Ladies and gentlemen, welcome to The Business Brew.
I am your host, Bill Brewster. This episode features Wes Gray,
also known as the Alpha Architect or the ETF architect.
However, you may know him. For those that don't know, I
think you're going to learn a lot about ETFs.
Wes has a number of ETFs that he manages.
The most interesting one that I can think of as far as like a
current event ETF is kind of the box BOXX is the ticker.
It's potentially an interesting thing to consider as a cash
management vehicle in lieu of treasuries.
I would encourage you to open up the prospectus and maybe take a
look at that. He also has a value ETF and a
momentum ETF that we talk about and he's got an ETF business.
So if you are someone that runs long, I guess the perfect
connection is probably someone that is long only lower turnover
and I would just describe it as more Buffett style.
I don't know if that's exactly the right way to say it, but
that's the way that I'm going to say it.
So anyway, consider reaching out to Wes and we'll see.
But I hope you enjoy the episode.
I certainly enjoyed talking to Wes.
He's a great guy. He served our country.
It's nice to see him succeed, and I think he's succeeding by
helping other people succeed, which is win win and highly
endorsed on this program. This episode is sponsored by De
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All right, ladies and gentlemen, excited to be joined by Wes
Gray, the Alpha architect. Wes, how you doing?
I'm good honored to be here. Oh, well, thank you.
I'm honored to have you. Happy to have a program that
warrants a guest like yours. Yeah.
Put a lot of time in I I'm sure
I you get some knuckleheads like me to communicate a few things
every so often. Well, you're far from a
knucklehead. I first I guess I first found
you with with the book you co-authored with Toby and then
I've read most of your stuff. So I I appreciate what you put
out there and I I think the ETF business that you've created is
pretty interesting. So I'd like to have a discussion
with you about it, if you're willing of.
Course. Dig in.
All right. You know, I guess the first
thing that I'd like to talk about because you know it's, it
seems timely, is this box ETF that you have.
And I'm, I'm not sure that enough people know about it as a
potential strategy for cash management.
So do you mind talking a little bit about what you do and and
why how this product came about? Yeah, it's so unfortunately it's
a long story. I'll try to condense, but it's
probably about seven years in the making and it's an
accumulation of every skill set we've been building for about
15. And and then just it all came
together to create like what's arguably are probably the best
idea we'll ever come up with, frankly.
Because it's just, you know, sometimes you only have so many
good ideas in life and then you get a really good idea.
You're like, holy cow, I'm never being that one.
Like, I feel like that's box, right.
And so Long story short, I'm sure most of your audience
aren't former option market makers or prop traders.
So I'll try to explain this as simple as possible.
But essentially within the options market, there is a
direct to consumer lending market through what they call
box spreads where just the math of put call parity you can
isolate either to borrow or lend directly with other option
dealers or other option market participants or really any
market participant right and back back before the 87 crash,
people would do box spreads, you know like Susquehanna would go
talk to whoever James Street or Citadel, whoever their names
were back then. But the problem is it wasn't, it
wasn't, it was just over the counter and you always had
counterparty risk, right. So.
So finally they got the box spread trade cleared through
OCC, which now you have like a centralized counterparty.
That means like, hey, now I can just go to the market and borrow
and lend through the box spread. And I don't care who's on the
other side of that trade because there's a clearinghouse that can
manage all the counterparty risk, right, just like they do
in stocks with DTCC and like in futures and other marketplaces,
right. So, So that's like the deep
history on it now. So how the hell do you actually
do it? Well, so it's if you're
basically replicating A treasury bill at whatever duration, sorry
duration you choose. So for example, if you're going
to do a three month box, what you need to do is you're you're
going to have four option positions.
Two of those options are going to replicate a synthetic long
stock position that's going to consist of long a call and short
a put at the same strike price. And if I don't know if you
remember like your payoff profiles with options, but if
you long a call and short a put you basically.
Yeah, it's just a synthetic. Lock synthetic lock?
Exactly. And then that's one part of a
box. The second part of a box is the
synthetic short, where now you're going to buy a put and
sell a call. Sell a call.
But at a different strike price. And that difference in the
strike price is the amount of cash flow that this trade will
deliver whenever those options are going to settle like let's
say three months. So for example, I'm synthetic,
long synthetic short. Obviously that mechanically
eliminates all market risk. And what it's going to do is
let's say you did the long synthetic at 1000 and you did
the short synthetic position at 2000.
What's going to happen is that trade will deliver guaranteed.
At least it's guaranteed as the option clearing corporation can
guarantee it, which is pretty good that you're going to get
$1000. And of course, if you know that
there's a payment that guarantees $1000 three months
from now that's backed by a, you know, AA rated agency, you know
it's not going to sell for zero, It's going to sell for something
probably close to T-bills, right, because it has very low
risk and you're guaranteed A payoff.
So it might sell for whatever 900 bucks or 950 or whatever the
interest rates are, right. And so and and that's the
lending side of it. You can also short a box and you
can implicitly borrow from the option markets, right.
So this is just a huge funding market that's pretty well
established in like hedge fund prop trading and market making
world because it's a way for them to go around the bank.
So you don't have to go borrow from your broker or you know or
or lend money to your broker. You could just go directly to
another counterpart in the marketplace and trade with each
other to borrow and lend capital.
So, so that's what box spreads are.
And then what we thought about is like, well no one's ever done
this before in an ETF. But boy, would it be nice if I
could get the box spread somehow in an ETF.
Because one, it generally has a preferable return profile
relative to just straight up treasury bills.
But more importantly, it might have a preferable tax profile
because we can leverage a lot of our knowledge with ETF like in
kind rebounds what have you to essentially create something
that presumably might be, you know more tax efficient.
And that's basically what we did.
It just it took a long time because every single time we
tried to do something, you know, people would ask us, well, what
are you talking about? You know, how does that even
work? So it's just and no one's ever
done this before. So every time we get to another
counterparty or what have you, it's just difficult.
Like even right now, you know facts that Bloomberg and
Morningstar don't have the holdings data correct with the
box. And you know, it's just is what
it is like sometimes when you're a little bit too innovative, all
the other counterparties, their systems aren't really designed
to to really think about this. You know, it's a continuous
putting fire out problem, but it's just the cost of, you know,
being out on the tip you spear I guess.
But anyways, it's. So, OK, so wait, so if I if I'm
synthetically long, what S&P at 1000 it?
Could be on any aspect of the. Way.
Yeah. I'm just thinking S&P because
it's easy. And then I'm going out and I'm
shorting it at 2000 in three months.
What you're saying is that trade should theoretically cost like
900 and some odd dollars to throw on whatever.
It's going to be whatever. Minus that like 1/4 of the T
bill to yield basically. Pretty much it's going to, it's
going to be priced via market forces and no arbitrage or
whatever the interest rate is for, for no risk borrowing at
that duration. You got it.
And then, OK. And then what about the ETF
structure enables it to be tax advantage?
Well, so I can't remember what year it was and this is super
detailed weeds, but basically innovator, the guys that came
out with all the new ETFs that you know do like to find outcome
things, I don't know if sure, not sure if you're familiar with
those, but they actually went to the.
I'm not, I'm an ETF noob. I.
Wish I oh, OK. Got you.
But I figure you're the good. Yeah, Yeah.
So why not talk to you. Yeah, that's why I was asking
you because I'll, I'll make sure I'll give context because
sometimes I just assume something that's common
knowledge and then people are like what are you talking about.
So, so just interrupt me if I'm saying something that that
doesn't make any sense. So I will do that from I think
it's called innovator capital or exact like LLC name, but I call
them innovator. They came up with the whole
defined outcome ETFs where basically you use options to
create different payoff profiles that certain investors might
find favorable, right, like hey you're going to get the S&P on
the upside, but you know we're going to up to like 20% return,
but we're going to cap the downside at -10%.
And obviously all they're doing is like trading different option
spreads around you know S&P 500 or different assets and this is
a very. Common pitched a lot in like
just like, you know high net worth pitches, right?
It's. Been it's in structured product
insurance world, this has been around forever, right?
And the huge advantage of insurance, which maybe, may or
may not be aware of is they also have a unique tax structuring
right? Like, 'cause they, they turn
something into an annuity and basically it can compound
essentially tax free. And then when you're 59 1/2, you
can take it out and then you pay your taxes.
So it's basically a, you know, a compounding vehicle and and they
sell these structured products that do all these different,
like defined outcome things, right?
And so I think that guy's named Bruce Bond, can't remember the
founder of Innovator. I think that's his name.
Someone could Fact Check me, but he basically had a genius idea.
He's like, why are we doing this in a ETF, right?
ETFs are all about low cost transparency and tax efficiency
and insurance is basically the opposite.
So let's disrupt these boneheads in the ETF wrapper, right.
And so one of the things they also did really well is they
went to the SEC and they said hey, can we get in kind
treatment on options because it's going to be way more tax
efficient and way more cost efficient for the ETFs to
operate. If we're allowed to do the same
thing we do with equities to to minimize tax drag, we should be
able to do that with options, right.
And they and they sent this very beautiful no action letter
protest to the SEC and they agreed to it.
Why is that important? Well, what that means is now you
know under you got it all compliant and all this stuff.
But now just like in equities, if I have a low basis security
and I want to rebalance out of it because I don't want
Microsoft, I want Exxon, you know, I can do that trading
through baskets without having to distribute a capital gain.
Well, now you can also do that with options, right.
And so now a lot of strategies that traditionally have like
huge tax drag because you're generating all these different
transactions and capital gains. We could use the same technology
which is not near as developed as it is in on the ETF or sorry
the equity side of the house. But it's now plausible and we
and we could use that combined with like box spreads and what
have you to basically deliver just like you do in equities a
much more tax efficient way to capture you know what's
essentially kind of like AT bill type retard effectively and.
So let's say I'm a listener that's that's sitting on some
concentrated position in Tesla or Apple or something like that.
How would I go about contributing that and and either
diversifying or turning it into another vehicle while avoiding
some some gains? So here's the problem.
Well, first problem is, I know way too much about this.
So we're going to geek out here on this because we deal with
this question all the time in real life.
So essentially, if you have a single stock massive position,
which is, call it, zero basis, you're somewhat limited.
There's one solution called an exchange fund.
Not to be confused with an exchange traded fund, but those
typically require a seven-year lock up contribution to like a
limited partnership. Tons of fees, tons of bells and
whistles attached and it's it's could be a good solution, but
it's very complex, very expensive and not exactly easy
to deal with. That's solution one.
The other solution is more and more people are coming out with
long short tax loss harvesting for example like Quantino is a
is a firm I really like I think AQR is doing that and what they
could do there is they basically run like a market neutral
strategy. And then you know because it's
long short because you're using leverage a lot of times with a
little bit of capital, you know you can end up generating a
whole bunch of capital losses, right.
You're you're, you're building a lot of unrealized gains on the
other hand in a diversified portfolio mix.
But you can generate a lot of losses, which then as you
generate those losses you can then start to pare down your
long only position. You just hope they're long term,
right? You want to match your.
Losses, right, Yeah, I mean at some level yes.
But in the end it doesn't really matter because even a short term
loss you can mark against a long term cap gain if if you got the
problem so that those are two probably the most traditional or
you just donate it, that's another solution.
Like at least yeah, I'm not going to pay the government, I'd
rather give it to, you know Joe or Susie's foundation.
You can always do that as well to get rid of the problem.
And then the other solution which is ETF related, which is
actually something we specialize on the infrastructure side is
you can do what they call a 351 exchange.
However, within 351, which is a section of the IRS code 351,
they're, you know, they're the IRS is not.
And Treasury's not that crazy. And there's a specific line for
funding of a Rick, which is a regulated investment company,
which is what an ETF or mutual fund is going to qualify as,
right. And so it in a standard 351
deal, if you weren't trying to fund a Rick, you could take your
zero basis Tesla, dump it into this new C Corp and not pay tax
on that transaction. But of course you know, but I'm
sure because someone tried to exploit this at some point,
they're like Nope. For Ricks in particular, if you
want to if you want to tax free exchange into a Rick IE like an
ETF or a mutual fund, you you can only get the tax free
treatment if you if you contribute diversified property
IE. You can't dump only Tesla in
however. That's smart of.
Them, but let me define what that means, because it's.
Yeah. What's diversified?
Exactly. Because like anything that was
in details, so diversified for 351 purposes is the following.
No single security can be over 25% of the NAV contribution.
So you could put a big chunk, you could do technically 24.99
of something. But then there's another
limitation which is that basically the weight of your top
five securities can't be more than 50%, right.
So if you have a portfolio that's got a bunch of chunky
winners with low bases and some like randos in there or like
other ETFs or diversify property, you can certainly get
a lot more diversification than than what like A5 stock, 10
stock portfolio looks like. And you if you dump it in ETF
you could then you know through the in kind mechanism rebalance
tax free into more actual diversify portfolios.
But that's the technical limitation if you want that
approach. Can you defer the taxes?
Like let's let's say I wanted to flip Microsoft into QVA.
Can I do that? Through it.
Through just as long as I'm not contributing a ton of Microsoft.
And nothing else. So let's say the following
situation were to happen. You have 24.99% Microsoft.
I'm just making this up 24.99% Microsoft, 15% Apple and 10%
Tesla and then a whole bunch of random crap, right?
You could, you could say, hey, I'm going to set up a new ETF
for you at 351 and I'm going to contribute these three positions
and then these whatever 20 other positions that are under 5%,
we're going to get that converted tax free.
And then to the extent in your investment objective, it makes
sense to like get rid of Microsoft and go into Q Val,
like obviously you can't just do things Willy nilly, it'd have to
be. You do it within the ETF that
you set. Up and then within the ETF, if
you wanted to do that because it was aligned with your investment
objector, whatever, you just say, hey Wes, can you please get
rid of all this crap and go buy Q Val?
That would be fairly straightforward to facilitate in
a tax free manner. So you know, because that's.
Then you have an ETF of ETFs, like a fund of funds, but not.
Yeah, you could do that. I mean, ET the the trick?
There's two tricks with ETF. ETF is an open secret, the
ultimate tax free compounding vehicle of all time.
Like if Warren Buffett could restart his life, I guarantee he
was started with an ETF structure because it's basically
replicating what he did, but with way more just it's just a
lot cleaner. The other problem people have,
you know, in the end, once people learn about the power of
the ETF compounding tax benefit, they're like, crap, how do I do
that? But then they have a second
problem. Well, the issue is that I'm rich
and I have a bunch of low basis assets, but I how am I going to
get to the ETF? Like I'm stuck in all this crap
that I've owned for 20 or 30 years.
And I would love to do an ETF, but I can't get there without
paying tax and I'd like to keep deferring.
So that's where this 351 solution comes in, that's that's
a tool of how do you get current low basis assets into the ETF
structure tax free, which has limitations.
But now once I'm in the ETF structure, it's easy in some
sense to like keep the compounding game going on, you
know, until obviously you sell your ETF or you die or whatever.
But it's so that's the trick is how do you get assets tax free
into an ETF And then once they're in there, now we're home
free. You know, within limitations of
course, but if you're trained equities or tactical, it's
pretty easy to not distribute capital gains.
What do you think? The minimum asset value that you
would need to have in an ETF is to have it make sense.
Well, basically for brain dead like not reinventing the will
ETFs, it's like it's basically around 200K all in cost.
We got actually a little bit lower than that.
So if you think about it, you know and so if you look out to
the market for what does it cost me to buy deferral, now it's
usually insurance as your next best alternative.
And you know if you go by like a variable annuity on you know it
might be anywhere from 25 to 50 basis points or higher turn on
your scale, let's just say to do an ETF the cost is 200 KA year.
Well if you know if you have 50 mil that's a 40 basis point
carry cost. If you have 100 mil, that's a 20
bit carry cost. If you have 10 mil, that's a 2%
carry cost. So what I usually tell people,
if you're in it for tax only, which nobody should ever be in
ATF only for tax reasons, you know, usually 50 mil is probably
like a a minimum, right, Because that's a 40 bit carry cost
that's actually pretty reasonable for like a deferred
tax compounding wrapper, especially if you have any sort
of activity. And then anything above that, it
just gets better and better and better and better.
But of course not everyone just does the ETF 100% for tax
reasons. It's also you know, you got like
a ticker on exchange or anyone that thinks you're cool could be
an owner, right. I mean there's a lot of other
reasons from like a business perspective, liquidity
perspective beyond just tax, why you would do that.
And actually I've, I forgot one other way.
I actually live in Puerto Rico do tax stuff down here.
There's another way you could also diversify single stock
there. There's this thing called Act
60, which used to be called Act 2022 in Puerto Rico.
Where is it? If you have a billion dollar
security, let's say you have a billion dollars of Microsoft, a
$0.00 basis. If you were to move to Puerto
Rico and live here for 10 years and establish like basically I
can't remember what the technical tax term is, 100% of
your bases would be converted into like your Puerto Rico
residency. And so you'd only have to pay 5%
tax at the 10 year anniversary to the Puerto Rican government,
which ain't bad. So you can't get rid of all of
it. But it's almost a step up -5%.
So that's the only other way I know.
How do you like Puerto Rico? What's that?
How do you like living there? I.
Love it, man. I never leave here if I don't
have to. I spend 90% of my days down
here. Yeah, only when they, you know,
got to drag me out for dog and pony shows or shake hands, kiss
babies events, They'll all leave this place.
But I love it, man. I think it's great.
That's cool, but I got a buddy down there shout out to my man
Francisco. Yeah, there we go.
It's a great place. Not for everybody, but I highly
recommend it if if you kind of got a little adventure spirit,
you know can speak a little Spanish and just like yeah, like
being adventurous and checking out new things, it's high
recommend. So when do you move?
I moved about three years ago. I moved during COVID times.
I was finally able to, you know, that there was about a year,
there were social networks were broken.
And so my kids didn't hang out with their buddies.
My wife didn't hang out with her friends.
And I was like, huh, this is a silver lining.
You know, this is an opportunity to make a change.
And yeah, so just and then also like the work from home became
less of an issue because people were like, oh, that's actually a
good idea. To which we were like, well, no
kidding, it's a good idea. We've been doing our whole
lives. And so it just, it was like a
lucky opportunity where I was able to pivot and I just we just
jumped at the opportunity. And there was, there was also a
time when our business was just in a massive convexity change
because we were we were hitting like the 10 year overnight
success problem where it's like 10 years eating ramen noodles
and they were like, Oh my God, we're getting rich.
Guys like this actually worked and and now and then, but now I
had to get my tax structuring in place and so it's just all the
stars aligned in this situation. That's awesome, man.
Good for you. So how did you start in the
industry? Let's talk about the last the 10
years planting the seeds. Yeah.
So hey man, I so I started in the business like seriously
trying to be an investor like in 99 at the height of the tech
bubble. And then obviously I thought I
was a genius because I was a Warren Buffett, Ben Graham Bible
Thumper back then. And I just, you know, I don't
know if you probably remember that, but like if you threw a
stick at a small cap value security, you made 30% a year
for 5-6 years in a row there and it's hard to not think you're
genius in that sort of environment.
And so you know, I actually, I think I launched some fund with
like 1,000,000 bucks or something maybe is is probably
in 2002 or 2001 like when I was a senior in college and I went
right into the PhD program and then you know, venture I was
like, all right, I got to get out of finance and join the
Marines, that's another story. But when I came back in 2008, I
then also launched a hedge fund in September 2008, which
obviously was a total disaster and then you know, kept going
on, kept grinding. And then my third business
attempt in 2010 was the current business.
And that one basically started because I used to, you know, I
used to write a blog Like we still write A blog.
It was just way worse and and not as good back in the day.
But I got literally got cold called by a billionaire who was
read my blog and it read my dissertation.
And and that was after 2008 when everyone got like kind of
fleeced and hedge funds and he basically just said, hey man,
like I like your stuff. I want to talk, we're transition
our family office out of hedge funds and LP's because we need
to control our wealth, go quant, get the cost down, blah, blah,
blah. And so they were way ahead of
the whole curve on where the world was going anyways.
And so basically, we started the current form of the business up
and then we did a couple years of consulting due diligence for
just on other managers and helping them build their systems
out. And then in 2012, just because
this is what I'd asked for, I was like, hey man, like, can you
seat us like the first time I've ever met a billionaire, He's
like, yeah, I can, but let's just work together for a little
bit. And then, so then we got like
A50 mil seed in in 2012, basically 4 quantitative value,
that strategy. And then kind of the rest is
history and it's then just grinded it out and it, you know,
then we learned about the ETF. We started off in managed
accounts and then we learned about the ETF.
I was at some rich person conference, some lady was
telling me about. I was like, wait a second that
sounds like the biggest tax shelter I've ever heard of in my
life And I did more research into and I was like holy cow,
this like this ETF wrapper. Why would anyone even run a
managed account. And and I told it back to the
the the billionaire guys and they're like, well, yeah, duh,
let's do that. And so we basically converted
our SMA business way back in the day into the ETF business,
'cause it's just, you know, it's a more, a better way to manage
capital in equities and that was probably around 2014 and then
just grinding it out ever since. Yeah, it's not.
Yeah. It's not that exciting.
It's just, you know. No, it is exciting, man.
This is so, you know, I call this show.
I call it the business brew. It's not.
It's supposed to be like the. I always thought about it like
brew. Like you put a bunch of stuff in
a pot of coffee and then the, you know, you end up with the
coffee cup. I think a lot of times people
look at the end result and they don't realize what went into it
right, and they don't realize the grind that it took to get
there and how long. And I mean you you launched Q
Val what like right in the teeth of a value head?
Yeah. Yeah.
We we launched. That's not exactly.
From a timing standpoint? Yes.
And we have been like in 2017 we had a billion dollars under
management and our average fee was like 80 bips.
And then all of a sudden the factors really blew out and we
dropped fees and the whole ETF wheels were in motion for the
future. And so we went from like kings
of the castle to like damn near bankrupt and like re fighting
again to get the top of the hill.
And then COVID happened. So then I got another as you
know value got destroyed in there and unfortunately I had
like one of my my main business partners commit suicide around
then. So we I've been many times like
at the top of the hill, right, the rock bottom probably three
or four times. And then this time we've got so
much escape velocity. I mean I don't, I don't even
know how we we could get taken down at this point to be frank.
But it, you know, there's been many many, you know, desperate
times of of highs and lows on this journey and honestly I I
don't know it. Looking back if I recommend
entrepreneurship to most people it's just too risky man.
Like and you got to be damn near crazy and and nuts which you
know I used to be in the Marine Corps so I had good training to,
you know to deal with pain and anguish and emotional issues.
And so it worked out. But it's like they threw every.
How did it help you? Well, I think, I think just, you
know, one of the things about the service, you know, and I,
you know, I was like, obviously in combat and everything, a
fortune during a time where a lot of people get killed and
died. And like, you start realizing
like, wow, like, you know, life's special and it's fleeting
and you could be dead in an instant.
And so once you live through kind of those experiences where
it's like as raw as it could possibly get and you come back
to the civilian world, you're like, Dick, this shit's easy,
man. Like like whatever.
And and so when you just go through like the Marine Corps
and you go through that sort of training, that sort of like
experiences, everything is just, you don't stress out a much.
Well, some people do. Some people it affects them and
it actually makes them worse because they're just, they're
too destructed. But some people, it's just it it
just makes them harder. Like I want to say not
necessarily it's a good thing because I know, like guys like
me, we're kind of probably warped, honestly.
But it's good in the sense that you're just so hard shit just,
you know, goes over you. Just don't sweat it and you can
grind through anything without even thinking about it.
And so that that just mentality is very useful in situations
where like you thought you were stud and now you're total dud,
but you just, you keep grinding no matter what and you just
don't give up. That's just a good mentality in
asset management where it's a freaking roller coaster times
10. So it was.
It was useful for me for sure. Might be easier for you, but as
an entrepreneur, you still got a family, right?
So you're taking, you're taking your spouse to the mountain top
and down. So.
So still got to manage that, yeah.
So the way I always tell that cause 'cause now all I do is
talk to entrepreneurs all day on our infrastructure side.
And my number one advice is this is a team effort, right?
If you have a wife and you have a family or vice versa, you're
the person launching ATF, you have a husband, a fan, whatever
it is, it's a team game and you can't get margin called by your
family. And I've seen that happen many
times where like the entrepreneurs got the mentality
to grind for 5-10 years, but eventually your significant
other and your children are like, dude, like we need to eat,
bro, you need to go get a real job, we're out of this.
And so, So it's really important that you think through that you
you have like you make sure the family margin call is covered.
And so in my situation, I had the cheesiest gig on the planet
called being a finance professor, where I basically got
paid a lot of money to not work that much and just my work was
doing research, which is perfect because I'm doing research on
stuff. I would research anyways if I
was going to be a practitioner to develop new investment
strategies. And so I'm making all this money
and getting paid, but I don't have the issue of, like I got to
work 100 hours at my job and then on the weekends when I'm
trying to hang out with my kids, I'm trying to build this
business. Does it?
Honestly, that's just not realistic.
It's too risky. So yeah, so I was recommending
either either marry well, so your spouse can like float the
boat or be born rich, which is also a great way to do it.
But, you know, you got to be in the lucky sperm club or find a
job where we're somehow like your job is kind of related to a
lot of what you might want to do as entrepreneur.
So you know for example if I'm like a business development like
raising capital person for Joe Schmuckatelli asset manager, you
know that's a great skill to have because in the background I
might be geeking out on strategies and like things and
I'm like all right if I go be an entrepreneur this is way easier
because the biggest skill set you end up needing is like how
to market distribute your product.
Because even if you have a great idea but no AUM, nobody cares
and and you know they're they're you just want to make sure that
and it's not easy by the way but but you got to cover the the
family margin call because it's just unfair to your constituency
whatever that might be. You know it they get a vote in
it too. So we want to make sure you stay
or just get VC, That's what VC and PE is for as well where
where if you raise capital someone else is kind of like
funding that risk on your behalf.
So at least you know you can get a decent salary and pay your
bills and eat food because no one is going to be effective.
If they're always stressed out and and worried about paying for
food you're not going to be a good entrepreneur in that
situation. So yeah, but, you know, just.
What are the common traits of people that you've seen that
have made it? So you have to be kind of ornery
and bullheaded obviously. Like you can't give up.
You have to believe no matter what people say, like basically
be overconfident effectively is probably the easiest way to to
say it. That's a necessary condition
that that may not be the nice way to put it but you got to be
very overconfident slash passionate whatever you want to
call that and then also have long horizon and make sure your
cat your funding is correct like you can't be getting like margin
called. So you know at least a five year
maybe if you're going to be an asset management business I'd
say a 10 year horizon yeah that's the whole point of 10
year overnight success. So yeah, just grind it out.
Overconfident passion, long term horizon and just just
willingness to basic just grind it out and do the boring shit
over and over again. And just have faith that as long
as your process is good and as long as you know you're adding
value in whatever you're trying to do, eventually people will
recognize that and it'll happen. But you just it's not going to
happen overnight. But it's really simple.
I mean just and then you need luck.
We can't control luck, so you can't really calculate that
everybody needs luck, right? It's like I I ran in that
situation where, you know, we climb the mountain and then we
went to the bottom of the mountain and then we kind of got
luck. So we're unlucky when we got
booted off the mountain, but then we caught a break and
that's what allows us to climb back up the mountain.
But you know if I only got bad luck breaks, you're never going
to be successful, right? It's it's like trend following
like a negative vowel asset, like it's just you're just going
to go to 0 if you if you don't quit at some point.
Because if you just have bad luck at every single turn, no
amount of good entrepreneurship or grinding it out or or grit or
whatever you want to call it is going to matter.
You just you got to have a tailwind at some point.
I like it. Yeah.
That's neat man. Good for you.
I've been looking at Q Val if assets, chase performance.
I can understand between box and that and maybe some of the other
things going on why you have hit escape velocity, but
nevertheless there's still some stink on value.
I have questioned it myself, although not not in a huge way,
but I think people that listen to value after hours would say
I'm less valuey then then certainly Toby one.
Do you mind talking about your definition of value?
Because this has come up on value after hours a number of
times and they've told me like 3 different times, but I don't
fully understand where you how you rank value within category.
And then two. I know you went on an
exploratory you know, why will value not work?
Last year I saw a couple of those tweets.
You mind sharing some of your conclusions about whether or not
the arguments against value have any merit.
Yeah, sure. So so it's very important to
your point to define what is value because you know it's has
a million definitions, it's in the eyes of the beholder or some
some level. So in our particular context of
how we implement value now is like Toby, Toby and I are very
aligned on 99% of this thing and I love him because he's so
hardcore and just holds the line which is amazing.
I obviously believe in some other tools and other religions
but but I'm also a big hold the line.
Spartan on on value like he is but he's he's like the poster
boy for that. So God bless him but our version
of value and approach is 1 systematic because I used to be
a stock picker like didn't work. I I realized very quickly that
I'm you know I suffer from behavioral problems like
everybody else and no amount of anything can ever solve that
problem. I'm just too much human system
solve that. So whatever the hell we're going
to do it's going to be done with the computer period.
Second step. I'm also big believer in the
fear aspect of describing why value works over long.
What I mean by that. I believe that value is this
idea of buying stuff that everybody hates.
It's Ben Graham style value. It's not Warren Buffett's.
Like where are all the dirt balls?
The terrible stories that just wasted barren turds of the
market that are really, really cheap.
I want to focus there because I believe on average expectations
would change from being fearful and maybe maybe not being greed
but just not being so scared of these damn things, right.
You're going to get meaner versions expectations and that's
when value will start to make money, right?
Because it's all about you only make money if you can out guess
the current expectation and the price.
So I think fundamentally that that's my style value just buy a
lot of cheap stuff with a computer and then kind of 1
little area where Toby and I think have a little bit of
difference of opinion is within the dirt ball cheap stocks.
I like to focus on quality with the idea that OK I'm buying dirt
ball cheap stocks everyone hates and obviously there's something
issue or some issue with their business otherwise they wouldn't
be in the 10% cheapest stocks like duh, the markets not that
stupid. So that what that means is if I
want to capture meaner version, I need to make sure that these
things can at least last for three to five years, right?
Because because if I buy a dirt ball, cheap stock, that's really
cheap. But fundamentally this thing is
a dumpster fire and they might go to negative earnings, they're
never going to have the opportunity to get a meaner
version and they could go bankrupt.
Or they could be like the falling knife problem.
So intuitively I just like to add quality fundamental overlays
amongst the cheapest stocks. I think Toby is more
preferential for just straight up dirt balls, which actually I
don't mind either, it's just at the margin I like to add the
quality overlay. So for me it's it's this simple.
I like to buy the cheapest comma highest quality stocks.
Cheapest is priority, but within those the highest quality.
And I'm doing that with a computer and that's basic Q.
Valve How do you define quality? So I mean we just use an
assortment of things, right, like we have like a little 10
point checklist now. But it it's things like hey like
is your year over year earnings, operating margins improving, are
you buying back stock, are you paying down debt?
Like just kind of good old fashioned Ben Graham ideas, just
fun. Like if you go to work, if you
were to go look at like security analysis and just go flip the
random pages and grab ten of those, stuff like that, right.
Like are you making money, are you financially stable?
Are you getting operation improvements?
Is is, are you doing net repurchases?
You know, 'cause usually that's a good sign amongst cheap stocks
because you know presumably the sea level guys are are being
smart about that. Just, you know, common sense
quality. And you know, we have our
methods and we we use a bunch of like negative screening
mechanisms on the top of the funnel as well.
But whatever. If you don't want to do a super
fancy version like we do, if you just said, hey, I'm going to buy
the 10% cheapest stocks on PE ratio and make sure they don't
have too much debt like an old big gram screen.
Also a great idea like God bless you, I'm in.
So that's for me is value, it's just the greed or it's the fear.
Trade with this idea that eventually, you know,
fundamentals will mean revert perceptions, sentiment mean
reverts. And that's when you make all
that money, right? So.
How do you avoid catching like cyclicals, like peaking
cyclicals? Yep.
Or do you so that that's frankly that's part of the trade right.
And the the issue with long only value investing long short is
very different because now you got a risk management problem,
right? Like I can't be long energy in
short tech just vaguely because there's a good chance I'll go
bankrupt before anything works right?
So in a long short context, which is very different than a
long only you have to sector neutralize, you have to do all
this crap because you're in the get.
You're in the risk management game because you're basically
running a levered portfolio. In a long only context, the, the
issue is sentiment and hate and discontent is highly correlated
with sectors and industries, right.
And I was using example of like 99 like you know, OK, so we're
going to force ourselves to own 50% tech and the cheapest tech
stock is a 50 times price to earnings ratio.
That's not going to work here, right.
So, so you have to unfortunately take on tracking error because
value like the whole thing we're talking about is highly, highly
correlated with sectors. You're going to find the vast
majority of dirt ball cheap hated securities in sectors
generally it's highly correlated, right.
And and so that's just the the fact of the matter.
Now, on the cyclical thing, that's part of the trade because
it's all. That's the reason they're so
cheap, right? Like the whole point of value
investing, at least how I like it is.
I'm going for expectation mismatches where this firm is.
Energy is the greatest example ever.
The last few years, these firms are making more money than, God,
nobody cares. They'd rather pay 50 times
revenue for whatever. NVIDIA.
I guess I would not. Yeah.
But, you know, you know, I mean,
that's the pitch, right? It's like, well, these energy
guys, yeah, they're making all the money, but we're ESG.
We're going to all do everything with wind tunnels or wind farms.
Now, I don't even know what the pitch is.
It's ridiculous to me. But all these things they have
this, like, overhang of, oh, it's cyclical.
They're going to be dead. Meanwhile, all they're doing is
printing free cash flow. Like to me, if you buy that at
the right price, even if it mean reverts like it, even if it does
what they say, as long as it doesn't, you know, fall as bad
as what people had priced in, you still could make money,
right? So.
So even if let's just pretend half of energy goes to
windfarms, Exxon is still printing dollar bills and they
might even own the wind farms now too, right?
And so yes, maybe their earnings like slow down or they're
cyclical. But if you bought it at it's
such a cheap price where the hate and discontent suggested
the Exxon is going out of business, you can still make
money, right? So it's yes, it matters and
we've looked at everything you could ever imagine like we're
like hey let's do averages, let's do Cape ratio type earning
look backs. None of that shit matters.
What matters is what's in the operating income the last 12
months that is proxying for this mispricing element on average
over time and the cyclicality? Well.
You and Toby are very, very close.
As you said. You and Toby are very, very
close. As you said, yeah, exactly.
Right. He's EV to EBIT.
That's basically. The same exactly.
And and I do believe in some sort of diversification like I
would never recommend, like, OK, the cheapest stocks, 100% of
them are in like the oil patch, Let's do 100% that 'cause that's
just if that's the only investment you have.
It's just too much idiosyncratic risk, I'd agree with that.
But if you want to capture the value premium, you have to allow
a lot of flexibility, you know, so we have like I think 2025%
bounds where where you could be way off whatever the S&P is, but
you're never going to be like 50% in one in one industry,
Obviously, that's just, that's even too crazy for me.
Now you could argue you could go pure all in no matter what,
unconstrained, but you'd only do that if you also owned, you
know, some SP 500 or other crap. If it's like your only
investment, that would be kind of crazy.
And even like Warren Buffett and concentrated stock pickers don't
do that. Yeah.
So, well, you just introduced massive path dependency to
something that otherwise doesn't need to.
Exist exactly. And there are industry risk too.
Like, like they could just turn off an industry.
The government could just say, Nope, you're not playing
anymore. And yeah, all those cheap stocks
are now really cheap because they're worthless.
So, you know, so you want to have obviously some
diversification to avoid like crazy tales like that.
And there's a lot of different opinions on this.
We're just, we're like, Toby, we're going to go as pure as
humanly possible, within reason, and then just go for it.
We're not here to benchmark. Hug.
See, I I've said a couple times that I might just index on this
program. I have not spoken precisely
enough. My real answer is I have come
to, I feel like an idiot saying this out loud, but it's true.
I've come to really appreciate the tax benefits of ETS because
it really sucks when you're really right on something and
then you got to stroke a check to the government or you got to
own something that's like not cheap anymore.
And you're looking at foregone opportunity.
And it's like, you know, all right, if this is one of the few
businesses that can grow to the sky, this can work.
But if it's one of the 95% of normal businesses, I got to get
out. And if I got to get out, I got
to pay taxes and that, like, that sucks.
I'm telling you, I spend 99% of my time figuring out tax
structuring, 1% on the strategy. Why?
Because the tax is like a 50% carried interest around your
neck. That like that dwarfs so many
other variables. I don't understand why people
don't think about tax so much more than they spend on
investment it it. Well, because because most
people, or at least a lot of people in the industry don't
have the same incentive that you do to tell the same story.
So that story is not what people are hearing or thinking about as
as often. I think that's.
True, it's in it's very not transparent like there's not
like, I mean Morningstar tries to do after tax, but it's it's
something that's just it's not discussed nearly enough.
But yeah, I've seen ETF like it doesn't matter what you put in
it, but if you have any level of activity, the ability to
compound tax deferred for 20 or 30 years versus having to pay
taxes every year. And the optimization problems
like well, I have to own this overvalued turd because that's
better than paying the tax on it.
Like the ETF just eliminates that whole problem, which is
beautiful. It's now it's like you have a
massive 4 O 1K where you could just invest optimally like what
makes sense to compound capital. So it's, yeah, but the downside
is, you know, and we obviously know a lot 'cause this is we
have a huge business, is launching an ETF is not exactly
easy or cheap. You know, it's 200 GSA year, you
light on fire minimum. So you got to have like pretty
serious capital to even consider that you already got to be rich.
Well, how do you get rich? Well, you get lucky and you
probably didn't pay taxes and you compound it at a high rate
for a long time, you know, But but people that are trying to do
it, your next best alternative is probably just by other
people's ETFs that are close enough to what your investment
philosophy is. That's not going to drive you
too, too wild. Yeah, well, and to your point,
if you do buy other people's ETFs, then they've already lived
through the ups and downs of entrepreneurship.
Some of that may be worth outsourcing.
Yes, exactly. Right.
Like it's not all it's easy to look at the at the gravy train
at the end and be like I want that.
You got to be willing to live through the cost.
Yes, for sure. But that said, just because I'm
biased because obviously I have ETFs.
Like if you do have the passion, if you do have desire and you
would do this for free and just because you love the game so
much, I get it. There's people out there like
that, like I'd probably do that if somebody gunned in my head
said, hey, you know, you're not getting paid shit anymore to run
out for architect and do your business and do everything you
do. I'd probably still do probably
95% what I'm doing right now. I'd be mad, I'd probably whine
and complain a little bit, but I'd be like, yeah, whatever.
I like doing that anyway. So then that's when you know
you're kind of programmed to. This is probably the right idea.
It's just kind of what you wanted to do.
You're born for this type of thing.
Can we talk about another church that you seem to pray to, which
is momentum? Well, listen, can we can we pick
up Part 2 of? This let's do it.
Well, thank you for taking the time here.
I appreciate it. Yeah, yeah, no worries.
At this time of year, we always host a lot of people because
it's, you know, 80° in perfect weather in Puerto Rico.
So we magically find ourselves with like hosting barbecues
every night and drives my wife insane.
But you know is what it is cost of doing business if you live in
Puerto Rico. Nice to live somewhere that
people on a vacation. Yeah, yeah, exactly.
All right. So I wanted to ask you about
your other church that you pray to.
I know that you've you've found, you know, statistical
outperformance historically in value.
The other the other book that you wrote was about momentum and
I'm curious for your thoughts on momentum or what you found with
momentum strategies? Yeah.
So but as a native value investor, you know you're kind
of taught that all that matters is some fundamental to price and
you shouldn't just focus on price or technicals or any of
the Mr. market aspects. But then the problem is when you
start reading enough research and you hold you know you're
you're trying to be an evidence based investor not a feelings
based investor. It becomes pretty clear pretty
quick then momentum is something you should strongly consider and
so it you know it took me a while to wrap my head around it
but momentum is this idea that just buying winners so stocks
that have been doing well relative to all the other stocks
continue to do well in the future.
That basic concept is arguably one of the best strategies that
you can do arguably even better than value.
That doesn't mean you should not do value because they they
happen to kind of yin and Yang at different times but that
that's essentially momentum And and again for me to get there it
it took a while because I was fundamentally still am a value
mentality type person but now I'm a believer in both.
How, how persistent is that momentum?
I mean, do you, do you pretty much just say, OK, well if I'm
going to buy into that as soon as the moving averages crossover
I'm out or something like that? It's less persistent in the
sense that if you do a generic value strategy like to just say,
hey, we're going to go buy the 10% cheapest PE stocks or
something like this, you know it.
It doesn't matter too much whether if you rebalance that
every month or every year, you're still going to capture
the fact, right? It's obviously better if you did
it monthly rebalance, but then you got to consider taxes, fees
and all this other stuff. But it still works with momentum
strategies. If you don't refresh them
quickly, they're worthless. So like for example an annual
rebalance momentum strategy, it's all but a waste of your
time where whereas it only works if you have faster frequency and
that kind of makes sense because it's more of like a sentiment.
You know you're basically front running people that are chasing
shiny rocks all the time and shiny rock chasers change their
minds a lot. And so it's really important to
that strategy to just it has to be a much more actively traded
strategy. We're doing it monthly now, but
even quarterly it's still not bad.
Interesting. I I mean it makes sense.
The other thing that I think is, is sort of nice about it is
momentum can move factors, right.
It kind of morphs with whatever is working.
That's how I think about it. Yes, we do live momentum
strategies and in I think whatever it was 2000, 2020 one
we were like a Kathy Wood clone and then you know after that
momentum blew up obviously because we do momentum strategy
you quickly shift and then we were an energy fund in 2000, you
know late 2122. And so Momentum, the best way to
think of it's like a Chameleon, like it's just where the
Chameleon colors change depending on where the, where
the mojo on the market is and it just adapts, it's very adaptive
strategy, it can be anything to anybody.
Yeah, yeah. Well, as you said, it's whatever
the shiny rock is of the day, right?
Exactly. Whatever has momentum, that's
what you buy. It's it's really a pretty brain
dead strategy. That's not very intuitive, but
it just works, I think. Or the long haul.
Huh. Well, I really appreciated, you
know the work that you put out and I I appreciate you expanding
my mind a little bit about I read the DIY investor, I had all
all your books were like right there on the bookshelf together.
So I think I found you in like 2019 and I appreciate what you
done. Yeah.
I'm I'm sorry that I've contributed to your brainwashing
in the financial markets, but hopefully some of the knowledge
is. Useful indeed.
Hey, I wanted to circle back to something that you said about
Buffett and an ETF. And and why, why do you think
Buffett would have been in an ETF structure?
And the reason that I asked that is I'm kind of curious if if the
moment of like it seems to me that ETFs can attract money when
they're working and I am not sure if that would be a positive
and like Buffett strategy is kind of what I totally get it
from a tax perspective, but I was just curious.
Yeah. So yeah, the the main reason I
mention that is just if anyone follows Buffett, you kind of
realize his genius is not really picking stocks.
His genius is lowering frictional costs and avoiding
taxes. That's what it has allowed him
to compound not just a high rates but high high rates after
fees and after taxes. And you know obviously the ETF
is basically the ultimate way to do to achieve both of those.
Now to your point, which is actually very good one, ETFs are
not permanent capital. You know to the extent you're,
you know, you're on board with Buffett's strategy.
You give him more money, he deploys it to the extent you
think he's an idiot, you take capital away from him.
However, that said, like the nucleus of the core strategy
itself and to the extent you didn't give him too much money,
so he would have too much scalability and not be able to
play with the the things he likes, which is actually his
current problem. I don't think it would actually
matter. It's just the end investor could
screw themselves. But Buffett himself is just
going to be managing a pool of capital and investing whatever
pool of capital he's been given the best of his ability.
And if people want to ride the train, great, take a ride the
train. If they don't want to ride the
train or they want to get out at the worst times, you know,
obviously you cannot control that.
It's not like permanent capital stuck in the fund and that's
their own problem, but it. But I still think it would still
be a pretty useful vehicle for, you know, for someone like him
for sure, especially to the extent he's trading and things
that are relatively liquid and scalable.
Now it might be too much because he has, you know, hundreds of
billions of dollars and there's too much transparency in an ETF.
So at that scale, if he's being super concentrated and you know,
he's trying to buy like huge stakes as a percentage of the
business. That's obviously not going to
work in an ETF structure because there's all kinds of limitations
and issues with the 40 Act, but but taxes frictional cost in
early day Warren Buffett, I think he would definitely at
least strongly consider that rapper.
As far as people like considering that rapper, one of
one of the things that I had asked you about when we were
getting ready for this, I said, you know, I'm curious for your
more interesting ETS idea, ideas or whatever.
Like what are some ETFs that people should think about or may
not know about is probably the better way to say what I'm
trying to say. And one of them is, is you
brought up, you said the interesting deals are less about
the substance of the ETF, but how they became an ETF.
And you cited CCMG. And I was curious if you
wouldn't mind just briefly describing what that is and if
somebody that's listening, if this kind of conversation
resonates, you want to talk a little bit about your business
on how you're helping people launch ETFs.
Yeah, So, so CCMG is one of the the most recent conversions
we've done where you can always launch just a normal ETF, just
you start up an ETF and yeah, yeah, hit the ground running.
But there's also an ability to seed an ETF tax free with
current assets, typically low basis assets and we've done that
on mutual funds, limited partnerships or hedge funds and
separately managed accounts typically through like an RIA.
And so the CCMG deal was was a monster SMA deal where there is
you know thousands of individual separately managed accounts,
there were syndicated all together with low basis
securities that all contributed simultaneously to seed in ETF.
In that case, it was almost $800 million.
But we've also done mutual fund deals that were almost a billion
dollars and we've done several LP deals that weren't that big,
but we did one that was over $100 million.
The main idea is that, you know, a lot of people look at the ETF
wrapper, they're like, man, that's so awesome, The tax
efficiency, the fees, the transparency, like that's
clearly the future in many respects.
But it you know I have a bunch of low basis stuff right now and
I don't want to sell that pay a bunch of tax just to get into
the better wrapper. And So what we've kind of
focused on our ETF structure is how do we solve that problem,
how do we transition you from A to B where A is the inefficient
way to manage capital, B is the efficient way to manage capital.
How do we do that without having a tax bill and and and so that
that's something that's super interesting for if you do have
listeners out there that are, you know, investment advisors,
hedge fund managers or even just ultra high net worth and you
want to try to, you'd like to manage your money in ETF because
who won it. But you know, how can we do this
without killing you on the way into the ETF wrapper?
Yeah, I I am thinking of somebody right now and I as soon
as we're off this, I will at least ping him and maybe
actually write just an intro and say, hey, I think you guys
should chat because especially if you can convert mutual funds
that seems to be a way to take what I perceived to be sort of a
dying business and flip it into more of a growth strategy.
Yeah, 100%. And obviously the devil's in the
details these things, there's way too many lawyers involved.
So it's frictional, it's painful, tons of brain damage.
But if you're thinking about this is like a 510 year thing
and not like the next six months deal, OK, so we have someone off
cost and brain damage but it sets us up for a long term
success that that should be a no brainer for most people.
But you do have a lot of legacy and status quo bias or even
great ideas. You're like we'll just deal the
next month and then you say that for the next next month or the
next 10 years and then you find yourself dead and out of
business. That's something you obviously
want to avoid. But I also empathize with that
because it is a pain to deal with transitions and you know,
explore new business model and deal with ETFs and what have
you. Yeah.
But it would be an interesting idea to sort of buy like dying
mutual funds and then convert them to ETFs to the extent that
it was just the mutual fund wrapper that was causing some of
the decay, definitely in assets under management.
And there's a business out there it's that'd be complicated.
But you know to the extent that you can go in there and get the
key, the key like anything is price paid, right.
Like if you can go in there and buy the assets as they are which
is basically a dying legacy thing that's going to be
bankrupt anyways at some point and you could pay that value and
then turn around flip it converting ETF and and clean
things up. The.
But the problem is usually an M&A like the mutual fund people
when you when you're like, hey I'm going to buy your stuff
because your business sucks. They're like, well, great, what
do you want to pay? And you're like, well, not a
lot. And they're like, you know, OK
And then they're like, well, that's weird.
Well, OK, maybe we will do it. And then you got The problem is
you need to explain to them because you need a lot of people
on board to convert to an ETF. And then the minute you
explained, like, hey, here's what we're going to do to unlock
all this value, here's how we're going to do it.
They're like, oh, well, instead of paying me what you wanted to
pay me, you're going to have to pay me more now because you just
told me how you're going to Add all this value.
And you're like, well, I'm going to Add all that value, not you.
And they're like, well, yeah, but just pay me for it anyways.
So. So those deals, it's all about
the art of the deal and like you know, finding a win win to make
it work. And in my experience, it's just
easier said than done. So yeah.
Well, that's that's what you do on podcast.
You just say things that are easy, right?
Yeah, Yeah. Yeah, but it is an
entrepreneurial opportunity, right?
If something's hard, that usually means there's like a
return on capital tied to it. And if you can solve that,
that's how you make money. So if you have any entrepreneurs
listening or people that are out there, I mean, there's
definitely a value creation situation on conversion from
legacy to ETF wrappers, which we kind of sit as the shovel maker,
but someone needs to be the deal maker.
And you could definitely make a ton of money if you could get
everyone to sit at the table and agree on something, yeah.
Sure. How do you find yourself as the
shovel maker? Like how'd that?
Happen we do all the So basically what happened is we
never in a million years would have thought we'd be a shovel
salesman for ETF infrastructure services.
And it's sometimes life just happens And we we were always
kind of like dudes hanging out in the garage trying to survive
in the ETF business for over a decade.
And we built all this infrastructure, did everything
ourselves. And then, you know, you wake up
four or five years ago and now everybody on the planet is like,
man, how do we start an ATF? But jeez, that's really hard.
And like tons of costs and super expensive and annoying.
Wouldn't wouldn't it be nice if we could just go rent Wes's
infrastructure? Because they already saw this?
And then we finally just had to get our head around opening up
our infrastructure to other people as opposed to just using
it for our own ETFs. And then once we figured that
out was just, it's kind of like I'm sure it's probably what
Amazon thought when like we built all these servers, we
built all this infrastructure to facilitate our storefront and
everyone's like, man, it would be nice if we could use your
guys back in tech, you know? And sure enough AWS was born.
It was kind of like what happened to us if we had like a
an AWS basically buried in the backyard, essentially a gold
mine that we didn't know we had until we just thought thought
differently about it. So it's just a change in
mentality about what's our, what's our value proposition in
the ETF business. Yeah, maybe it's not making
ETFs, maybe it's helping other people and selling them a
beautiful, low cost, high quality shovel.
We might be really, we might be better at that than actually
creating our own ETFs and trying to sell them to the world.
That's that's difficult. We don't have a monopoly on
that, for sure. Well, I thought about you this
weekend. I had something that didn't go
quite so hot. And for those that don't
understand what's going on, we we ended part one and started
Part 2 and we had a weekend in between.
So that's where this comment comes from.
And I thought about you talking about your experience in the
military. And I said, you know what?
If guys are going through that whatever I'm going through isn't
so bad. And you know, I just, I want to
let you know that somebody that sit, sat here and watch like
you, you write the books and I wasn't as close as many were.
But it's really cool to see you succeed.
And it's nice to hear you excited that it sounds like your
business has hit escape velocity.
And you seem like one of those guys that's out there doing the
right thing for the right reasons.
And you know, I'm happy that it happened to you because I well,
I'm happy that you made it happen and I'm happy that it
seems like you guys hit escape velocity.
It's it's very cool. Yeah, no, appreciate it.
Yeah, it's, you know, it's all about having a good team and
good people around. You send a good culture and we
obviously want to give it forward too.
So like you know, if you're an entrepreneur or anybody, just
I'll talk to anybody. I don't care if you're a
billionaire, you're broke as shit because I've been in in
that prior or I've been in, I've been in that position as well.
Just feel free to reach out. And you know, we're always happy
to help people try to achieve success and win in the game
that's which is extremely hard, so.
How can people find you? On the Alpha architect side just
alphaarchitect.com on infrastructure side
etfarchitect.com and just you know hit us on contact us depend
on what aspect of our business you're interested in and we'll
be in touch it's just it's that easy or on Twitter I'm at you
know at alpha architect on Twitter also a commonplace you
can hit us directly all. Right.
Cool, man. Well, thank you for carving out
the time for two straight day or two straight work days, and I
appreciate it. And we'll be in touch.
Yeah you got appreciate the time and honor be here all.
Right cool.