The Exchanges

Q What does a budget look like for a portfolio?

A We would like to have the internal expense ratios in our portfolios be less than 50 basis points, but that doesn't mean they all are, and some of them are way below. Different strategies require, you know. So a really good example of that is to say, like, let's look at emerging markets. I could buy Vanguard, VWO, fine. What is that? 12 basis points? It's free. But is that the best exposure to emerging markets? I don't know. Because then you have questions about, Index construction. So Vanguard is crisp. So you're not paying the royalty fee to MSCI, but there are country differences. Is South Korea emerging or is it developed? Well, that could have a big impact on future returns depending on whether or not you believe one or the other. So we have to make decisions like that. And the second thing is, all right, well, what if we say partly let's do the Vanguard version because it's good enough. It's going to get us the upside if emerging markets work. And it's going to approximate the downside and the risk as they don't. But what if there's a way that we could layer that with some kind of a quality screen, given that in emerging markets, you have like governments being overthrown. You have maybe lax accounting rules in some countries. You have some question as to whether these public companies are state run, hence they could do whatever they want or not. So what if we said a good …

AI assessment note: “We would like to have the internal expense ratios in our portfolios be less than 50 basis points”

Q So let's turn the table. You realized that's not what you wanted to do. Saw that light. And joined Barry eight years ago, was it?

A Yeah, so I, I kind of, like, I had my, it's not an epiphany. It's not that glamorous. I was done. In the fall of 2008, all my friends work at Bear and Lehman, and they're done too. You know, every, we're all, everyone I know that's in the industry is like, screwed. And alright, I gotta reinvent myself, or I gotta get a different job, or whatever. So I kinda like, had that moment where it's like, I don't have, I don't have anything to show for the last seven or eight years of being people's retail broker. Like, I sold them stocks, they bought them, they, they sold those, they bought other ones. I made people some money, the market was going up, and then, like, everything I did for them, it doesn't mean anything, right? So that's where I was, and that's, it's not a good place to be. And then my bank account is empty, and I have a mortgage, and I have a two-year-old, and my wife is just like, you know, what are you doing? Like, I married you, you were like, you were like smart. Why are you banging your head against the wall with this? And I, like, would explain to her the reason why I'm not making any money is Is because I don't want to do trades in my clients' accounts because the world is coming to an end and I don't feel like anyone knows what's going to happen. So I can't sit in a meeting with a client and be like, this is what you buy. This is what you sell. So a few months o…

AI assessment note: “In the fall of 2008, all my friends work at Bear and Lehman”

Q So let's, let's turn to how you think about this issue now. So now you're with Barry. You can do things as you perceive to be right by your clients. What is that? Your clients have a certain amount of money. You're investing it on their behalf. You're advising them.

A Yeah. So, so what we're, what we're doing is, is high net worth wealth management. And we do it through the prism of financial planning, and neither Barry or myself are certified financial planners, but those are the client-facing people at my firm, and we made that decision a couple of years ago, a few years ago, prior to launching the firm. We were a practice at someone else's firm, and what we, what we realized was the asset management is great, and it's really important to us, and it's the thing that I focus on and Barry focuses, but at the end of the day, it's useless if it's not in service to a financial plan. It's like, I built, I built you a house. There's no blueprint, so, but it's, look how nice it looks. Like, so, the asset management part's the, the fun part, the more exciting, the more interesting thing. We could talk about it, you know, markets and investments. Like, we could talk about that for, for hours and hours and hours, but if we're doing that absent a financial plan for a client, it has no value, and it's gonna be really hard for the client to stick with during periods where, It's not doing well, or it's underperforming this or that benchmark. If we're not able to tie it to the thing that's really important to the client, which is, am I going to be okay? And the client, the client says, all right, here's my story. I make 500,000 a year. I only want to work…

AI assessment note: “what we're doing is, is high net worth wealth management. And we do it through the prism”

Q So how are you, how are you implementing that in equities? If you're not taking manager risk, is it mostly index driven or Variations of improvements.

A We call it rules based. So some of that would be market cap weighted index, just because we don't think there's a way to add value above and beyond in that given segment. And some of it might be fundamentally weighted. And some of it might be something else. But the overarching theme is like, the rules are set in advance for how this strategy will be managed. Because what we're trying to do is remove our own Terrible, terrible instincts, and my instincts are as bad as anyone else's. What we don't want to have is, like, gut decision making or, oh, I just read this thing in the Wall Street Journal. Let me completely flip around everything I'm doing. Like, we're trying to not do that because for a few reasons. The first is it's cheaper to do rules-based versus wizard-based, right? Wizard-based investing is cool, and it plays really well on TV, but It's like expensive, and it's hard to rely on. I think what we're doing is part of a bigger trend that a lot of people in the industry are doing, because a lot of what we're doing on the planning side requires us to have some sense of what happens when this is in favor, what happens when it's out of favor. We have to incorporate things like standard deviation, even though it's not a great measure of risk, it's a great measure of volatility. I can't do that with an actively managed strategy that's only been around for two years. But I cou…

AI assessment note: “We call it rules based. So some of that would be market cap weighted index”

Q And how'd you get your clients to stay the course?

A Because we're using evidence, and that's number one. And number two, our clients are self-selecting. You will never, ever see me sitting at a county fair in a booth Talking to potential investors. Our clients are reading us every single day in some cases. Once a week, we send things out to them if they're not coming to our sites. They understand the way we think about this stuff. They may not fully grasp everything we're saying, but we are doing so much work on ongoing investor education. Not marketing schlock. Not like sending people the email if you missed the five best days in the morning. We're not doing that. I'm talking about, like, every day. Every day. So existing clients, if they're not speaking to us, they at least understand that we're paying attention, and so they understand the way we think about mean reversion, and sources of risk actually representing a source of return, and risk and return are related, and we've done so much of that work over the years, and we do so much of it every day, that I think it helps them get through a period like that, so that when the market explodes to the upside, which is what happened after, Immediately following Brexit, the race was on, and not just US stocks. I show you the returns of emerging markets and European stocks since Brexit, and especially since the US election, everything went vertical. Well, how do you get your client…

AI assessment note: “we are doing so much work on ongoing investor education.”

Q This is a podcast. We're not getting a chance to sort of see this physical specimen in front of me. Um, what do you know now that you wish you knew 10 years ago?

A The impact of my words on people, like I have this thing where I know exactly the right thing and the wrong thing to say to someone, depending on How I want to just completely make them like me or hate me. Like, I'm pretty good at, I'm pretty good at reading a room and social cues, and I probably, over the years, have said things to people that I wish I could take back, or didn't say things to people that might have helped me. I kind of have this streak in me where I'm, there's a little bit of self-sabotage. So if I'm meeting with someone who could potentially be helpful to me in business, but they say something to me that rubs me the wrong way, there have definitely been times where I said, watch this. And maybe I shouldn't have. So, so maybe, like, if I could tell my younger self, ease up on people, and you don't always have to, like, get the last word, and you always have to be the smartest person in the conversation, and you can let people say things that are wrong without correcting it, and, like, that kind of stuff, I definitely wish I were better at then and now.

AI assessment note: “The impact of my words on people”

Q And is there something, is it a, is it a fairly static construction for a particular client?

A We want to make as few changes as possible, but we will make changes when the world forces us to. Without going into detail, there was a time when we had to replace a fund that had an incredible track record, had done nothing wrong other than got too good. Like, track record was too good, and as a result, they had become such a huge part of the asset class in which they had made money that we just couldn't intuitively understand what they were gonna do to repeat that, and that's not like, ooh, let's, let's, let's fire a manager and hire, that's just like, guys, we have to be realistic. The benefit of this is probably not gonna be able to show up And we might be wrong, but it's worth being wrong because of how low we think the probability, you know, so like, we'll make decisions like that, but that's like very sporadic. Mostly what we're trying to do is just stay true to what we're saying to people and make sure that the allocation to each account is as true to the model as it can be. Like, that kind of nuts and bolts stuff is not sexy.

AI assessment note: “We want to make as few changes as possible, but we will make changes”

Q So once you have the framework set, once you have that plan in place, so you're for a group of clients, there's going to be some assets to invest for Trinity Asset Management side of what you're doing. How do you, how do you guys approach it?

A We are day trading. So, so this is where, so this is where things get really interesting to me because again, I'm not on the planning side. I've got dedicated planning professionals that are face to face with clients on the investment side. So we have some core beliefs. Starts with less is more. The people that are coming to us and they want the bells and whistles. Within the first conversation, we're going to weed them out. And it's for their own benefit, because we're not doing enough circus act stuff to make them happy. If that's what, if they're looking for the recreational aspect of this, probably we're going to be disappointing. And that's good though. Like, it's good for us to decide that on the first call with a household. Like, I, I don't want to tell them one thing and give them something else.

AI assessment note: “we have some core beliefs. Starts with less is more.”

Q And so as you go to other markets, if you go to developed international US where you get more and more efficiencies, do you have a tendency to do less of that fine tuning around? The basic index.

A That could be the case. I think, like, one of the, one of the traps that I used to fall into, and I've learned not to, is to try to think about things like, try to come up with the reason for why something shouldn't work, and try to outsmart. So Europe's a really good example. There's like this whole stigma about, so, by the way, this is the first time in a long time, and only the third time in history, that international stocks have been outperformed by the S&P by a hundred percent. Over the trailing 1010 year period. So that doesn't lead me to tell you, guess what's going to happen next? But we do think mean reversion is pretty powerful. So this whole narrative about European stock, like, oh, yes, of course, European stocks are cheaper. They should be. Their governments suck because our government's so great. Oh, and they don't have technology there like we do, and all right.

AI assessment note: “That could be the case. I think, like, one of the traps”