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Ladies and gentlemen, welcome to
The Business Brew. 

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I am your host, Bill Brewster. 
This episode features Wes Gray, 

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also known as the Alpha 
Architect or the ETF architect. 

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However, you may know him. 
For those that don't know, I 

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think you're going to learn a 
lot about ETFs. 

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Wes has a number of ETFs that he
manages. 

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The most interesting one that I 
can think of as far as like a 

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current event ETF is kind of the
box BOXX is the ticker. 

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It's potentially an interesting 
thing to consider as a cash 

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management vehicle in lieu of 
treasuries. 

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I would encourage you to open up
the prospectus and maybe take a 

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look at that. 
He also has a value ETF and a 

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momentum ETF that we talk about 
and he's got an ETF business. 

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So if you are someone that runs 
long, I guess the perfect 

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connection is probably someone 
that is long only lower turnover

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and I would just describe it as 
more Buffett style. 

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I don't know if that's exactly 
the right way to say it, but 

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that's the way that I'm going to
say it. 

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So anyway, consider reaching out
to Wes and we'll see. 

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But I hope you enjoy the 
episode. 

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I certainly enjoyed talking to 
Wes. 

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He's a great guy. 
He served our country. 

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It's nice to see him succeed, 
and I think he's succeeding by 

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helping other people succeed, 
which is win win and highly 

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endorsed on this program. 
This episode is sponsored by De 

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Lupa. 
De Lupa is founded by a former 

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hedge fund analyst to bring 
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differentiated insight. 
As always, nothing in the show 

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is financial advice. 
Please consult an investment 

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advisor before making investment
decisions. 

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Everything in the show is for 
entertainment purposes and 

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educational purposes. 
And do your own due diligence. 

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All right, ladies and gentlemen,
excited to be joined by Wes 

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Gray, the Alpha architect. 
Wes, how you doing? 

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I'm good honored to be here. 
Oh, well, thank you. 

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I'm honored to have you. 
Happy to have a program that 

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warrants a guest like yours. 
Yeah. 

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Yeah. 
Put a lot of time in I I'm sure 

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I you get some knuckleheads like
me to communicate a few things 

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every so often. 
Well, you're far from a 

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knucklehead. 
I first I guess I first found 

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you with with the book you 
co-authored with Toby and then 

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I've read most of your stuff. 
So I I appreciate what you put 

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out there and I I think the ETF 
business that you've created is 

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pretty interesting. 
So I'd like to have a discussion

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with you about it, if you're 
willing of. 

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Course. 
Dig in. 

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All right. 
You know, I guess the first 

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thing that I'd like to talk 
about because you know it's, it 

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seems timely, is this box ETF 
that you have. 

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And I'm, I'm not sure that 
enough people know about it as a

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potential strategy for cash 
management. 

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So do you mind talking a little 
bit about what you do and and 

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why how this product came about?
Yeah, it's so unfortunately it's

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a long story. 
I'll try to condense, but it's 

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probably about seven years in 
the making and it's an 

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accumulation of every skill set 
we've been building for about 

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15. 
And and then just it all came 

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together to create like what's 
arguably are probably the best 

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idea we'll ever come up with, 
frankly. 

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Because it's just, you know, 
sometimes you only have so many 

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good ideas in life and then you 
get a really good idea. 

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You're like, holy cow, I'm never
being that one. 

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Like, I feel like that's box, 
right. 

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And so Long story short, I'm 
sure most of your audience 

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aren't former option market 
makers or prop traders. 

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So I'll try to explain this as 
simple as possible. 

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But essentially within the 
options market, there is a 

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direct to consumer lending 
market through what they call 

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box spreads where just the math 
of put call parity you can 

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isolate either to borrow or lend
directly with other option 

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dealers or other option market 
participants or really any 

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market participant right and 
back back before the 87 crash, 

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people would do box spreads, you
know like Susquehanna would go 

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talk to whoever James Street or 
Citadel, whoever their names 

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were back then. 
But the problem is it wasn't, it

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wasn't, it was just over the 
counter and you always had 

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counterparty risk, right. 
So. 

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So finally they got the box 
spread trade cleared through 

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OCC, which now you have like a 
centralized counterparty. 

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That means like, hey, now I can 
just go to the market and borrow

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and lend through the box spread.
And I don't care who's on the 

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other side of that trade because
there's a clearinghouse that can

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manage all the counterparty 
risk, right, just like they do 

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in stocks with DTCC and like in 
futures and other marketplaces, 

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right. 
So, So that's like the deep 

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history on it now. 
So how the hell do you actually 

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do it? 
Well, so it's if you're 

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basically replicating A treasury
bill at whatever duration, sorry

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duration you choose. 
So for example, if you're going 

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to do a three month box, what 
you need to do is you're you're 

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going to have four option 
positions. 

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Two of those options are going 
to replicate a synthetic long 

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stock position that's going to 
consist of long a call and short

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a put at the same strike price. 
And if I don't know if you 

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remember like your payoff 
profiles with options, but if 

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you long a call and short a put 
you basically. 

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Yeah, it's just a synthetic. 
Lock synthetic lock? 

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Exactly. 
And then that's one part of a 

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box. 
The second part of a box is the 

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synthetic short, where now 
you're going to buy a put and 

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sell a call. 
Sell a call. 

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But at a different strike price.
And that difference in the 

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strike price is the amount of 
cash flow that this trade will 

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deliver whenever those options 
are going to settle like let's 

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say three months. 
So for example, I'm synthetic, 

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long synthetic short. 
Obviously that mechanically 

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eliminates all market risk. 
And what it's going to do is 

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let's say you did the long 
synthetic at 1000 and you did 

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the short synthetic position at 
2000. 

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What's going to happen is that 
trade will deliver guaranteed. 

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At least it's guaranteed as the 
option clearing corporation can 

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guarantee it, which is pretty 
good that you're going to get 

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$1000. 
And of course, if you know that 

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there's a payment that 
guarantees $1000 three months 

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from now that's backed by a, you
know, AA rated agency, you know 

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it's not going to sell for zero,
It's going to sell for something

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probably close to T-bills, 
right, because it has very low 

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risk and you're guaranteed A 
payoff. 

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So it might sell for whatever 
900 bucks or 950 or whatever the

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interest rates are, right. 
And so and and that's the 

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lending side of it. 
You can also short a box and you

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can implicitly borrow from the 
option markets, right. 

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So this is just a huge funding 
market that's pretty well 

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established in like hedge fund 
prop trading and market making 

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world because it's a way for 
them to go around the bank. 

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So you don't have to go borrow 
from your broker or you know or 

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or lend money to your broker. 
You could just go directly to 

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another counterpart in the 
marketplace and trade with each 

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other to borrow and lend 
capital. 

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So, so that's what box spreads 
are. 

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And then what we thought about 
is like, well no one's ever done

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this before in an ETF. 
But boy, would it be nice if I 

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could get the box spread somehow
in an ETF. 

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Because one, it generally has a 
preferable return profile 

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relative to just straight up 
treasury bills. 

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But more importantly, it might 
have a preferable tax profile 

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because we can leverage a lot of
our knowledge with ETF like in 

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kind rebounds what have you to 
essentially create something 

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that presumably might be, you 
know more tax efficient. 

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And that's basically what we 
did. 

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It just it took a long time 
because every single time we 

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tried to do something, you know,
people would ask us, well, what 

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are you talking about? 
You know, how does that even 

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work? 
So it's just and no one's ever 

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done this before. 
So every time we get to another 

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counterparty or what have you, 
it's just difficult. 

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Like even right now, you know 
facts that Bloomberg and 

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Morningstar don't have the 
holdings data correct with the 

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box. 
And you know, it's just is what 

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it is like sometimes when you're
a little bit too innovative, all

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the other counterparties, their 
systems aren't really designed 

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to to really think about this. 
You know, it's a continuous 

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putting fire out problem, but 
it's just the cost of, you know,

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being out on the tip you spear I
guess. 

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But anyways, it's. 
So, OK, so wait, so if I if I'm 

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synthetically long, what S&P at 
1000 it? 

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Could be on any aspect of the. 
Way. 

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Yeah. 
I'm just thinking S&P because 

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it's easy. 
And then I'm going out and I'm 

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shorting it at 2000 in three 
months. 

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What you're saying is that trade
should theoretically cost like 

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900 and some odd dollars to 
throw on whatever. 

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It's going to be whatever. 
Minus that like 1/4 of the T 

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bill to yield basically. 
Pretty much it's going to, it's 

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going to be priced via market 
forces and no arbitrage or 

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whatever the interest rate is 
for, for no risk borrowing at 

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that duration. 
You got it. 

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And then, OK. 
And then what about the ETF 

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structure enables it to be tax 
advantage? 

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Well, so I can't remember what 
year it was and this is super 

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detailed weeds, but basically 
innovator, the guys that came 

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out with all the new ETFs that 
you know do like to find outcome

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things, I don't know if sure, 
not sure if you're familiar with

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those, but they actually went to
the. 

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I'm not, I'm an ETF noob. 
I. 

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Wish I oh, OK. 
Got you. 

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But I figure you're the good. 
Yeah, Yeah. 

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So why not talk to you. 
Yeah, that's why I was asking 

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you because I'll, I'll make sure
I'll give context because 

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sometimes I just assume 
something that's common 

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knowledge and then people are 
like what are you talking about.

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So, so just interrupt me if I'm 
saying something that that 

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doesn't make any sense. 
So I will do that from I think 

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it's called innovator capital or
exact like LLC name, but I call 

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them innovator. 
They came up with the whole 

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defined outcome ETFs where 
basically you use options to 

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create different payoff profiles
that certain investors might 

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find favorable, right, like hey 
you're going to get the S&P on 

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the upside, but you know we're 
going to up to like 20% return, 

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but we're going to cap the 
downside at -10%. 

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00:12:05,080 --> 00:12:07,600
And obviously all they're doing 
is like trading different option

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spreads around you know S&P 500 
or different assets and this is 

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a very. 
Common pitched a lot in like 

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00:12:15,040 --> 00:12:18,600
just like, you know high net 
worth pitches, right? 

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00:12:18,600 --> 00:12:20,640
It's. 
Been it's in structured product 

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insurance world, this has been 
around forever, right? 

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And the huge advantage of 
insurance, which maybe, may or 

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may not be aware of is they also
have a unique tax structuring 

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right? 
Like, 'cause they, they turn 

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00:12:33,560 --> 00:12:36,680
something into an annuity and 
basically it can compound 

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00:12:37,280 --> 00:12:40,280
essentially tax free. 
And then when you're 59 1/2, you

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can take it out and then you pay
your taxes. 

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So it's basically a, you know, a
compounding vehicle and and they

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00:12:46,320 --> 00:12:49,000
sell these structured products 
that do all these different, 

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00:12:49,000 --> 00:12:50,840
like defined outcome things, 
right? 

227
00:12:51,200 --> 00:12:54,480
And so I think that guy's named 
Bruce Bond, can't remember the 

228
00:12:54,480 --> 00:12:56,240
founder of Innovator. 
I think that's his name. 

229
00:12:56,480 --> 00:12:59,920
Someone could Fact Check me, but
he basically had a genius idea. 

230
00:12:59,920 --> 00:13:02,560
He's like, why are we doing this
in a ETF, right? 

231
00:13:02,640 --> 00:13:07,240
ETFs are all about low cost 
transparency and tax efficiency 

232
00:13:07,600 --> 00:13:09,880
and insurance is basically the 
opposite. 

233
00:13:10,240 --> 00:13:14,480
So let's disrupt these boneheads
in the ETF wrapper, right. 

234
00:13:14,480 --> 00:13:18,360
And so one of the things they 
also did really well is they 

235
00:13:18,360 --> 00:13:23,320
went to the SEC and they said 
hey, can we get in kind 

236
00:13:23,440 --> 00:13:27,200
treatment on options because 
it's going to be way more tax 

237
00:13:27,200 --> 00:13:30,560
efficient and way more cost 
efficient for the ETFs to 

238
00:13:30,560 --> 00:13:32,480
operate. 
If we're allowed to do the same 

239
00:13:32,480 --> 00:13:37,000
thing we do with equities to to 
minimize tax drag, we should be 

240
00:13:37,000 --> 00:13:38,720
able to do that with options, 
right. 

241
00:13:38,720 --> 00:13:41,920
And they and they sent this very
beautiful no action letter 

242
00:13:41,920 --> 00:13:44,920
protest to the SEC and they 
agreed to it. 

243
00:13:45,400 --> 00:13:49,640
Why is that important? 
Well, what that means is now you

244
00:13:49,640 --> 00:13:51,800
know under you got it all 
compliant and all this stuff. 

245
00:13:52,040 --> 00:13:55,320
But now just like in equities, 
if I have a low basis security 

246
00:13:55,720 --> 00:13:58,080
and I want to rebalance out of 
it because I don't want 

247
00:13:58,080 --> 00:14:02,280
Microsoft, I want Exxon, you 
know, I can do that trading 

248
00:14:02,280 --> 00:14:05,080
through baskets without having 
to distribute a capital gain. 

249
00:14:05,600 --> 00:14:09,360
Well, now you can also do that 
with options, right. 

250
00:14:09,640 --> 00:14:12,200
And so now a lot of strategies 
that traditionally have like 

251
00:14:12,200 --> 00:14:14,920
huge tax drag because you're 
generating all these different 

252
00:14:14,920 --> 00:14:19,240
transactions and capital gains. 
We could use the same technology

253
00:14:19,360 --> 00:14:23,080
which is not near as developed 
as it is in on the ETF or sorry 

254
00:14:23,080 --> 00:14:26,600
the equity side of the house. 
But it's now plausible and we 

255
00:14:26,600 --> 00:14:29,920
and we could use that combined 
with like box spreads and what 

256
00:14:29,920 --> 00:14:33,520
have you to basically deliver 
just like you do in equities a 

257
00:14:33,520 --> 00:14:37,560
much more tax efficient way to 
capture you know what's 

258
00:14:37,560 --> 00:14:42,280
essentially kind of like AT bill
type retard effectively and. 

259
00:14:42,720 --> 00:14:46,680
So let's say I'm a listener 
that's that's sitting on some 

260
00:14:46,680 --> 00:14:50,400
concentrated position in Tesla 
or Apple or something like that.

261
00:14:51,000 --> 00:14:56,520
How would I go about 
contributing that and and either

262
00:14:56,520 --> 00:14:59,760
diversifying or turning it into 
another vehicle while avoiding 

263
00:14:59,760 --> 00:15:03,160
some some gains? 
So here's the problem. 

264
00:15:03,840 --> 00:15:06,320
Well, first problem is, I know 
way too much about this. 

265
00:15:06,320 --> 00:15:08,920
So we're going to geek out here 
on this because we deal with 

266
00:15:08,920 --> 00:15:11,200
this question all the time in 
real life. 

267
00:15:11,600 --> 00:15:15,400
So essentially, if you have a 
single stock massive position, 

268
00:15:15,400 --> 00:15:19,720
which is, call it, zero basis, 
you're somewhat limited. 

269
00:15:19,920 --> 00:15:22,920
There's one solution called an 
exchange fund. 

270
00:15:23,400 --> 00:15:27,240
Not to be confused with an 
exchange traded fund, but those 

271
00:15:27,240 --> 00:15:30,760
typically require a seven-year 
lock up contribution to like a 

272
00:15:30,760 --> 00:15:34,280
limited partnership. 
Tons of fees, tons of bells and 

273
00:15:34,280 --> 00:15:38,520
whistles attached and it's it's 
could be a good solution, but 

274
00:15:38,520 --> 00:15:43,080
it's very complex, very 
expensive and not exactly easy 

275
00:15:43,080 --> 00:15:44,640
to deal with. 
That's solution one. 

276
00:15:45,280 --> 00:15:49,160
The other solution is more and 
more people are coming out with 

277
00:15:49,160 --> 00:15:53,320
long short tax loss harvesting 
for example like Quantino is a 

278
00:15:53,320 --> 00:15:56,760
is a firm I really like I think 
AQR is doing that and what they 

279
00:15:56,760 --> 00:15:59,480
could do there is they basically
run like a market neutral 

280
00:15:59,480 --> 00:16:02,040
strategy. 
And then you know because it's 

281
00:16:02,040 --> 00:16:05,280
long short because you're using 
leverage a lot of times with a 

282
00:16:05,280 --> 00:16:08,320
little bit of capital, you know 
you can end up generating a 

283
00:16:08,320 --> 00:16:11,040
whole bunch of capital losses, 
right. 

284
00:16:11,040 --> 00:16:13,600
You're you're, you're building a
lot of unrealized gains on the 

285
00:16:13,600 --> 00:16:16,200
other hand in a diversified 
portfolio mix. 

286
00:16:16,200 --> 00:16:18,960
But you can generate a lot of 
losses, which then as you 

287
00:16:18,960 --> 00:16:22,240
generate those losses you can 
then start to pare down your 

288
00:16:22,280 --> 00:16:25,440
long only position. 
You just hope they're long term,

289
00:16:25,440 --> 00:16:26,320
right? 
You want to match your. 

290
00:16:26,360 --> 00:16:29,440
Losses, right, Yeah, I mean at 
some level yes. 

291
00:16:29,440 --> 00:16:32,520
But in the end it doesn't really
matter because even a short term

292
00:16:32,800 --> 00:16:36,240
loss you can mark against a long
term cap gain if if you got the 

293
00:16:36,280 --> 00:16:40,200
problem so that those are two 
probably the most traditional or

294
00:16:40,200 --> 00:16:43,360
you just donate it, that's 
another solution. 

295
00:16:43,360 --> 00:16:46,560
Like at least yeah, I'm not 
going to pay the government, I'd

296
00:16:46,560 --> 00:16:50,760
rather give it to, you know Joe 
or Susie's foundation. 

297
00:16:51,000 --> 00:16:53,160
You can always do that as well 
to get rid of the problem. 

298
00:16:53,480 --> 00:16:58,160
And then the other solution 
which is ETF related, which is 

299
00:16:58,160 --> 00:17:01,120
actually something we specialize
on the infrastructure side is 

300
00:17:01,120 --> 00:17:03,440
you can do what they call a 351 
exchange. 

301
00:17:03,920 --> 00:17:09,760
However, within 351, which is a 
section of the IRS code 351, 

302
00:17:10,160 --> 00:17:12,280
they're, you know, they're the 
IRS is not. 

303
00:17:12,560 --> 00:17:16,440
And Treasury's not that crazy. 
And there's a specific line for 

304
00:17:16,640 --> 00:17:20,200
funding of a Rick, which is a 
regulated investment company, 

305
00:17:20,200 --> 00:17:23,520
which is what an ETF or mutual 
fund is going to qualify as, 

306
00:17:23,520 --> 00:17:26,920
right. 
And so it in a standard 351 

307
00:17:26,920 --> 00:17:30,320
deal, if you weren't trying to 
fund a Rick, you could take your

308
00:17:30,320 --> 00:17:36,120
zero basis Tesla, dump it into 
this new C Corp and not pay tax 

309
00:17:36,120 --> 00:17:39,680
on that transaction. 
But of course you know, but I'm 

310
00:17:39,680 --> 00:17:42,000
sure because someone tried to 
exploit this at some point, 

311
00:17:42,240 --> 00:17:44,600
they're like Nope. 
For Ricks in particular, if you 

312
00:17:44,600 --> 00:17:48,880
want to if you want to tax free 
exchange into a Rick IE like an 

313
00:17:48,880 --> 00:17:52,840
ETF or a mutual fund, you you 
can only get the tax free 

314
00:17:52,840 --> 00:17:56,800
treatment if you if you 
contribute diversified property 

315
00:17:57,200 --> 00:17:59,520
IE. 
You can't dump only Tesla in 

316
00:17:59,720 --> 00:18:01,280
however. 
That's smart of. 

317
00:18:01,400 --> 00:18:04,080
Them, but let me define what 
that means, because it's. 

318
00:18:04,080 --> 00:18:05,120
Yeah. 
What's diversified? 

319
00:18:05,120 --> 00:18:07,080
Exactly. 
Because like anything that was 

320
00:18:07,080 --> 00:18:11,880
in details, so diversified for 
351 purposes is the following. 

321
00:18:12,360 --> 00:18:16,840
No single security can be over 
25% of the NAV contribution. 

322
00:18:17,160 --> 00:18:21,200
So you could put a big chunk, 
you could do technically 24.99 

323
00:18:21,200 --> 00:18:23,080
of something. 
But then there's another 

324
00:18:23,080 --> 00:18:27,040
limitation which is that 
basically the weight of your top

325
00:18:27,040 --> 00:18:30,760
five securities can't be more 
than 50%, right. 

326
00:18:30,760 --> 00:18:33,720
So if you have a portfolio 
that's got a bunch of chunky 

327
00:18:33,800 --> 00:18:38,520
winners with low bases and some 
like randos in there or like 

328
00:18:38,520 --> 00:18:42,680
other ETFs or diversify 
property, you can certainly get 

329
00:18:42,680 --> 00:18:47,040
a lot more diversification than 
than what like A5 stock, 10 

330
00:18:47,040 --> 00:18:51,160
stock portfolio looks like. 
And you if you dump it in ETF 

331
00:18:51,160 --> 00:18:54,240
you could then you know through 
the in kind mechanism rebalance 

332
00:18:54,240 --> 00:18:57,280
tax free into more actual 
diversify portfolios. 

333
00:18:57,520 --> 00:19:00,160
But that's the technical 
limitation if you want that 

334
00:19:00,160 --> 00:19:02,760
approach. 
Can you defer the taxes? 

335
00:19:03,920 --> 00:19:06,800
Like let's let's say I wanted to
flip Microsoft into QVA. 

336
00:19:07,120 --> 00:19:09,800
Can I do that? 
Through it. 

337
00:19:10,160 --> 00:19:15,240
Through just as long as I'm not 
contributing a ton of Microsoft.

338
00:19:15,360 --> 00:19:18,040
And nothing else. 
So let's say the following 

339
00:19:18,040 --> 00:19:23,800
situation were to happen. 
You have 24.99% Microsoft. 

340
00:19:23,920 --> 00:19:30,960
I'm just making this up 24.99% 
Microsoft, 15% Apple and 10% 

341
00:19:30,960 --> 00:19:34,640
Tesla and then a whole bunch of 
random crap, right? 

342
00:19:34,680 --> 00:19:37,280
You could, you could say, hey, 
I'm going to set up a new ETF 

343
00:19:37,280 --> 00:19:42,080
for you at 351 and I'm going to 
contribute these three positions

344
00:19:42,280 --> 00:19:45,880
and then these whatever 20 other
positions that are under 5%, 

345
00:19:46,200 --> 00:19:48,000
we're going to get that 
converted tax free. 

346
00:19:48,640 --> 00:19:52,520
And then to the extent in your 
investment objective, it makes 

347
00:19:52,520 --> 00:19:56,560
sense to like get rid of 
Microsoft and go into Q Val, 

348
00:19:56,560 --> 00:19:58,840
like obviously you can't just do
things Willy nilly, it'd have to

349
00:19:58,840 --> 00:20:01,040
be. 
You do it within the ETF that 

350
00:20:01,040 --> 00:20:03,240
you set. 
Up and then within the ETF, if 

351
00:20:03,240 --> 00:20:06,000
you wanted to do that because it
was aligned with your investment

352
00:20:06,000 --> 00:20:08,520
objector, whatever, you just 
say, hey Wes, can you please get

353
00:20:08,520 --> 00:20:10,600
rid of all this crap and go buy 
Q Val? 

354
00:20:10,840 --> 00:20:13,480
That would be fairly 
straightforward to facilitate in

355
00:20:13,520 --> 00:20:15,800
a tax free manner. 
So you know, because that's. 

356
00:20:15,800 --> 00:20:18,920
Then you have an ETF of ETFs, 
like a fund of funds, but not. 

357
00:20:18,920 --> 00:20:21,240
Yeah, you could do that. 
I mean, ET the the trick? 

358
00:20:21,240 --> 00:20:25,280
There's two tricks with ETF. 
ETF is an open secret, the 

359
00:20:25,280 --> 00:20:28,160
ultimate tax free compounding 
vehicle of all time. 

360
00:20:28,200 --> 00:20:31,800
Like if Warren Buffett could 
restart his life, I guarantee he

361
00:20:31,800 --> 00:20:34,080
was started with an ETF 
structure because it's basically

362
00:20:34,080 --> 00:20:38,440
replicating what he did, but 
with way more just it's just a 

363
00:20:38,440 --> 00:20:41,120
lot cleaner. 
The other problem people have, 

364
00:20:41,120 --> 00:20:43,800
you know, in the end, once 
people learn about the power of 

365
00:20:43,800 --> 00:20:48,160
the ETF compounding tax benefit,
they're like, crap, how do I do 

366
00:20:48,160 --> 00:20:49,880
that? 
But then they have a second 

367
00:20:49,880 --> 00:20:52,720
problem. 
Well, the issue is that I'm rich

368
00:20:52,720 --> 00:20:56,440
and I have a bunch of low basis 
assets, but I how am I going to 

369
00:20:56,440 --> 00:20:59,600
get to the ETF? 
Like I'm stuck in all this crap 

370
00:20:59,600 --> 00:21:01,400
that I've owned for 20 or 30 
years. 

371
00:21:01,720 --> 00:21:04,520
And I would love to do an ETF, 
but I can't get there without 

372
00:21:04,520 --> 00:21:06,480
paying tax and I'd like to keep 
deferring. 

373
00:21:07,160 --> 00:21:10,920
So that's where this 351 
solution comes in, that's that's

374
00:21:10,920 --> 00:21:16,000
a tool of how do you get current
low basis assets into the ETF 

375
00:21:16,000 --> 00:21:19,040
structure tax free, which has 
limitations. 

376
00:21:19,360 --> 00:21:23,680
But now once I'm in the ETF 
structure, it's easy in some 

377
00:21:23,680 --> 00:21:27,080
sense to like keep the 
compounding game going on, you 

378
00:21:27,080 --> 00:21:30,720
know, until obviously you sell 
your ETF or you die or whatever.

379
00:21:30,720 --> 00:21:34,440
But it's so that's the trick is 
how do you get assets tax free 

380
00:21:34,440 --> 00:21:38,120
into an ETF And then once 
they're in there, now we're home

381
00:21:38,120 --> 00:21:40,080
free. 
You know, within limitations of 

382
00:21:40,080 --> 00:21:42,640
course, but if you're trained 
equities or tactical, it's 

383
00:21:42,640 --> 00:21:45,000
pretty easy to not distribute 
capital gains. 

384
00:21:46,640 --> 00:21:49,680
What do you think? 
The minimum asset value that you

385
00:21:49,680 --> 00:21:53,320
would need to have in an ETF is 
to have it make sense. 

386
00:21:53,720 --> 00:21:57,640
Well, basically for brain dead 
like not reinventing the will 

387
00:21:57,640 --> 00:22:01,920
ETFs, it's like it's basically 
around 200K all in cost. 

388
00:22:02,080 --> 00:22:03,760
We got actually a little bit 
lower than that. 

389
00:22:03,960 --> 00:22:06,760
So if you think about it, you 
know and so if you look out to 

390
00:22:06,760 --> 00:22:10,280
the market for what does it cost
me to buy deferral, now it's 

391
00:22:10,280 --> 00:22:12,600
usually insurance as your next 
best alternative. 

392
00:22:13,280 --> 00:22:16,280
And you know if you go by like a
variable annuity on you know it 

393
00:22:16,280 --> 00:22:20,680
might be anywhere from 25 to 50 
basis points or higher turn on 

394
00:22:20,680 --> 00:22:25,000
your scale, let's just say to do
an ETF the cost is 200 KA year. 

395
00:22:25,400 --> 00:22:31,880
Well if you know if you have 50 
mil that's a 40 basis point 

396
00:22:31,880 --> 00:22:35,400
carry cost. 
If you have 100 mil, that's a 20

397
00:22:35,400 --> 00:22:39,920
bit carry cost. 
If you have 10 mil, that's a 2% 

398
00:22:39,920 --> 00:22:42,120
carry cost. 
So what I usually tell people, 

399
00:22:42,120 --> 00:22:46,480
if you're in it for tax only, 
which nobody should ever be in 

400
00:22:46,520 --> 00:22:51,360
ATF only for tax reasons, you 
know, usually 50 mil is probably

401
00:22:51,360 --> 00:22:54,680
like a a minimum, right, Because
that's a 40 bit carry cost 

402
00:22:54,840 --> 00:22:57,080
that's actually pretty 
reasonable for like a deferred 

403
00:22:57,080 --> 00:23:00,800
tax compounding wrapper, 
especially if you have any sort 

404
00:23:00,800 --> 00:23:02,960
of activity. 
And then anything above that, it

405
00:23:02,960 --> 00:23:04,760
just gets better and better and 
better and better. 

406
00:23:04,920 --> 00:23:08,440
But of course not everyone just 
does the ETF 100% for tax 

407
00:23:08,440 --> 00:23:10,800
reasons. 
It's also you know, you got like

408
00:23:10,800 --> 00:23:15,640
a ticker on exchange or anyone 
that thinks you're cool could be

409
00:23:15,640 --> 00:23:17,440
an owner, right. 
I mean there's a lot of other 

410
00:23:17,440 --> 00:23:19,840
reasons from like a business 
perspective, liquidity 

411
00:23:19,840 --> 00:23:23,960
perspective beyond just tax, why
you would do that. 

412
00:23:24,160 --> 00:23:26,960
And actually I've, I forgot one 
other way. 

413
00:23:27,640 --> 00:23:30,440
I actually live in Puerto Rico 
do tax stuff down here. 

414
00:23:30,440 --> 00:23:34,440
There's another way you could 
also diversify single stock 

415
00:23:35,160 --> 00:23:36,520
there. 
There's this thing called Act 

416
00:23:36,520 --> 00:23:40,200
60, which used to be called Act 
2022 in Puerto Rico. 

417
00:23:40,440 --> 00:23:42,760
Where is it? 
If you have a billion dollar 

418
00:23:43,480 --> 00:23:45,800
security, let's say you have a 
billion dollars of Microsoft, a 

419
00:23:45,800 --> 00:23:48,920
$0.00 basis. 
If you were to move to Puerto 

420
00:23:48,920 --> 00:23:54,840
Rico and live here for 10 years 
and establish like basically I 

421
00:23:54,880 --> 00:23:58,600
can't remember what the 
technical tax term is, 100% of 

422
00:23:58,600 --> 00:24:01,120
your bases would be converted 
into like your Puerto Rico 

423
00:24:01,120 --> 00:24:04,000
residency. 
And so you'd only have to pay 5%

424
00:24:04,000 --> 00:24:07,400
tax at the 10 year anniversary 
to the Puerto Rican government, 

425
00:24:08,000 --> 00:24:10,160
which ain't bad. 
So you can't get rid of all of 

426
00:24:10,160 --> 00:24:14,080
it. 
But it's almost a step up -5%. 

427
00:24:14,240 --> 00:24:15,480
So that's the only other way I 
know. 

428
00:24:15,480 --> 00:24:16,840
How do you like Puerto Rico? 
What's that? 

429
00:24:17,960 --> 00:24:18,960
How do you like living there? 
I. 

430
00:24:18,960 --> 00:24:20,840
Love it, man. 
I never leave here if I don't 

431
00:24:20,840 --> 00:24:24,400
have to. 
I spend 90% of my days down 

432
00:24:24,400 --> 00:24:26,680
here. 
Yeah, only when they, you know, 

433
00:24:26,720 --> 00:24:30,920
got to drag me out for dog and 
pony shows or shake hands, kiss 

434
00:24:30,920 --> 00:24:33,440
babies events, They'll all leave
this place. 

435
00:24:33,440 --> 00:24:35,600
But I love it, man. 
I think it's great. 

436
00:24:36,720 --> 00:24:40,040
That's cool, but I got a buddy 
down there shout out to my man 

437
00:24:40,040 --> 00:24:41,880
Francisco. 
Yeah, there we go. 

438
00:24:42,160 --> 00:24:45,840
It's a great place. 
Not for everybody, but I highly 

439
00:24:45,840 --> 00:24:48,640
recommend it if if you kind of 
got a little adventure spirit, 

440
00:24:49,080 --> 00:24:53,400
you know can speak a little 
Spanish and just like yeah, like

441
00:24:53,400 --> 00:24:56,760
being adventurous and checking 
out new things, it's high 

442
00:24:56,760 --> 00:24:59,680
recommend. 
So when do you move? 

443
00:24:59,800 --> 00:25:03,080
I moved about three years ago. 
I moved during COVID times. 

444
00:25:03,240 --> 00:25:07,000
I was finally able to, you know,
that there was about a year, 

445
00:25:07,000 --> 00:25:09,520
there were social networks were 
broken. 

446
00:25:09,880 --> 00:25:11,920
And so my kids didn't hang out 
with their buddies. 

447
00:25:11,920 --> 00:25:14,160
My wife didn't hang out with her
friends. 

448
00:25:14,160 --> 00:25:17,080
And I was like, huh, this is a 
silver lining. 

449
00:25:17,800 --> 00:25:20,000
You know, this is an opportunity
to make a change. 

450
00:25:21,320 --> 00:25:25,160
And yeah, so just and then also 
like the work from home became 

451
00:25:25,160 --> 00:25:27,280
less of an issue because people 
were like, oh, that's actually a

452
00:25:27,280 --> 00:25:29,680
good idea. 
To which we were like, well, no 

453
00:25:29,680 --> 00:25:31,480
kidding, it's a good idea. 
We've been doing our whole 

454
00:25:31,480 --> 00:25:33,880
lives. 
And so it just, it was like a 

455
00:25:33,880 --> 00:25:37,400
lucky opportunity where I was 
able to pivot and I just we just

456
00:25:37,520 --> 00:25:40,040
jumped at the opportunity. 
And there was, there was also a 

457
00:25:40,040 --> 00:25:44,400
time when our business was just 
in a massive convexity change 

458
00:25:45,120 --> 00:25:47,120
because we were we were hitting 
like the 10 year overnight 

459
00:25:47,120 --> 00:25:51,440
success problem where it's like 
10 years eating ramen noodles 

460
00:25:51,440 --> 00:25:54,120
and they were like, Oh my God, 
we're getting rich. 

461
00:25:54,120 --> 00:25:57,360
Guys like this actually worked 
and and now and then, but now I 

462
00:25:57,360 --> 00:26:01,840
had to get my tax structuring in
place and so it's just all the 

463
00:26:01,840 --> 00:26:05,400
stars aligned in this situation.
That's awesome, man. 

464
00:26:05,400 --> 00:26:08,360
Good for you. 
So how did you start in the 

465
00:26:08,360 --> 00:26:10,800
industry? 
Let's talk about the last the 10

466
00:26:10,800 --> 00:26:12,920
years planting the seeds. 
Yeah. 

467
00:26:13,000 --> 00:26:19,560
So hey man, I so I started in 
the business like seriously 

468
00:26:19,560 --> 00:26:23,480
trying to be an investor like in
99 at the height of the tech 

469
00:26:23,480 --> 00:26:25,640
bubble. 
And then obviously I thought I 

470
00:26:25,640 --> 00:26:29,280
was a genius because I was a 
Warren Buffett, Ben Graham Bible

471
00:26:29,280 --> 00:26:31,760
Thumper back then. 
And I just, you know, I don't 

472
00:26:31,760 --> 00:26:34,280
know if you probably remember 
that, but like if you threw a 

473
00:26:34,280 --> 00:26:38,200
stick at a small cap value 
security, you made 30% a year 

474
00:26:38,200 --> 00:26:42,000
for 5-6 years in a row there and
it's hard to not think you're 

475
00:26:42,000 --> 00:26:44,200
genius in that sort of 
environment. 

476
00:26:44,320 --> 00:26:48,520
And so you know, I actually, I 
think I launched some fund with 

477
00:26:48,520 --> 00:26:52,440
like 1,000,000 bucks or 
something maybe is is probably 

478
00:26:52,440 --> 00:26:56,880
in 2002 or 2001 like when I was 
a senior in college and I went 

479
00:26:56,880 --> 00:27:00,480
right into the PhD program and 
then you know, venture I was 

480
00:27:00,480 --> 00:27:02,240
like, all right, I got to get 
out of finance and join the 

481
00:27:02,240 --> 00:27:06,440
Marines, that's another story. 
But when I came back in 2008, I 

482
00:27:06,440 --> 00:27:10,400
then also launched a hedge fund 
in September 2008, which 

483
00:27:10,640 --> 00:27:14,760
obviously was a total disaster 
and then you know, kept going 

484
00:27:14,760 --> 00:27:17,680
on, kept grinding. 
And then my third business 

485
00:27:17,680 --> 00:27:22,000
attempt in 2010 was the current 
business. 

486
00:27:22,360 --> 00:27:25,360
And that one basically started 
because I used to, you know, I 

487
00:27:25,360 --> 00:27:27,480
used to write a blog Like we 
still write A blog. 

488
00:27:27,480 --> 00:27:31,000
It was just way worse and and 
not as good back in the day. 

489
00:27:31,000 --> 00:27:33,920
But I got literally got cold 
called by a billionaire who was 

490
00:27:33,920 --> 00:27:36,240
read my blog and it read my 
dissertation. 

491
00:27:36,600 --> 00:27:40,120
And and that was after 2008 when
everyone got like kind of 

492
00:27:40,120 --> 00:27:44,360
fleeced and hedge funds and he 
basically just said, hey man, 

493
00:27:44,360 --> 00:27:47,640
like I like your stuff. 
I want to talk, we're transition

494
00:27:47,640 --> 00:27:51,000
our family office out of hedge 
funds and LP's because we need 

495
00:27:51,000 --> 00:27:54,240
to control our wealth, go quant,
get the cost down, blah, blah, 

496
00:27:54,240 --> 00:27:57,040
blah. 
And so they were way ahead of 

497
00:27:57,040 --> 00:28:00,080
the whole curve on where the 
world was going anyways. 

498
00:28:00,320 --> 00:28:03,560
And so basically, we started the
current form of the business up 

499
00:28:03,680 --> 00:28:06,880
and then we did a couple years 
of consulting due diligence for 

500
00:28:06,880 --> 00:28:09,840
just on other managers and 
helping them build their systems

501
00:28:09,840 --> 00:28:12,440
out. 
And then in 2012, just because 

502
00:28:12,440 --> 00:28:14,880
this is what I'd asked for, I 
was like, hey man, like, can you

503
00:28:14,880 --> 00:28:18,040
seat us like the first time I've
ever met a billionaire, He's 

504
00:28:18,040 --> 00:28:20,800
like, yeah, I can, but let's 
just work together for a little 

505
00:28:20,800 --> 00:28:21,960
bit. 
And then, so then we got like 

506
00:28:21,960 --> 00:28:26,520
A50 mil seed in in 2012, 
basically 4 quantitative value, 

507
00:28:26,520 --> 00:28:28,840
that strategy. 
And then kind of the rest is 

508
00:28:28,840 --> 00:28:32,160
history and it's then just 
grinded it out and it, you know,

509
00:28:32,160 --> 00:28:35,200
then we learned about the ETF. 
We started off in managed 

510
00:28:35,200 --> 00:28:38,280
accounts and then we learned 
about the ETF. 

511
00:28:38,960 --> 00:28:41,960
I was at some rich person 
conference, some lady was 

512
00:28:41,960 --> 00:28:44,320
telling me about. 
I was like, wait a second that 

513
00:28:44,320 --> 00:28:47,160
sounds like the biggest tax 
shelter I've ever heard of in my

514
00:28:47,160 --> 00:28:51,160
life And I did more research 
into and I was like holy cow, 

515
00:28:51,160 --> 00:28:54,480
this like this ETF wrapper. 
Why would anyone even run a 

516
00:28:54,480 --> 00:28:57,400
managed account. 
And and I told it back to the 

517
00:28:57,440 --> 00:29:01,360
the the billionaire guys and 
they're like, well, yeah, duh, 

518
00:29:01,600 --> 00:29:03,920
let's do that. 
And so we basically converted 

519
00:29:03,920 --> 00:29:09,160
our SMA business way back in the
day into the ETF business, 

520
00:29:09,160 --> 00:29:11,920
'cause it's just, you know, it's
a more, a better way to manage 

521
00:29:11,920 --> 00:29:16,920
capital in equities and that was
probably around 2014 and then 

522
00:29:16,920 --> 00:29:20,520
just grinding it out ever since.
Yeah, it's not. 

523
00:29:21,080 --> 00:29:22,440
Yeah. 
It's not that exciting. 

524
00:29:22,440 --> 00:29:24,960
It's just, you know. 
No, it is exciting, man. 

525
00:29:25,200 --> 00:29:27,960
This is so, you know, I call 
this show. 

526
00:29:27,960 --> 00:29:29,840
I call it the business brew. 
It's not. 

527
00:29:30,120 --> 00:29:33,960
It's supposed to be like the. 
I always thought about it like 

528
00:29:33,960 --> 00:29:36,160
brew. 
Like you put a bunch of stuff in

529
00:29:36,160 --> 00:29:39,040
a pot of coffee and then the, 
you know, you end up with the 

530
00:29:39,040 --> 00:29:42,000
coffee cup. 
I think a lot of times people 

531
00:29:42,000 --> 00:29:45,760
look at the end result and they 
don't realize what went into it 

532
00:29:45,840 --> 00:29:48,760
right, and they don't realize 
the grind that it took to get 

533
00:29:48,760 --> 00:29:52,680
there and how long. 
And I mean you you launched Q 

534
00:29:52,680 --> 00:29:55,960
Val what like right in the teeth
of a value head? 

535
00:29:55,960 --> 00:29:56,640
Yeah. 
Yeah. 

536
00:29:56,760 --> 00:29:58,400
We we launched. 
That's not exactly. 

537
00:29:58,920 --> 00:30:00,760
From a timing standpoint? 
Yes. 

538
00:30:00,840 --> 00:30:07,960
And we have been like in 2017 we
had a billion dollars under 

539
00:30:07,960 --> 00:30:11,080
management and our average fee 
was like 80 bips. 

540
00:30:11,680 --> 00:30:16,240
And then all of a sudden the 
factors really blew out and we 

541
00:30:16,240 --> 00:30:20,360
dropped fees and the whole ETF 
wheels were in motion for the 

542
00:30:20,360 --> 00:30:23,120
future. 
And so we went from like kings 

543
00:30:23,120 --> 00:30:28,240
of the castle to like damn near 
bankrupt and like re fighting 

544
00:30:28,240 --> 00:30:29,880
again to get the top of the 
hill. 

545
00:30:29,960 --> 00:30:33,080
And then COVID happened. 
So then I got another as you 

546
00:30:33,080 --> 00:30:36,560
know value got destroyed in 
there and unfortunately I had 

547
00:30:36,560 --> 00:30:40,120
like one of my my main business 
partners commit suicide around 

548
00:30:40,120 --> 00:30:42,640
then. 
So we I've been many times like 

549
00:30:42,640 --> 00:30:46,440
at the top of the hill, right, 
the rock bottom probably three 

550
00:30:46,440 --> 00:30:50,600
or four times. 
And then this time we've got so 

551
00:30:50,600 --> 00:30:53,960
much escape velocity. 
I mean I don't, I don't even 

552
00:30:53,960 --> 00:30:57,440
know how we we could get taken 
down at this point to be frank. 

553
00:30:57,440 --> 00:31:02,960
But it, you know, there's been 
many many, you know, desperate 

554
00:31:02,960 --> 00:31:07,360
times of of highs and lows on 
this journey and honestly I I 

555
00:31:07,360 --> 00:31:10,080
don't know it. 
Looking back if I recommend 

556
00:31:10,080 --> 00:31:13,680
entrepreneurship to most people 
it's just too risky man. 

557
00:31:13,800 --> 00:31:18,160
Like and you got to be damn near
crazy and and nuts which you 

558
00:31:18,160 --> 00:31:20,920
know I used to be in the Marine 
Corps so I had good training to,

559
00:31:20,920 --> 00:31:25,240
you know to deal with pain and 
anguish and emotional issues. 

560
00:31:25,480 --> 00:31:29,200
And so it worked out. 
But it's like they threw every. 

561
00:31:29,720 --> 00:31:32,560
How did it help you? 
Well, I think, I think just, you

562
00:31:32,560 --> 00:31:35,360
know, one of the things about 
the service, you know, and I, 

563
00:31:35,360 --> 00:31:38,080
you know, I was like, obviously 
in combat and everything, a 

564
00:31:38,080 --> 00:31:40,560
fortune during a time where a 
lot of people get killed and 

565
00:31:40,560 --> 00:31:42,400
died. 
And like, you start realizing 

566
00:31:42,400 --> 00:31:46,880
like, wow, like, you know, 
life's special and it's fleeting

567
00:31:46,880 --> 00:31:49,280
and you could be dead in an 
instant. 

568
00:31:50,280 --> 00:31:53,720
And so once you live through 
kind of those experiences where 

569
00:31:53,720 --> 00:31:56,080
it's like as raw as it could 
possibly get and you come back 

570
00:31:56,080 --> 00:31:59,200
to the civilian world, you're 
like, Dick, this shit's easy, 

571
00:31:59,200 --> 00:32:01,360
man. 
Like like whatever. 

572
00:32:01,360 --> 00:32:04,400
And and so when you just go 
through like the Marine Corps 

573
00:32:04,400 --> 00:32:07,440
and you go through that sort of 
training, that sort of like 

574
00:32:07,440 --> 00:32:11,680
experiences, everything is just,
you don't stress out a much. 

575
00:32:11,720 --> 00:32:14,920
Well, some people do. 
Some people it affects them and 

576
00:32:15,000 --> 00:32:17,240
it actually makes them worse 
because they're just, they're 

577
00:32:17,240 --> 00:32:20,480
too destructed. 
But some people, it's just it it

578
00:32:20,480 --> 00:32:23,880
just makes them harder. 
Like I want to say not 

579
00:32:23,880 --> 00:32:26,760
necessarily it's a good thing 
because I know, like guys like 

580
00:32:26,760 --> 00:32:28,920
me, we're kind of probably 
warped, honestly. 

581
00:32:29,200 --> 00:32:34,320
But it's good in the sense that 
you're just so hard shit just, 

582
00:32:34,520 --> 00:32:37,520
you know, goes over you. 
Just don't sweat it and you can 

583
00:32:37,520 --> 00:32:41,680
grind through anything without 
even thinking about it. 

584
00:32:41,680 --> 00:32:45,520
And so that that just mentality 
is very useful in situations 

585
00:32:45,520 --> 00:32:49,040
where like you thought you were 
stud and now you're total dud, 

586
00:32:49,640 --> 00:32:52,680
but you just, you keep grinding 
no matter what and you just 

587
00:32:52,680 --> 00:32:55,960
don't give up. 
That's just a good mentality in 

588
00:32:55,960 --> 00:32:59,000
asset management where it's a 
freaking roller coaster times 

589
00:32:59,000 --> 00:33:00,000
10. 
So it was. 

590
00:33:00,000 --> 00:33:04,600
It was useful for me for sure. 
Might be easier for you, but as 

591
00:33:04,600 --> 00:33:06,600
an entrepreneur, you still got a
family, right? 

592
00:33:06,600 --> 00:33:10,120
So you're taking, you're taking 
your spouse to the mountain top 

593
00:33:10,120 --> 00:33:11,280
and down. 
So. 

594
00:33:11,280 --> 00:33:13,120
So still got to manage that, 
yeah. 

595
00:33:13,320 --> 00:33:16,800
So the way I always tell that 
cause 'cause now all I do is 

596
00:33:16,800 --> 00:33:19,240
talk to entrepreneurs all day on
our infrastructure side. 

597
00:33:20,320 --> 00:33:24,840
And my number one advice is this
is a team effort, right? 

598
00:33:24,840 --> 00:33:28,400
If you have a wife and you have 
a family or vice versa, you're 

599
00:33:28,400 --> 00:33:31,040
the person launching ATF, you 
have a husband, a fan, whatever 

600
00:33:31,040 --> 00:33:35,000
it is, it's a team game and you 
can't get margin called by your 

601
00:33:35,000 --> 00:33:37,080
family. 
And I've seen that happen many 

602
00:33:37,080 --> 00:33:39,440
times where like the 
entrepreneurs got the mentality 

603
00:33:39,440 --> 00:33:43,720
to grind for 5-10 years, but 
eventually your significant 

604
00:33:43,720 --> 00:33:47,280
other and your children are 
like, dude, like we need to eat,

605
00:33:47,280 --> 00:33:50,520
bro, you need to go get a real 
job, we're out of this. 

606
00:33:50,800 --> 00:33:53,520
And so, So it's really important
that you think through that you 

607
00:33:53,520 --> 00:33:56,720
you have like you make sure the 
family margin call is covered. 

608
00:33:57,000 --> 00:34:02,560
And so in my situation, I had 
the cheesiest gig on the planet 

609
00:34:02,560 --> 00:34:06,040
called being a finance 
professor, where I basically got

610
00:34:06,040 --> 00:34:11,120
paid a lot of money to not work 
that much and just my work was 

611
00:34:11,120 --> 00:34:15,880
doing research, which is perfect
because I'm doing research on 

612
00:34:15,880 --> 00:34:17,800
stuff. 
I would research anyways if I 

613
00:34:17,800 --> 00:34:20,639
was going to be a practitioner 
to develop new investment 

614
00:34:20,639 --> 00:34:23,080
strategies. 
And so I'm making all this money

615
00:34:23,400 --> 00:34:27,080
and getting paid, but I don't 
have the issue of, like I got to

616
00:34:27,080 --> 00:34:30,760
work 100 hours at my job and 
then on the weekends when I'm 

617
00:34:30,760 --> 00:34:32,760
trying to hang out with my kids,
I'm trying to build this 

618
00:34:32,760 --> 00:34:33,960
business. 
Does it? 

619
00:34:33,960 --> 00:34:36,199
Honestly, that's just not 
realistic. 

620
00:34:36,360 --> 00:34:39,520
It's too risky. 
So yeah, so I was recommending 

621
00:34:39,520 --> 00:34:44,400
either either marry well, so 
your spouse can like float the 

622
00:34:44,400 --> 00:34:48,800
boat or be born rich, which is 
also a great way to do it. 

623
00:34:48,800 --> 00:34:52,480
But, you know, you got to be in 
the lucky sperm club or find a 

624
00:34:52,480 --> 00:34:57,320
job where we're somehow like 
your job is kind of related to a

625
00:34:57,320 --> 00:34:59,720
lot of what you might want to do
as entrepreneur. 

626
00:35:00,040 --> 00:35:03,440
So you know for example if I'm 
like a business development like

627
00:35:03,440 --> 00:35:08,600
raising capital person for Joe 
Schmuckatelli asset manager, you

628
00:35:08,600 --> 00:35:11,680
know that's a great skill to 
have because in the background I

629
00:35:11,680 --> 00:35:14,960
might be geeking out on 
strategies and like things and 

630
00:35:14,960 --> 00:35:18,600
I'm like all right if I go be an
entrepreneur this is way easier 

631
00:35:18,600 --> 00:35:21,280
because the biggest skill set 
you end up needing is like how 

632
00:35:21,280 --> 00:35:23,120
to market distribute your 
product. 

633
00:35:23,320 --> 00:35:27,840
Because even if you have a great
idea but no AUM, nobody cares 

634
00:35:28,160 --> 00:35:30,440
and and you know they're they're
you just want to make sure that 

635
00:35:30,440 --> 00:35:35,280
and it's not easy by the way but
but you got to cover the the 

636
00:35:35,280 --> 00:35:39,400
family margin call because it's 
just unfair to your constituency

637
00:35:39,400 --> 00:35:43,400
whatever that might be. 
You know it they get a vote in 

638
00:35:43,400 --> 00:35:44,800
it too. 
So we want to make sure you stay

639
00:35:44,840 --> 00:35:49,000
or just get VC, That's what VC 
and PE is for as well where 

640
00:35:49,000 --> 00:35:52,360
where if you raise capital 
someone else is kind of like 

641
00:35:52,360 --> 00:35:54,680
funding that risk on your 
behalf. 

642
00:35:54,760 --> 00:35:58,440
So at least you know you can get
a decent salary and pay your 

643
00:35:58,440 --> 00:36:01,320
bills and eat food because no 
one is going to be effective. 

644
00:36:01,320 --> 00:36:05,000
If they're always stressed out 
and and worried about paying for

645
00:36:05,000 --> 00:36:07,480
food you're not going to be a 
good entrepreneur in that 

646
00:36:07,480 --> 00:36:12,240
situation. 
So yeah, but, you know, just. 

647
00:36:12,240 --> 00:36:14,320
What are the common traits of 
people that you've seen that 

648
00:36:14,320 --> 00:36:17,280
have made it? 
So you have to be kind of ornery

649
00:36:17,280 --> 00:36:20,040
and bullheaded obviously. 
Like you can't give up. 

650
00:36:20,040 --> 00:36:23,120
You have to believe no matter 
what people say, like basically 

651
00:36:23,120 --> 00:36:26,520
be overconfident effectively is 
probably the easiest way to to 

652
00:36:26,520 --> 00:36:28,840
say it. 
That's a necessary condition 

653
00:36:29,040 --> 00:36:31,280
that that may not be the nice 
way to put it but you got to be 

654
00:36:31,280 --> 00:36:33,960
very overconfident slash 
passionate whatever you want to 

655
00:36:33,960 --> 00:36:37,760
call that and then also have 
long horizon and make sure your 

656
00:36:37,760 --> 00:36:41,200
cat your funding is correct like
you can't be getting like margin

657
00:36:41,200 --> 00:36:43,960
called. 
So you know at least a five year

658
00:36:44,120 --> 00:36:46,400
maybe if you're going to be an 
asset management business I'd 

659
00:36:46,400 --> 00:36:49,280
say a 10 year horizon yeah 
that's the whole point of 10 

660
00:36:49,280 --> 00:36:52,840
year overnight success. 
So yeah, just grind it out. 

661
00:36:52,840 --> 00:36:58,480
Overconfident passion, long term
horizon and just just 

662
00:36:58,480 --> 00:37:02,880
willingness to basic just grind 
it out and do the boring shit 

663
00:37:02,880 --> 00:37:06,440
over and over again. 
And just have faith that as long

664
00:37:06,440 --> 00:37:09,640
as your process is good and as 
long as you know you're adding 

665
00:37:09,640 --> 00:37:13,600
value in whatever you're trying 
to do, eventually people will 

666
00:37:13,600 --> 00:37:17,640
recognize that and it'll happen.
But you just it's not going to 

667
00:37:17,640 --> 00:37:19,960
happen overnight. 
But it's really simple. 

668
00:37:20,320 --> 00:37:22,720
I mean just and then you need 
luck. 

669
00:37:22,800 --> 00:37:25,280
We can't control luck, so you 
can't really calculate that 

670
00:37:25,360 --> 00:37:29,920
everybody needs luck, right? 
It's like I I ran in that 

671
00:37:29,920 --> 00:37:33,040
situation where, you know, we 
climb the mountain and then we 

672
00:37:33,040 --> 00:37:35,640
went to the bottom of the 
mountain and then we kind of got

673
00:37:35,640 --> 00:37:37,920
luck. 
So we're unlucky when we got 

674
00:37:37,960 --> 00:37:40,760
booted off the mountain, but 
then we caught a break and 

675
00:37:40,760 --> 00:37:42,840
that's what allows us to climb 
back up the mountain. 

676
00:37:43,160 --> 00:37:48,000
But you know if I only got bad 
luck breaks, you're never going 

677
00:37:48,000 --> 00:37:51,720
to be successful, right? 
It's it's like trend following 

678
00:37:52,040 --> 00:37:56,200
like a negative vowel asset, 
like it's just you're just going

679
00:37:56,200 --> 00:37:59,400
to go to 0 if you if you don't 
quit at some point. 

680
00:37:59,440 --> 00:38:02,080
Because if you just have bad 
luck at every single turn, no 

681
00:38:02,080 --> 00:38:05,720
amount of good entrepreneurship 
or grinding it out or or grit or

682
00:38:05,720 --> 00:38:07,760
whatever you want to call it is 
going to matter. 

683
00:38:08,160 --> 00:38:10,600
You just you got to have a 
tailwind at some point. 

684
00:38:11,800 --> 00:38:12,520
I like it. 
Yeah. 

685
00:38:13,800 --> 00:38:15,160
That's neat man. 
Good for you. 

686
00:38:15,520 --> 00:38:18,720
I've been looking at Q Val if 
assets, chase performance. 

687
00:38:18,720 --> 00:38:21,480
I can understand between box and
that and maybe some of the other

688
00:38:21,480 --> 00:38:25,880
things going on why you have hit
escape velocity, but 

689
00:38:26,360 --> 00:38:28,720
nevertheless there's still some 
stink on value. 

690
00:38:28,960 --> 00:38:32,560
I have questioned it myself, 
although not not in a huge way, 

691
00:38:32,560 --> 00:38:35,360
but I think people that listen 
to value after hours would say 

692
00:38:35,360 --> 00:38:39,840
I'm less valuey then then 
certainly Toby one. 

693
00:38:39,840 --> 00:38:43,360
Do you mind talking about your 
definition of value? 

694
00:38:43,360 --> 00:38:45,560
Because this has come up on 
value after hours a number of 

695
00:38:45,560 --> 00:38:48,000
times and they've told me like 3
different times, but I don't 

696
00:38:48,000 --> 00:38:54,120
fully understand where you how 
you rank value within category. 

697
00:38:54,680 --> 00:38:58,120
And then two. 
I know you went on an 

698
00:38:58,120 --> 00:39:01,400
exploratory you know, why will 
value not work? 

699
00:39:01,400 --> 00:39:03,440
Last year I saw a couple of 
those tweets. 

700
00:39:03,440 --> 00:39:06,160
You mind sharing some of your 
conclusions about whether or not

701
00:39:06,160 --> 00:39:08,160
the arguments against value have
any merit. 

702
00:39:08,880 --> 00:39:11,560
Yeah, sure. 
So so it's very important to 

703
00:39:11,560 --> 00:39:16,960
your point to define what is 
value because you know it's has 

704
00:39:16,960 --> 00:39:19,640
a million definitions, it's in 
the eyes of the beholder or some

705
00:39:19,720 --> 00:39:23,200
some level. 
So in our particular context of 

706
00:39:23,200 --> 00:39:28,360
how we implement value now is 
like Toby, Toby and I are very 

707
00:39:28,360 --> 00:39:32,720
aligned on 99% of this thing and
I love him because he's so 

708
00:39:32,720 --> 00:39:36,440
hardcore and just holds the line
which is amazing. 

709
00:39:36,520 --> 00:39:40,120
I obviously believe in some 
other tools and other religions 

710
00:39:40,320 --> 00:39:43,280
but but I'm also a big hold the 
line. 

711
00:39:43,280 --> 00:39:46,720
Spartan on on value like he is 
but he's he's like the poster 

712
00:39:46,720 --> 00:39:49,720
boy for that. 
So God bless him but our version

713
00:39:49,720 --> 00:39:54,880
of value and approach is 1 
systematic because I used to be 

714
00:39:54,880 --> 00:39:59,280
a stock picker like didn't work.
I I realized very quickly that 

715
00:39:59,280 --> 00:40:01,720
I'm you know I suffer from 
behavioral problems like 

716
00:40:01,720 --> 00:40:05,800
everybody else and no amount of 
anything can ever solve that 

717
00:40:05,800 --> 00:40:08,760
problem. 
I'm just too much human system 

718
00:40:08,760 --> 00:40:10,440
solve that. 
So whatever the hell we're going

719
00:40:10,440 --> 00:40:12,600
to do it's going to be done with
the computer period. 

720
00:40:13,560 --> 00:40:18,200
Second step. 
I'm also big believer in the 

721
00:40:18,200 --> 00:40:22,800
fear aspect of describing why 
value works over long. 

722
00:40:23,000 --> 00:40:28,240
What I mean by that. 
I believe that value is this 

723
00:40:28,240 --> 00:40:33,040
idea of buying stuff that 
everybody hates. 

724
00:40:33,440 --> 00:40:36,320
It's Ben Graham style value. 
It's not Warren Buffett's. 

725
00:40:36,320 --> 00:40:38,280
Like where are all the dirt 
balls? 

726
00:40:38,600 --> 00:40:44,040
The terrible stories that just 
wasted barren turds of the 

727
00:40:44,040 --> 00:40:46,280
market that are really, really 
cheap. 

728
00:40:46,720 --> 00:40:50,560
I want to focus there because I 
believe on average expectations 

729
00:40:50,560 --> 00:40:55,040
would change from being fearful 
and maybe maybe not being greed 

730
00:40:55,040 --> 00:40:57,600
but just not being so scared of 
these damn things, right. 

731
00:40:57,600 --> 00:41:00,400
You're going to get meaner 
versions expectations and that's

732
00:41:00,400 --> 00:41:03,160
when value will start to make 
money, right? 

733
00:41:03,160 --> 00:41:06,320
Because it's all about you only 
make money if you can out guess 

734
00:41:06,320 --> 00:41:08,560
the current expectation and the 
price. 

735
00:41:08,800 --> 00:41:12,320
So I think fundamentally that 
that's my style value just buy a

736
00:41:12,320 --> 00:41:16,040
lot of cheap stuff with a 
computer and then kind of 1 

737
00:41:16,040 --> 00:41:18,720
little area where Toby and I 
think have a little bit of 

738
00:41:18,720 --> 00:41:23,400
difference of opinion is within 
the dirt ball cheap stocks. 

739
00:41:23,880 --> 00:41:29,240
I like to focus on quality with 
the idea that OK I'm buying dirt

740
00:41:29,240 --> 00:41:32,160
ball cheap stocks everyone hates
and obviously there's something 

741
00:41:32,160 --> 00:41:35,520
issue or some issue with their 
business otherwise they wouldn't

742
00:41:35,520 --> 00:41:39,480
be in the 10% cheapest stocks 
like duh, the markets not that 

743
00:41:39,480 --> 00:41:41,720
stupid. 
So that what that means is if I 

744
00:41:41,720 --> 00:41:45,400
want to capture meaner version, 
I need to make sure that these 

745
00:41:45,400 --> 00:41:48,720
things can at least last for 
three to five years, right? 

746
00:41:48,720 --> 00:41:51,560
Because because if I buy a dirt 
ball, cheap stock, that's really

747
00:41:51,560 --> 00:41:53,920
cheap. 
But fundamentally this thing is 

748
00:41:53,920 --> 00:41:57,760
a dumpster fire and they might 
go to negative earnings, they're

749
00:41:57,760 --> 00:41:59,640
never going to have the 
opportunity to get a meaner 

750
00:41:59,640 --> 00:42:01,280
version and they could go 
bankrupt. 

751
00:42:01,280 --> 00:42:03,160
Or they could be like the 
falling knife problem. 

752
00:42:03,440 --> 00:42:08,280
So intuitively I just like to 
add quality fundamental overlays

753
00:42:08,440 --> 00:42:12,440
amongst the cheapest stocks. 
I think Toby is more 

754
00:42:12,440 --> 00:42:15,680
preferential for just straight 
up dirt balls, which actually I 

755
00:42:15,680 --> 00:42:18,240
don't mind either, it's just at 
the margin I like to add the 

756
00:42:18,240 --> 00:42:21,360
quality overlay. 
So for me it's it's this simple.

757
00:42:21,760 --> 00:42:26,480
I like to buy the cheapest comma
highest quality stocks. 

758
00:42:26,760 --> 00:42:29,920
Cheapest is priority, but within
those the highest quality. 

759
00:42:30,280 --> 00:42:33,680
And I'm doing that with a 
computer and that's basic Q. 

760
00:42:33,680 --> 00:42:36,640
Valve How do you define quality?
So I mean we just use an 

761
00:42:36,640 --> 00:42:38,960
assortment of things, right, 
like we have like a little 10 

762
00:42:38,960 --> 00:42:42,640
point checklist now. 
But it it's things like hey like

763
00:42:42,840 --> 00:42:46,280
is your year over year earnings,
operating margins improving, are

764
00:42:46,280 --> 00:42:48,840
you buying back stock, are you 
paying down debt? 

765
00:42:49,040 --> 00:42:53,200
Like just kind of good old 
fashioned Ben Graham ideas, just

766
00:42:53,360 --> 00:42:55,040
fun. 
Like if you go to work, if you 

767
00:42:55,040 --> 00:42:58,320
were to go look at like security
analysis and just go flip the 

768
00:42:58,320 --> 00:43:02,120
random pages and grab ten of 
those, stuff like that, right. 

769
00:43:02,120 --> 00:43:05,360
Like are you making money, are 
you financially stable? 

770
00:43:05,360 --> 00:43:07,200
Are you getting operation 
improvements? 

771
00:43:08,160 --> 00:43:10,600
Is is, are you doing net 
repurchases? 

772
00:43:10,840 --> 00:43:13,440
You know, 'cause usually that's 
a good sign amongst cheap stocks

773
00:43:13,440 --> 00:43:17,360
because you know presumably the 
sea level guys are are being 

774
00:43:17,360 --> 00:43:20,760
smart about that. 
Just, you know, common sense 

775
00:43:20,760 --> 00:43:22,680
quality. 
And you know, we have our 

776
00:43:22,720 --> 00:43:26,120
methods and we we use a bunch of
like negative screening 

777
00:43:26,520 --> 00:43:29,000
mechanisms on the top of the 
funnel as well. 

778
00:43:29,400 --> 00:43:32,120
But whatever. 
If you don't want to do a super 

779
00:43:32,120 --> 00:43:35,880
fancy version like we do, if you
just said, hey, I'm going to buy

780
00:43:35,880 --> 00:43:40,840
the 10% cheapest stocks on PE 
ratio and make sure they don't 

781
00:43:40,840 --> 00:43:43,280
have too much debt like an old 
big gram screen. 

782
00:43:43,840 --> 00:43:47,080
Also a great idea like God bless
you, I'm in. 

783
00:43:47,320 --> 00:43:51,680
So that's for me is value, it's 
just the greed or it's the fear.

784
00:43:51,680 --> 00:43:55,000
Trade with this idea that 
eventually, you know, 

785
00:43:55,120 --> 00:43:59,240
fundamentals will mean revert 
perceptions, sentiment mean 

786
00:43:59,240 --> 00:44:01,320
reverts. 
And that's when you make all 

787
00:44:01,320 --> 00:44:03,520
that money, right? 
So. 

788
00:44:04,240 --> 00:44:07,680
How do you avoid catching like 
cyclicals, like peaking 

789
00:44:07,680 --> 00:44:08,880
cyclicals? 
Yep. 

790
00:44:09,360 --> 00:44:13,640
Or do you so that that's frankly
that's part of the trade right. 

791
00:44:13,800 --> 00:44:18,160
And the the issue with long only
value investing long short is 

792
00:44:18,160 --> 00:44:21,080
very different because now you 
got a risk management problem, 

793
00:44:21,520 --> 00:44:23,920
right? 
Like I can't be long energy in 

794
00:44:23,920 --> 00:44:28,600
short tech just vaguely because 
there's a good chance I'll go 

795
00:44:28,600 --> 00:44:30,400
bankrupt before anything works 
right? 

796
00:44:30,560 --> 00:44:33,200
So in a long short context, 
which is very different than a 

797
00:44:33,200 --> 00:44:37,120
long only you have to sector 
neutralize, you have to do all 

798
00:44:37,120 --> 00:44:38,560
this crap because you're in the 
get. 

799
00:44:38,560 --> 00:44:40,360
You're in the risk management 
game because you're basically 

800
00:44:40,360 --> 00:44:45,520
running a levered portfolio. 
In a long only context, the, the

801
00:44:45,560 --> 00:44:51,640
issue is sentiment and hate and 
discontent is highly correlated 

802
00:44:52,080 --> 00:44:55,160
with sectors and industries, 
right. 

803
00:44:55,160 --> 00:44:59,360
And I was using example of like 
99 like you know, OK, so we're 

804
00:44:59,360 --> 00:45:03,560
going to force ourselves to own 
50% tech and the cheapest tech 

805
00:45:03,560 --> 00:45:06,560
stock is a 50 times price to 
earnings ratio. 

806
00:45:07,480 --> 00:45:09,120
That's not going to work here, 
right. 

807
00:45:09,320 --> 00:45:14,480
So, so you have to unfortunately
take on tracking error because 

808
00:45:14,480 --> 00:45:18,280
value like the whole thing we're
talking about is highly, highly 

809
00:45:18,280 --> 00:45:21,760
correlated with sectors. 
You're going to find the vast 

810
00:45:21,760 --> 00:45:26,120
majority of dirt ball cheap 
hated securities in sectors 

811
00:45:26,160 --> 00:45:27,760
generally it's highly 
correlated, right. 

812
00:45:28,320 --> 00:45:31,000
And and so that's just the the 
fact of the matter. 

813
00:45:31,320 --> 00:45:35,240
Now, on the cyclical thing, 
that's part of the trade because

814
00:45:35,240 --> 00:45:37,120
it's all. 
That's the reason they're so 

815
00:45:37,120 --> 00:45:39,040
cheap, right? 
Like the whole point of value 

816
00:45:39,040 --> 00:45:41,440
investing, at least how I like 
it is. 

817
00:45:41,440 --> 00:45:45,280
I'm going for expectation 
mismatches where this firm is. 

818
00:45:45,280 --> 00:45:47,160
Energy is the greatest example 
ever. 

819
00:45:47,160 --> 00:45:51,480
The last few years, these firms 
are making more money than, God,

820
00:45:51,880 --> 00:45:54,160
nobody cares. 
They'd rather pay 50 times 

821
00:45:54,160 --> 00:45:56,360
revenue for whatever. 
NVIDIA. 

822
00:45:56,360 --> 00:45:58,080
I guess I would not. 
Yeah. 

823
00:45:58,080 --> 00:45:58,960
Yeah. 
But, you know, you know, I mean,

824
00:45:58,960 --> 00:46:01,440
that's the pitch, right? 
It's like, well, these energy 

825
00:46:01,440 --> 00:46:03,960
guys, yeah, they're making all 
the money, but we're ESG. 

826
00:46:04,160 --> 00:46:06,960
We're going to all do everything
with wind tunnels or wind farms.

827
00:46:06,960 --> 00:46:08,520
Now, I don't even know what the 
pitch is. 

828
00:46:08,520 --> 00:46:11,160
It's ridiculous to me. 
But all these things they have 

829
00:46:11,160 --> 00:46:13,840
this, like, overhang of, oh, 
it's cyclical. 

830
00:46:13,840 --> 00:46:17,120
They're going to be dead. 
Meanwhile, all they're doing is 

831
00:46:17,240 --> 00:46:22,120
printing free cash flow. 
Like to me, if you buy that at 

832
00:46:22,120 --> 00:46:27,240
the right price, even if it mean
reverts like it, even if it does

833
00:46:27,240 --> 00:46:31,720
what they say, as long as it 
doesn't, you know, fall as bad 

834
00:46:31,720 --> 00:46:34,200
as what people had priced in, 
you still could make money, 

835
00:46:34,480 --> 00:46:34,920
right? 
So. 

836
00:46:34,920 --> 00:46:38,440
So even if let's just pretend 
half of energy goes to 

837
00:46:38,440 --> 00:46:44,000
windfarms, Exxon is still 
printing dollar bills and they 

838
00:46:44,000 --> 00:46:46,400
might even own the wind farms 
now too, right? 

839
00:46:46,400 --> 00:46:50,240
And so yes, maybe their earnings
like slow down or they're 

840
00:46:50,240 --> 00:46:52,680
cyclical. 
But if you bought it at it's 

841
00:46:52,680 --> 00:46:55,960
such a cheap price where the 
hate and discontent suggested 

842
00:46:55,960 --> 00:46:58,680
the Exxon is going out of 
business, you can still make 

843
00:46:58,680 --> 00:47:02,520
money, right? 
So it's yes, it matters and 

844
00:47:02,520 --> 00:47:05,720
we've looked at everything you 
could ever imagine like we're 

845
00:47:05,720 --> 00:47:09,240
like hey let's do averages, 
let's do Cape ratio type earning

846
00:47:09,240 --> 00:47:10,920
look backs. 
None of that shit matters. 

847
00:47:11,320 --> 00:47:14,840
What matters is what's in the 
operating income the last 12 

848
00:47:14,840 --> 00:47:19,400
months that is proxying for this
mispricing element on average 

849
00:47:19,400 --> 00:47:21,960
over time and the cyclicality? 
Well. 

850
00:47:22,080 --> 00:47:23,800
You and Toby are very, very 
close. 

851
00:47:24,000 --> 00:47:26,800
As you said. 
You and Toby are very, very 

852
00:47:26,800 --> 00:47:28,480
close. 
As you said, yeah, exactly. 

853
00:47:28,480 --> 00:47:29,640
Right. 
He's EV to EBIT. 

854
00:47:29,640 --> 00:47:31,360
That's basically. 
The same exactly. 

855
00:47:31,440 --> 00:47:36,840
And and I do believe in some 
sort of diversification like I 

856
00:47:36,840 --> 00:47:41,400
would never recommend, like, OK,
the cheapest stocks, 100% of 

857
00:47:41,400 --> 00:47:46,120
them are in like the oil patch, 
Let's do 100% that 'cause that's

858
00:47:46,120 --> 00:47:48,680
just if that's the only 
investment you have. 

859
00:47:48,880 --> 00:47:51,640
It's just too much idiosyncratic
risk, I'd agree with that. 

860
00:47:51,840 --> 00:47:55,400
But if you want to capture the 
value premium, you have to allow

861
00:47:55,400 --> 00:47:59,280
a lot of flexibility, you know, 
so we have like I think 2025% 

862
00:47:59,840 --> 00:48:03,840
bounds where where you could be 
way off whatever the S&P is, but

863
00:48:03,840 --> 00:48:07,640
you're never going to be like 
50% in one in one industry, 

864
00:48:07,640 --> 00:48:10,560
Obviously, that's just, that's 
even too crazy for me. 

865
00:48:10,840 --> 00:48:14,680
Now you could argue you could go
pure all in no matter what, 

866
00:48:14,680 --> 00:48:18,080
unconstrained, but you'd only do
that if you also owned, you 

867
00:48:18,080 --> 00:48:21,440
know, some SP 500 or other crap.
If it's like your only 

868
00:48:21,440 --> 00:48:23,560
investment, that would be kind 
of crazy. 

869
00:48:23,560 --> 00:48:26,320
And even like Warren Buffett and
concentrated stock pickers don't

870
00:48:26,320 --> 00:48:28,360
do that. 
Yeah. 

871
00:48:28,360 --> 00:48:32,320
So, well, you just introduced 
massive path dependency to 

872
00:48:32,320 --> 00:48:33,880
something that otherwise doesn't
need to. 

873
00:48:33,880 --> 00:48:37,680
Exist exactly. 
And there are industry risk too.

874
00:48:37,760 --> 00:48:40,240
Like, like they could just turn 
off an industry. 

875
00:48:40,240 --> 00:48:42,160
The government could just say, 
Nope, you're not playing 

876
00:48:42,160 --> 00:48:45,360
anymore. 
And yeah, all those cheap stocks

877
00:48:45,360 --> 00:48:47,280
are now really cheap because 
they're worthless. 

878
00:48:48,360 --> 00:48:50,520
So, you know, so you want to 
have obviously some 

879
00:48:50,800 --> 00:48:53,800
diversification to avoid like 
crazy tales like that. 

880
00:48:54,040 --> 00:48:55,840
And there's a lot of different 
opinions on this. 

881
00:48:55,840 --> 00:48:58,600
We're just, we're like, Toby, 
we're going to go as pure as 

882
00:48:58,600 --> 00:49:02,680
humanly possible, within reason,
and then just go for it. 

883
00:49:02,680 --> 00:49:04,200
We're not here to benchmark. 
Hug. 

884
00:49:06,080 --> 00:49:08,680
See, I I've said a couple times 
that I might just index on this 

885
00:49:08,680 --> 00:49:11,680
program. 
I have not spoken precisely 

886
00:49:11,680 --> 00:49:14,880
enough. 
My real answer is I have come 

887
00:49:14,880 --> 00:49:17,960
to, I feel like an idiot saying 
this out loud, but it's true. 

888
00:49:17,960 --> 00:49:22,760
I've come to really appreciate 
the tax benefits of ETS because 

889
00:49:22,760 --> 00:49:25,440
it really sucks when you're 
really right on something and 

890
00:49:25,440 --> 00:49:28,800
then you got to stroke a check 
to the government or you got to 

891
00:49:28,800 --> 00:49:32,600
own something that's like not 
cheap anymore. 

892
00:49:32,600 --> 00:49:34,520
And you're looking at foregone 
opportunity. 

893
00:49:34,520 --> 00:49:38,160
And it's like, you know, all 
right, if this is one of the few

894
00:49:38,160 --> 00:49:41,200
businesses that can grow to the 
sky, this can work. 

895
00:49:41,200 --> 00:49:45,600
But if it's one of the 95% of 
normal businesses, I got to get 

896
00:49:45,600 --> 00:49:46,960
out. 
And if I got to get out, I got 

897
00:49:46,960 --> 00:49:49,600
to pay taxes and that, like, 
that sucks. 

898
00:49:49,600 --> 00:49:55,280
I'm telling you, I spend 99% of 
my time figuring out tax 

899
00:49:55,280 --> 00:50:00,240
structuring, 1% on the strategy.
Why? 

900
00:50:00,240 --> 00:50:05,280
Because the tax is like a 50% 
carried interest around your 

901
00:50:05,280 --> 00:50:08,240
neck. 
That like that dwarfs so many 

902
00:50:08,240 --> 00:50:10,360
other variables. 
I don't understand why people 

903
00:50:10,360 --> 00:50:14,440
don't think about tax so much 
more than they spend on 

904
00:50:14,440 --> 00:50:18,160
investment it it. 
Well, because because most 

905
00:50:18,160 --> 00:50:21,640
people, or at least a lot of 
people in the industry don't 

906
00:50:21,640 --> 00:50:25,280
have the same incentive that you
do to tell the same story. 

907
00:50:25,280 --> 00:50:28,520
So that story is not what people
are hearing or thinking about as

908
00:50:28,520 --> 00:50:29,880
as often. 
I think that's. 

909
00:50:29,880 --> 00:50:32,800
True, it's in it's very not 
transparent like there's not 

910
00:50:32,800 --> 00:50:37,120
like, I mean Morningstar tries 
to do after tax, but it's it's 

911
00:50:37,120 --> 00:50:40,400
something that's just it's not 
discussed nearly enough. 

912
00:50:40,640 --> 00:50:43,960
But yeah, I've seen ETF like it 
doesn't matter what you put in 

913
00:50:43,960 --> 00:50:46,960
it, but if you have any level of
activity, the ability to 

914
00:50:46,960 --> 00:50:51,920
compound tax deferred for 20 or 
30 years versus having to pay 

915
00:50:51,920 --> 00:50:55,360
taxes every year. 
And the optimization problems 

916
00:50:55,360 --> 00:50:59,280
like well, I have to own this 
overvalued turd because that's 

917
00:50:59,280 --> 00:51:00,880
better than paying the tax on 
it. 

918
00:51:00,880 --> 00:51:04,400
Like the ETF just eliminates 
that whole problem, which is 

919
00:51:04,400 --> 00:51:06,000
beautiful. 
It's now it's like you have a 

920
00:51:06,000 --> 00:51:11,000
massive 4 O 1K where you could 
just invest optimally like what 

921
00:51:11,000 --> 00:51:15,760
makes sense to compound capital.
So it's, yeah, but the downside 

922
00:51:15,760 --> 00:51:18,400
is, you know, and we obviously 
know a lot 'cause this is we 

923
00:51:18,400 --> 00:51:21,920
have a huge business, is 
launching an ETF is not exactly 

924
00:51:21,920 --> 00:51:25,040
easy or cheap. 
You know, it's 200 GSA year, you

925
00:51:25,040 --> 00:51:27,800
light on fire minimum. 
So you got to have like pretty 

926
00:51:27,800 --> 00:51:31,600
serious capital to even consider
that you already got to be rich.

927
00:51:32,200 --> 00:51:35,000
Well, how do you get rich? 
Well, you get lucky and you 

928
00:51:35,000 --> 00:51:37,400
probably didn't pay taxes and 
you compound it at a high rate 

929
00:51:37,400 --> 00:51:40,720
for a long time, you know, But 
but people that are trying to do

930
00:51:40,720 --> 00:51:44,200
it, your next best alternative 
is probably just by other 

931
00:51:44,200 --> 00:51:47,920
people's ETFs that are close 
enough to what your investment 

932
00:51:47,920 --> 00:51:49,560
philosophy is. 
That's not going to drive you 

933
00:51:49,560 --> 00:51:53,480
too, too wild. 
Yeah, well, and to your point, 

934
00:51:53,480 --> 00:51:57,080
if you do buy other people's 
ETFs, then they've already lived

935
00:51:57,080 --> 00:51:59,080
through the ups and downs of 
entrepreneurship. 

936
00:51:59,080 --> 00:52:00,920
Some of that may be worth 
outsourcing. 

937
00:52:01,000 --> 00:52:03,400
Yes, exactly. 
Right. 

938
00:52:03,400 --> 00:52:07,520
Like it's not all it's easy to 
look at the at the gravy train 

939
00:52:07,520 --> 00:52:09,160
at the end and be like I want 
that. 

940
00:52:09,240 --> 00:52:11,080
You got to be willing to live 
through the cost. 

941
00:52:11,080 --> 00:52:15,280
Yes, for sure. 
But that said, just because I'm 

942
00:52:15,280 --> 00:52:17,160
biased because obviously I have 
ETFs. 

943
00:52:17,400 --> 00:52:21,160
Like if you do have the passion,
if you do have desire and you 

944
00:52:21,160 --> 00:52:24,880
would do this for free and just 
because you love the game so 

945
00:52:24,880 --> 00:52:28,400
much, I get it. 
There's people out there like 

946
00:52:28,400 --> 00:52:31,240
that, like I'd probably do that 
if somebody gunned in my head 

947
00:52:31,240 --> 00:52:35,360
said, hey, you know, you're not 
getting paid shit anymore to run

948
00:52:35,360 --> 00:52:37,680
out for architect and do your 
business and do everything you 

949
00:52:37,680 --> 00:52:40,680
do. 
I'd probably still do probably 

950
00:52:40,680 --> 00:52:45,160
95% what I'm doing right now. 
I'd be mad, I'd probably whine 

951
00:52:45,160 --> 00:52:47,360
and complain a little bit, but 
I'd be like, yeah, whatever. 

952
00:52:47,840 --> 00:52:51,120
I like doing that anyway. 
So then that's when you know 

953
00:52:51,120 --> 00:52:53,640
you're kind of programmed to. 
This is probably the right idea.

954
00:52:55,280 --> 00:52:56,840
It's just kind of what you 
wanted to do. 

955
00:52:56,840 --> 00:52:59,160
You're born for this type of 
thing. 

956
00:52:59,840 --> 00:53:02,600
Can we talk about another church
that you seem to pray to, which 

957
00:53:02,600 --> 00:53:05,040
is momentum? 
Well, listen, can we can we pick

958
00:53:05,040 --> 00:53:07,080
up Part 2 of? 
This let's do it. 

959
00:53:07,360 --> 00:53:09,120
Well, thank you for taking the 
time here. 

960
00:53:09,120 --> 00:53:11,520
I appreciate it. 
Yeah, yeah, no worries. 

961
00:53:11,520 --> 00:53:14,560
At this time of year, we always 
host a lot of people because 

962
00:53:14,560 --> 00:53:18,160
it's, you know, 80° in perfect 
weather in Puerto Rico. 

963
00:53:18,160 --> 00:53:22,640
So we magically find ourselves 
with like hosting barbecues 

964
00:53:22,640 --> 00:53:24,680
every night and drives my wife 
insane. 

965
00:53:25,920 --> 00:53:30,000
But you know is what it is cost 
of doing business if you live in

966
00:53:30,000 --> 00:53:32,200
Puerto Rico. 
Nice to live somewhere that 

967
00:53:32,200 --> 00:53:35,880
people on a vacation. 
Yeah, yeah, exactly. 

968
00:53:36,680 --> 00:53:38,840
All right. 
So I wanted to ask you about 

969
00:53:38,840 --> 00:53:40,160
your other church that you pray 
to. 

970
00:53:40,160 --> 00:53:43,800
I know that you've you've found,
you know, statistical 

971
00:53:43,800 --> 00:53:45,520
outperformance historically in 
value. 

972
00:53:45,520 --> 00:53:49,080
The other the other book that 
you wrote was about momentum and

973
00:53:49,080 --> 00:53:53,000
I'm curious for your thoughts on
momentum or what you found with 

974
00:53:53,000 --> 00:53:55,600
momentum strategies? 
Yeah. 

975
00:53:55,600 --> 00:53:59,040
So but as a native value 
investor, you know you're kind 

976
00:53:59,040 --> 00:54:03,720
of taught that all that matters 
is some fundamental to price and

977
00:54:03,720 --> 00:54:07,200
you shouldn't just focus on 
price or technicals or any of 

978
00:54:07,200 --> 00:54:10,360
the Mr. market aspects. 
But then the problem is when you

979
00:54:10,360 --> 00:54:13,000
start reading enough research 
and you hold you know you're 

980
00:54:13,000 --> 00:54:16,320
you're trying to be an evidence 
based investor not a feelings 

981
00:54:16,320 --> 00:54:18,440
based investor. 
It becomes pretty clear pretty 

982
00:54:18,440 --> 00:54:23,160
quick then momentum is something
you should strongly consider and

983
00:54:23,160 --> 00:54:25,760
so it you know it took me a 
while to wrap my head around it 

984
00:54:25,760 --> 00:54:31,800
but momentum is this idea that 
just buying winners so stocks 

985
00:54:31,800 --> 00:54:34,880
that have been doing well 
relative to all the other stocks

986
00:54:34,880 --> 00:54:37,320
continue to do well in the 
future. 

987
00:54:37,840 --> 00:54:43,120
That basic concept is arguably 
one of the best strategies that 

988
00:54:43,120 --> 00:54:45,440
you can do arguably even better 
than value. 

989
00:54:45,760 --> 00:54:48,120
That doesn't mean you should not
do value because they they 

990
00:54:48,120 --> 00:54:51,440
happen to kind of yin and Yang 
at different times but that 

991
00:54:51,440 --> 00:54:55,360
that's essentially momentum And 
and again for me to get there it

992
00:54:55,440 --> 00:54:59,080
it took a while because I was 
fundamentally still am a value 

993
00:54:59,120 --> 00:55:02,800
mentality type person but now 
I'm a believer in both. 

994
00:55:04,000 --> 00:55:06,440
How, how persistent is that 
momentum? 

995
00:55:07,040 --> 00:55:10,480
I mean, do you, do you pretty 
much just say, OK, well if I'm 

996
00:55:10,480 --> 00:55:13,160
going to buy into that as soon 
as the moving averages crossover

997
00:55:13,160 --> 00:55:16,040
I'm out or something like that? 
It's less persistent in the 

998
00:55:16,040 --> 00:55:19,680
sense that if you do a generic 
value strategy like to just say,

999
00:55:19,760 --> 00:55:23,320
hey, we're going to go buy the 
10% cheapest PE stocks or 

1000
00:55:23,320 --> 00:55:25,000
something like this, you know 
it. 

1001
00:55:25,080 --> 00:55:28,520
It doesn't matter too much 
whether if you rebalance that 

1002
00:55:28,520 --> 00:55:32,160
every month or every year, 
you're still going to capture 

1003
00:55:32,160 --> 00:55:34,360
the fact, right? 
It's obviously better if you did

1004
00:55:34,360 --> 00:55:37,640
it monthly rebalance, but then 
you got to consider taxes, fees 

1005
00:55:37,640 --> 00:55:41,040
and all this other stuff. 
But it still works with momentum

1006
00:55:41,040 --> 00:55:43,240
strategies. 
If you don't refresh them 

1007
00:55:43,240 --> 00:55:47,280
quickly, they're worthless. 
So like for example an annual 

1008
00:55:47,280 --> 00:55:51,520
rebalance momentum strategy, 
it's all but a waste of your 

1009
00:55:51,520 --> 00:55:55,760
time where whereas it only works
if you have faster frequency and

1010
00:55:55,760 --> 00:55:58,080
that kind of makes sense because
it's more of like a sentiment. 

1011
00:55:58,360 --> 00:56:01,720
You know you're basically front 
running people that are chasing 

1012
00:56:01,720 --> 00:56:05,600
shiny rocks all the time and 
shiny rock chasers change their 

1013
00:56:05,600 --> 00:56:08,080
minds a lot. 
And so it's really important to 

1014
00:56:08,080 --> 00:56:11,600
that strategy to just it has to 
be a much more actively traded 

1015
00:56:11,960 --> 00:56:14,040
strategy. 
We're doing it monthly now, but 

1016
00:56:14,320 --> 00:56:16,160
even quarterly it's still not 
bad. 

1017
00:56:17,520 --> 00:56:20,960
Interesting. 
I I mean it makes sense. 

1018
00:56:20,960 --> 00:56:24,400
The other thing that I think is,
is sort of nice about it is 

1019
00:56:24,400 --> 00:56:26,560
momentum can move factors, 
right. 

1020
00:56:26,560 --> 00:56:28,600
It kind of morphs with whatever 
is working. 

1021
00:56:29,040 --> 00:56:32,640
That's how I think about it. 
Yes, we do live momentum 

1022
00:56:32,640 --> 00:56:36,760
strategies and in I think 
whatever it was 2000, 2020 one 

1023
00:56:36,760 --> 00:56:40,600
we were like a Kathy Wood clone 
and then you know after that 

1024
00:56:40,600 --> 00:56:43,920
momentum blew up obviously 
because we do momentum strategy 

1025
00:56:44,120 --> 00:56:48,000
you quickly shift and then we 
were an energy fund in 2000, you

1026
00:56:48,000 --> 00:56:51,400
know late 2122. 
And so Momentum, the best way to

1027
00:56:51,400 --> 00:56:53,920
think of it's like a Chameleon, 
like it's just where the 

1028
00:56:53,920 --> 00:56:57,320
Chameleon colors change 
depending on where the, where 

1029
00:56:57,320 --> 00:57:00,720
the mojo on the market is and it
just adapts, it's very adaptive 

1030
00:57:00,720 --> 00:57:02,640
strategy, it can be anything to 
anybody. 

1031
00:57:03,280 --> 00:57:05,880
Yeah, yeah. 
Well, as you said, it's whatever

1032
00:57:05,880 --> 00:57:08,040
the shiny rock is of the day, 
right? 

1033
00:57:08,040 --> 00:57:11,480
Exactly. 
Whatever has momentum, that's 

1034
00:57:11,480 --> 00:57:13,960
what you buy. 
It's it's really a pretty brain 

1035
00:57:13,960 --> 00:57:17,040
dead strategy. 
That's not very intuitive, but 

1036
00:57:17,040 --> 00:57:19,200
it just works, I think. 
Or the long haul. 

1037
00:57:19,920 --> 00:57:22,520
Huh. 
Well, I really appreciated, you 

1038
00:57:22,520 --> 00:57:25,280
know the work that you put out 
and I I appreciate you expanding

1039
00:57:25,280 --> 00:57:28,800
my mind a little bit about I 
read the DIY investor, I had all

1040
00:57:28,800 --> 00:57:31,280
all your books were like right 
there on the bookshelf together.

1041
00:57:31,280 --> 00:57:34,400
So I think I found you in like 
2019 and I appreciate what you 

1042
00:57:34,400 --> 00:57:35,360
done. 
Yeah. 

1043
00:57:35,480 --> 00:57:38,640
I'm I'm sorry that I've 
contributed to your brainwashing

1044
00:57:39,520 --> 00:57:42,960
in the financial markets, but 
hopefully some of the knowledge 

1045
00:57:42,960 --> 00:57:44,760
is. 
Useful indeed. 

1046
00:57:45,040 --> 00:57:47,720
Hey, I wanted to circle back to 
something that you said about 

1047
00:57:47,720 --> 00:57:51,200
Buffett and an ETF. 
And and why, why do you think 

1048
00:57:51,200 --> 00:57:53,920
Buffett would have been in an 
ETF structure? 

1049
00:57:54,200 --> 00:57:57,880
And the reason that I asked that
is I'm kind of curious if if the

1050
00:57:57,880 --> 00:58:01,480
moment of like it seems to me 
that ETFs can attract money when

1051
00:58:01,480 --> 00:58:05,240
they're working and I am not 
sure if that would be a positive

1052
00:58:05,240 --> 00:58:07,960
and like Buffett strategy is 
kind of what I totally get it 

1053
00:58:07,960 --> 00:58:10,920
from a tax perspective, but I 
was just curious. 

1054
00:58:10,920 --> 00:58:15,360
Yeah. 
So yeah, the the main reason I 

1055
00:58:15,360 --> 00:58:19,080
mention that is just if anyone 
follows Buffett, you kind of 

1056
00:58:19,080 --> 00:58:22,120
realize his genius is not really
picking stocks. 

1057
00:58:22,440 --> 00:58:25,000
His genius is lowering 
frictional costs and avoiding 

1058
00:58:25,000 --> 00:58:27,320
taxes. 
That's what it has allowed him 

1059
00:58:27,320 --> 00:58:31,440
to compound not just a high 
rates but high high rates after 

1060
00:58:31,440 --> 00:58:34,840
fees and after taxes. 
And you know obviously the ETF 

1061
00:58:34,840 --> 00:58:38,960
is basically the ultimate way to
do to achieve both of those. 

1062
00:58:38,960 --> 00:58:43,680
Now to your point, which is 
actually very good one, ETFs are

1063
00:58:43,680 --> 00:58:46,720
not permanent capital. 
You know to the extent you're, 

1064
00:58:46,720 --> 00:58:48,760
you know, you're on board with 
Buffett's strategy. 

1065
00:58:48,760 --> 00:58:51,560
You give him more money, he 
deploys it to the extent you 

1066
00:58:51,560 --> 00:58:54,280
think he's an idiot, you take 
capital away from him. 

1067
00:58:54,600 --> 00:58:57,840
However, that said, like the 
nucleus of the core strategy 

1068
00:58:57,840 --> 00:59:01,280
itself and to the extent you 
didn't give him too much money, 

1069
00:59:01,280 --> 00:59:04,400
so he would have too much 
scalability and not be able to 

1070
00:59:04,400 --> 00:59:06,960
play with the the things he 
likes, which is actually his 

1071
00:59:06,960 --> 00:59:09,400
current problem. 
I don't think it would actually 

1072
00:59:09,400 --> 00:59:12,000
matter. 
It's just the end investor could

1073
00:59:12,000 --> 00:59:14,400
screw themselves. 
But Buffett himself is just 

1074
00:59:14,400 --> 00:59:17,880
going to be managing a pool of 
capital and investing whatever 

1075
00:59:17,880 --> 00:59:20,680
pool of capital he's been given 
the best of his ability. 

1076
00:59:20,960 --> 00:59:24,280
And if people want to ride the 
train, great, take a ride the 

1077
00:59:24,280 --> 00:59:26,080
train. 
If they don't want to ride the 

1078
00:59:26,080 --> 00:59:29,440
train or they want to get out at
the worst times, you know, 

1079
00:59:29,440 --> 00:59:30,960
obviously you cannot control 
that. 

1080
00:59:30,960 --> 00:59:34,520
It's not like permanent capital 
stuck in the fund and that's 

1081
00:59:34,520 --> 00:59:36,600
their own problem, but it. 
But I still think it would still

1082
00:59:36,600 --> 00:59:40,280
be a pretty useful vehicle for, 
you know, for someone like him 

1083
00:59:40,480 --> 00:59:43,520
for sure, especially to the 
extent he's trading and things 

1084
00:59:43,520 --> 00:59:45,400
that are relatively liquid and 
scalable. 

1085
00:59:45,680 --> 00:59:49,640
Now it might be too much because
he has, you know, hundreds of 

1086
00:59:49,640 --> 00:59:53,880
billions of dollars and there's 
too much transparency in an ETF.

1087
00:59:54,240 --> 00:59:58,520
So at that scale, if he's being 
super concentrated and you know,

1088
00:59:58,520 --> 01:00:01,920
he's trying to buy like huge 
stakes as a percentage of the 

1089
01:00:01,920 --> 01:00:03,920
business. 
That's obviously not going to 

1090
01:00:03,920 --> 01:00:07,240
work in an ETF structure because
there's all kinds of limitations

1091
01:00:07,240 --> 01:00:11,800
and issues with the 40 Act, but 
but taxes frictional cost in 

1092
01:00:11,800 --> 01:00:15,000
early day Warren Buffett, I 
think he would definitely at 

1093
01:00:15,000 --> 01:00:16,640
least strongly consider that 
rapper. 

1094
01:00:16,640 --> 01:00:20,440
As far as people like 
considering that rapper, one of 

1095
01:00:20,440 --> 01:00:23,480
one of the things that I had 
asked you about when we were 

1096
01:00:23,480 --> 01:00:25,760
getting ready for this, I said, 
you know, I'm curious for your 

1097
01:00:25,760 --> 01:00:29,320
more interesting ETS idea, ideas
or whatever. 

1098
01:00:29,320 --> 01:00:32,720
Like what are some ETFs that 
people should think about or may

1099
01:00:32,720 --> 01:00:35,560
not know about is probably the 
better way to say what I'm 

1100
01:00:35,560 --> 01:00:38,320
trying to say. 
And one of them is, is you 

1101
01:00:38,320 --> 01:00:41,000
brought up, you said the 
interesting deals are less about

1102
01:00:41,000 --> 01:00:43,760
the substance of the ETF, but 
how they became an ETF. 

1103
01:00:44,000 --> 01:00:47,840
And you cited CCMG. 
And I was curious if you 

1104
01:00:47,840 --> 01:00:51,560
wouldn't mind just briefly 
describing what that is and if 

1105
01:00:51,560 --> 01:00:55,320
somebody that's listening, if 
this kind of conversation 

1106
01:00:55,320 --> 01:00:57,560
resonates, you want to talk a 
little bit about your business 

1107
01:00:57,560 --> 01:00:59,680
on how you're helping people 
launch ETFs. 

1108
01:01:01,120 --> 01:01:05,800
Yeah, So, so CCMG is one of the 
the most recent conversions 

1109
01:01:05,800 --> 01:01:10,120
we've done where you can always 
launch just a normal ETF, just 

1110
01:01:10,640 --> 01:01:13,920
you start up an ETF and yeah, 
yeah, hit the ground running. 

1111
01:01:14,200 --> 01:01:19,520
But there's also an ability to 
seed an ETF tax free with 

1112
01:01:19,520 --> 01:01:24,160
current assets, typically low 
basis assets and we've done that

1113
01:01:24,160 --> 01:01:28,680
on mutual funds, limited 
partnerships or hedge funds and 

1114
01:01:28,680 --> 01:01:31,640
separately managed accounts 
typically through like an RIA. 

1115
01:01:32,000 --> 01:01:37,480
And so the CCMG deal was was a 
monster SMA deal where there is 

1116
01:01:37,520 --> 01:01:40,720
you know thousands of individual
separately managed accounts, 

1117
01:01:41,000 --> 01:01:43,600
there were syndicated all 
together with low basis 

1118
01:01:43,600 --> 01:01:48,320
securities that all contributed 
simultaneously to seed in ETF. 

1119
01:01:48,400 --> 01:01:50,600
In that case, it was almost $800
million. 

1120
01:01:51,040 --> 01:01:53,920
But we've also done mutual fund 
deals that were almost a billion

1121
01:01:53,920 --> 01:01:58,200
dollars and we've done several 
LP deals that weren't that big, 

1122
01:01:58,200 --> 01:02:01,320
but we did one that was over 
$100 million. 

1123
01:02:01,600 --> 01:02:05,160
The main idea is that, you know,
a lot of people look at the ETF 

1124
01:02:05,160 --> 01:02:07,840
wrapper, they're like, man, 
that's so awesome, The tax 

1125
01:02:07,840 --> 01:02:10,840
efficiency, the fees, the 
transparency, like that's 

1126
01:02:10,840 --> 01:02:13,320
clearly the future in many 
respects. 

1127
01:02:13,640 --> 01:02:17,520
But it you know I have a bunch 
of low basis stuff right now and

1128
01:02:17,520 --> 01:02:21,040
I don't want to sell that pay a 
bunch of tax just to get into 

1129
01:02:21,040 --> 01:02:23,520
the better wrapper. 
And So what we've kind of 

1130
01:02:23,520 --> 01:02:26,840
focused on our ETF structure is 
how do we solve that problem, 

1131
01:02:27,000 --> 01:02:31,960
how do we transition you from A 
to B where A is the inefficient 

1132
01:02:32,000 --> 01:02:35,280
way to manage capital, B is the 
efficient way to manage capital.

1133
01:02:35,280 --> 01:02:39,600
How do we do that without having
a tax bill and and and so that 

1134
01:02:39,600 --> 01:02:42,160
that's something that's super 
interesting for if you do have 

1135
01:02:42,160 --> 01:02:45,600
listeners out there that are, 
you know, investment advisors, 

1136
01:02:46,040 --> 01:02:49,680
hedge fund managers or even just
ultra high net worth and you 

1137
01:02:49,680 --> 01:02:52,800
want to try to, you'd like to 
manage your money in ETF because

1138
01:02:52,800 --> 01:02:55,920
who won it. 
But you know, how can we do this

1139
01:02:55,920 --> 01:02:59,080
without killing you on the way 
into the ETF wrapper? 

1140
01:02:59,880 --> 01:03:04,720
Yeah, I I am thinking of 
somebody right now and I as soon

1141
01:03:04,720 --> 01:03:07,480
as we're off this, I will at 
least ping him and maybe 

1142
01:03:07,480 --> 01:03:09,920
actually write just an intro and
say, hey, I think you guys 

1143
01:03:09,920 --> 01:03:13,640
should chat because especially 
if you can convert mutual funds 

1144
01:03:13,640 --> 01:03:18,840
that seems to be a way to take 
what I perceived to be sort of a

1145
01:03:18,840 --> 01:03:21,800
dying business and flip it into 
more of a growth strategy. 

1146
01:03:22,440 --> 01:03:24,880
Yeah, 100%. 
And obviously the devil's in the

1147
01:03:24,880 --> 01:03:28,360
details these things, there's 
way too many lawyers involved. 

1148
01:03:28,760 --> 01:03:32,120
So it's frictional, it's 
painful, tons of brain damage. 

1149
01:03:32,120 --> 01:03:36,040
But if you're thinking about 
this is like a 510 year thing 

1150
01:03:36,040 --> 01:03:40,280
and not like the next six months
deal, OK, so we have someone off

1151
01:03:40,280 --> 01:03:43,480
cost and brain damage but it 
sets us up for a long term 

1152
01:03:43,480 --> 01:03:47,840
success that that should be a no
brainer for most people. 

1153
01:03:48,240 --> 01:03:52,760
But you do have a lot of legacy 
and status quo bias or even 

1154
01:03:52,760 --> 01:03:55,200
great ideas. 
You're like we'll just deal the 

1155
01:03:55,200 --> 01:03:58,600
next month and then you say that
for the next next month or the 

1156
01:03:58,600 --> 01:04:01,600
next 10 years and then you find 
yourself dead and out of 

1157
01:04:01,600 --> 01:04:03,480
business. 
That's something you obviously 

1158
01:04:03,480 --> 01:04:06,040
want to avoid. 
But I also empathize with that 

1159
01:04:06,040 --> 01:04:10,000
because it is a pain to deal 
with transitions and you know, 

1160
01:04:10,320 --> 01:04:13,360
explore new business model and 
deal with ETFs and what have 

1161
01:04:13,360 --> 01:04:14,720
you. 
Yeah. 

1162
01:04:14,720 --> 01:04:17,560
But it would be an interesting 
idea to sort of buy like dying 

1163
01:04:17,560 --> 01:04:20,920
mutual funds and then convert 
them to ETFs to the extent that 

1164
01:04:20,920 --> 01:04:24,200
it was just the mutual fund 
wrapper that was causing some of

1165
01:04:24,200 --> 01:04:26,520
the decay, definitely in assets 
under management. 

1166
01:04:26,520 --> 01:04:29,240
And there's a business out there
it's that'd be complicated. 

1167
01:04:29,680 --> 01:04:33,080
But you know to the extent that 
you can go in there and get the 

1168
01:04:33,080 --> 01:04:37,040
key, the key like anything is 
price paid, right. 

1169
01:04:37,480 --> 01:04:42,000
Like if you can go in there and 
buy the assets as they are which

1170
01:04:42,000 --> 01:04:45,120
is basically a dying legacy 
thing that's going to be 

1171
01:04:45,480 --> 01:04:49,280
bankrupt anyways at some point 
and you could pay that value and

1172
01:04:49,280 --> 01:04:53,360
then turn around flip it 
converting ETF and and clean 

1173
01:04:53,360 --> 01:04:54,800
things up. 
The. 

1174
01:04:54,800 --> 01:04:58,080
But the problem is usually an 
M&A like the mutual fund people 

1175
01:04:58,080 --> 01:05:00,040
when you when you're like, hey 
I'm going to buy your stuff 

1176
01:05:00,040 --> 01:05:02,560
because your business sucks. 
They're like, well, great, what 

1177
01:05:02,560 --> 01:05:04,720
do you want to pay? 
And you're like, well, not a 

1178
01:05:04,720 --> 01:05:06,960
lot. 
And they're like, you know, OK 

1179
01:05:07,640 --> 01:05:09,720
And then they're like, well, 
that's weird. 

1180
01:05:09,840 --> 01:05:12,400
Well, OK, maybe we will do it. 
And then you got The problem is 

1181
01:05:12,400 --> 01:05:15,040
you need to explain to them 
because you need a lot of people

1182
01:05:15,040 --> 01:05:18,200
on board to convert to an ETF. 
And then the minute you 

1183
01:05:18,200 --> 01:05:20,440
explained, like, hey, here's 
what we're going to do to unlock

1184
01:05:20,440 --> 01:05:22,040
all this value, here's how we're
going to do it. 

1185
01:05:22,040 --> 01:05:24,880
They're like, oh, well, instead 
of paying me what you wanted to 

1186
01:05:24,880 --> 01:05:27,240
pay me, you're going to have to 
pay me more now because you just

1187
01:05:27,240 --> 01:05:28,800
told me how you're going to Add 
all this value. 

1188
01:05:29,120 --> 01:05:31,280
And you're like, well, I'm going
to Add all that value, not you. 

1189
01:05:31,280 --> 01:05:33,800
And they're like, well, yeah, 
but just pay me for it anyways. 

1190
01:05:34,000 --> 01:05:35,960
So. 
So those deals, it's all about 

1191
01:05:35,960 --> 01:05:40,080
the art of the deal and like you
know, finding a win win to make 

1192
01:05:40,080 --> 01:05:42,480
it work. 
And in my experience, it's just 

1193
01:05:42,840 --> 01:05:44,720
easier said than done. 
So yeah. 

1194
01:05:45,000 --> 01:05:47,720
Well, that's that's what you do 
on podcast. 

1195
01:05:47,720 --> 01:05:49,800
You just say things that are 
easy, right? 

1196
01:05:49,800 --> 01:05:50,960
Yeah, Yeah. 
Yeah, but it is an 

1197
01:05:50,960 --> 01:05:52,560
entrepreneurial opportunity, 
right? 

1198
01:05:53,080 --> 01:05:55,560
If something's hard, that 
usually means there's like a 

1199
01:05:55,560 --> 01:05:59,160
return on capital tied to it. 
And if you can solve that, 

1200
01:05:59,160 --> 01:06:02,000
that's how you make money. 
So if you have any entrepreneurs

1201
01:06:02,000 --> 01:06:04,720
listening or people that are out
there, I mean, there's 

1202
01:06:04,720 --> 01:06:08,760
definitely a value creation 
situation on conversion from 

1203
01:06:09,040 --> 01:06:13,200
legacy to ETF wrappers, which we
kind of sit as the shovel maker,

1204
01:06:13,520 --> 01:06:15,160
but someone needs to be the deal
maker. 

1205
01:06:15,440 --> 01:06:19,960
And you could definitely make a 
ton of money if you could get 

1206
01:06:19,960 --> 01:06:23,120
everyone to sit at the table and
agree on something, yeah. 

1207
01:06:23,600 --> 01:06:25,200
Sure. 
How do you find yourself as the 

1208
01:06:25,200 --> 01:06:27,200
shovel maker? 
Like how'd that? 

1209
01:06:27,200 --> 01:06:30,400
Happen we do all the So 
basically what happened is we 

1210
01:06:30,400 --> 01:06:34,080
never in a million years would 
have thought we'd be a shovel 

1211
01:06:34,080 --> 01:06:36,640
salesman for ETF infrastructure 
services. 

1212
01:06:37,160 --> 01:06:40,840
And it's sometimes life just 
happens And we we were always 

1213
01:06:40,840 --> 01:06:44,480
kind of like dudes hanging out 
in the garage trying to survive 

1214
01:06:44,480 --> 01:06:46,640
in the ETF business for over a 
decade. 

1215
01:06:46,960 --> 01:06:49,520
And we built all this 
infrastructure, did everything 

1216
01:06:49,520 --> 01:06:52,080
ourselves. 
And then, you know, you wake up 

1217
01:06:52,080 --> 01:06:55,200
four or five years ago and now 
everybody on the planet is like,

1218
01:06:55,200 --> 01:06:59,240
man, how do we start an ATF? 
But jeez, that's really hard. 

1219
01:06:59,240 --> 01:07:02,760
And like tons of costs and super
expensive and annoying. 

1220
01:07:03,280 --> 01:07:06,440
Wouldn't wouldn't it be nice if 
we could just go rent Wes's 

1221
01:07:06,440 --> 01:07:08,520
infrastructure? 
Because they already saw this? 

1222
01:07:08,840 --> 01:07:11,800
And then we finally just had to 
get our head around opening up 

1223
01:07:11,800 --> 01:07:14,920
our infrastructure to other 
people as opposed to just using 

1224
01:07:14,920 --> 01:07:17,840
it for our own ETFs. 
And then once we figured that 

1225
01:07:17,840 --> 01:07:21,080
out was just, it's kind of like 
I'm sure it's probably what 

1226
01:07:21,080 --> 01:07:23,880
Amazon thought when like we 
built all these servers, we 

1227
01:07:23,880 --> 01:07:27,040
built all this infrastructure to
facilitate our storefront and 

1228
01:07:27,280 --> 01:07:29,560
everyone's like, man, it would 
be nice if we could use your 

1229
01:07:29,560 --> 01:07:33,520
guys back in tech, you know? 
And sure enough AWS was born. 

1230
01:07:33,760 --> 01:07:36,120
It was kind of like what 
happened to us if we had like a 

1231
01:07:36,400 --> 01:07:40,480
an AWS basically buried in the 
backyard, essentially a gold 

1232
01:07:40,480 --> 01:07:45,000
mine that we didn't know we had 
until we just thought thought 

1233
01:07:45,000 --> 01:07:47,280
differently about it. 
So it's just a change in 

1234
01:07:47,280 --> 01:07:51,080
mentality about what's our, 
what's our value proposition in 

1235
01:07:51,080 --> 01:07:54,560
the ETF business. 
Yeah, maybe it's not making 

1236
01:07:54,600 --> 01:07:58,000
ETFs, maybe it's helping other 
people and selling them a 

1237
01:07:58,000 --> 01:08:00,600
beautiful, low cost, high 
quality shovel. 

1238
01:08:00,800 --> 01:08:03,600
We might be really, we might be 
better at that than actually 

1239
01:08:03,600 --> 01:08:06,800
creating our own ETFs and trying
to sell them to the world. 

1240
01:08:06,800 --> 01:08:09,680
That's that's difficult. 
We don't have a monopoly on 

1241
01:08:09,680 --> 01:08:13,640
that, for sure. 
Well, I thought about you this 

1242
01:08:13,640 --> 01:08:15,440
weekend. 
I had something that didn't go 

1243
01:08:15,440 --> 01:08:18,040
quite so hot. 
And for those that don't 

1244
01:08:18,040 --> 01:08:22,439
understand what's going on, we 
we ended part one and started 

1245
01:08:22,439 --> 01:08:24,080
Part 2 and we had a weekend in 
between. 

1246
01:08:24,080 --> 01:08:25,479
So that's where this comment 
comes from. 

1247
01:08:25,880 --> 01:08:28,120
And I thought about you talking 
about your experience in the 

1248
01:08:28,120 --> 01:08:29,439
military. 
And I said, you know what? 

1249
01:08:29,439 --> 01:08:32,439
If guys are going through that 
whatever I'm going through isn't

1250
01:08:32,439 --> 01:08:35,680
so bad. 
And you know, I just, I want to 

1251
01:08:35,680 --> 01:08:39,600
let you know that somebody that 
sit, sat here and watch like 

1252
01:08:39,600 --> 01:08:42,319
you, you write the books and I 
wasn't as close as many were. 

1253
01:08:42,319 --> 01:08:44,640
But it's really cool to see you 
succeed. 

1254
01:08:44,720 --> 01:08:49,160
And it's nice to hear you 
excited that it sounds like your

1255
01:08:49,160 --> 01:08:51,640
business has hit escape 
velocity. 

1256
01:08:51,640 --> 01:08:55,359
And you seem like one of those 
guys that's out there doing the 

1257
01:08:55,359 --> 01:08:57,000
right thing for the right 
reasons. 

1258
01:08:57,000 --> 01:09:01,000
And you know, I'm happy that it 
happened to you because I well, 

1259
01:09:01,000 --> 01:09:03,200
I'm happy that you made it 
happen and I'm happy that it 

1260
01:09:03,200 --> 01:09:05,200
seems like you guys hit escape 
velocity. 

1261
01:09:05,200 --> 01:09:08,120
It's it's very cool. 
Yeah, no, appreciate it. 

1262
01:09:08,240 --> 01:09:10,880
Yeah, it's, you know, it's all 
about having a good team and 

1263
01:09:10,880 --> 01:09:13,600
good people around. 
You send a good culture and we 

1264
01:09:13,600 --> 01:09:15,479
obviously want to give it 
forward too. 

1265
01:09:15,479 --> 01:09:18,080
So like you know, if you're an 
entrepreneur or anybody, just 

1266
01:09:18,279 --> 01:09:20,000
I'll talk to anybody. 
I don't care if you're a 

1267
01:09:20,000 --> 01:09:23,439
billionaire, you're broke as 
shit because I've been in in 

1268
01:09:23,439 --> 01:09:26,640
that prior or I've been in, I've
been in that position as well. 

1269
01:09:26,840 --> 01:09:30,200
Just feel free to reach out. 
And you know, we're always happy

1270
01:09:30,200 --> 01:09:34,279
to help people try to achieve 
success and win in the game 

1271
01:09:34,279 --> 01:09:36,479
that's which is extremely hard, 
so. 

1272
01:09:37,120 --> 01:09:40,399
How can people find you? 
On the Alpha architect side just

1273
01:09:40,399 --> 01:09:43,080
alphaarchitect.com on 
infrastructure side 

1274
01:09:43,080 --> 01:09:47,920
etfarchitect.com and just you 
know hit us on contact us depend

1275
01:09:47,920 --> 01:09:51,760
on what aspect of our business 
you're interested in and we'll 

1276
01:09:51,760 --> 01:09:54,920
be in touch it's just it's that 
easy or on Twitter I'm at you 

1277
01:09:54,920 --> 01:09:58,520
know at alpha architect on 
Twitter also a commonplace you 

1278
01:09:58,520 --> 01:10:00,760
can hit us directly all. 
Right. 

1279
01:10:00,760 --> 01:10:02,600
Cool, man. 
Well, thank you for carving out 

1280
01:10:02,600 --> 01:10:06,440
the time for two straight day or
two straight work days, and I 

1281
01:10:06,440 --> 01:10:08,200
appreciate it. 
And we'll be in touch. 

1282
01:10:08,600 --> 01:10:11,720
Yeah you got appreciate the time
and honor be here all. 

1283
01:10:12,200 --> 01:10:12,840
Right cool.