I like the idea that like Rich,

[00:07:31] when he called him up, like didn't destroy them.

[00:07:33] Like he was very kind and calm.

[00:07:35] And I think that probably, that probably was intentional

[00:07:38] because it helps you to probably become better at this.

[00:07:40] If you're not like, if someone came in like guns blazing,

[00:07:43] like screaming and yelling at you about the missed trades,

[00:07:45] it probably has the opposite effect of what you want.

[00:07:47] You know, you put you outside of the mentality

[00:07:49] you want to be in to do this successfully.

[00:07:52] There's also the angle, and I'm sure you feel this,

[00:07:55] especially any of us in the finance space

[00:07:57] who have client work that we deal directly with.

[00:08:01] This idea of the calming mentor,

[00:08:04] the calming responsible person

[00:08:05] who immediately takes the high stressful chaotic situation

[00:08:09] and just walks it back to basics.

[00:08:12] Hearing the way he explained that phone call going down,

[00:08:15] I was like, that guy's a baller too.

[00:08:17] That's some amazing advice, mentorship stuff

[00:08:21] happening in real time and not beating them up over it,

[00:08:25] not being super harsh or critical

[00:08:26] and just kind of being like, let's set this back down.

[00:08:29] Like we can't treat this like a big deal.

[00:08:30] We can't treat this like life or death stakes.

[00:08:33] We have to treat this like we have a system,

[00:08:36] we have a process, we're going to trust the process.

[00:08:39] So this wasn't in the clip, but it's in the full episode.

[00:08:41] And I need to ask you this because whenever these deeper questions

[00:08:43] about the meaning of life come in, you know, I have no idea,

[00:08:45] but you've thought this through.

[00:08:47] So I probably would have failed the turtle trading exam pretty badly.

[00:08:49] But the question he mentions in the episode is,

[00:08:52] does it take money to make money?

[00:08:54] So I'm wondering like if you had gotten that question,

[00:08:56] how you would have thought working through that.

[00:09:00] So this is, and I had this moment too,

[00:09:02] because as I re-listened to this interview and prepping for this,

[00:09:05] I was kind of, if you asked me that,

[00:09:08] just like one-off in between meetings or something,

[00:09:10] or like walking down the hall of my house,

[00:09:12] or like walking the dog on the street or something,

[00:09:14] does it take money to make money?

[00:09:15] Well, like, yes, it takes money to make money.

[00:09:17] But I think, I go back to all those,

[00:09:20] like behavioral psychology, college experiments and stuff like that.

[00:09:24] All it takes to make money is you just need some asset to start with.

[00:09:29] So whether or not you pay money for the asset you start with,

[00:09:32] so long as you have something,

[00:09:34] and that something could just be your time,

[00:09:36] you can leverage anything to make money.

[00:09:39] You can leverage something as thin or meaningless as just your time.

[00:09:43] If you can put your brain around,

[00:09:45] well, what can I exchange this time for?

[00:09:48] Or what can I exchange this coffee mug for?

[00:09:50] Or what can I exchange this pen for?

[00:09:52] Again, all those classic behavioral psychology experiments.

[00:09:54] So that's where my brain goes,

[00:09:56] where does it take money to make money?

[00:09:58] Like, no, I'm with them on the false answer.

[00:10:01] What about you?

[00:10:02] How do you think about this?

[00:10:03] I obviously, I think about things very basically.

[00:10:05] So I would have, my natural inclination would have been to say yes.

[00:10:09] I would have said no on the exam

[00:10:10] because I would have known like that's a trick question.

[00:10:13] Where I would have failed is if there was a next question why,

[00:10:16] because I could not have explained why.

[00:10:18] I basically would have said no

[00:10:19] because I realized it's a trick question and I should say no,

[00:10:22] but I wouldn't have known why to say no.

[00:10:24] The metagame of the test would have worked.

[00:10:26] But if they actually said like, show your work,

[00:10:28] you would have been like,

[00:10:29] I'm just assuming you're messing with me here.

[00:10:32] That's right.

[00:10:33] Fair.

[00:10:33] I'm at least going to have to do that.

[00:10:37] So moving on to our next clip,

[00:10:38] this is from our show is your portfolio episode with Jerry.

[00:10:40] And I thought this was very interesting.

[00:10:41] And you and I are going to do a full episode on these

[00:10:42] because we ask everybody an initial question about,

[00:10:46] it kind of gets it like their idea of their purpose with their portfolio.

[00:10:49] It asks them,

[00:10:50] we asked them about what their goals are with their portfolio.

[00:10:52] So here's Jerry talking about his goals.

[00:10:53] I made a lot of money early on or halfway through my career.

[00:11:00] And so ever since then,

[00:11:02] it's really just preservation.

[00:11:04] You know,

[00:11:05] you just don't want to cope backwards.

[00:11:06] It's really kind of a pride and ego type of a thing.

[00:11:11] You know,

[00:11:11] you want to be moving forward all the time and increasing your wealth.

[00:11:16] You know,

[00:11:17] and that could be part of that's going to be invested in my own trading and

[00:11:21] funds that I have ETFs,

[00:11:23] mutual funds,

[00:11:23] private fund,

[00:11:25] creating,

[00:11:26] supporting new funds and products that I want to come out with.

[00:11:29] Uh,

[00:11:30] so I'm very keen on these new ideas and new products being successful,

[00:11:34] not just,

[00:11:35] um,

[00:11:36] put substantial amounts of money,

[00:11:38] my money in there.

[00:11:38] I want to support them and get them going,

[00:11:41] but also I want to make money.

[00:11:44] Um,

[00:11:44] so,

[00:11:45] but really it's,

[00:11:45] I think when you have a lot of,

[00:11:47] you know,

[00:11:48] when you make good money and you start,

[00:11:50] um,

[00:11:51] you're like,

[00:11:51] wow,

[00:11:52] I'm really making some good money here.

[00:11:54] My sort of goal was like,

[00:11:56] Hey,

[00:11:56] let's don't go backwards too much.

[00:11:58] You know,

[00:11:58] um,

[00:11:59] these drawdowns become very personal when you have a certain amount of

[00:12:03] wealth and then you suffer through the drawdown.

[00:12:06] The clients will be complaining,

[00:12:07] you know,

[00:12:07] and you're like,

[00:12:08] let me tell you,

[00:12:09] I feel it probably as much or more than anybody.

[00:12:12] Cause usually with my funds,

[00:12:14] I'm usually one of the biggest,

[00:12:15] if not the biggest investor in the fund.

[00:12:18] So this one was interesting from the perspective that I've seen this

[00:12:20] kind of go two different ways and you probably have a better take on

[00:12:23] this than I do because you do a lot more financial planning,

[00:12:24] but most people who accumulate a lot of wealth and Jerry's

[00:12:28] accumulate a lot of wealth,

[00:12:29] go the direction he talks about here,

[00:12:31] which is basically I don't want to lose it anymore.

[00:12:33] So I'm going to be more and more conservative.

[00:12:36] And you know,

[00:12:36] his strategy by its nature is conservative anyway.

[00:12:38] You know,

[00:12:38] trend following may be very different than the market,

[00:12:41] but it doesn't have massive losses.

[00:12:43] So it's a good strategy.

[00:12:44] If you just want to put your wealth in something,

[00:12:46] that's not going to lose tons of money.

[00:12:47] Trend following is a good strategy.

[00:12:49] So he had a good natural strategy for that anyway,

[00:12:50] but like you see people kind of go two ways with this.

[00:12:53] Some people go the way he goes and then other people,

[00:12:55] and you know,

[00:12:55] we've never had him on Chosher portfolio,

[00:12:57] but I guess like Jim O'Shaughnessy probably goes this way,

[00:12:59] which is you can kind of take the other outlook outlook to say,

[00:13:03] I've got so much money now that I'm,

[00:13:05] I,

[00:13:05] even if I lose half the money,

[00:13:07] I'm still in pretty good shape.

[00:13:08] So what I'm going to do is take a lot of risk.

[00:13:10] I'm going to try to maximize my return as much as possible.

[00:13:12] I'm not going to worry about drawdowns because I know even if I lose half

[00:13:15] the money,

[00:13:15] I'm still in good shape.

[00:13:16] So how do you think about that?

[00:13:19] This is one of those questions and grappled a lot with this with clients in

[00:13:24] the last five years.

[00:13:25] I think my,

[00:13:27] my entire career,

[00:13:28] a lot of conversations about this actually to be clear,

[00:13:30] but where this always,

[00:13:33] I think becomes a challenge is always when there's a life event that comes

[00:13:38] into,

[00:13:39] and this goes back to,

[00:13:40] we just talked about it,

[00:13:42] Justin and I with Ben Carlson in that interview we just did.

[00:13:45] You can't,

[00:13:46] you don't really want to time markets,

[00:13:48] but you have to sort of time life.

[00:13:50] And it's that crossover of timing life and timing markets where this gets

[00:13:54] hairy.

[00:13:54] So you,

[00:13:55] you bought a bunch of crypto and you wrote it up to 2 million percent or

[00:13:59] whatever,

[00:13:59] you know,

[00:13:59] you made a ton of money on it or you bought all that NVIDIA 10 years ago

[00:14:02] and it's gone up all this amount.

[00:14:04] And now you're at that point where you just,

[00:14:06] do I let it ride?

[00:14:07] Do I take some off?

[00:14:08] What do I want to do?

[00:14:09] Do I control that risk?

[00:14:11] Because I don't want to have that drawdown in front of me where I see all

[00:14:14] this wealth that I've accumulated on paper,

[00:14:16] just go poof.

[00:14:18] The thing that makes people true up,

[00:14:20] get honest,

[00:14:21] get real about this stuff is usually something in life.

[00:14:24] So now they go,

[00:14:25] I have this money.

[00:14:27] Should I buy that second house?

[00:14:29] Should I get that car that I always wanted?

[00:14:31] Should I do,

[00:14:31] should I pay for my kid's school now that I've accumulated this thing?

[00:14:35] That's just most people recognize like part of this is skill,

[00:14:38] but a big part of this is lucky.

[00:14:40] Like I had this streak.

[00:14:41] How do I harvest this?

[00:14:42] How do I extract this?

[00:14:43] And I think the best way to do it,

[00:14:45] the best way to think about risk is what other things in your life does this

[00:14:49] risk that you took now help you afford.

[00:14:52] And that could be experiential.

[00:14:53] That could be a gift to the kids or grandkids or however many generations

[00:14:57] down the road go.

[00:14:58] But that conversion has to tie back to something in real life.

[00:15:02] Otherwise,

[00:15:03] if you've made real life comfortable,

[00:15:04] you meet the people who just want to let it all ride and see what happens.

[00:15:07] And certainly there's plenty of those cases,

[00:15:10] but more often than not,

[00:15:12] unless people have made,

[00:15:13] you know,

[00:15:16] in the hundreds of millions of dollars range and up,

[00:15:19] those are the cases where more often than not,

[00:15:22] I see people going like,

[00:15:22] I really want to fortify this hard and fast,

[00:15:25] not screw this up.

[00:15:27] How do I just not screw this up?

[00:15:29] Because if this did take a 50% decline or go away,

[00:15:32] I'd feel really stupid or really bad or really bitter about the situation.

[00:15:37] Yeah,

[00:15:37] I would be at Jerry's camp on this.

[00:15:38] Like if I ever got my assets,

[00:15:39] which I certainly have not,

[00:15:40] but if I ever got them to the point where I could do whatever I wanted for

[00:15:43] the rest of my life and I didn't have to worry about it,

[00:15:44] like they're going,

[00:15:45] my retirement is going in the permanent portfolio at that point.

[00:15:48] Um,

[00:15:48] like I wouldn't want to be in something that,

[00:15:50] yeah,

[00:15:50] I mean,

[00:15:50] I just wouldn't,

[00:15:51] I don't really care.

[00:15:51] Like I've gotten past,

[00:15:53] like trying to get the numbers up and like looking at the numbers and being

[00:15:55] happy that they're rising or something like that.

[00:15:57] So I think for me,

[00:15:58] like,

[00:15:58] and I'm not near that yet,

[00:15:59] but if I ever got to that point,

[00:16:01] I think I would be in something like that.

[00:16:02] It's a consumer situation over and over again.

[00:16:05] It's,

[00:16:05] you can either consume it or you're going to gift it away.

[00:16:08] So once you've established what you feel like you have or what you think you

[00:16:12] need,

[00:16:13] and it's fine to keep taking risk,

[00:16:15] but,

[00:16:16] um,

[00:16:16] I'm wired that way too.

[00:16:18] I'm,

[00:16:18] I'm with you.

[00:16:19] Then the goal is to control as many expenses as possible,

[00:16:22] get them down as low as humanly possible over time,

[00:16:25] just so you can have the experiences in life that you want.

[00:16:28] And then worry about your gifts after you figure out your consumption has been

[00:16:32] met.

[00:16:33] So this next was another Matt Ziegler,

[00:16:34] a sweet spot question,

[00:16:36] because again,

[00:16:36] it gets to the deeper meaning of things.

[00:16:38] Um,

[00:16:38] so,

[00:16:38] so we asked Jerry about the,

[00:16:40] the initial question was are good traders,

[00:16:43] are they,

[00:16:43] are they that naturally or can they be taught?

[00:16:45] Anybody can be taught the rules.

[00:16:47] And then you have to submit yourself to following rules,

[00:16:51] which I think,

[00:16:51] um,

[00:16:52] it's very difficult to do.

[00:16:53] Um,

[00:16:55] you know,

[00:16:55] rich would say I can put my rules in the,

[00:17:00] on the front page of the paper.

[00:17:02] And I don't think anybody would really follow them.

[00:17:05] And I think that's still true today,

[00:17:08] maybe for a different reason than he meant it.

[00:17:11] I think today people would argue and say,

[00:17:14] no,

[00:17:14] no,

[00:17:14] no.

[00:17:15] You're not only am I going to follow your rules.

[00:17:17] I think your rules are bad and my rules are better.

[00:17:20] And they may have 15 minutes worth of experience,

[00:17:23] but people,

[00:17:24] young people tell me all the time that my rules are no good.

[00:17:28] So,

[00:17:28] and they bring no better than me.

[00:17:30] So it's,

[00:17:31] that's kind of disappointing.

[00:17:33] Yes.

[00:17:33] It sort of gets back to that Mike Tyson quote about everybody has a plan

[00:17:36] until they get punched in the face.

[00:17:37] And,

[00:17:37] you know,

[00:17:37] it's,

[00:17:37] it's great to have rules,

[00:17:38] but when the market's going against you,

[00:17:39] like the ability to continue to follow those rules is like a super power

[00:17:42] for investors.

[00:17:43] Cause you know,

[00:17:43] most people can't do that.

[00:17:45] Most people start questioning them and,

[00:17:46] you know,

[00:17:46] doing different things when the market's going,

[00:17:48] not going their way.

[00:17:48] It's a,

[00:17:49] it's a big superpower to have those rules and to follow them.

[00:17:53] And the one kind of unfortunate difference between this and boxing is that it goes way more than 15 rounds.

[00:18:03] And these did go years and years doing some of the wrong things.

[00:18:07] And you,

[00:18:08] and just gaining confidence all the time with your performance.

[00:18:11] And yet all of a sudden,

[00:18:13] all of your problems and the weaknesses of your system,

[00:18:17] they will pop up and you will be very disappointed.

[00:18:22] There's a couple of points from this,

[00:18:23] but that,

[00:18:23] that first question,

[00:18:24] I don't really,

[00:18:25] cause I think it kind of applies to investors too.

[00:18:26] You could ask the question like,

[00:18:28] are good investors?

[00:18:29] Is it something natural inside of them that allows them to make the right decisions

[00:18:32] and not panic?

[00:18:33] Or can that be taught?

[00:18:34] Uh,

[00:18:35] so how would you think about that?

[00:18:36] Oh,

[00:18:37] nature and nurture.

[00:18:38] Did you,

[00:18:38] did you read,

[00:18:39] uh,

[00:18:39] the David Epstein book?

[00:18:41] Um,

[00:18:41] what one was it?

[00:18:42] Was it,

[00:18:42] uh,

[00:18:42] was it range?

[00:18:43] I think the one with,

[00:18:44] uh,

[00:18:45] like Tiger Woods and Roger Federer,

[00:18:47] that whole bit.

[00:18:47] I didn't,

[00:18:47] but I heard about it.

[00:18:48] Yeah.

[00:18:48] So this concept talk about this a lot with,

[00:18:51] with clients and kids in particular.

[00:18:54] So I think about,

[00:18:55] about it as like pulley versus pushy.

[00:18:58] And basically you have like pushy parents are the ones who like push their kids to do something.

[00:19:03] Or in this case,

[00:19:04] like push somebody into trading.

[00:19:06] Like you got to do this.

[00:19:07] You got to follow all these things.

[00:19:09] And it's saying like,

[00:19:10] you have to,

[00:19:10] you have to,

[00:19:10] you have to,

[00:19:11] you have to,

[00:19:11] and setting like harsh penalties for not.

[00:19:14] And that,

[00:19:15] that's an approach.

[00:19:16] You can really push somebody into something and push them hard.

[00:19:19] And they might develop a love for it.

[00:19:21] They might even develop a passion for it,

[00:19:23] or it might be innate.

[00:19:24] And that's one approach to getting it done.

[00:19:26] So that would be the full,

[00:19:28] um,

[00:19:29] you know,

[00:19:30] the full,

[00:19:31] like nurture,

[00:19:32] but in the harsher version,

[00:19:34] I guess.

[00:19:34] The opposite side of that though is pulley is like,

[00:19:37] what am I pulled towards?

[00:19:39] What inherent to me am I pulled towards?

[00:19:41] This is the difference between like Tiger Woods,

[00:19:43] dad,

[00:19:43] taking him out and like putting a golf club in his hands and having them hit

[00:19:46] balls when he's two or whatever the crazy story is.

[00:19:48] And Roger Federer being like having a mom,

[00:19:51] or I think it was his mom who coached tennis.

[00:19:53] So like,

[00:19:53] he's always hanging around the court,

[00:19:54] but he's never really playing.

[00:19:55] He's off playing soccer or basketball or whatever.

[00:19:58] Once in a while,

[00:19:58] he picks up and screws around the racket.

[00:20:00] It doesn't get serious into like middle school when he's like pulled to this

[00:20:04] sport.

[00:20:04] He's suddenly interested in it.

[00:20:06] And that's sort of that inherent nature.

[00:20:08] If it's true to oneself.

[00:20:10] So I think it can be taught,

[00:20:13] but I also think it's really important that you're actually drawn to doing the

[00:20:17] thing.

[00:20:17] You listen to a guy like Jerry Parker talk and you're like,

[00:20:20] Oh,

[00:20:20] you're just wired for this.

[00:20:22] You had to find the system and the system had to find you and you had to

[00:20:25] meet when these ads converged.

[00:20:27] But I mean,

[00:20:28] how many other people didn't make it through that turtles program?

[00:20:31] How many people got filtered out by that crazy,

[00:20:33] true false test that they sent them after they answered the candidly kind of

[00:20:37] insane ad in the newspaper to even become a turtle trader in the first place?

[00:20:42] Yeah,

[00:20:42] I struggle this with clients a lot too,

[00:20:44] because there's definitely some clients are more inclined to make the bad

[00:20:47] decisions,

[00:20:47] to be more emotional.

[00:20:49] And it's,

[00:20:49] it's interesting to think about like how much can you change that as an

[00:20:53] investment advisor?

[00:20:53] I mean,

[00:20:54] obviously hiring an investment advisor helps you a lot with that because you're

[00:20:57] putting somebody else,

[00:20:58] you know,

[00:20:58] above you who might prevent you from making those decisions.

[00:21:00] But I think about that a lot,

[00:21:02] like how much,

[00:21:02] and we have seen some progress.

[00:21:04] I mean,

[00:21:04] certain people,

[00:21:05] if you explain things the right way,

[00:21:07] like certain people who are inclined to maybe be a little more active than

[00:21:10] they should be,

[00:21:10] you can make them a little less active.

[00:21:12] But also I think there's a huge natural component to that because some

[00:21:14] people come to us like in a pretty good place with respect to that.

[00:21:17] And some people come to us in a terrible place with respect to that.

[00:21:20] And you can move them around,

[00:21:21] but I think there's definitely a natural aspect to it.

[00:21:23] I think there's a natural aspect to it.

[00:21:25] And I think part of human centric advice,

[00:21:28] part of bumping up the EQ,

[00:21:32] not just the IQ in the advisory role is actually understanding that you have to

[00:21:37] meet clients where they are first.

[00:21:39] And the best of us in the,

[00:21:41] in the profession of either asset management or financial advising or whatever

[00:21:45] capacity go,

[00:21:46] I get it that this person coming to me is already wired a certain way.

[00:21:50] And it's not my job to fix them or sort out all their biases or say,

[00:21:54] ha ha ha,

[00:21:54] you are exhibiting the endowment effect.

[00:21:56] When you do this thing,

[00:21:58] our job is to say,

[00:22:00] I get the way you're wired and now great.

[00:22:03] So somebody likes to take more risk.

[00:22:06] How can I help them think about more intelligent ways to do that and point out,

[00:22:10] Hey,

[00:22:10] this is dangerous.

[00:22:11] Here's why.

[00:22:12] And see how they respond to that.

[00:22:14] That's a much higher level of like cultivated device.

[00:22:17] It doesn't work if you're just trying to jam people into products all day.

[00:22:19] But I do think that's the,

[00:22:21] that's the most important human way to do it.

[00:22:23] Goes back to like the examples we give all the time about,

[00:22:26] um,

[00:22:27] you know,

[00:22:27] like the all broccoli diet,

[00:22:29] the old green black thing.

[00:22:30] Like if you need to lose weight and you need to diet,

[00:22:34] then if you hate broccoli too,

[00:22:36] don't go on the all broccoli diet.

[00:22:37] There's no such thing as the all chocolate cake diet,

[00:22:40] but like there's more options than just the all broccoli diet.

[00:22:43] And you got to find the thing that matches how you're wired.

[00:22:46] Yeah.

[00:22:47] I'd assume telling clients they're exhibiting the endowment effect when they,

[00:22:49] but they make a decision probably is not that successful of a technique.

[00:22:52] Look,

[00:22:53] it was a great,

[00:22:54] I think marketing technique 15 years ago,

[00:22:57] maybe prior to,

[00:22:58] to thinking fast and slow coming out to try to do this.

[00:23:01] And there's,

[00:23:02] there's versions of this that are implemented well,

[00:23:05] like,

[00:23:06] uh,

[00:23:06] you know,

[00:23:07] Richard Taylor and some of the stuff that he did in the asset management space.

[00:23:09] There's places to use that stuff to actually make money.

[00:23:12] So I'm not saying that those are,

[00:23:14] are bad.

[00:23:15] My partner,

[00:23:15] Michael Pompey has written multiple books on this topic.

[00:23:17] That's really important and worth knowing.

[00:23:20] But the real challenge is actually,

[00:23:23] and this was the,

[00:23:23] the,

[00:23:24] the topic of,

[00:23:24] um,

[00:23:25] that partner,

[00:23:25] Michael's book back there on the shelf somewhere,

[00:23:27] bright orange cover.

[00:23:28] Um,

[00:23:29] people have different like archetypes that they fall into instead of trying to change them,

[00:23:32] just understand what those natures,

[00:23:34] what,

[00:23:35] what they're naturally predisposed to,

[00:23:36] and they can build a lot around them.

[00:23:38] And I think that's the real point here,

[00:23:41] build it around the way you're wired in a way to make it a superpower.

[00:23:45] Don't build it around yourself so that it's a prison or falsely penalizing you.

[00:23:49] Cause that's unfortunately,

[00:23:51] I mean,

[00:23:51] it's really easy to do.

[00:23:53] This next clip is really interesting because trend following slash managed features.

[00:23:56] If you look at it on a spreadsheet is probably a strategy.

[00:23:59] The majority of people should have in their portfolio in some capacity,

[00:24:03] but almost no one does.

[00:24:05] And one of the reasons is you,

[00:24:06] because of how different it can look from the market.

[00:24:08] So here's Jerry talking about the return profile of trend following versus the short-term nature of investors.

[00:24:13] I think that one of the major problems that people have with trend following is that's what it promises.

[00:24:20] And,

[00:24:20] you know,

[00:24:21] you can't really,

[00:24:22] um,

[00:24:23] guarantee that it's going to be successful.

[00:24:26] Regardless of your back test or regardless of how long you have been successful.

[00:24:30] But,

[00:24:30] uh,

[00:24:31] it only assumes following these systems,

[00:24:36] you know,

[00:24:36] after you've looked at this long-term back test,

[00:24:39] it only says basically that if you do this for the rest of your life,

[00:24:43] every day,

[00:24:44] you do all these trades like you're supposed to,

[00:24:47] that over time,

[00:24:49] over a long period of time,

[00:24:50] you,

[00:24:50] you know,

[00:24:51] you may see returns similar to what you've seen in history,

[00:24:55] but people are not interested in over time.

[00:24:59] They're interested in today.

[00:25:00] And the trades I have on right now,

[00:25:03] and it's could just totally mishandle,

[00:25:06] you know,

[00:25:07] these trades this week,

[00:25:09] this month,

[00:25:09] this year,

[00:25:10] and make you look pretty silly,

[00:25:11] giving back way too much profit or,

[00:25:14] um,

[00:25:15] having choppy periods where you don't make any money.

[00:25:17] All you do is lose.

[00:25:19] So it's the promise that if you continue to do this for the rest of your life,

[00:25:22] you'll be okay.

[00:25:23] But that is really not on our mind.

[00:25:26] We're fighting our human nature all the time.

[00:25:28] Um,

[00:25:29] because clients are complaining and your peers are beating you.

[00:25:32] Oh,

[00:25:32] that's the worst thing ever.

[00:25:33] Your peers who are doing different things or maybe inferior things.

[00:25:38] They're really having a much better time of it than I am.

[00:25:42] Many investors are sort of used to the return profiles of stocks,

[00:25:45] sort of like a 60,

[00:25:45] 40 portfolio.

[00:25:46] You know,

[00:25:46] they're used to getting their return over time,

[00:25:48] but it being very inconsistent,

[00:25:49] you know,

[00:25:49] having big up years and big down years.

[00:25:51] And I'm just wondering if you could talk about like,

[00:25:52] what is the return profile of trend following look like?

[00:25:54] And how,

[00:25:54] how does it compare to something like a 60,

[00:25:56] 40 portfolio or like an all equity portfolio?

[00:25:59] Well,

[00:25:59] I mean,

[00:25:59] I think,

[00:26:00] um,

[00:26:01] before,

[00:26:02] um,

[00:26:03] great financial crisis in the fed zero interest rate policy.

[00:26:08] Right.

[00:26:09] You know,

[00:26:09] back in the day when I first started in the late eighties and with my

[00:26:14] company,

[00:26:14] Chesapeake,

[00:26:16] we would,

[00:26:16] uh,

[00:26:17] have a marketing material which showed that,

[00:26:20] we had,

[00:26:21] we made more money than the S and P in 60,

[00:26:24] 40,

[00:26:24] and we had less volatility and we were more consistent.

[00:26:28] Um,

[00:26:30] with smaller drawdowns.

[00:26:31] So it was only during that recent period where we really lost out to the

[00:26:38] stock market and the more,

[00:26:39] the more diversification was kind of penalized in stocks was basically the

[00:26:43] only great,

[00:26:44] um,

[00:26:45] moves,

[00:26:46] moves,

[00:26:46] you know,

[00:26:46] going.

[00:26:47] So hopefully we'll get back to that because we trade so many markets and we

[00:26:52] have a systematic approach.

[00:26:54] And like 2020,

[00:26:55] the big lesson for me in 2020 is just reminding everyone about how important

[00:27:00] shorts are.

[00:27:01] So much of what we see in traditional management in 60,

[00:27:05] 40,

[00:27:05] it just immediately and only assumes longs.

[00:27:09] And there you have it.

[00:27:10] Okay.

[00:27:10] What are you going to do now?

[00:27:11] And here's,

[00:27:12] here's your tools,

[00:27:14] but you have to only be long.

[00:27:15] Well,

[00:27:16] you know,

[00:27:16] it's not going to work sometimes.

[00:27:17] Fitching is going to need to be short bonds and short gold.

[00:27:21] And you have to have some commodities in there and,

[00:27:23] um,

[00:27:24] some short,

[00:27:25] some currencies.

[00:27:25] And so with that in our arsenal,

[00:27:28] with all those markets and all those advantages,

[00:27:31] we should almost consistently outperform,

[00:27:35] um,

[00:27:36] stocks or 60,

[00:27:37] 40.

[00:27:38] And maybe we'll start doing that.

[00:27:40] Like we have the past three years,

[00:27:42] but I don't know,

[00:27:43] but the fed and who knows what's going to happen.

[00:27:46] And maybe the anomaly was prior to that,

[00:27:49] where we,

[00:27:49] our performance was so good,

[00:27:51] but we'll see.

[00:27:51] I can't really predict what's going to happen.

[00:27:53] First of all,

[00:27:53] we have to,

[00:27:54] I think we have to address the bird.

[00:27:55] Um,

[00:27:56] because it's kind of a very baller thing to do here because,

[00:27:59] you know,

[00:27:59] we've,

[00:27:59] we've had some dogs running around the podcast.

[00:28:01] I think we might've seen a cat or two,

[00:28:02] but to,

[00:28:03] to like take it up the level of like a bird,

[00:28:04] just sitting there the entire interview.

[00:28:06] Um,

[00:28:07] I'm very impressed.

[00:28:08] I mean,

[00:28:08] it's like other,

[00:28:08] other than if you like wrapped yourself in a snake or something in our next

[00:28:11] interview,

[00:28:11] I think,

[00:28:11] I think it's like one of the most baller things you could do.

[00:28:14] Totally coming out of Python next time.

[00:28:16] Just to see your reaction.

[00:28:18] Do you remember the band?

[00:28:20] Uh,

[00:28:20] they might be giants.

[00:28:21] Do you remember this band?

[00:28:22] Do you remember the song,

[00:28:23] build a little birdhouse in your soul?

[00:28:25] Bird house was that one.

[00:28:26] I do not know.

[00:28:26] No.

[00:28:27] Um,

[00:28:27] I think that was like,

[00:28:29] I mean,

[00:28:29] obviously Istanbul,

[00:28:30] not constant note.

[00:28:31] Dan to noble is the hit,

[00:28:32] but a birdhouse birdhouse is just a great song.

[00:28:35] And I was thinking about this just like the bird theme.

[00:28:37] Cause like the song is,

[00:28:39] you know,

[00:28:39] the nightlight,

[00:28:39] I think it's singing the song,

[00:28:40] but there's a bunch of little,

[00:28:43] like that song is a song of like thematic and regime changes and shifts

[00:28:47] inside of the song itself.

[00:28:48] And I was just like,

[00:28:50] is there,

[00:28:51] is there something about it?

[00:28:52] Maybe it's Charlie Parker thing or ornithology thing.

[00:28:54] There's something about somebody like Jerry Parker having,

[00:28:57] choosing that as his pet of choice.

[00:28:59] That just seems so perfect to me,

[00:29:02] uh,

[00:29:02] in reality.

[00:29:03] So sorry,

[00:29:03] I'm taking you way off topic from the,

[00:29:05] the nature of the return streams on these.

[00:29:07] Go ahead.

[00:29:08] Explain to me.

[00:29:09] It's what we do here.

[00:29:10] But,

[00:29:10] but anyway,

[00:29:11] the other thing that I thought was interesting is,

[00:29:12] you know,

[00:29:12] this was reported prior to 2022,

[00:29:14] as you can kind of tell,

[00:29:15] because he was struggling with the fact that trend had like a bad run,

[00:29:18] but it just shows,

[00:29:19] it gets to the nature of these things,

[00:29:20] you know,

[00:29:21] which is trend following.

[00:29:22] What's great about trend following on a spreadsheet.

[00:29:24] And what's great about adding it to a portfolio is it,

[00:29:26] it very rarely loses a lot of money.

[00:29:28] And it usually has its best returns when the market has its worst returns.

[00:29:32] And so at that,

[00:29:33] when we were talking to Jerry,

[00:29:34] the market had a pretty good run trend,

[00:29:36] hadn't been working for a while.

[00:29:37] And then comes 2022 and anybody who had trend following managed futures is very,

[00:29:42] very happy.

[00:29:42] They had it then.

[00:29:43] And that just gets to why this is tough to stick with,

[00:29:45] why it makes sense on a spreadsheet and why it makes sense to put a portfolio.

[00:29:49] But it's tough to stick with is that that return profile is very difficult for anybody who evaluates themselves against the 6040 portfolio,

[00:29:56] the S and P 500.

[00:29:57] If that's what you're evaluating it against,

[00:29:59] you're gonna have a really hard time sticking with it.

[00:30:01] It's crazy because it's such a,

[00:30:03] it's a solid strategy or if done right,

[00:30:06] it's a very solid strategy that just tends to feel very,

[00:30:10] very laggy and things that lag over extended periods,

[00:30:13] even if they're not doing bad can be just so incredibly frustrating.

[00:30:18] Cause you're like,

[00:30:18] why am I doing this?

[00:30:19] Not on different than,

[00:30:21] you know,

[00:30:22] when,

[00:30:22] when the 6040 is lagging the all stock or the all tech stock portfolio here or whatever else.

[00:30:26] And you're like,

[00:30:26] what,

[00:30:26] why am I doing this?

[00:30:27] People get so impatient so fast.

[00:30:30] And this is just one of those strategies where even if it's just a bucket of your total allocation,

[00:30:34] it can make a massive difference in those,

[00:30:37] in those down years.

[00:30:39] And this gets into that line item risk thing.

[00:30:41] And it's a big challenge.

[00:30:42] Like I was just talking to a client the other day where we had maybe five different things we were doing in their portfolio and four were going really well.

[00:30:47] And one was going really poorly.

[00:30:48] And the take on it was like,

[00:30:50] well,

[00:30:50] we got this dog strategy in there.

[00:30:51] We got to get this thing out of there.

[00:30:53] And that's not the right take because that's in there for a specific reason.

[00:30:56] You know,

[00:30:57] if you have trend following,

[00:30:58] if you have managed futures in your portfolio,

[00:30:59] there's gonna be times you love having it.

[00:31:01] There's gonna be times you don't,

[00:31:02] but like getting people to look at the entire basket and not to see those individual line items is really challenging.

[00:31:08] I love,

[00:31:09] this is just me.

[00:31:10] I very frequently will explain.

[00:31:12] I'll remind somebody,

[00:31:14] I'll say,

[00:31:14] here's how we know we're diversified or whatever in this plan.

[00:31:17] It's like,

[00:31:17] I know we're diversified in this asset allocation strategy.

[00:31:20] And I use this for the line item thing.

[00:31:22] So feel free to steal this.

[00:31:23] Like we know we're diversified if we hate at least one thing we own,

[00:31:26] if not several.

[00:31:28] And I actually take great pride in going to those things that are the complete dog strategies or whatever is failing miserably or horribly out of favor and go.

[00:31:38] Here's what the numbers are.

[00:31:40] What the results are.

[00:31:41] But diversification is working.

[00:31:43] Not just if I have something that I'm like,

[00:31:44] I wish we had more of.

[00:31:45] But if I also have something where I'm like,

[00:31:47] man,

[00:31:48] that just is sucking and not fun.

[00:31:51] And we're upset we own it.

[00:31:53] But at the same time,

[00:31:54] if it has the long-term merits,

[00:31:56] it should be in the mix.

[00:31:57] That's how diversification works.

[00:31:59] That is actual proof of diversification.

[00:32:02] Someone said something along the lines of diversification is always having to say you're sorry.

[00:32:05] I don't know who said that.

[00:32:06] You may know it.

[00:32:06] Yeah, yeah.

[00:32:07] But it's a great,

[00:32:08] it's a great thing because that's exactly what it is.

[00:32:10] Like we always,

[00:32:11] if we've diversified our clients' portfolios properly,

[00:32:13] there's always going to be something in there.

[00:32:15] We're like,

[00:32:15] yeah,

[00:32:15] I apologize for that.

[00:32:16] That's not working the way we hoped to.

[00:32:18] If we haven't done that,

[00:32:19] then we've probably haven't done a good job.

[00:32:21] It's as true in getting advice as it is in marriages.

[00:32:23] You know,

[00:32:24] it's like,

[00:32:24] honey,

[00:32:24] are we diversified?

[00:32:25] I'm sorry.

[00:32:26] Oh,

[00:32:26] sorry.

[00:32:28] It's always good to say sorry first.

[00:32:29] But,

[00:32:30] so this next one is interesting because he,

[00:32:32] we're talking about position sizing.

[00:32:34] And there's one thing when you set your positions initially,

[00:32:37] but it's another thing about how much do you let those positions run.

[00:32:40] And so this is Jerry talking about that.

[00:32:42] I think about it in those terms.

[00:32:43] That's,

[00:32:43] that's a fine way of looking at it,

[00:32:45] but only when you set up the portfolios,

[00:32:48] maybe of those four sectors,

[00:32:50] you know,

[00:32:50] you have your initial weights for your trades to be,

[00:32:55] you know,

[00:32:55] 25% each.

[00:32:56] And then you split that up depending upon how many markets are in that

[00:33:00] sector.

[00:33:01] And so when you first put the trade on,

[00:33:03] you are going to size it based upon inversely to the volatility.

[00:33:08] So each trade bet is kind of the same bet.

[00:33:12] You're going to risk the same dollar amount.

[00:33:14] You give him,

[00:33:15] you're putting on the same kind of position.

[00:33:17] You need to put on,

[00:33:18] you know,

[00:33:19] 50 S and P to equal 5,000 Euro dollars,

[00:33:23] but based upon the contract size and the volatility,

[00:33:26] it's,

[00:33:26] it's an equal bet.

[00:33:28] And so I want to,

[00:33:30] I use that money management scheme to normalize my losses,

[00:33:34] but then once the trade turns into a trade and a profit,

[00:33:38] let's say,

[00:33:39] I just let it go.

[00:33:41] And I don't try to manage that anymore.

[00:33:43] The trades all start out with the same risk and the same expectation,

[00:33:48] but as they get going,

[00:33:50] you know,

[00:33:50] these handful of five or 10% of your trades per year are going to just be

[00:33:55] outrageously large and dominate the portfolio.

[00:33:58] And so this makes people uncomfortable.

[00:34:01] And,

[00:34:02] and this is why,

[00:34:04] you know,

[00:34:04] clients like it when the larger CTAs say,

[00:34:07] Hey,

[00:34:08] let me scale that back.

[00:34:09] So let me vol manage and correlation manage and make it smoother and easier and more palatable type of trend following.

[00:34:18] And I think that's how it got really popular.

[00:34:21] And that's why those guys have a lot of money under management.

[00:34:24] It's just a bit different from trend following.

[00:34:27] And it has pros and cons that don't really get talked about,

[00:34:30] but it's not,

[00:34:31] you know,

[00:34:33] just,

[00:34:33] just up.

[00:34:34] If it was just all one way,

[00:34:35] I would do the same thing,

[00:34:36] but I sort of chose to do something different.

[00:34:38] So you won't,

[00:34:39] no matter how big a position gets,

[00:34:40] you won't scale out of it.

[00:34:41] You'll just wait until the trend reverses and then you'll close out the position.

[00:34:44] Right.

[00:34:45] I mean,

[00:34:45] I have four different trend following systems and I'll sort of scale out if on each one of those,

[00:34:52] but I won't just reduce the trade based upon its increased volatility or its increased correlation to the portfolio or the other markets in its sector.

[00:35:02] I'll just hold on forever.

[00:35:03] And it will get very uncomfortable,

[00:35:05] but it just has a tendency overall to make more money.

[00:35:08] Yeah.

[00:35:08] He's very unique in this,

[00:35:10] in that he's,

[00:35:11] he really is allow,

[00:35:12] he's willing to allow his positions to go as far as they go.

[00:35:16] And that,

[00:35:16] that goes back to the behavioral stuff we talked to you before.

[00:35:19] Like,

[00:35:19] that's a very important thing behaviorally.

[00:35:21] Like to be able to do that,

[00:35:23] you have to be a certain type of person.

[00:35:24] And most trend followers,

[00:35:26] like he said,

[00:35:26] won't do that.

[00:35:27] Most people will have some sort of rule that'll pair things back,

[00:35:30] but,

[00:35:30] but he's within his strategies is willing to do it.

[00:35:32] And I think that says a lot about who he is as a person and also what he believes works the best.

[00:35:36] Because I was thinking about it when I was,

[00:35:38] when I was thinking about him talking about that,

[00:35:39] but I think it sort of relates to sector concentration,

[00:35:41] like in my world,

[00:35:42] which is,

[00:35:43] you know,

[00:35:43] if you look at testing a long only value strategy over time,

[00:35:46] if you let your sector concentration get concentrated in certain sectors,

[00:35:50] you do have better performance,

[00:35:51] but it's way,

[00:35:52] way,

[00:35:52] way harder to stick with.

[00:35:53] So for certain people,

[00:35:55] that sector concentration is a good strategy because they can stick to it.

[00:35:58] They believe in it like me,

[00:35:59] but for other people,

[00:36:00] for clients,

[00:36:01] sometimes you've got to pair that back some because they just can't live with that over concentration in a certain sector.

[00:36:05] Yeah.

[00:36:06] It's that reality that most of your returns are going to come from a tiny portion of what you're doing.

[00:36:12] So understanding that balance,

[00:36:14] if most of your returns are going to come there,

[00:36:15] then most of your,

[00:36:16] your big numbers over time are going to come from how big did you let those things get to?

[00:36:20] And I can understand where CTAs running institutional money or something else need a framework for that,

[00:36:25] because that's part of reducing the overall variance and,

[00:36:28] you know,

[00:36:29] making the best of your sharp ratios and all that stuff too.

[00:36:31] But the way that he explains it and the way that he says how he's comfortable with it,

[00:36:35] it goes right back to the point you just made that I love.

[00:36:38] He knows he's wired this way and he can tolerate that stuff.

[00:36:42] So he can accept that in his process and it's admirable.

[00:36:47] It shows up in the numbers.

[00:36:49] And he talked about this concept of volatility weighting,

[00:36:50] which I think is important to mention here too,

[00:36:52] because it gets back to risk parity and the way a lot of people that live in these worlds operate,

[00:36:56] which is they're not weighting.

[00:36:57] They're weighting their portfolio to try to get things to contribute equal risk to the portfolio.

[00:37:01] They're not trying to do it like something like the permanent portfolio would do,

[00:37:04] where we're just putting 25% in each one of these assets.

[00:37:07] You know,

[00:37:07] they're thinking about it more from the perspective of like,

[00:37:09] what is the volatility this asset contributes to my portfolio?

[00:37:13] Yeah.

[00:37:13] And this is like,

[00:37:14] you know,

[00:37:15] the volatility,

[00:37:16] vol funds,

[00:37:16] vol targeting funds,

[00:37:17] things like that.

[00:37:18] There's a lot of different ways you can sort of like scale this or understand this.

[00:37:22] But these are the types of questions that when you go through due diligence over somebody who's got a little bit more of a black boxy type approach

[00:37:31] or like a formulaic or a systematic approach that you want to understand it and look at.

[00:37:36] Is there a very intentional vol targeting thing at the portfolio level?

[00:37:40] Is it particular to like individual positions or sleeves?

[00:37:43] All this stuff factors in because it helps give you a flavor for what does this look like as stuff starts to take off or if stuff is going horribly wrong?

[00:37:52] Because we all know that some of those things contribute an outsized portion of risk at different points in the portfolio.

[00:37:59] Having a process to think through that just makes a lot of sense.

[00:38:02] This next one's another one that applies to my world.

[00:38:04] It really applies to anyone's world because all of us are trying to implement a strategy that we think works over time.

[00:38:10] The problem is at certain points,

[00:38:12] you're going to,

[00:38:13] that strategy is going to be called into question.

[00:38:15] And at certain points,

[00:38:15] it's going to be called into question properly.

[00:38:17] Like I need to evolve my strategy in some way.

[00:38:19] So here's Jerry talking about how he's evolved his strategy over time.

[00:38:22] I've definitely had to evolve a bit.

[00:38:25] I know in the late nineties,

[00:38:26] we came to the conclusion that the shorter term trend following was the way we practiced it.

[00:38:32] So the turtle method,

[00:38:35] nothing very sophisticated that sort of had run its course.

[00:38:37] And then we gravitated over to a longer term holding periods,

[00:38:42] 200 day moving average,

[00:38:44] 300 day moving average,

[00:38:45] 100 day breakouts.

[00:38:48] And that was a very good thing to do because not only did it,

[00:38:53] has it worked much better since then,

[00:38:56] but when we did the research,

[00:38:58] those longer term parameters had always been just fine.

[00:39:02] They had performed just as well as the shorter term.

[00:39:04] And I don't really see any indication that shorter term works better than medium to long.

[00:39:11] I like the long term and it's worked really well.

[00:39:15] I think that people evaluate systems in a different way.

[00:39:20] For instance,

[00:39:21] as I was saying earlier,

[00:39:23] if you,

[00:39:23] um,

[00:39:24] if you didn't make enough money on a certain trade,

[00:39:27] you know,

[00:39:27] the system overall is very profitable.

[00:39:29] There's no indication that it's with digress,

[00:39:32] regressing.

[00:39:33] And,

[00:39:33] uh,

[00:39:34] but you know,

[00:39:35] look,

[00:39:35] I don't,

[00:39:35] I don't like the way it handled wheat,

[00:39:37] you know,

[00:39:38] it gave back too much profit.

[00:39:39] So let's,

[00:39:39] let's figure this out.

[00:39:41] Let's add something.

[00:39:42] Let's change something.

[00:39:42] So I don't really look at it that way.

[00:39:44] I think,

[00:39:45] um,

[00:39:46] but I do,

[00:39:46] I do think over time you have to evaluate to make sure that when you look at all the trades and all the net performance,

[00:39:53] but you know,

[00:39:54] you want to achieve these parameters that allows you to stay in these longterm trends that last for a year or two.

[00:40:01] And then that's pretty easy to find those parameters.

[00:40:04] Um,

[00:40:05] you just don't get out.

[00:40:06] It's the problem is you also have that same parameter that keeps you in.

[00:40:12] You don't want it to keep you in too long.

[00:40:15] So that's what we get paid for is to straddle that,

[00:40:19] um,

[00:40:19] line of don't get kicked out too quickly.

[00:40:23] You got to still be long crude,

[00:40:25] still short the bonds,

[00:40:26] still short the yen and the pound.

[00:40:29] But on the other hand,

[00:40:30] when these things turn around and they will,

[00:40:33] um,

[00:40:34] without warning,

[00:40:35] you don't want to give back too much profit.

[00:40:37] And so that's the dilemma.

[00:40:39] And it's really difficult.

[00:40:41] So he,

[00:40:41] he talked about this from the perspective of the turtle trading program,

[00:40:44] because the turtle trading,

[00:40:45] as he mentioned,

[00:40:45] they were using shorter term signals and he's realized over time that the longer term signals work well,

[00:40:51] but this applies everywhere.

[00:40:52] I mean,

[00:40:52] this applies to those of us right now that are value investors that are thinking about,

[00:40:56] I mean,

[00:40:56] some people are questioning value investing as a whole,

[00:40:59] which I think is probably good to do,

[00:41:00] although I don't agree with them,

[00:41:01] but also even people who aren't questioning as a whole have had to question the metrics within the value strategy.

[00:41:06] We've had to question the price to book.

[00:41:07] So in the case of us,

[00:41:08] you know,

[00:41:08] we're using the price to book a lot more less than we used to.

[00:41:11] O'Shaughnessy's talked about how they're not using it at all.

[00:41:13] So this is always a very,

[00:41:16] very challenging thing because you know,

[00:41:17] you've got something that's got a lot of data behind it.

[00:41:19] That's worked over a really long period of time.

[00:41:22] Then it stops working.

[00:41:23] What do I do now?

[00:41:24] And trying to figure that out is a really,

[00:41:26] really hard thing to do.

[00:41:29] It's not exact.

[00:41:30] I don't think it's exactly in this clip,

[00:41:31] but it's another thing that he says.

[00:41:33] And I,

[00:41:33] I highly encourage in any of this appeals to you,

[00:41:36] go back and listen to this full interview.

[00:41:37] Cause it's,

[00:41:38] it's really cool.

[00:41:39] Jerry Parker's just such an interesting guy.

[00:41:40] The,

[00:41:41] the idea of the core tenants of the process are follow trends that make big moves.

[00:41:49] And one of the things he talks about is different things have evolved over time.

[00:41:54] Like new things have become available,

[00:41:56] being able to buy single stocks,

[00:41:58] for example,

[00:41:59] is not something that many of his contemporaries have pursued.

[00:42:02] So this is like sub thematic to just changing your strategy.

[00:42:07] It's knowing what the core tenants of your strategy are and then seeing are there new places that it shows up.

[00:42:12] So thinking about single stocks,

[00:42:14] all of a sudden thinking about a crypto,

[00:42:16] all of a sudden,

[00:42:17] these are things that he looked at and went,

[00:42:19] well,

[00:42:20] my strong suit is following stuff with a series of systems that are going to help me catch those big

[00:42:26] trends and those big moves.

[00:42:27] So if I see a new place where there are big trends and big moves that I think I can apply in my system,

[00:42:31] then they might now belong in my model.

[00:42:33] And that means I'm de-emphasizing something else.

[00:42:36] That growth mindset,

[00:42:38] that willingness to keep on growing and evolving the strategy.

[00:42:40] So long as the core DNA is still true to itself.

[00:42:45] To me,

[00:42:45] that's,

[00:42:46] it's the same way of saying,

[00:42:48] like,

[00:42:48] if somebody like you is like,

[00:42:49] we don't like price to book as much as we used to,

[00:42:51] here's all the reasons why.

[00:42:53] That's him going,

[00:42:54] well,

[00:42:54] here's a way we can implement crypto in this strategy.

[00:42:56] Here's all the reasons why.

[00:42:58] The core tenants are still the core tenants.

[00:43:00] What do you think about that?

[00:43:01] No,

[00:43:01] I think that's right.

[00:43:02] And I think it's important to also differentiate,

[00:43:04] like overriding your system with just evolving your system.

[00:43:07] So that's simple.

[00:43:08] Jim O'Shaughnessy has kind of said this,

[00:43:09] this thing about like,

[00:43:10] if you ever interviewing a quant to be your manager and they've ever overridden their system once,

[00:43:14] their whole tracker is invalidated.

[00:43:16] And I kind of agree with that.

[00:43:17] So,

[00:43:18] but what that is,

[00:43:19] is that's really panicking in the moment and saying,

[00:43:21] all right,

[00:43:21] just throw this out the window.

[00:43:22] Like I'm worried.

[00:43:23] I got,

[00:43:23] I got to change it.

[00:43:25] Whereas evolving it is saying,

[00:43:26] let's look to slowly make changes over time.

[00:43:28] Let's look at the long-term data.

[00:43:30] And as Corey Hostey has pointed out in his work,

[00:43:32] you can't just look at the long-term data because the long-term data can't tell me whether the price to book is dead.

[00:43:36] I have to look at the world and I have to see what's going on.

[00:43:39] Does it make sense?

[00:43:40] Does this metric I'm using make sense in the world?

[00:43:42] What,

[00:43:42] what are the consequences if I change it?

[00:43:44] It's this process where,

[00:43:45] you know,

[00:43:46] people think quants are just quants,

[00:43:47] but quants are human beings making decisions about what to put in their portfolios.

[00:43:51] And it's a really hard thing,

[00:43:52] but so you want to see like a quant manager,

[00:43:54] you want to see that evolution.

[00:43:56] You don't want them to say,

[00:43:57] oh,

[00:43:57] 40 years ago,

[00:43:58] I was running this strategy and I'm still running the same exact thing.

[00:44:00] I mean,

[00:44:00] maybe if you're someone,

[00:44:01] you know,

[00:44:01] where that strategy has continued to work like incredibly well,

[00:44:04] maybe that's the right answer.

[00:44:05] But for most people,

[00:44:06] you want to see the evolution of the strategy.

[00:44:08] What you don't want to see is the overriding of the strategy.

[00:44:10] I think that's a great point.

[00:44:12] And I love the idea of if you overrode it once,

[00:44:15] it invalidates your track record.

[00:44:17] It invalidates your track record in the sense of,

[00:44:19] unless you're,

[00:44:20] you know,

[00:44:21] you're George Soros and the twinges of in your back are your system.

[00:44:27] The other thing he mentioned,

[00:44:27] which is good too,

[00:44:28] is like he,

[00:44:28] he mentioned how people like to use individual positions to evaluate the system.

[00:44:32] And it kind of gets back to what we were talking about before,

[00:44:34] but we see that all the time too,

[00:44:35] you know,

[00:44:35] because we have factor portfolios and the whole point of factor portfolios is

[00:44:39] you're trying to find common characteristics across a broad range of stocks,

[00:44:42] like within there.

[00:44:43] And if you're hit,

[00:44:44] if you're hitting 60,

[00:44:45] 40 in terms of being right,

[00:44:46] you're,

[00:44:46] you're doing really well.

[00:44:47] So there's going to be a bunch of stuff that just doesn't work in there,

[00:44:49] but people want to look at the individual positions and they want to evaluate

[00:44:52] the system.

[00:44:53] So like you take the worst performing position right now and you say,

[00:44:56] well,

[00:44:56] why did that get in there?

[00:44:57] And there's this temptation to say,

[00:44:59] oh,

[00:44:59] well that got in there because of this.

[00:45:00] Well,

[00:45:01] let me change my criteria.

[00:45:02] So that wouldn't have made it in there.

[00:45:04] And inevitably,

[00:45:04] if you ever do that,

[00:45:06] you always end up making the system worse because you end up knocking more

[00:45:09] winners out of there than losers.

[00:45:10] But it is a challenge because when people look at their portfolios,

[00:45:13] they'll look at the individual positions and they'll be like,

[00:45:15] you know,

[00:45:15] that,

[00:45:15] that thing's a mess.

[00:45:16] I don't want to run that thing.

[00:45:18] And it's like,

[00:45:18] you always have to,

[00:45:19] come back and say,

[00:45:20] well,

[00:45:21] if that thing wasn't in there,

[00:45:22] then the system wouldn't be working in the way the system's working.

[00:45:24] So you have to accept these bad positions.

[00:45:26] If you want to accept the system as a whole.

[00:45:29] Which becomes the whole.

[00:45:31] There's like the good and the bad sides of all these things.

[00:45:34] If you're evaluating a manager and you're just looking to cherry pick out the

[00:45:37] things you like and don't like,

[00:45:39] that's your way of entering bias into your analysis.

[00:45:42] And you should be very aware that you're doing it.

[00:45:44] Conversely,

[00:45:45] there's also a great power in that can be used for purposes of evil.

[00:45:50] So you have to be able to buy managers to highlight those things.

[00:45:51] Like you can have a growth manager,

[00:45:53] like pointing out in 2024,

[00:45:55] here's how much NVIDIA we had.

[00:45:57] And if the growth manager owned twice the amount of NVIDIA as the rest of the market,

[00:46:00] like their numbers look really,

[00:46:01] really good.

[00:46:02] So you go,

[00:46:02] oh, I wish I had a time machine to buy that NVIDIA too.

[00:46:05] And now all of a sudden your,

[00:46:06] your bias is skewing the thing.

[00:46:08] The manager is selling you knowing that the bias is skewing the thing.

[00:46:12] That's,

[00:46:12] that can be really dangerous.

[00:46:14] It can also be good though,

[00:46:15] for the people who have less of a thorough understanding of something.

[00:46:19] So just like,

[00:46:21] I think about this in the,

[00:46:22] the van,

[00:46:23] like if you just own the Vanguard's S and P 500 or your S and P 500 index fund of choice,

[00:46:28] like if you own that and just taking comfort in the person who doesn't really understand investing,

[00:46:33] just taking comfort of like,

[00:46:34] Hey,

[00:46:34] guess what?

[00:46:35] You own some of that NVIDIA.

[00:46:36] You own some of that Apple.

[00:46:38] You own some of that,

[00:46:39] whatever.

[00:46:40] Take your,

[00:46:40] you own some of that Exxon,

[00:46:41] take your dog of choice too.

[00:46:44] But sometimes understanding the individuals can help stick to a strategy.

[00:46:48] Other times it can be weaponized against you.

[00:46:50] Just ask the questions.

[00:46:52] Value traps are a great,

[00:46:53] like illustration of what he's trying to say here,

[00:46:57] because everybody wants to get rid of value traps.

[00:46:59] You know,

[00:46:59] you know,

[00:46:59] if you're a value manager,

[00:47:00] you're going to have value traps,

[00:47:02] which is stocks that are cheap for a reason.

[00:47:03] You know,

[00:47:03] I thought they were cheap and they were gonna come back,

[00:47:05] but they were actually cheap for a reason,

[00:47:06] but we've done a ton of work around this.

[00:47:08] And there's some stuff you could do around the edges.

[00:47:09] Like we do have a system to try to minimize value traps,

[00:47:11] but when you go into it thinking,

[00:47:13] I'm going to get rid of these value traps.

[00:47:15] I know like,

[00:47:15] look at all the criteria that's common among these value traps,

[00:47:18] and I'm going to get rid of all of them.

[00:47:19] Inevitably what you do is if you don't look at the other side,

[00:47:22] you're basically screwing yourself over because the criteria you're using to

[00:47:26] cut out the value traps is also cutting out a bunch of big winners and net,

[00:47:29] net.

[00:47:29] You're not really,

[00:47:30] you're probably losing on the portfolio as a whole.

[00:47:32] And so it's always that temptation to say like,

[00:47:34] let's get rid of the value traps,

[00:47:36] but you have to be so careful about not also getting rid of the big winners

[00:47:38] when you do it.

[00:47:39] Yeah.

[00:47:40] The funny analysis,

[00:47:41] this on that.

[00:47:43] I've seen a couple of different versions of this.

[00:47:46] It,

[00:47:46] it,

[00:47:46] it goes back to the,

[00:47:47] the munger invert,

[00:47:49] always invert the Jacoby thing where it's basically just like,

[00:47:52] before you say,

[00:47:53] let's just find out the ultimate mouse trap to get all the,

[00:47:56] the value traps out of there,

[00:47:58] run the test on just your value traps.

[00:48:00] Like if you think those are the value traps,

[00:48:02] take,

[00:48:02] take the same analysis,

[00:48:03] run it on those.

[00:48:05] More often than not,

[00:48:06] I think we end up being surprised by how many things a system might like scrub out or say like,

[00:48:12] Oh,

[00:48:12] this is a terrible idea.

[00:48:14] But then you find out you've got some real gems that end up coming through there.

[00:48:18] There's,

[00:48:18] there's a line to walk in how aggressively you set those parameters.

[00:48:21] I agree with that wholeheartedly.

[00:48:23] So this last one goes back to our,

[00:48:24] our show is your portfolio series.

[00:48:26] And we ask everybody a question that I ask myself all the time,

[00:48:29] which is one of the selfish reasons we ask it,

[00:48:31] but we asked Jerry how he thinks about retirement and whether he'll retire.

[00:48:34] I don't think about retiring.

[00:48:37] Honestly.

[00:48:39] Yeah.

[00:48:40] I just can't imagine not getting up every morning and digging into the markets and

[00:48:45] seeing what's going on in my portfolio and having clients and having a fund and being in the game.

[00:48:51] You know,

[00:48:51] I,

[00:48:52] I don't know.

[00:48:53] I,

[00:48:54] I sort of think about people in the business.

[00:48:56] Obviously there are people in this business who are older than me and they're pretty old and they're really seemingly just doing as well as they've ever done.

[00:49:04] So that's what I think about.

[00:49:06] Maybe I want to be like that.

[00:49:08] I'm just consumed,

[00:49:10] you know,

[00:49:10] with my interest,

[00:49:12] which is the business and trading the markets and the systematic trend following and worldwide and stocks.

[00:49:20] The currencies,

[00:49:21] commodities,

[00:49:22] interest rates,

[00:49:22] and just being part of that,

[00:49:25] you know,

[00:49:26] and being a relevant human and understand,

[00:49:28] keeping abreast of everything that's going on in my portfolio and watching the world unfold.

[00:49:33] What I've done for almost 40 years.

[00:49:36] I just can't imagine not doing that.

[00:49:38] But,

[00:49:38] you know,

[00:49:39] I work out a lot too.

[00:49:40] And so I get on this treadmill and I've done it for over 20 years.

[00:49:44] This,

[00:49:44] these weightlifting and,

[00:49:46] you know,

[00:49:46] yoga and a treadmill.

[00:49:49] And,

[00:49:50] um,

[00:49:50] I just say to myself every now and then,

[00:49:52] you know,

[00:49:52] I'll bet you one of these days,

[00:49:53] I'm going to step off that treadmill and say,

[00:49:56] this is it.

[00:49:56] You know,

[00:49:57] I'm just going to enjoy life.

[00:49:58] I'm going to eat a lot.

[00:49:59] I'm going to drink a lot.

[00:50:01] I'm going to turn my back on all of my diet and fitness.

[00:50:05] And maybe I'll do,

[00:50:06] maybe I'll do the same thing,

[00:50:07] you know,

[00:50:08] with,

[00:50:09] uh,

[00:50:09] trading and say,

[00:50:10] okay,

[00:50:10] today it's a nut.

[00:50:11] And it may not even be,

[00:50:12] um,

[00:50:13] a bad period.

[00:50:14] It may just be,

[00:50:15] you know,

[00:50:15] I'm at the top of my game,

[00:50:16] but I've lost the intensity.

[00:50:19] Um,

[00:50:19] but I doubt it,

[00:50:20] you know,

[00:50:21] but that's,

[00:50:21] I think would have to be something like that.

[00:50:24] Um,

[00:50:25] just all of a sudden become a,

[00:50:27] get to a certain age or mentality.

[00:50:29] That's,

[00:50:30] I've not never experienced before and say,

[00:50:32] Hey,

[00:50:32] you know,

[00:50:33] I'm done.

[00:50:33] It's over with.

[00:50:35] Um,

[00:50:36] but we'll,

[00:50:36] I don't,

[00:50:37] I don't,

[00:50:37] I don't plan on that happening.

[00:50:38] It's I'm having too much fun in,

[00:50:41] and believe it or not,

[00:50:42] what I have done for all these years,

[00:50:44] I do it because it is the most fun,

[00:50:48] uh,

[00:50:48] thing to do.

[00:50:49] And that is,

[00:50:49] um,

[00:50:50] sit in front of the computer and watch the markets and talk to my friends about

[00:50:54] trading or what,

[00:50:55] what is proper trading.

[00:50:58] And,

[00:50:59] um,

[00:50:59] yeah,

[00:51:00] just too much fun.

[00:51:01] Can't stop.

[00:51:02] Yeah.

[00:51:02] You know,

[00:51:02] this is the most consistent answer.

[00:51:03] We've gotten this answer to every,

[00:51:04] from every single person.

[00:51:06] Now he,

[00:51:06] his answer,

[00:51:06] all the answers are unique,

[00:51:07] but the general concept of these answers has been the same in every one of

[00:51:10] our show or show portfolio interviews,

[00:51:12] which are a lot of these people are,

[00:51:14] you know,

[00:51:14] everybody we talk to is very passionate about what they do.

[00:51:17] They love what they do.

[00:51:18] They want to keep doing it.

[00:51:19] And so we've never had anybody who said,

[00:51:21] you know what,

[00:51:22] when I get to 67 years old,

[00:51:23] I'm shutting it down.

[00:51:24] Like I'm going,

[00:51:25] I'm getting the house in Florida,

[00:51:26] the beach.

[00:51:26] I'm going to sit there.

[00:51:27] I'm going to read books.

[00:51:28] I'm going to play golf.

[00:51:28] It's over.

[00:51:29] Like,

[00:51:29] and it's the nature probably of the self-selected people we have on there,

[00:51:32] but it,

[00:51:33] it's an interesting thing.

[00:51:33] I think about all the time too,

[00:51:34] which is all of us are saving for this retirement,

[00:51:37] but like,

[00:51:38] what is that retirement?

[00:51:39] That retirement for me is not going to be like I flip a switch and suddenly

[00:51:42] I'm sitting on a beach.

[00:51:43] Like I get a lot of purpose out of what I do.

[00:51:45] So how do you think about that?

[00:51:48] So back to this idea of whatever you're going to save,

[00:51:51] which includes whatever you're going to invest,

[00:51:53] whether it's in a stock portfolio or your 401k or in the equity in your

[00:51:57] house,

[00:51:58] everything that you're going to set aside that you're not going to consume

[00:52:02] today,

[00:52:03] you're either going to consume it later.

[00:52:05] You're getting gifted away.

[00:52:06] One of the most common conversations we've had with,

[00:52:10] uh,

[00:52:10] with clients in our professional work is this concept of people who don't want

[00:52:15] to retire.

[00:52:16] They actually like what they do and they might want to dial it back.

[00:52:18] They might not want to do the 60 or 80 hours a week or even the 40 hours a

[00:52:22] week anymore.

[00:52:23] They want to dial it back.

[00:52:24] They want time for other things in their life,

[00:52:27] but all of a sudden it's like they still have some income.

[00:52:29] And if you still have some income,

[00:52:31] then you have way less pressure on consuming your assets.

[00:52:34] And then it turns to,

[00:52:35] okay,

[00:52:35] well what adverse scenarios do we need to protect if I'm going to consume less of

[00:52:39] my assets?

[00:52:40] So then the attention turns inevitably to things like healthcare or other stuff

[00:52:43] that would keep you from doing the thing that actually is still providing

[00:52:46] meaning to your life.

[00:52:48] And then the question is,

[00:52:50] do we have money that are there leftover assets?

[00:52:53] We want to think about gifting.

[00:52:54] Are there leftover assets that we want to think about for a future generation?

[00:52:57] Does that change the way we look at that risk curve?

[00:53:00] If you're still working and if you enjoy it,

[00:53:04] you don't ever have to formally retire.

[00:53:06] It's an antiquated word.

[00:53:08] Uh,

[00:53:08] it's not,

[00:53:09] we all die when we're 66 years old after working on the rail line forever anymore.

[00:53:14] These new definitions require new understandings and that core tenet over and over again will

[00:53:19] always apply.

[00:53:20] Any of the money you don't consume today that you choose to save will either be consumed

[00:53:24] later or gifted later.

[00:53:26] That's it.

[00:53:27] Have an honest conversation with yourself or somebody you trust about it.

[00:53:30] Yeah,

[00:53:31] this is probably not for a lot of people,

[00:53:32] but I've always looked at my retirement as two things.

[00:53:34] One is a potential supplemental income stream.

[00:53:36] And two is an insurance policy because I basically think I'm going to,

[00:53:40] if I can work,

[00:53:43] because I want to flip a switch and suddenly live off that portfolio.

[00:53:46] But I also understand AI could take over the world.

[00:53:48] You know,

[00:53:48] Jack could have nothing to offer the world and I need some money at that point.

[00:53:51] So I kind of look at it as an insurance policy in that case.

[00:53:54] And if I am working,

[00:53:54] it's just maybe some extra income I can have later on.

[00:53:57] I think that is a fantastic way to frame it.

[00:54:00] And I think a lot of people are actually thinking in that way.

[00:54:02] And it makes you or allows you,

[00:54:04] gives you permission to think more creatively about the stuff you've saved.

[00:54:08] Because back to the point you made earlier,

[00:54:10] if you,

[00:54:10] if you made the bajillion dollars,

[00:54:11] then you're probably looking at the permanent portfolio.

[00:54:14] Cause then you're going like,

[00:54:15] okay,

[00:54:15] let's keep the insurance policy in place.

[00:54:17] And let's also keep the flexibility in place.

[00:54:19] If I ever needed to draw on this thing,

[00:54:21] if you haven't made it and you're still working,

[00:54:23] maybe,

[00:54:23] you know,

[00:54:24] we all meet people too,

[00:54:25] who are still working because they have to.

[00:54:27] Cause life dealt them some unfortunate card and screwed up their savings or

[00:54:31] whatever else.

[00:54:32] In those people's cases,

[00:54:33] it's a,

[00:54:34] it's a different version of the same thing.

[00:54:36] I'm going to trade my time for money.

[00:54:38] How am I doing that to help like supplement my life and build up just enough of

[00:54:42] that insurance policy in the background or the ability to maybe someday throw in

[00:54:45] the towel.

[00:54:47] It's don't get caught up in the old definitions.

[00:54:48] That's basically all the spoils down to.

[00:54:50] I love that thought.

[00:54:51] And so this means we're podcasting till we're what?

[00:54:53] Like 90,

[00:54:54] a hundred.

[00:54:54] Can we go through that thing?

[00:54:55] Like the rappers did where we,

[00:54:57] uh,

[00:54:57] like we retire multiple times.

[00:54:59] We'll take turns.

[00:54:59] You and I,

[00:55:00] we can do that.

[00:55:00] Yeah.

[00:55:01] Okay.

[00:55:01] No one's going to care that we did it.

[00:55:02] I'm like the rappers were actually,

[00:55:03] people actually care about it,

[00:55:04] but nonetheless you and I will care so we can keep doing it.

[00:55:07] Okay.

[00:55:07] Until I become incoherent,

[00:55:09] we can say we can stay here and keep doing it.

[00:55:11] Some could argue I'm incoherent now.

[00:55:12] Um,

[00:55:13] the YouTube algorithm will tell me that plenty of people lose the coherence if they

[00:55:17] ever had it in the first place.

[00:55:20] Long before,

[00:55:20] I think you're safe.

[00:55:22] That's a good note to wrap up on.

[00:55:23] Um,

[00:55:23] if you want to see the interviews,

[00:55:24] there's two interviews as an interview about trend following with Jerry.

[00:55:26] There's also a show as your portfolio.

[00:55:28] Just go to the excess returns channel.

[00:55:29] They're both there.

[00:55:30] Thank you everybody for joining us and we'll see you next time.

[00:55:32] Hi guys.

[00:55:32] This is Justin again.

[00:55:34] Thanks so much for tuning into this episode.

[00:55:36] You can follow Jack on Twitter at,

[00:55:38] at practical quant.

[00:55:40] You can follow me on Twitter at,

[00:55:41] at JJ carbon and follow Matt on Twitter at,

[00:55:44] at cultish creative.

[00:55:45] If you found this discussion interesting and valuable,

[00:55:48] please subscribe in either iTunes or on YouTube or leave a review or a comment.

[00:55:53] Also,

[00:55:53] if you have any ideas for topics you'd like us to cover in the future,

[00:55:57] please email us at excess returns pod at gmail.com.

[00:56:00] We would like this to be a listener driven podcast and would appreciate any suggestions.

[00:56:04] Thank you.