1 00:00:01,040 --> 00:00:04,400 Ladies and gentlemen, welcome to the business Brew. 2 00:00:04,440 --> 00:00:09,560 I am your host, Bill Brewster. As always, this episode is a 3 00:00:09,600 --> 00:00:16,120 returning Wes Gray episode. Wes ping me and said that he had 4 00:00:16,120 --> 00:00:21,560 an innovation that could be interesting to the audience and 5 00:00:22,480 --> 00:00:27,920 he has worked on solving the problem of concentrated 6 00:00:27,920 --> 00:00:30,280 positions in people's portfolios. 7 00:00:31,120 --> 00:00:33,960 If they want to get out of a concentrated position and into 8 00:00:33,960 --> 00:00:38,400 the S&P. This episode covers how a 9 00:00:38,400 --> 00:00:40,520 qualified purchaser could do that. 10 00:00:42,080 --> 00:00:45,680 I make no reps or warranties as to the accuracy of the 11 00:00:45,680 --> 00:00:48,400 information in this episode. Everyone should reach out to 12 00:00:48,400 --> 00:00:54,200 Wes, but at the end of the day, if you don't know who Wes is, 13 00:00:54,200 --> 00:00:56,480 you can listen to a number of podcasts. 14 00:00:56,480 --> 00:01:01,000 We we did one earlier, but Wes spends time trying to figure out 15 00:01:01,000 --> 00:01:07,720 solutions for people and launches ETFs to solve the 16 00:01:07,720 --> 00:01:10,120 problems that he identifies and whatnot. 17 00:01:10,200 --> 00:01:14,680 And I thought it was an interesting conversation, 18 00:01:14,680 --> 00:01:19,560 especially, you know, I bring up the example of Berkshire in the 19 00:01:19,560 --> 00:01:21,440 episode. Let's say that you don't want to 20 00:01:21,440 --> 00:01:25,320 live with the secession planning risk, but you've owned Berkshire 21 00:01:25,320 --> 00:01:29,840 for 40 years or your family's owned it for that long or 22 00:01:30,360 --> 00:01:34,320 Microsoft or anything, right? I I think it's an interesting 23 00:01:34,320 --> 00:01:39,360 episode for wealth planners, qualified purchasers, people 24 00:01:39,360 --> 00:01:43,840 with concentrated positions, or anyone interested in some of the 25 00:01:44,480 --> 00:01:49,560 nerdy ETF stuff that's going on, which seems to be where a lot of 26 00:01:49,560 --> 00:01:51,000 the innovation and finance is coming. 27 00:01:51,000 --> 00:01:54,960 At least the good stuff. You could always find yourself 28 00:01:54,960 --> 00:01:58,360 the next back, but I'm not sure that's too innovative. 29 00:01:59,400 --> 00:02:05,560 Anyway, I digress, nothing in this show is financial advice. 30 00:02:05,560 --> 00:02:08,080 Everything is for entertainment purposes only. 31 00:02:08,600 --> 00:02:12,200 Please contact contact your financial advisor before making 32 00:02:12,200 --> 00:02:14,600 investment decisions and do your own due diligence. 33 00:02:15,080 --> 00:02:34,200 Enjoy the show. All right, ladies and gentlemen, 34 00:02:34,200 --> 00:02:38,400 we got Wes Gray Part 2 here and Wes ping me. 35 00:02:38,400 --> 00:02:41,520 He said, hey, we might, you know, it might be a timely 36 00:02:41,520 --> 00:02:44,160 conversation. I, I have a, a conversation that 37 00:02:44,160 --> 00:02:48,360 might be helpful for people with single stock concentration 38 00:02:48,360 --> 00:02:50,840 issues. And funny enough, I have one of 39 00:02:50,840 --> 00:02:55,400 those I'm sitting in a position where I was gifted Microsoft 40 00:02:55,400 --> 00:02:58,040 right? And it, it, the, I think the 41 00:02:58,040 --> 00:03:02,560 cost basis in that position is $0.98, might be $1.20. 42 00:03:02,560 --> 00:03:06,440 Regardless, the whole thing is taxable and I, I know that I 43 00:03:06,440 --> 00:03:09,200 don't know more than the market knows on Microsoft. 44 00:03:09,200 --> 00:03:14,200 So when you get me up and, and said, hey, there is maybe a way 45 00:03:14,200 --> 00:03:18,480 to get out of that position in a tax advantage way. 46 00:03:19,080 --> 00:03:21,360 So I'd love to hear what you have to say. 47 00:03:21,360 --> 00:03:24,160 I as as soon as you hit me up, I said, yeah, let's do this. 48 00:03:24,160 --> 00:03:27,160 So I don't know how long this episode is going to be, but I 49 00:03:27,160 --> 00:03:28,520 think people should hear about it. 50 00:03:28,520 --> 00:03:30,600 And if nothing else, hopefully we get something on people's 51 00:03:30,600 --> 00:03:33,360 radar. So welcome back and thank you 52 00:03:33,360 --> 00:03:35,040 for pinging me. Yeah, yeah. 53 00:03:35,040 --> 00:03:37,600 Appreciate you having me on. And like, I don't say this 54 00:03:37,600 --> 00:03:42,040 lightly, but this is I think a big innovation in this very 55 00:03:42,040 --> 00:03:45,960 exact situation where people have a lot of very contrary 56 00:03:45,960 --> 00:03:49,000 securities that don't qualify for other tools we have. 57 00:03:49,400 --> 00:03:52,160 And and you're like, I would like to diversify, but at the 58 00:03:52,160 --> 00:03:54,520 same time I would not like to get, you know, raked over the 59 00:03:54,520 --> 00:03:58,840 coals and fees and bankers and all the complexity that is, you 60 00:03:58,840 --> 00:04:00,840 know, generically speaking is involved in. 61 00:04:00,880 --> 00:04:01,880 Handling, yeah. So what? 62 00:04:01,880 --> 00:04:05,760 So one of one of one of the solutions is what a fund that 63 00:04:05,760 --> 00:04:11,600 basically you contribute your securities to and you pay X 64 00:04:11,600 --> 00:04:14,760 amount of fees and you end up with an S&P portfolio at the end 65 00:04:14,760 --> 00:04:15,680 of it, right? Yeah. 66 00:04:15,680 --> 00:04:19,959 So, so let me, let me walk you back and how we got here, right. 67 00:04:19,959 --> 00:04:24,240 So, so as you know, we run at this point a large ETF 68 00:04:24,240 --> 00:04:27,680 infrastructure company and behind the scenes we're always 69 00:04:27,680 --> 00:04:31,200 thinking about cost and investing and obviously taxes 70 00:04:31,200 --> 00:04:34,520 and being tax efficient is a critical component of investing. 71 00:04:34,560 --> 00:04:37,200 Someone actually told me recently, if you're a taxable 72 00:04:37,200 --> 00:04:40,120 investor, you're playing the investing game in nightmare 73 00:04:40,120 --> 00:04:42,440 mode. Whereas like the, you know, 74 00:04:42,440 --> 00:04:45,440 endowments and pension funds, they play it in like story mode. 75 00:04:45,760 --> 00:04:49,720 So 100% we're totally screwed relatively. 76 00:04:49,720 --> 00:04:51,560 We're playing the game literally on nightmare mode. 77 00:04:51,960 --> 00:04:54,760 And so one of the things that we've brought to market, that's 78 00:04:54,760 --> 00:04:57,200 a quick side. Yeah, total bullshit that 79 00:04:57,200 --> 00:05:00,280 someone like Harvard doesn't pay taxes and the individual 80 00:05:00,280 --> 00:05:01,400 investor does. Right? 81 00:05:01,400 --> 00:05:02,920 Like. Yeah, yeah, it's crazy. 82 00:05:03,800 --> 00:05:06,240 So I agree. Thank you for bringing solutions 83 00:05:06,240 --> 00:05:08,240 to the market. Yes, it's just. 84 00:05:08,280 --> 00:05:11,720 We're all just, well, unless you move to Puerto Rico like I did. 85 00:05:11,720 --> 00:05:14,720 But when I say we, I mean, I mean like American citizens 86 00:05:14,720 --> 00:05:17,000 normally who aren't crazy enough to move down here. 87 00:05:17,200 --> 00:05:18,960 You know, you got a big tax problem. 88 00:05:19,120 --> 00:05:21,640 You can also just move, but that's voting with your feet and 89 00:05:21,640 --> 00:05:24,200 hard to do. So what what we do on the 90 00:05:24,200 --> 00:05:28,880 infrastructure side is as you know, stepping back ETF has one 91 00:05:28,880 --> 00:05:33,240 of the best tax structures you can find effectively. 92 00:05:33,240 --> 00:05:37,040 You can manage your capital inside the ETF and as long as 93 00:05:37,040 --> 00:05:39,840 you're long term oriented, you own an ETF structure, it can 94 00:05:39,880 --> 00:05:43,360 effectively compound tax free until you choose to sell it. 95 00:05:43,400 --> 00:05:46,400 So it's a tax deferral structure basically? 96 00:05:46,560 --> 00:05:50,200 And the reason behind that is the ETF is your investment. 97 00:05:50,200 --> 00:05:54,200 What the ETF does within it is non taxable through creation, 98 00:05:54,200 --> 00:05:56,080 redemption mechanisms and what not. 99 00:05:56,400 --> 00:05:58,440 You got it. It's the Rick statue, 100 00:05:58,440 --> 00:06:01,560 specifically 852B6 that that you know, if you trade through 101 00:06:01,560 --> 00:06:04,280 baskets and what have you, they're basically non taxable, 102 00:06:04,480 --> 00:06:05,640 right? You got to you got to actually 103 00:06:05,680 --> 00:06:08,080 can't just do it for pure tax reasons, But you know, you 104 00:06:08,080 --> 00:06:10,600 change investments, that's investment merit you can change 105 00:06:10,600 --> 00:06:11,800 without having to deal with taxes. 106 00:06:11,800 --> 00:06:13,840 You got it. So obviously it's basically a 107 00:06:13,840 --> 00:06:16,960 four O 1K effectively, right? You can kind of think of it like 108 00:06:16,960 --> 00:06:19,560 that easily. Like I can swap out my Microsoft 109 00:06:19,560 --> 00:06:23,000 go buy Exxon no problem. And eventually I'm going to pay 110 00:06:23,120 --> 00:06:26,400 taxes. It's just deferred to 2030, 40 111 00:06:26,400 --> 00:06:28,960 years or whenever the heck you want to actually pay your taxes 112 00:06:28,960 --> 00:06:30,640 or you can just donate it or whatever. 113 00:06:30,880 --> 00:06:33,760 But anyways, ETF is awesome. Great. 114 00:06:34,520 --> 00:06:37,840 Next question. Well, I would love to put my 115 00:06:37,840 --> 00:06:42,720 capital in the ETF, but I'm stuck in a hedge fund, a mutual 116 00:06:42,720 --> 00:06:46,880 fund, a limited partnership or my own Schwab account or, you 117 00:06:46,880 --> 00:06:49,880 know, or like, you know, my grandma gave me a trust that has 118 00:06:49,880 --> 00:06:54,080 zero basis in like the Dow 30. You know, what am I going to do? 119 00:06:54,120 --> 00:06:56,640 Like, I would love to do that, but how do I move? 120 00:06:56,640 --> 00:07:00,840 And I'm not going to sell this to get into an ETF structure 121 00:07:00,840 --> 00:07:02,800 because then I have to pay a massive tax bill. 122 00:07:03,160 --> 00:07:06,120 So that's where this section of the code, it's called Section 123 00:07:06,120 --> 00:07:09,280 351 comes in, which probably speaking is widely used in 124 00:07:09,280 --> 00:07:11,600 corporate America for like business formation. 125 00:07:12,040 --> 00:07:18,120 But within that statute, you can also use it to fund a Rick, a 126 00:07:18,120 --> 00:07:20,320 regular investment company like an ETF. 127 00:07:20,600 --> 00:07:24,480 However, it comes with baggage and that baggage is a 128 00:07:24,480 --> 00:07:28,160 diversification requirement where we're specifically you can 129 00:07:28,160 --> 00:07:32,600 only put up to 25% in a single security like so you could do 130 00:07:32,600 --> 00:07:37,600 24.99 Microsoft, but then you have to the rest has to be more 131 00:07:37,600 --> 00:07:40,000 diversified. Specifically, there's the 50% 132 00:07:40,000 --> 00:07:44,200 rule where the top five contributed securities in your, 133 00:07:44,200 --> 00:07:47,640 your contribution can't be more than 50%, right? 134 00:07:47,640 --> 00:07:52,240 So if you have 11 stocks, 11 stocks equal weight, no problem, 135 00:07:52,640 --> 00:07:55,920 right? You have 24.99 Microsoft and 136 00:07:55,920 --> 00:08:00,280 then 75% a bunch of random other things, also not a problem. 137 00:08:00,600 --> 00:08:04,320 But this is a hard and fast treasure regulation where if you 138 00:08:04,320 --> 00:08:08,200 want the tax free treatment in the in the transition to get ETF 139 00:08:08,200 --> 00:08:10,320 shares, you have to be diversified. 140 00:08:10,960 --> 00:08:14,720 So and, which is awesome. At least that's solve 1. 141 00:08:14,960 --> 00:08:17,600 But but now let's walk through that one before we get to the 142 00:08:17,600 --> 00:08:20,400 next solve. On just real quick, to the 143 00:08:20,400 --> 00:08:27,080 extent that you can opine on the legislative thought behind it is 144 00:08:27,080 --> 00:08:30,200 the idea if I'm using any sort of capital, regardless of 145 00:08:30,200 --> 00:08:34,640 whether or not it's appreciated to find or found an investment 146 00:08:34,640 --> 00:08:38,600 company, it's fine that we're going to let people defer taxes. 147 00:08:38,600 --> 00:08:41,640 Is that kind of the thought process behind giving people 148 00:08:41,640 --> 00:08:44,840 that option? So the original history on 351, 149 00:08:44,840 --> 00:08:47,680 it's been around for like 7080 years now at this point. 150 00:08:47,680 --> 00:08:51,400 Is that the idea just at a, it's, it says essentially you 151 00:08:51,400 --> 00:08:55,000 can contribute property to form a new C corporation. 152 00:08:55,440 --> 00:08:57,800 And the reason they put that in there is, is let's say we're 153 00:08:57,800 --> 00:09:00,320 just going to go start like a shoe company, right? 154 00:09:00,320 --> 00:09:03,000 You make Nikes, I make cowboy boots. 155 00:09:03,000 --> 00:09:06,680 And we're like, geez, Bill, we should set up a new, a new 156 00:09:06,680 --> 00:09:09,920 company who can contribute the, the Nikes all contribute to 157 00:09:09,920 --> 00:09:13,560 cowboy boots and, and we'll have this great conglomerate will be 158 00:09:13,560 --> 00:09:15,040 more efficient, blah, blah, blah. 159 00:09:15,320 --> 00:09:18,080 But the problem is, if there wasn't a tax code, there could 160 00:09:18,080 --> 00:09:21,320 be an implied tax on the contribution of the asset. 161 00:09:21,320 --> 00:09:23,360 Right, it's a realization event. Yeah. 162 00:09:23,480 --> 00:09:27,480 And that that would just destroy a capital formation into capital 163 00:09:27,480 --> 00:09:29,080 efficiency entrepreneurship, right. 164 00:09:29,200 --> 00:09:32,840 So that's kind of the intent is like if people have property, 165 00:09:33,240 --> 00:09:37,160 want to kill better ideas, more efficient ideas, better 166 00:09:37,160 --> 00:09:41,120 solutions by like imposing a tax when when they're just trying to 167 00:09:41,120 --> 00:09:43,760 like get more efficient and like they're eventually going to pay 168 00:09:43,760 --> 00:09:46,920 their tax at some point. But we shouldn't like stymie 169 00:09:46,960 --> 00:09:51,200 better capital formation, right? So and then so within 351, it's 170 00:09:51,240 --> 00:09:54,040 been around forever on just generic C Corp funding. 171 00:09:54,360 --> 00:09:58,320 And then, of course, some smart guys, I'm sure along the way set 172 00:09:58,320 --> 00:10:02,040 up, let's fund a Rick and what does contribute Microsoft and 173 00:10:02,040 --> 00:10:04,320 then turn it into SRP or whatever, right? 174 00:10:04,320 --> 00:10:06,280 And so obviously they're not that dumb. 175 00:10:06,520 --> 00:10:09,320 And so they created additional treasure regs that say, wait a 176 00:10:09,320 --> 00:10:12,360 second, if you're going to set up a new C corporation and 177 00:10:12,360 --> 00:10:14,960 you're going to have it qualified as a Rick so we can 178 00:10:14,960 --> 00:10:18,080 avoid double taxation, that's what all mutual funds and ETFs 179 00:10:18,080 --> 00:10:21,080 essentially qualify as. You have an additional rule, 180 00:10:21,560 --> 00:10:24,240 diversification, because we don't want you to get a free 181 00:10:24,240 --> 00:10:27,280 ride where you're going to basically get a free opportunity 182 00:10:27,280 --> 00:10:29,760 to diversify without some penalty. 183 00:10:30,600 --> 00:10:32,840 Because why? Why should common equity get the 184 00:10:32,840 --> 00:10:35,560 same treatment as real estate? But I digress. 185 00:10:35,560 --> 00:10:38,760 Yeah, that's true. And then so then there's another 186 00:10:38,800 --> 00:10:42,960 structure which which is the exchange funds because there's 187 00:10:42,960 --> 00:10:46,480 another rule with partnerships. So partnerships have another 188 00:10:46,480 --> 00:10:50,440 section of the tax code and like it's section 721 and then 189 00:10:50,440 --> 00:10:52,960 obviously 350 one. They're like cousins basically, 190 00:10:52,960 --> 00:10:54,760 right? Because what the partnership law 191 00:10:54,760 --> 00:10:57,960 says, all right, we'll let you guys do that. 192 00:10:58,000 --> 00:11:01,720 You can actually, Bill, you can throw in your Microsoft and if 193 00:11:01,720 --> 00:11:05,040 you go rally up some friends or whatever, you can all contribute 194 00:11:05,040 --> 00:11:08,880 your zero basis single stock position into a partnership. 195 00:11:09,440 --> 00:11:12,240 And then you guys effectively attain diversification, right? 196 00:11:12,240 --> 00:11:14,960 Because if let's say you find 30 your buddies, you all got 30 197 00:11:14,960 --> 00:11:17,520 random things. That's another way to quote UN 198 00:11:17,520 --> 00:11:21,280 quote, like get diversification. But if you do that, which is 199 00:11:21,280 --> 00:11:25,080 totally allowed, they say, OK, Bill, you're cheating because 200 00:11:25,080 --> 00:11:29,120 you're getting diverse, that's OK, But I'm going to impose A7 201 00:11:29,120 --> 00:11:32,440 year lock up on that. So so on the partnership side, 202 00:11:32,440 --> 00:11:35,280 they say, OK, you want to do the divert the non diversified, A 203 00:11:35,280 --> 00:11:38,200 diversified thing, all good. But you have you have to be 204 00:11:38,200 --> 00:11:39,800 committed to that for seven years. 205 00:11:39,800 --> 00:11:42,440 We got to make it painful for you at least, right? 206 00:11:42,440 --> 00:11:45,840 Whereas 351 you know, if they didn't put the additional Reg on 207 00:11:45,840 --> 00:11:49,160 Rick's, you'd be like, well, I'll just do that because I 208 00:11:49,160 --> 00:11:50,680 don't have any seven-year requirements. 209 00:11:50,680 --> 00:11:54,600 So that that's why the rules are married up where 351 as long as 210 00:11:54,600 --> 00:11:58,280 you contribute diversified property, at least according to 211 00:11:58,280 --> 00:12:01,320 what the IRS thinks is diversified, you can do the tax 212 00:12:01,320 --> 00:12:03,360 retreatment and there's No 7 year lock. 213 00:12:03,360 --> 00:12:06,720 If you want to do the, the single stock thing and get 214 00:12:06,720 --> 00:12:09,120 diversification, they're like, OK, you can do that via the 215 00:12:09,120 --> 00:12:12,440 partnerships, which is not 351, that's 721. 216 00:12:12,720 --> 00:12:14,440 But now you're going to have a seven-year lock up. 217 00:12:14,760 --> 00:12:18,160 So, so that, that's how they, they've have it structured and, 218 00:12:18,280 --> 00:12:20,880 you know, whatever, I don't know what, who made those rules that, 219 00:12:20,880 --> 00:12:22,320 you know, they, they hashed us out. 220 00:12:22,320 --> 00:12:25,360 There's, there's, there's actually a great paper if you 221 00:12:25,360 --> 00:12:27,560 Google. Am I the only one that's paying 222 00:12:27,560 --> 00:12:30,000 taxes? It's, you know, some lawyer 223 00:12:30,240 --> 00:12:33,480 wrote up this thing about the whole history of 351 exchange 224 00:12:33,480 --> 00:12:36,880 funds and the whole ball of wax. And he's just, you know, saying 225 00:12:36,880 --> 00:12:39,240 like this is crazy. Like who comes up with all these 226 00:12:39,240 --> 00:12:41,440 rules, you know, for people to do defraud? 227 00:12:41,480 --> 00:12:45,440 And again, I'm not a politician. I just take the rules and then 228 00:12:45,440 --> 00:12:48,680 we use them to our advantage to maximize value for people, 229 00:12:49,040 --> 00:12:51,440 right? So anyways, that's a lot of 230 00:12:51,440 --> 00:12:54,840 complication, I'm sure for your listeners here, but it's very 231 00:12:54,840 --> 00:12:57,160 important to understand because this is basically all the 232 00:12:57,160 --> 00:13:00,680 different tools that you can use to solve the kind of problems 233 00:13:00,680 --> 00:13:04,200 that you're dealing with. So anyways, going back to 234 00:13:04,200 --> 00:13:08,920 ETFETF, great tax efficiency, lot of people would like to just 235 00:13:08,920 --> 00:13:13,520 do the simple transaction of how can I just take my $100 million 236 00:13:14,000 --> 00:13:17,120 and turn it into an ETF? I'm just a family office because 237 00:13:17,120 --> 00:13:19,000 I'd rather just manage my money in that. 238 00:13:19,440 --> 00:13:22,240 Well, there's a catch. If you want to run an ETF, you 239 00:13:22,240 --> 00:13:25,680 have to be regulated and you're subject to all the scrutiny and 240 00:13:25,680 --> 00:13:27,440 craziness that I got to deal with all day. 241 00:13:27,440 --> 00:13:28,760 Most people don't want to do that. 242 00:13:29,320 --> 00:13:32,560 And So what what has happened through a million conversations 243 00:13:32,560 --> 00:13:35,320 where people are like, I would love to invest in ETF, but I 244 00:13:35,320 --> 00:13:37,160 want to deal with regulation there. 245 00:13:37,480 --> 00:13:39,080 I was like, well, I don't have a solution for it. 246 00:13:39,480 --> 00:13:44,440 So we came up with this new fund idea in this ticker that's 247 00:13:44,440 --> 00:13:48,520 actually going live on on July 3rd AAUS. 248 00:13:49,000 --> 00:13:52,480 And what it is it, for lack of a better term, it's boring 249 00:13:52,480 --> 00:13:56,600 Vanguard fun. It's a cheap, low cost beta plug 250 00:13:57,000 --> 00:13:59,240 because a lot of people that, you know, I don't need, I don't 251 00:13:59,440 --> 00:14:02,200 it's we're not even going to argue about like factors and all 252 00:14:02,200 --> 00:14:04,520 the other stuff that I do. You know what great. 253 00:14:04,880 --> 00:14:07,720 You know, buying the market is good enough for government at 254 00:14:07,720 --> 00:14:09,480 work. And and if you just want that 255 00:14:09,480 --> 00:14:13,080 done cheap and low cost, we're going to deliver that or try to 256 00:14:13,160 --> 00:14:15,520 right, seek to deliver that for compliance purposes. 257 00:14:15,840 --> 00:14:18,400 And so, but what I'm going to help you do is help you 258 00:14:18,400 --> 00:14:23,440 transition your hodgepodge of crap you got over here into that 259 00:14:23,440 --> 00:14:26,800 structure tax free via Section 351. 260 00:14:27,200 --> 00:14:29,080 And people obviously love this idea, right? 261 00:14:29,080 --> 00:14:32,160 Because like, hey, can I just get cheap beta and simplify my 262 00:14:32,160 --> 00:14:34,400 life? Awesome. 263 00:14:34,400 --> 00:14:38,760 We've solved that second problem, your situation and many 264 00:14:38,760 --> 00:14:42,480 other situations. Hey, Wes, I have $100 million of 265 00:14:42,480 --> 00:14:44,040 Tesla. Great. 266 00:14:44,240 --> 00:14:47,720 Do you have anything else? No, I have 100 million of Tesla. 267 00:14:48,040 --> 00:14:50,480 Well, you can't do 351 because you don't qualify. 268 00:14:50,480 --> 00:14:51,960 Well, what are you going to do for me? 269 00:14:51,960 --> 00:14:54,360 I would like to get, you know, beta too. 270 00:14:54,440 --> 00:14:56,080 You know, that would be awesome. I was like, I don't have a 271 00:14:56,080 --> 00:14:58,560 solution. And then so the last few years 272 00:14:58,560 --> 00:15:02,520 we've been trying to figure out how can we legally and within 273 00:15:02,520 --> 00:15:05,840 the intent of all the laws and all that fun stuff, how can we 274 00:15:05,840 --> 00:15:10,280 leverage exchange funds, which we talked about before, that is 275 00:15:10,280 --> 00:15:12,920 a scenario where we can contribute a single stock and 276 00:15:12,920 --> 00:15:15,800 take advantage of ETF structures. 277 00:15:16,480 --> 00:15:17,960 Bingo. We've solved it. 278 00:15:18,440 --> 00:15:22,400 And I, and I shouldn't say we, I contributed a lot of terrible 279 00:15:22,400 --> 00:15:25,920 ideas and a lot of terrible brainstorming, but our partners 280 00:15:25,920 --> 00:15:30,200 at this firm called Cash solved it because this has been two 281 00:15:30,200 --> 00:15:33,360 years of like, you know, working through all the 40 act rules, 282 00:15:33,360 --> 00:15:36,680 all the tax lawyers and talking all these white shoe law firms. 283 00:15:37,040 --> 00:15:40,560 And we kept running into snags and, and Shree who, who's the 284 00:15:40,560 --> 00:15:44,240 founder of cash, you know, actually has the silver bullet. 285 00:15:44,240 --> 00:15:47,240 They've solved it. So, and I'll let him talk to you 286 00:15:47,240 --> 00:15:49,480 later on the weeds because, because he can give it to you, 287 00:15:49,480 --> 00:15:51,680 but I can give you the, the nickel tour and the bottom line. 288 00:15:52,200 --> 00:15:56,320 Now if you would like to contribute a non diversified 289 00:15:56,320 --> 00:15:59,520 portfolio, let's just say you have 100 mil of Microsoft only 290 00:15:59,520 --> 00:16:01,840 because I've. What if What if I don't have 100 291 00:16:01,840 --> 00:16:03,320 million? Let's let's say I got. 292 00:16:03,680 --> 00:16:09,440 A million. $700,000 of. So they're taking K min. 293 00:16:09,520 --> 00:16:12,440 However, there you go this because the this exchange from 294 00:16:12,440 --> 00:16:15,240 they're doing it, they need it to be broad and have a lot of 295 00:16:15,240 --> 00:16:17,000 investors. You still have to be a qualified 296 00:16:17,000 --> 00:16:19,920 purchaser basically. So you can do a low amount, but 297 00:16:19,920 --> 00:16:22,480 you have to affirm. Saying 100 million seemed out of 298 00:16:22,480 --> 00:16:23,600 reach. Yeah. 299 00:16:23,880 --> 00:16:25,280 So like, like, what are we talking? 300 00:16:25,280 --> 00:16:27,480 About in real. Person terms, you could be in 301 00:16:27,480 --> 00:16:31,080 real person terms, the technique will go down to 1%. 302 00:16:31,120 --> 00:16:32,120 I'm sorry. OK. 303 00:16:32,360 --> 00:16:34,200 But there's still a, a technical requirement. 304 00:16:34,200 --> 00:16:36,440 You gotta be a qualified person. You gotta have like at least 5 305 00:16:36,440 --> 00:16:38,760 million, I think liquid net worth or whatever the heck that 306 00:16:38,760 --> 00:16:40,640 rule is. But you know, but the so you 307 00:16:40,640 --> 00:16:43,800 have to be kind of rich or at least affirm you're rich. 308 00:16:43,800 --> 00:16:46,160 But the actual amount you contribute doesn't have to be 309 00:16:46,160 --> 00:16:49,240 like insane, but it's it's definitely not something that 310 00:16:49,240 --> 00:16:51,680 like Joe and. Susan, so you have to affirm 311 00:16:51,680 --> 00:16:55,360 that you're rich and you got to contribute at least $100,000 is 312 00:16:55,360 --> 00:16:56,840 that? Exactly, yes. 313 00:16:56,880 --> 00:17:00,800 And then effectively what what you know, I'm going to simplify 314 00:17:00,800 --> 00:17:05,319 this, but we can only take an AAUS diversified contributions. 315 00:17:05,599 --> 00:17:09,560 You individually cannot do this. However, if you go through an 316 00:17:09,560 --> 00:17:13,440 exchange fund, they will be able to and they already have, 317 00:17:13,440 --> 00:17:16,040 they'll be able to pull a composite of people that have 318 00:17:16,040 --> 00:17:19,160 all kinds of crazy stuff. And then they can set up the 319 00:17:19,160 --> 00:17:22,880 structure so that if they have another LP, it can have the 320 00:17:22,880 --> 00:17:26,119 diversification requirements contributing to my deal and then 321 00:17:26,119 --> 00:17:28,640 I can give them AUS back in return. 322 00:17:28,840 --> 00:17:32,600 So now effectively you're you're leveraging exchange fund 323 00:17:32,600 --> 00:17:35,920 structure, but you're basically getting immediately diversified 324 00:17:35,920 --> 00:17:38,480 and you're going to be able to track the S&P from day one and 325 00:17:38,640 --> 00:17:40,760 you're still going to have to have a seven-year hold and all 326 00:17:40,760 --> 00:17:42,720 these other other things. It solves the problem that 327 00:17:42,720 --> 00:17:46,040 you're trying to solve is how do I, how do I tax efficiently 328 00:17:46,280 --> 00:17:49,320 diversify away from all in Microsoft? 329 00:17:49,920 --> 00:17:51,920 This is the answer is the bottom line. 330 00:17:52,320 --> 00:17:54,800 And then, yeah, so I'll stop there and I'll tell you. 331 00:17:54,880 --> 00:17:55,920 So important. Things. 332 00:17:55,920 --> 00:17:58,400 Let's just really talk about big hypotheticals. 333 00:17:58,800 --> 00:18:02,560 Yeah, I have a concentrated position hypothetically in 334 00:18:02,560 --> 00:18:05,320 Berkshire and Buffett is retiring. 335 00:18:05,320 --> 00:18:09,480 And I say to myself, self, I'm not sure I want to take on all 336 00:18:09,480 --> 00:18:15,120 the risk of, you know, whatever the session and that entity, 337 00:18:15,800 --> 00:18:20,320 there is potentially a pool that I can contribute my Berkshire 338 00:18:20,320 --> 00:18:25,160 stock into. I will be an LP in that pool 339 00:18:25,160 --> 00:18:28,960 that that LP group will contribute the capital to this 340 00:18:28,960 --> 00:18:35,120 other entity and then I can have S&P exposure as opposed to 341 00:18:35,400 --> 00:18:38,120 Berkshire exposure. Who's the GP? 342 00:18:39,200 --> 00:18:43,360 So we, so legally, it's very important we've, even though 343 00:18:43,360 --> 00:18:48,120 we're working together with Cash, Cash is the advisor to the 344 00:18:48,120 --> 00:18:51,800 exchange funds and we have 0 economic affiliation, which is 345 00:18:51,800 --> 00:18:54,360 very important for the 40 Act because to the extent that 346 00:18:54,600 --> 00:18:58,080 they're going to invest in our ETF and their limited 347 00:18:58,080 --> 00:19:00,440 partnership, it's very important that we have no economic 348 00:19:00,440 --> 00:19:02,600 affiliation, which we don't, right. 349 00:19:02,600 --> 00:19:06,640 So, so they manage that, they manage the exchange fund 350 00:19:06,640 --> 00:19:09,440 apparatus and that's what their whole business does, just like 351 00:19:09,440 --> 00:19:12,400 our whole business is ETF operations back office. 352 00:19:12,440 --> 00:19:15,160 You know, essentially their story is, is the founder of that 353 00:19:15,160 --> 00:19:17,000 firm. He's, I think it was a big Uber 354 00:19:17,000 --> 00:19:18,800 or Waymo. Like he had the, he had the 355 00:19:18,800 --> 00:19:21,520 classic problem. Most entrepreneurs have great, 356 00:19:22,000 --> 00:19:24,200 I'm rich and I have a bunch of Uber stock. 357 00:19:24,200 --> 00:19:27,240 Let me go talk to these Wall Street people because they must 358 00:19:27,240 --> 00:19:29,240 know what they're doing. And then, you know, if you're an 359 00:19:29,240 --> 00:19:30,880 engineer type, you go talk to them. 360 00:19:30,880 --> 00:19:33,880 You're like, oh, great, this is basically a big rape and pillage 361 00:19:33,880 --> 00:19:35,920 farm. Like none of this stuff is a 362 00:19:35,920 --> 00:19:38,160 good idea. And and so he's like, they're 363 00:19:38,160 --> 00:19:40,360 all just trying to figure out how to keep their fees. 364 00:19:40,520 --> 00:19:43,240 Yeah, yeah, exactly. And, you know, really smart 365 00:19:43,240 --> 00:19:46,760 people, like engineer types, like he is like they, they can 366 00:19:46,760 --> 00:19:49,240 quickly cut through all the noise and be like, wait a 367 00:19:49,240 --> 00:19:53,640 second, this is the worst idea ever and all your options are 368 00:19:53,640 --> 00:19:55,400 terrible. You know, Ding, Ding, Ding, I 369 00:19:55,400 --> 00:19:58,720 have capital and I need to solve my own problem anyways. 370 00:19:59,040 --> 00:20:00,720 I'm going to go set up my own firm. 371 00:20:00,720 --> 00:20:02,160 And we're going to do this the right way. 372 00:20:02,160 --> 00:20:05,440 We're going to do this with technology, with efficiency, not 373 00:20:05,440 --> 00:20:08,200 with like, you know, 'cause that business exchange from business 374 00:20:08,200 --> 00:20:12,880 is at least 30-40 years and it's dominated by two players that 375 00:20:12,880 --> 00:20:15,320 will remain nameless. But they're not exactly like the 376 00:20:15,320 --> 00:20:17,520 innovative. In the world on exchange funds 377 00:20:17,520 --> 00:20:20,680 are big. Yes, that's the other thing. 378 00:20:21,000 --> 00:20:23,160 So the other. So it's one thing for us to 379 00:20:23,160 --> 00:20:27,200 figure out how the hell do we do we help people actually get to 380 00:20:27,200 --> 00:20:30,080 like an S&P like exposure quickly to solve the 381 00:20:30,080 --> 00:20:32,800 reversification problem. But then we also need to do the 382 00:20:32,800 --> 00:20:36,200 good old fashioned Jack Bogle principles of how do we also 383 00:20:36,200 --> 00:20:40,720 make this cheap, transparent and easy, as easy as possible. 384 00:20:40,720 --> 00:20:44,200 And so that's the second thing that we've done with those guys 385 00:20:44,200 --> 00:20:46,160 is, you know, because we obviously our culture is like, 386 00:20:46,160 --> 00:20:49,120 how do we do this as cheap and efficient as humanly possible. 387 00:20:49,440 --> 00:20:53,800 And his culture is the same. So when you marry 2 cultures of 388 00:20:53,800 --> 00:20:56,920 a bunch of cheap bastards that you know, hate fees and hate 389 00:20:56,920 --> 00:20:59,720 taxes and all that stuff, you know, it's a good marriage. 390 00:20:59,800 --> 00:21:03,080 Because now, now we have a composite package that's, you 391 00:21:03,080 --> 00:21:05,720 know, arguably at least going to be half the cost. 392 00:21:05,920 --> 00:21:08,840 You know, for example, like the all in cost to do all this. 393 00:21:08,840 --> 00:21:10,880 You know, if you have like $1,000,000 plus, I think it's 394 00:21:10,880 --> 00:21:14,000 like 50 bips or something like that, including the ETF fee. 395 00:21:14,360 --> 00:21:17,080 And then after seven years, you know, if you just, if you get 396 00:21:17,080 --> 00:21:19,880 distributed out the ETF, it's like the 15 bips or whatever it 397 00:21:19,880 --> 00:21:22,040 is. So so you get everything cheap. 398 00:21:22,320 --> 00:21:25,640 After seven years, can you ask to get distributed in kind? 399 00:21:26,400 --> 00:21:29,720 Yes, so it's there's a lot of like technical things, but yes, 400 00:21:29,720 --> 00:21:32,960 basically what happens after seven years now you're past like 401 00:21:32,960 --> 00:21:35,720 the the ability for them to come back and say we're going to do 402 00:21:35,720 --> 00:21:37,840 that effective sell back seven years ago. 403 00:21:37,840 --> 00:21:40,360 You can get distributions in kind pro rata. 404 00:21:40,760 --> 00:21:45,000 And so the concept here is is like, you know, any and everyone 405 00:21:45,000 --> 00:21:48,360 wants to be an ETF structure. It's low cost, transparent and 406 00:21:48,360 --> 00:21:50,000 super tax efficient for the long game. 407 00:21:50,120 --> 00:21:52,880 And so, but the problem is, you know, I got concentration, so 408 00:21:52,880 --> 00:21:54,920 I'm going to have to deal with the seven-year problem. 409 00:21:55,200 --> 00:21:59,040 But then after that, you know, I can get rid of the LP apparatus 410 00:21:59,040 --> 00:22:01,480 because that's also just baggage at this point. 411 00:22:01,720 --> 00:22:04,240 You know, now I can get distributed in kind tax free 412 00:22:04,240 --> 00:22:07,600 assets out of the partnership and I just hold this beautiful 413 00:22:07,600 --> 00:22:11,840 low cost, tax free or, you know, tax efficient ETF for however 414 00:22:11,840 --> 00:22:14,720 long you're going to do it. So the exit is a lot cleaner in 415 00:22:14,720 --> 00:22:17,800 the old days with exchange funds because we've seen this and we 416 00:22:17,800 --> 00:22:21,080 have a lot of these as contributors to the 351 is you 417 00:22:21,080 --> 00:22:25,080 get dumped this pile of like 30 stocks and a whole bunch of 418 00:22:25,080 --> 00:22:27,800 other stuff you don't really want with low basis. 419 00:22:28,160 --> 00:22:30,320 And you're like, I haven't really solved my problem. 420 00:22:30,840 --> 00:22:34,120 You know, I donated NVIDIA and I got back a bunch of triple Q 421 00:22:34,120 --> 00:22:37,240 stocks and and now I got to deal with them forever. 422 00:22:37,240 --> 00:22:40,120 Like now I got a 351 anyways into an ETF. 423 00:22:40,120 --> 00:22:43,280 So this is much like we're trying to pull out steps of the 424 00:22:43,280 --> 00:22:46,000 process to make it more efficient for folks. 425 00:22:46,000 --> 00:22:47,760 Yeah. So I mean, it's, this is like a 426 00:22:47,760 --> 00:22:51,480 big solve to all the problems that people have with 427 00:22:51,480 --> 00:22:53,640 concentrated stock. It's unfortunate we can't make 428 00:22:53,640 --> 00:22:56,960 it insanely easy because we have to have to comply with all these 429 00:22:56,960 --> 00:22:59,680 complex tax rules and whatever. But we can at least make it as 430 00:22:59,680 --> 00:23:03,520 cheap as soon as possible and achieve like the core goal, 431 00:23:03,720 --> 00:23:07,080 which is like get diversified as quick as possible, keep costs 432 00:23:07,080 --> 00:23:09,720 and taxes minimized. You know, we could try to 433 00:23:09,720 --> 00:23:11,920 optimize on that as best we can, which we have. 434 00:23:11,920 --> 00:23:14,840 If Jesus were in finance, this is what he would dedicate his 435 00:23:14,840 --> 00:23:17,400 time to. I think so. 436 00:23:17,520 --> 00:23:19,160 This is like a. Certain. 437 00:23:19,400 --> 00:23:23,000 This is Jack Bogle. But, but if he had tax awareness 438 00:23:23,000 --> 00:23:26,080 on his mind, he was going to go down a rabbit hole on on a lot 439 00:23:26,080 --> 00:23:30,120 of these crazy rules and and dig into these entrenched businesses 440 00:23:30,120 --> 00:23:32,080 that have been around for 40 years. 441 00:23:33,040 --> 00:23:36,680 So like one of the questions, because I, I think the idea 442 00:23:36,680 --> 00:23:39,200 speaks for itself. If you understand the 443 00:23:39,200 --> 00:23:42,040 conversation thus far, I don't think there's that many. 444 00:23:42,040 --> 00:23:44,840 I'm sure there are questions and maybe you can can bring them up. 445 00:23:44,840 --> 00:23:51,040 But in all your research, I guess question one was would be 446 00:23:51,040 --> 00:23:55,640 how important is tax efficiency in aggregate returns over 1's 447 00:23:55,640 --> 00:23:57,800 lifestyle? That'd be question one. 448 00:23:58,120 --> 00:24:02,840 Question 2 is, let's say I believed the West Gray work in 449 00:24:02,840 --> 00:24:08,560 the past and let's say I want some sort of momentum or a value 450 00:24:09,000 --> 00:24:11,520 tilt. Is that where this is eventually 451 00:24:11,520 --> 00:24:14,000 going or what do you see in the future? 452 00:24:14,880 --> 00:24:17,600 Yeah. So we, we do all these things. 453 00:24:18,520 --> 00:24:23,320 You know, I personally, if I'm going for the 23rd 2030 year 454 00:24:23,320 --> 00:24:27,520 horizon and, and I believe in like value momentum or different 455 00:24:27,520 --> 00:24:30,400 factors or tilts, like I'm going to do them and I'm going to try 456 00:24:30,400 --> 00:24:32,480 to keep the fees and taxes as low as possible. 457 00:24:32,480 --> 00:24:35,840 And that's what I actually do. And we have funds that do that. 458 00:24:36,240 --> 00:24:40,400 However, I do not, it's unrealistic that I'm going to 459 00:24:40,400 --> 00:24:43,560 sell everything to everybody. It's always going to be very 460 00:24:43,560 --> 00:24:46,920 boutique Y, But there's one other thing that we know people 461 00:24:46,920 --> 00:24:50,360 love the S&P or the broad U.S. market. 462 00:24:50,840 --> 00:24:55,080 And could we argue for days on end about why I think that'll 463 00:24:55,080 --> 00:24:58,520 underperform over long haul versus like some factor funds? 464 00:24:58,520 --> 00:25:01,200 Sure. But like 99% of people don't 465 00:25:01,200 --> 00:25:06,400 care and they're just like shut up, give me cheap beta and it's 466 00:25:06,480 --> 00:25:08,400 some point. You just, I'll tell you what. 467 00:25:08,400 --> 00:25:12,960 So I, I mean, this specific specific example that I'm 468 00:25:12,960 --> 00:25:16,600 thinking about is I have one of my kids accounts that in the 469 00:25:16,600 --> 00:25:21,240 pandemic, I bought him Transdime and I bought him Constellation 470 00:25:21,240 --> 00:25:24,720 and I bought like I, I think he's got Microsoft and Amazon, 471 00:25:24,720 --> 00:25:27,200 right? These are like big concentrated 472 00:25:27,200 --> 00:25:29,680 positions relative to that account size. 473 00:25:30,080 --> 00:25:34,560 Yes, I. Don't want him to inherit some 474 00:25:34,560 --> 00:25:38,560 portfolio that he either AI don't think I know more than the 475 00:25:38,560 --> 00:25:42,040 market on those names now. BI don't think he's going to 476 00:25:42,040 --> 00:25:44,640 know more. I would love to rather than give 477 00:25:44,640 --> 00:25:49,800 him that, give him an S&P fund. This is a great solution to 478 00:25:49,800 --> 00:25:52,520 that. I guess the follow up is can it 479 00:25:52,520 --> 00:25:55,840 get even better where I can give him a factor allocation down the 480 00:25:55,840 --> 00:25:57,360 road? Like is that kind of where this 481 00:25:57,360 --> 00:25:59,400 is going? You could. 482 00:25:59,760 --> 00:26:04,320 And like so on your first point, like just my dad is in this new 483 00:26:04,320 --> 00:26:08,040 fund we're doing, doing a 351 because he has that exact 484 00:26:08,040 --> 00:26:10,640 situation. Like my great grandmother died 485 00:26:10,640 --> 00:26:13,480 and there's like literally they got like these 30 Dow stocks 486 00:26:13,480 --> 00:26:16,160 with 0 basis and he can't do anything. 487 00:26:16,160 --> 00:26:18,120 He's like, I don't want the Dow 30. 488 00:26:18,360 --> 00:26:20,040 I want something that's actually dynamic. 489 00:26:20,040 --> 00:26:22,000 So he's like, that's perfect, right? 490 00:26:22,000 --> 00:26:25,520 And I'm not going to convince my dad about all the geeky PhD 491 00:26:25,520 --> 00:26:27,920 stuff that I do because he's like, what are you talking 492 00:26:27,920 --> 00:26:29,520 about? Like not worth it. 493 00:26:29,960 --> 00:26:34,520 Now you could, you could not do this in the exchange fund 494 00:26:34,520 --> 00:26:36,440 context, right? And that's a long story. 495 00:26:36,440 --> 00:26:39,440 But the exchange funds, there's a lot of rules and we need to 496 00:26:39,440 --> 00:26:42,440 have good economic substance. And we're trying to solve a much 497 00:26:42,440 --> 00:26:46,480 bigger problem of just how do we get people in like diversified 498 00:26:46,480 --> 00:26:50,200 indexes like like like that's already complicated enough. 499 00:26:50,280 --> 00:26:53,280 So using that mechanism to do what you're talking about, it's 500 00:26:53,280 --> 00:26:56,400 not realistic, but there we do this all the time. 501 00:26:56,400 --> 00:27:00,120 Let's say you want to be in a factor fund or something 502 00:27:00,120 --> 00:27:03,240 different that's active or what have you, but you want to move 503 00:27:03,240 --> 00:27:06,440 from A to B. That's just good old fashioned 504 00:27:06,440 --> 00:27:09,400 ETF infrastructure. And we do that, like I said, all 505 00:27:09,400 --> 00:27:12,040 the time where you would just say, hey, I've got the problem 506 00:27:12,040 --> 00:27:14,480 is you need to have like, you know, at least 5000 mil, 507 00:27:14,480 --> 00:27:17,320 probably composite with like you and your friends, whoever it is. 508 00:27:17,520 --> 00:27:21,120 And you could take all those securities under 351, transition 509 00:27:21,120 --> 00:27:24,000 them to an ETF. And then if that ETF's mandate 510 00:27:24,000 --> 00:27:26,120 is to do value momentum? Tactical. 511 00:27:26,120 --> 00:27:28,080 Whatever. You could, you could do this 512 00:27:28,080 --> 00:27:31,840 type, but but that's only, it's a long story sign worth talking 513 00:27:31,840 --> 00:27:33,560 about here. But for a lot of reasons the 514 00:27:33,560 --> 00:27:36,480 exchange fund vehicle can't do that kind of stuff yet. 515 00:27:36,760 --> 00:27:40,320 We'll maybe work towards that. But 351 you can definitely do 516 00:27:40,320 --> 00:27:42,360 that. And we we already have a bunch 517 00:27:42,360 --> 00:27:45,480 of funds on our platform that are active ETFs that were that 518 00:27:45,480 --> 00:27:49,440 since you started out as you know low basis concentration of 519 00:27:49,480 --> 00:27:51,760 you know, portfolios of securities effectively. 520 00:27:51,800 --> 00:27:56,000 But you need to have a group that has 50 million or whatever. 521 00:27:56,240 --> 00:27:59,360 Well yeah and that that's just because the cost to operate an 522 00:27:59,360 --> 00:28:02,000 ETF, even though we're we're trying to bring that down as 523 00:28:02,000 --> 00:28:05,240 much as humanly possible yeah operating a registered fund is 524 00:28:05,240 --> 00:28:08,120 just a pain in the ass. So so you're looking at burning 525 00:28:08,120 --> 00:28:12,120 just for easy math 200 KA year just to run the thing. 526 00:28:12,120 --> 00:28:17,280 So, so you know, if you only got like $1,000,000, they cost 200 K 527 00:28:17,280 --> 00:28:20,160 to operate, that's not a good ROI, right? 528 00:28:20,160 --> 00:28:23,120 But so you really need like 5000 mil because you need enough 529 00:28:23,120 --> 00:28:26,280 scale so that the frictional cost of like running and 530 00:28:26,280 --> 00:28:29,160 operating a registered fund, it's not so painful where the 531 00:28:29,160 --> 00:28:32,440 net present value of like the tax and other benefits outweigh 532 00:28:32,440 --> 00:28:34,680 the the cost. Otherwise it just doesn't make 533 00:28:34,680 --> 00:28:37,440 any sense. So that's why I say the scale is 534 00:28:37,440 --> 00:28:39,240 important. So let's say there are a few 535 00:28:39,240 --> 00:28:42,240 people listening that do have that kind of scale. 536 00:28:42,240 --> 00:28:44,800 Is that? Is it possible to have a 537 00:28:44,880 --> 00:28:49,240 situation where you contribute A concentrated position and you 538 00:28:49,240 --> 00:28:53,520 can do it to an ETF that runs the mandate that you would like 539 00:28:53,520 --> 00:28:57,160 it to run? So the answer on that is no, 540 00:28:57,320 --> 00:29:01,080 that that that domain is still very restricted to. 541 00:29:01,080 --> 00:29:04,720 You got to have 351 qualified contributions to do right. 542 00:29:04,720 --> 00:29:08,280 You, you couldn't do like, hey, I got Microsoft like I'm all 543 00:29:08,280 --> 00:29:10,520 Microsoft. Like it doesn't qualify for the 544 00:29:10,520 --> 00:29:14,600 25% or the 50% rules. So you're like, geez, like I'm I 545 00:29:14,600 --> 00:29:18,880 would be ineligible for 3:51. It's, it's not plausible right 546 00:29:18,880 --> 00:29:22,120 now to do that. And that that's because it's a, 547 00:29:22,120 --> 00:29:26,240 it's a bunch of esoteric like tax stuff and what have you. 548 00:29:26,320 --> 00:29:29,920 It's we just can't do that. They're like the exchange funds 549 00:29:30,080 --> 00:29:32,560 are providing A gent the way we got structured. 550 00:29:32,560 --> 00:29:35,920 They're providing a genuine economic service. 551 00:29:35,920 --> 00:29:38,520 They're not just like a conduit to the ETF, right. 552 00:29:38,680 --> 00:29:40,760 We don't, we don't that that doesn't make any sense because 553 00:29:40,760 --> 00:29:43,600 now you get and you run a foul like step doctrine and some 554 00:29:43,600 --> 00:29:47,200 other esoteric tax things. You every time you do stuff, you 555 00:29:47,200 --> 00:29:50,000 got to make sure there's like genuine economic substance and 556 00:29:50,000 --> 00:29:53,840 like value add at every part of the chain. 557 00:29:53,840 --> 00:29:56,480 Otherwise you're that, you know, which makes sense, like, Oh, you 558 00:29:56,480 --> 00:30:00,040 guys are doing 10 different Ponzi schemes to achieve a 559 00:30:00,040 --> 00:30:03,720 certain tax objective and none of this stuff has any like 560 00:30:03,800 --> 00:30:06,400 beyond just tax, you know, that's you shouldn't be doing 561 00:30:06,400 --> 00:30:10,680 stuff like that. So you are and I, you're not 562 00:30:10,680 --> 00:30:13,280 saying you're doing it, but you are clearly not doing any type 563 00:30:13,280 --> 00:30:17,640 of Ponzi scheme. My interest is you're saying 564 00:30:17,640 --> 00:30:22,360 that I can contribute A concentrated position and get 565 00:30:22,360 --> 00:30:26,040 the S&P. I'm curious, can I do a 566 00:30:26,040 --> 00:30:31,280 concentrated position to get Q Val and if not, why not? 567 00:30:32,040 --> 00:30:34,280 Yes. And and that that's that's 568 00:30:34,280 --> 00:30:37,200 because of what I was just mentioning there. 569 00:30:37,480 --> 00:30:41,120 It's that like there's additional value add at like the 570 00:30:41,120 --> 00:30:43,880 exchange fund level where they're hurting multiple cats 571 00:30:43,880 --> 00:30:45,920 and it's got it. They're trying to form to like a 572 00:30:45,920 --> 00:30:48,280 broad benchmark index and they're not. 573 00:30:48,280 --> 00:30:52,160 It's not only owning the ETF, it's going to own other things 574 00:30:52,160 --> 00:30:54,440 to massage to get to that broad based. 575 00:30:54,440 --> 00:30:57,480 Exposure. Whereas if all if, let's just 576 00:30:57,480 --> 00:30:59,840 say you set up an entity on the exchange fund side and you're 577 00:30:59,840 --> 00:31:02,520 like, hey, here's an idea. I'm just going to set up this 578 00:31:02,520 --> 00:31:04,640 exchange fund and literally all it's going to. 579 00:31:10,760 --> 00:31:21,040 To avoid taxes, obviously. Economic substance or investment 580 00:31:21,040 --> 00:31:23,360 reasons, yes. So that's the key. 581 00:31:23,360 --> 00:31:26,400 There is anytime there's anything you do where it's just 582 00:31:26,400 --> 00:31:30,760 100%, the only reason you're doing it is for tax reasons. 583 00:31:31,000 --> 00:31:32,520 That's not the right answer, right? 584 00:31:32,840 --> 00:31:36,640 It's fine if there's an investment economic reason, like 585 00:31:36,640 --> 00:31:38,440 a genuine business purpose to it. 586 00:31:38,480 --> 00:31:41,400 And maybe there is, there is, but but you want to make sure 587 00:31:41,400 --> 00:31:43,880 that you have that because anytime you do something that 588 00:31:43,880 --> 00:31:46,800 that's just clearly like, like, like the answer like, and that 589 00:31:46,800 --> 00:31:49,800 makes sense to be like, well, for taxes, taxes reasons. 590 00:31:50,120 --> 00:31:52,680 Well, I got at least have one business reason. 591 00:31:52,880 --> 00:31:55,560 If you give me a few business reasons and maybe we could work 592 00:31:55,560 --> 00:31:57,400 on that, but we're not there yet. 593 00:31:57,400 --> 00:32:00,080 So, so that, that'd be something that that, you know, that maybe 594 00:32:00,080 --> 00:32:01,640 down the road we could, we could well. 595 00:32:01,680 --> 00:32:03,480 OK. I I might be able to get there 596 00:32:03,480 --> 00:32:06,560 part of my ignorance with this follow up, but what is the 597 00:32:06,560 --> 00:32:10,240 business reason that I can contribute and end up with the 598 00:32:10,240 --> 00:32:12,920 S&P? Yeah, because that's not the 599 00:32:13,040 --> 00:32:16,360 only thing you're you can, you're going to get right. 600 00:32:16,560 --> 00:32:20,480 The business purpose is a lot of people that go into exchange 601 00:32:20,480 --> 00:32:23,960 funds, they they might want to own multi, you might want to own 602 00:32:23,960 --> 00:32:26,960 Triple Q, You might want to own S&P growth, you might want to 603 00:32:26,960 --> 00:32:29,560 own S&P, you might want to do a bunch of things. 604 00:32:29,880 --> 00:32:34,440 And S&P itself is going to be a core component of all those 605 00:32:34,440 --> 00:32:37,720 exposures. However, you might have tilts 606 00:32:37,720 --> 00:32:41,400 and do other things on the portfolio management side to, to 607 00:32:41,400 --> 00:32:45,080 massage to that particular exposure, but it's never going 608 00:32:45,080 --> 00:32:48,680 to be like 100%, just the ETF exposure, right? 609 00:32:49,040 --> 00:32:51,320 And there's also The thing is you have to do a lot of 610 00:32:51,320 --> 00:32:54,000 management, like if you're trying to manage to the index, 611 00:32:54,280 --> 00:32:57,520 you know, you, you can also take on contributions continuously, 612 00:32:57,520 --> 00:32:59,560 which is we can't do that on ETF side. 613 00:32:59,760 --> 00:33:02,480 But it there's a lot more. There's basically a lot of 614 00:33:02,480 --> 00:33:06,720 activity and a lot of issues you got to deal with beyond just 615 00:33:06,840 --> 00:33:09,000 like I'm going to take money, put an ET. 616 00:33:09,680 --> 00:33:12,000 Yeah, and that's important. And that's the way they've got 617 00:33:12,000 --> 00:33:16,840 it structured is it's got to be adding economic value to do to a 618 00:33:16,840 --> 00:33:19,680 bunch of other things. So even on on their side, you 619 00:33:19,680 --> 00:33:21,960 can't just say, Hey, I'm going to do this and then just, you 620 00:33:21,960 --> 00:33:25,080 know, become an ETF only there's got to be you got to be doing 621 00:33:25,080 --> 00:33:29,240 some an economic activity. I, I guess, I guess that if I 622 00:33:29,240 --> 00:33:31,960 wanted to put on my argumentative hat, what I would 623 00:33:31,960 --> 00:33:36,840 say is to the extent that I believe that capital is under 624 00:33:36,840 --> 00:33:42,200 allocated to value stocks and I am trying to allocate capital in 625 00:33:42,200 --> 00:33:47,600 a proper manner, I would prefer to have a value tilt rather than 626 00:33:47,600 --> 00:33:49,680 the S&P. I. 627 00:33:50,320 --> 00:33:51,840 That would be my argument for it. 628 00:33:52,040 --> 00:33:55,800 I think it's a damn good argument and what I would say is 629 00:33:55,800 --> 00:33:58,840 that will be forthcoming, but it's like everything starting 630 00:33:58,840 --> 00:34:02,840 off most brain dead basic, yeah, no doubt type stuff. 631 00:34:02,840 --> 00:34:06,120 Yeah, next hit a single and then worry about hitting more the. 632 00:34:06,360 --> 00:34:09,760 Next step might be broad equal weight indices. 633 00:34:09,920 --> 00:34:11,679 Yeah, like, like. Yeah, that would make sense. 634 00:34:11,679 --> 00:34:14,199 Yeah, Yeah. And then then maybe like Level 635 00:34:14,199 --> 00:34:17,719 3, you know, down the road as like, you know, work on all the 636 00:34:17,719 --> 00:34:20,719 kinks and all, and we learn more about what people want, what's 637 00:34:20,719 --> 00:34:23,360 the marketplace desire? You, you could do things like 638 00:34:23,360 --> 00:34:25,880 you're talk about like, Hey, we're going to put these, you 639 00:34:25,880 --> 00:34:28,880 know, Q Val strategies or whatever. 640 00:34:29,080 --> 00:34:31,719 But it it's just one of these things where this is already 641 00:34:31,880 --> 00:34:37,480 like 351 itself is, is already innovation squared and we're 642 00:34:37,480 --> 00:34:39,199 finally up on the S curve on that. 643 00:34:39,679 --> 00:34:42,719 What I'm talking about here is like the innovation of 644 00:34:42,719 --> 00:34:45,880 innovation at the tippy end of the spear where most people 645 00:34:45,880 --> 00:34:48,639 don't even haven't even followed this conversation at this point. 646 00:34:48,760 --> 00:34:52,800 And we're just going to do that like the most Barney style basic 647 00:34:53,560 --> 00:34:58,440 conservative hard to screw up and S&P 500 broad generic U.S. 648 00:34:58,440 --> 00:35:00,640 equity can't screw that up too bad. 649 00:35:00,640 --> 00:35:02,320 Yeah. And then to your point, we'll 650 00:35:02,320 --> 00:35:05,160 add complexity down the road. I'll tell you what, if adding 651 00:35:05,160 --> 00:35:07,840 complexity works, you can probably end up contributing 652 00:35:07,840 --> 00:35:13,160 your holdings in the fund or ETF that you own to the new ETF and 653 00:35:13,160 --> 00:35:16,120 then do it that way. But I do, I do think there's a 654 00:35:16,120 --> 00:35:20,080 legitimate argument to be made that as far as business purpose 655 00:35:20,080 --> 00:35:23,840 goes, allocating to value or potentially emerging markets 656 00:35:23,840 --> 00:35:26,560 that are value like they're. Oh yeah, yeah, for sure. 657 00:35:26,560 --> 00:35:28,720 There's, there's diversification reasons. 658 00:35:28,720 --> 00:35:31,640 There's, you know, I mean, a lot of things you could do like 659 00:35:31,640 --> 00:35:35,000 lowering fees, more capital efficiency, more scale. 660 00:35:35,080 --> 00:35:37,360 There's a lot of different arguments of just anytime you, 661 00:35:37,360 --> 00:35:41,200 you like syndicate capital in like a, in like a pool, which is 662 00:35:41,320 --> 00:35:44,360 an economic service itself. And then that capital can then 663 00:35:44,360 --> 00:35:48,440 be allocated into like a certain exposure, like value or whatever 664 00:35:48,520 --> 00:35:51,040 what the heck it is. There's there's definitely easy 665 00:35:51,040 --> 00:35:53,600 ways to build economic substance there. 666 00:35:54,000 --> 00:35:57,720 But you know, we're, we're, it's just slow and steady wins the 667 00:35:57,720 --> 00:36:00,880 race on anything like in tax base especially. 668 00:36:01,200 --> 00:36:04,400 Yeah, No, it makes sense. It's the pithy responses to 669 00:36:04,400 --> 00:36:06,480 avoid taxes. The real responses. 670 00:36:06,480 --> 00:36:10,440 Yeah, once we've gotten over issue A, which is, does this 671 00:36:10,440 --> 00:36:14,360 have economic substance? I it's, it's a logical extension 672 00:36:14,360 --> 00:36:16,760 to be like, OK well can I have any tilts in here? 673 00:36:16,760 --> 00:36:19,240 Because if you can, theoretically at the time it 674 00:36:19,240 --> 00:36:22,000 should work. Yes, 100%. 675 00:36:22,040 --> 00:36:25,480 And and there's, there's also, I mean, yeah, there's a lot of 676 00:36:27,000 --> 00:36:29,600 considerations here because you can also as long as you don't 677 00:36:29,600 --> 00:36:32,120 change like your fundamental investment policy, like if the 678 00:36:32,120 --> 00:36:35,160 shareholders are like, you know what, we're going to pound sand 679 00:36:35,160 --> 00:36:37,440 on this whole market cap weighted thing. 680 00:36:37,440 --> 00:36:39,840 We just want to go equally great. 681 00:36:40,160 --> 00:36:43,560 We could probably have a 60 day notice and do that, especially 682 00:36:43,560 --> 00:36:46,360 if there's like, you know, if we get a sense that you know, as 683 00:36:46,360 --> 00:36:48,880 the fiduciary to the fund and like listen to shareholders, 684 00:36:48,880 --> 00:36:51,640 that's what they want to do. I mean, in the end, like like 685 00:36:51,680 --> 00:36:54,920 ETFs are kind of like a, it's like a corporation that doesn't 686 00:36:54,920 --> 00:36:58,360 have poison pills. The shareholders vote in the end 687 00:36:58,360 --> 00:37:02,280 like it's if they want something in the end, they are the boss 688 00:37:02,280 --> 00:37:04,920 because they could all the people run the thing if they 689 00:37:04,920 --> 00:37:06,440 want it. They could have a proxy and say, 690 00:37:06,440 --> 00:37:10,040 you know what, Wes is an idiot. We're hiring Bill, we're going 691 00:37:10,040 --> 00:37:12,560 to have a proxy. We're going to vote Bill in and 692 00:37:12,560 --> 00:37:17,120 Bill's going to run as wacko, you know, crazy value momentum 693 00:37:17,120 --> 00:37:19,200 upside down. Whatever strategy it is, you 694 00:37:19,200 --> 00:37:20,320 could do that. It's and that's. 695 00:37:20,320 --> 00:37:23,200 I like that whole hypo until you said everything that I was doing 696 00:37:23,200 --> 00:37:25,280 is wacko but. Yeah, well, you know, you know, 697 00:37:25,280 --> 00:37:27,480 I think it's, I don't think it's Percy Wacko, you know what I 698 00:37:27,480 --> 00:37:29,680 mean? Whatever, whatever thing that 699 00:37:29,680 --> 00:37:32,560 you pitch people that you that is a better idea. 700 00:37:32,880 --> 00:37:37,480 You know, the ETF structure is hyper democratic because one 701 00:37:37,480 --> 00:37:41,080 share, one vote. And if 51% of the shares are 702 00:37:41,080 --> 00:37:45,280 like, let's do this or that, I mean, they can make that happen. 703 00:37:45,680 --> 00:37:49,360 OK, so so if you're sitting on the other end of this mic and 704 00:37:49,360 --> 00:37:55,600 you're listening and you have 10 people that you think you can 705 00:37:55,640 --> 00:37:58,960 have it, can can I have in your solution? 706 00:37:58,960 --> 00:38:02,200 Can I have a like a the only word I'm thinking of is 707 00:38:02,200 --> 00:38:03,920 consortium. It's definitely not. 708 00:38:04,040 --> 00:38:05,480 We might not be the regular syndicates. 709 00:38:05,640 --> 00:38:06,280 Yeah, OK. So. 710 00:38:06,280 --> 00:38:09,760 You have a syndicate of 10. Can I call you up and be like 711 00:38:09,760 --> 00:38:13,000 Wes, look, I got $100 million here between 10 guys. 712 00:38:13,520 --> 00:38:15,920 This is what we want to do. How do we get where we want to 713 00:38:15,920 --> 00:38:18,320 go? Will you build that solution? 714 00:38:19,120 --> 00:38:21,160 Yeah, we we could definitely do that. 715 00:38:21,160 --> 00:38:25,280 However, they would if they wanted to do it, if they want to 716 00:38:25,280 --> 00:38:27,840 run their own ETF as like a syndicate because they think 717 00:38:27,840 --> 00:38:29,960 they got a better investment approach and want to pull their 718 00:38:29,960 --> 00:38:32,520 capital together. The only way we can facilitate 719 00:38:32,520 --> 00:38:35,000 that right now is they'd have to be able to distribute or have to 720 00:38:35,000 --> 00:38:38,160 contribute diversified contributions. 721 00:38:38,160 --> 00:38:42,680 That 351 stuff the, the singles they couldn't do like, hey, you 722 00:38:42,680 --> 00:38:47,000 know, we all got, you know, 1, you know, like whatever $10 723 00:38:47,000 --> 00:38:49,200 million position. So we all got 10 mil. 724 00:38:49,200 --> 00:38:53,320 We got to 100 mil because none of those are 351 qualified. 725 00:38:53,600 --> 00:38:56,880 You, you could do a partnership, I guess, technically, but that 726 00:38:56,880 --> 00:39:00,200 then you're not going to enjoy the, the beauty of like the, the 727 00:39:00,200 --> 00:39:02,800 ETF structure from like a compounding tax free 728 00:39:02,800 --> 00:39:05,360 perspective. So, but if, but if you got a 729 00:39:05,360 --> 00:39:09,400 bunch of buddies, we're we're like, hey guys, we all got 24.99 730 00:39:09,400 --> 00:39:13,640 in random securities, but then we got 75% and other stuff and 731 00:39:13,640 --> 00:39:16,400 we can all contribute 351 qualified property. 732 00:39:16,760 --> 00:39:19,000 And let's say it's a bunch of U.S. equity because you're like, 733 00:39:19,000 --> 00:39:21,160 you know what, we're going to do this other strategy that's way 734 00:39:21,160 --> 00:39:24,160 better, you know, long game, fine, let's all contribute the 735 00:39:24,160 --> 00:39:26,600 property. We all, you know, make sense. 736 00:39:26,600 --> 00:39:28,560 It's we're contribute diversified property. 737 00:39:28,560 --> 00:39:31,320 We get the tax free exchange. And then once we all have that 738 00:39:31,320 --> 00:39:34,880 in our new ETF, we all sit around the table and say, all 739 00:39:34,880 --> 00:39:37,920 right, great. What what's the economic 740 00:39:37,920 --> 00:39:40,040 landscape say? And you know, let's maneuver 741 00:39:40,040 --> 00:39:42,880 and, and buy this or do that depend on what the, you know, 742 00:39:42,880 --> 00:39:45,520 the circumstances are. And you could totally do that. 743 00:39:45,600 --> 00:39:47,120 And that that's what people are doing. 744 00:39:47,120 --> 00:39:50,480 It is just, and that's kind of the intent of 351. 745 00:39:50,920 --> 00:39:55,320 The idea is, is how can I, you know, move my capital and do 746 00:39:55,320 --> 00:39:58,960 capital formation, you know, such that I can, you know, maybe 747 00:39:58,960 --> 00:40:02,480 have more fish investing, lower cost investing, more tax fish 748 00:40:02,480 --> 00:40:04,880 investing. You know, maybe you have a 749 00:40:04,880 --> 00:40:07,320 business too. Like there's an obvious business 750 00:40:07,320 --> 00:40:10,640 case there because if you have 10 people who have a lot of 751 00:40:10,640 --> 00:40:13,200 money and they're like, I'm going to have a lot of skin in 752 00:40:13,200 --> 00:40:15,160 the game. And I think we have relatively 753 00:40:15,160 --> 00:40:17,920 good ideas. Let's set up an ETF, which is 754 00:40:17,920 --> 00:40:21,360 great for our own capital, but we now have a business because 755 00:40:21,360 --> 00:40:24,720 now we have a ticker. That anyone on Schwab could buy 756 00:40:24,720 --> 00:40:28,360 and and now we're in the asset management business at scale day 757 00:40:28,360 --> 00:40:31,440 one. That's a that's like the, I mean 758 00:40:31,440 --> 00:40:34,160 that's a great business case. We don't have to think about 759 00:40:34,160 --> 00:40:37,240 that one because that's obvious. As you know, the biggest barrier 760 00:40:37,240 --> 00:40:42,440 to entry in our business is how the heck do I get the capital to 761 00:40:42,440 --> 00:40:45,880 launch the ETF profitably. It's very challenging to have an 762 00:40:45,880 --> 00:40:50,560 ETF at 5 million at launch when you're blowing KA year on fees, 763 00:40:51,000 --> 00:40:55,000 whereas it's impossible. So if I can somehow use 351 fund 764 00:40:55,000 --> 00:40:59,400 up a new corporation here with 100 mil and day one, it's break 765 00:40:59,400 --> 00:41:02,600 even and I have crazy operating leverage going forward. 766 00:41:03,120 --> 00:41:06,000 I mean, that's the greatest business of all time. 767 00:41:06,840 --> 00:41:11,200 Yeah, well, what Anecdotally, I've heard you want 30 million. 768 00:41:12,200 --> 00:41:13,360 Yeah. You think that's? 769 00:41:13,360 --> 00:41:16,800 Fair. It's what I would say is all 770 00:41:16,800 --> 00:41:20,480 asset management, I mean. 30,000,067 basis points, right, 771 00:41:21,120 --> 00:41:24,200 yeah, fees, so. Yeah, I mean, you could do 772 00:41:24,200 --> 00:41:26,840 anything. We used to tell people not that 773 00:41:26,840 --> 00:41:30,560 long ago 5 mil was like. Launch an ETF. 774 00:41:30,800 --> 00:41:33,440 If you wanted to be. If you're willing to be crazy 775 00:41:33,840 --> 00:41:37,160 and you're hardcore entrepreneur and you have the passion like 776 00:41:37,160 --> 00:41:40,400 Perth is is the prime example of that with her Freedom ETF. 777 00:41:40,480 --> 00:41:44,400 Like I gotta interview her. Yeah, yeah, she's, she's got a 778 00:41:44,400 --> 00:41:47,640 great story, but she's a, she's a legacy man. 779 00:41:47,640 --> 00:41:50,360 Like, like she got in like, I mean, I don't even know how she 780 00:41:50,360 --> 00:41:52,520 did it honestly, but, you know, fight you. 781 00:41:52,520 --> 00:41:56,000 We would do that in old days because if you just have the 782 00:41:56,000 --> 00:41:59,320 hustle, the passion and the willingness, people were willing 783 00:41:59,320 --> 00:42:02,400 to invest in smaller funds and then you could scale with them. 784 00:42:02,760 --> 00:42:05,840 Nowadays, though, especially after 21 when there's all these, 785 00:42:05,840 --> 00:42:08,920 like, crazy funds that started and they went bankrupt because 786 00:42:08,920 --> 00:42:12,040 remember, the market went up a whole bunch and then tack and 787 00:42:12,040 --> 00:42:14,200 all the crazy things went down. I remember 17. 788 00:42:14,200 --> 00:42:15,920 Yeah. Yeah, exactly. 789 00:42:16,720 --> 00:42:20,160 Well, luckily, as you know, you know, like, what's the Warren 790 00:42:20,160 --> 00:42:21,920 Buffett quote? Like, you know, when the tide 791 00:42:21,920 --> 00:42:24,280 goes out, you figure out who doesn't have their underwear on. 792 00:42:24,440 --> 00:42:26,120 That's what happened in ETF business. 793 00:42:26,120 --> 00:42:30,360 And now advisors and allocators are like, wait a second, you're 794 00:42:30,360 --> 00:42:33,320 5 million, you're not making money on this fund. 795 00:42:33,560 --> 00:42:36,560 And and if I'm in this for like long term investing and you go 796 00:42:36,560 --> 00:42:39,360 bankrupt in a couple years, that ain't good. 797 00:42:39,480 --> 00:42:41,400 So so now we usually tell people that makes. 798 00:42:41,400 --> 00:42:44,320 Sense because you are, you own the ETF. 799 00:42:44,320 --> 00:42:47,440 So if you own the subscale ETF, you own nothing. 800 00:42:47,440 --> 00:42:51,040 You're, you're own, it's kind of like when you own a bank that it 801 00:42:51,040 --> 00:42:53,560 doesn't have great credit, you're a depositor, but you're 802 00:42:53,560 --> 00:42:56,320 also now an equity owner. You didn't even know that, 803 00:42:56,320 --> 00:42:57,720 right. So same thing here. 804 00:42:57,720 --> 00:43:01,360 If you own an ETF that's that's super under water, not properly 805 00:43:01,360 --> 00:43:05,440 capitalized, you're you're kind of like an investor in ETF, but 806 00:43:05,440 --> 00:43:09,240 you're also eating the risk of the ETF business because if it's 807 00:43:09,240 --> 00:43:10,920 yeah with. None of the fee upside might. 808 00:43:10,920 --> 00:43:14,520 I with none of the upside exactly so so that's why and and 809 00:43:14,520 --> 00:43:16,360 that's all the good news is that's usually where the 810 00:43:16,360 --> 00:43:19,880 innovation and good ideas are, but there's now the risk of 811 00:43:19,880 --> 00:43:21,880 like, well, do I want to be the bag holder? 812 00:43:21,880 --> 00:43:26,080 So that's why we tell people 25 mil, that's kind of like where 813 00:43:26,080 --> 00:43:28,960 your rough break even. And if you have 25 mil in the 814 00:43:28,960 --> 00:43:31,960 fun and you're decently well capitalized, you got a very high 815 00:43:31,960 --> 00:43:35,720 probability of staying alive. You know, for certain cultures, 816 00:43:35,720 --> 00:43:39,120 not everybody, but but you know, that's enough for like, you 817 00:43:39,120 --> 00:43:41,720 know, an allocator who's pretty savvy. 818 00:43:41,920 --> 00:43:44,160 Can you know, hey, what's your financial statements? 819 00:43:44,160 --> 00:43:47,880 You got 25 mil, you're close to break even or, or right around 820 00:43:47,880 --> 00:43:49,360 there. OK, you know, we're we're 821 00:43:49,360 --> 00:43:52,400 willing to do this. And if obviously 50 mil, 100 822 00:43:52,400 --> 00:43:56,000 mil, all those are infinitely better because it's a signal 823 00:43:56,560 --> 00:43:59,120 that you're going to be around for a long time, which is very 824 00:43:59,120 --> 00:44:02,480 important for a, for a vehicle that's built on tax deferral 825 00:44:02,640 --> 00:44:05,120 like I need you to be around for 20 years. 826 00:44:05,120 --> 00:44:07,960 Yeah, no shit. If you if you blow out in year 827 00:44:07,960 --> 00:44:12,680 3, I've got zero and yeah, huh. Well, I mean, you could get your 828 00:44:12,680 --> 00:44:14,400 money. I mean, if an ETF it's not a big 829 00:44:14,400 --> 00:44:15,800 deal. If like if an ETF has to 830 00:44:15,800 --> 00:44:19,600 liquidate it, it's extremely orderly thing however. 831 00:44:19,760 --> 00:44:21,400 What? You get it in kind, yeah. 832 00:44:22,000 --> 00:44:24,120 You can't. It's a taxable event. 833 00:44:24,720 --> 00:44:27,720 So that's the problem that like, like if you, if you, if you go 834 00:44:27,720 --> 00:44:31,520 into an ETF and now you got low basis and all of a sudden they 835 00:44:31,520 --> 00:44:34,800 blow out in two years, you know you're going to get, you either 836 00:44:34,800 --> 00:44:37,360 sell or you have to get the cash distribution. 837 00:44:37,360 --> 00:44:39,760 Those are all taxable. You can't redeem and kind the 838 00:44:39,760 --> 00:44:41,920 securities without a tax. Head, why is that? 839 00:44:42,640 --> 00:44:46,320 That's just the law. You could technically 351 out. 840 00:44:46,480 --> 00:44:49,800 That's that's one way to exit now, but that's complicated. 841 00:44:49,920 --> 00:44:55,160 OK, that's interesting. So does that go to the creation 842 00:44:55,160 --> 00:44:58,360 redemption issue like? Like what? 843 00:44:59,080 --> 00:45:01,240 Yes. But I haven't understood about 844 00:45:01,320 --> 00:45:05,320 ETFs and you may be answering it here is I've always understood. 845 00:45:05,320 --> 00:45:09,560 OK, fine. I own the the SPY and you know, 846 00:45:09,560 --> 00:45:14,160 like whatever it trades, but I'm only I only own that entity. 847 00:45:14,160 --> 00:45:18,840 So that's what I'm trading at a smaller scale. 848 00:45:19,840 --> 00:45:24,680 I own not an operating business per SE, but like the ETF ticker 849 00:45:25,280 --> 00:45:30,880 and I don't own the underlying and and is that why the 850 00:45:30,880 --> 00:45:35,120 underlying is allowed to flip? No, no, no. 851 00:45:35,120 --> 00:45:39,680 So to be clear, if you own an ETF, you do own the underlying 852 00:45:39,680 --> 00:45:42,600 directly, OK. It's it's like it's very clean 853 00:45:42,600 --> 00:45:45,240 because you want people to have strong confidence like, hey, 854 00:45:45,240 --> 00:45:49,120 when you own that ETF, it is always redeemable for the 855 00:45:49,120 --> 00:45:51,280 underlying securities effectively. 856 00:45:51,400 --> 00:45:53,280 And that's that. And you want that, right, 857 00:45:53,280 --> 00:45:55,720 Because you don't want to have like weird derivatives or off 858 00:45:55,720 --> 00:45:57,880 balance sheet like counterparty risk. 859 00:45:57,880 --> 00:45:59,960 That would that would just Add all kinds of problems. 860 00:46:00,200 --> 00:46:03,880 But an ETF is literally like, like a certificate that says 861 00:46:04,160 --> 00:46:08,120 this is, I own a stake in that fund and that pool of securities 862 00:46:08,360 --> 00:46:11,280 that are custody at a, at a segregated custodian. 863 00:46:11,280 --> 00:46:14,760 I, I don't have any broker dealer risk boom, we're money. 864 00:46:14,760 --> 00:46:17,280 Good on that. The, the way the tax deal works, 865 00:46:17,280 --> 00:46:20,880 remember, is the only people that are legally allowed to 866 00:46:20,880 --> 00:46:23,760 trade with an ETF are authorized participants. 867 00:46:24,120 --> 00:46:27,520 So we, we never trade with an individual because it's illegal. 868 00:46:27,840 --> 00:46:31,000 They're not a broker dealer. So I'm my counterparties and my 869 00:46:31,000 --> 00:46:34,640 clients technically are like the banks, like the market makers, 870 00:46:34,640 --> 00:46:35,920 right? They're the only ones that are 871 00:46:35,920 --> 00:46:40,400 legally allowed to transact with an ETF like they can give you. 872 00:46:40,440 --> 00:46:46,000 Transact with the bank if I put an order in to buy an ETF, I 873 00:46:46,000 --> 00:46:49,320 know this is in the weeds, but yeah, the bank is selling me the 874 00:46:49,320 --> 00:46:52,240 ETF and they are buying it from you and they're the 875 00:46:52,240 --> 00:46:54,720 intermediary. Well, let me walk you through an 876 00:46:54,720 --> 00:46:56,560 example that'll make this crystal clear. 877 00:46:56,640 --> 00:47:00,920 So you put an order for 10,000 shares of XYZ at Schwab? 878 00:47:01,440 --> 00:47:03,560 Yep. What's happening there, The 879 00:47:03,560 --> 00:47:06,440 market maker, they're going to post a bid ask spread, right? 880 00:47:06,520 --> 00:47:08,760 And the bid ask spread is generally speaking, going to be 881 00:47:08,760 --> 00:47:11,880 what is the cost to acquire, dispose of 10,000 worth of the 882 00:47:11,880 --> 00:47:14,200 underlying securities that you're about to acquire here, 883 00:47:14,200 --> 00:47:16,520 right? So S&P, it's going to be cheap 884 00:47:16,560 --> 00:47:19,360 small spread, micro cap, crazy stocks. 885 00:47:19,440 --> 00:47:21,880 It's going to be a big spread because someone's got to go buy 886 00:47:21,880 --> 00:47:24,000 the stocks. But the market maker is 887 00:47:24,000 --> 00:47:28,800 literally going to short sell 10,000 shares out of thin air 888 00:47:28,960 --> 00:47:31,680 and they haven't they have special liquidity and exemptions 889 00:47:31,680 --> 00:47:34,840 on short selling for ETF market making because we need liquidity 890 00:47:34,840 --> 00:47:37,880 like they get they get special exemptions on like number of 891 00:47:37,880 --> 00:47:39,600 days and all this other stuff anyways. 892 00:47:39,880 --> 00:47:43,720 So so they short sell 10,000 out of thin air and then that's what 893 00:47:43,720 --> 00:47:46,600 you're buying, right? So you're when you put that buy, 894 00:47:47,080 --> 00:47:49,520 the reason it's getting filled is because they're just creating 895 00:47:49,600 --> 00:47:51,520 like out of thin air 10,000 shares. 896 00:47:51,520 --> 00:47:55,840 That market maker is now immediately going to go buy that 897 00:47:55,840 --> 00:47:57,760 underlying basket because they're they're not in the 898 00:47:57,760 --> 00:47:59,480 business of yeah. They don't want directional 899 00:47:59,480 --> 00:48:00,680 risks. Pissing in the wind, yeah. 900 00:48:00,680 --> 00:48:03,400 So so they're going to be like Roger that, sell you 10K. 901 00:48:03,400 --> 00:48:06,160 We are now going to go buy the underlying that represent those 902 00:48:06,160 --> 00:48:09,680 10,000 shares. Then that same day, you know 903 00:48:09,680 --> 00:48:11,480 they're going to call it come to us for creation. 904 00:48:11,480 --> 00:48:14,560 They're going to say, hey guys, we're going to deliver in these 905 00:48:14,560 --> 00:48:18,640 these, these 10, these, these blocks of, of portfolios that 906 00:48:18,640 --> 00:48:22,160 represent 10,000 shares of ETF. We're going to look at it, you 907 00:48:22,160 --> 00:48:24,080 know, review the order, make sure it's accurate. 908 00:48:24,240 --> 00:48:26,840 Great. They deliver in kind those 909 00:48:26,840 --> 00:48:30,480 securities. And then we issue new ETF shares 910 00:48:30,640 --> 00:48:33,040 because whenever we take in securities that represent 911 00:48:33,040 --> 00:48:36,640 shares, we issue new shares. If we destroy shares, we kick 912 00:48:36,640 --> 00:48:40,240 out underlying securities. So then that market maker, he, 913 00:48:40,360 --> 00:48:43,160 he who's got that short position, they're going to 914 00:48:43,160 --> 00:48:46,040 immediately turn in the underlying stocks, get ETF 915 00:48:46,040 --> 00:48:48,040 shares to collapse or short position. 916 00:48:48,480 --> 00:48:52,480 They're clean, you have your securities, they're clean. 917 00:48:52,480 --> 00:48:55,680 And they made the spread on the, you know, the bid ask spread to 918 00:48:55,680 --> 00:48:57,320 sell you for the, you know, this whole thing. 919 00:48:57,320 --> 00:49:00,440 But they're able to perfectly arbitrage and very easily 920 00:49:00,440 --> 00:49:03,080 arbitrage essentially every day. OK. 921 00:49:03,400 --> 00:49:07,480 That's why ETFs, generally speaking, have very, very tight 922 00:49:07,760 --> 00:49:10,920 price to NAV is because it's literally free money and there's 923 00:49:10,920 --> 00:49:14,880 a massive, you know, huge market making actually half the people 924 00:49:14,880 --> 00:49:18,760 down in Puerto Rico, they do what they call index or ETF 925 00:49:18,760 --> 00:49:20,680 arbitrage. And they're just sitting there 926 00:49:20,680 --> 00:49:23,800 with their supercomputers waiting for, you know, the one 927 00:49:23,800 --> 00:49:27,920 basis point, you know, of spread between like the basket and the 928 00:49:27,920 --> 00:49:32,400 ETF shares or vice versa. And, and so there's a very, very 929 00:49:32,400 --> 00:49:36,320 robust marketplace of like prop traders and market makers and 930 00:49:36,320 --> 00:49:39,120 then, you know, liquidity people that they're just sitting there 931 00:49:39,120 --> 00:49:42,440 on standby to do this arbitrage because it's, it's seamless. 932 00:49:42,440 --> 00:49:44,880 You can do it every day. You can collapse the the trade. 933 00:49:45,880 --> 00:49:49,520 But, but if you're subscale and you shut down the ETF, what 934 00:49:49,520 --> 00:49:52,000 you're redeeming all those? So Yep. 935 00:49:52,000 --> 00:49:55,280 So on a liquidation, what happens generally speaking, 936 00:49:55,640 --> 00:49:59,120 everyone recommends just sell your actual shares because it, 937 00:49:59,120 --> 00:50:01,960 you're we're going to put out notice like, hey, this thing's 938 00:50:01,960 --> 00:50:06,520 liquidating in 60 days and it, you could literally wait around 939 00:50:07,000 --> 00:50:10,440 to like get the liquidation payment where we, well, in the 940 00:50:10,440 --> 00:50:14,120 end, sell everything. The NAV after you sold all the 941 00:50:14,120 --> 00:50:16,320 stocks, it's just cash will then distribute. 942 00:50:16,320 --> 00:50:18,000 But then you got to wait for two weeks. 943 00:50:18,000 --> 00:50:21,120 It's a huge nightmare. Sell the ETF in the marketplace, 944 00:50:21,120 --> 00:50:24,720 you're going to get, you know, basically fair market value, no 945 00:50:24,720 --> 00:50:26,800 delays, no complications, nothing. 946 00:50:26,800 --> 00:50:28,320 You just take your cash and move on. 947 00:50:28,520 --> 00:50:29,800 Yeah, right. That makes sense. 948 00:50:30,000 --> 00:50:32,840 Yeah, you could do liquidation payment, but that's just more 949 00:50:32,840 --> 00:50:36,480 brain damage for no benefit. So most people you know fund 950 00:50:36,480 --> 00:50:39,520 before liquidation is like $2,000,000 because someone 951 00:50:39,520 --> 00:50:43,800 forgot to sell it basically. So the ETF's liquidation is not 952 00:50:43,840 --> 00:50:47,360 to distribute in kind all the securities to the owners. 953 00:50:47,360 --> 00:50:49,640 It's just sell the securities, distribute the. 954 00:50:49,640 --> 00:50:52,200 Cash we have to, that's why it's a taxable. 955 00:50:52,200 --> 00:50:54,480 Event. Yes, and you can't. 956 00:50:55,000 --> 00:50:58,320 And the other thing, remember we can't distribute the securities 957 00:50:58,320 --> 00:51:02,600 in kind to you because you're not allowed to trade with the 958 00:51:02,600 --> 00:51:04,240 fund. Yeah, you send it to the bank, 959 00:51:04,240 --> 00:51:06,720 to the market makers. Yeah, because the banks broker 960 00:51:06,720 --> 00:51:10,360 dealers and and so there's no way there's there's no way to 961 00:51:10,360 --> 00:51:13,560 like somehow get you the shares without create a taxable event 962 00:51:13,560 --> 00:51:15,040 because I, because I it's illegal. 963 00:51:15,040 --> 00:51:18,400 I, I have to go to the to the market maker and then and then 964 00:51:18,400 --> 00:51:21,880 that's on their books as a, as a Mark 1099 transaction. 965 00:51:21,880 --> 00:51:25,040 They can't then turn around. It just doesn't work. 966 00:51:25,040 --> 00:51:28,160 It's impossible to do that. And you probably wouldn't want 967 00:51:28,160 --> 00:51:32,600 that because I can only imagine, you know, if I got my brain 968 00:51:32,600 --> 00:51:36,480 started on, on tax ideas, if they start allowing things like 969 00:51:36,480 --> 00:51:40,040 that, you can do, you know, you don't want to open up Pandora's 970 00:51:40,040 --> 00:51:42,080 box, basically. Why not? 971 00:51:43,960 --> 00:51:46,840 Just just because. Like if you could somehow 972 00:51:46,840 --> 00:51:51,000 distribute securities out of ETFs or mutual funds without 973 00:51:51,000 --> 00:51:56,040 paying tax, you know, in kind. It's just, you know, there, I'm 974 00:51:56,040 --> 00:51:59,120 sure you can figure out all kinds of like interesting 975 00:51:59,120 --> 00:52:01,880 schemes and ideas. I don't have any at the top of 976 00:52:01,880 --> 00:52:05,360 my top of my head, but generally speaking, it's just just not 977 00:52:05,360 --> 00:52:07,720 allowed. Because remember, also like a 978 00:52:07,720 --> 00:52:10,720 Rick, like a register investment company they had, they also have 979 00:52:10,720 --> 00:52:13,880 special regulations where their fees are tax deductible, but 980 00:52:13,880 --> 00:52:16,640 they also can't distribute losses, right? 981 00:52:16,640 --> 00:52:19,800 Whereas Smas fees aren't deductible. 982 00:52:20,200 --> 00:52:22,760 You can distribute losses, right? 983 00:52:22,760 --> 00:52:26,400 So I'm sure there's all kinds of crazy like, well, I'll do the, 984 00:52:26,400 --> 00:52:30,000 I'll do the ETF for this. Like I, I, I, yeah, I'd have to 985 00:52:30,000 --> 00:52:33,280 sit down and think, but I guarantee if you start loosen 986 00:52:33,280 --> 00:52:36,800 the rules, you know, I could put my head and I'll be able to come 987 00:52:36,800 --> 00:52:39,080 up with the greatest thing that's ever happened. 988 00:52:39,080 --> 00:52:43,120 But you know, so, so they just need to make sure that, you 989 00:52:43,120 --> 00:52:46,080 know, you got to keep the rules in place and keep people in a 990 00:52:46,080 --> 00:52:49,400 box because there's going to be some PhD that's going to figure 991 00:52:49,400 --> 00:52:52,720 out how to like optimize very quickly Or nowadays, just ask 992 00:52:52,720 --> 00:52:55,240 ChatGPT. Yeah, no doubt. 993 00:52:55,440 --> 00:52:59,080 It's probably smarter than the PhDs, which actually you should 994 00:52:59,080 --> 00:53:02,240 do that I guarantee if you went to ChatGPT because I use it a 995 00:53:02,240 --> 00:53:05,360 lot now for for just ideas. It's wild. 996 00:53:05,400 --> 00:53:07,560 Right. Oh, it's it's crazy, but you 997 00:53:07,560 --> 00:53:11,040 could ask it that question like, hey, ChatGPT, here's the rule 998 00:53:11,040 --> 00:53:13,440 set. Here's like all the ETFs here 999 00:53:13,440 --> 00:53:15,120 and it'll start laundress the tax codes. 1000 00:53:15,520 --> 00:53:20,360 Just assume ChatGPT that I could distribute securities in kind 1001 00:53:20,360 --> 00:53:22,800 out of a mutual fund or ETF without tax consequence. 1002 00:53:23,000 --> 00:53:26,560 How would I tax optimize this and build a structure such that, 1003 00:53:26,640 --> 00:53:30,720 you know, I can achieve XY or Z? Almost certainly it it'll give 1004 00:53:30,720 --> 00:53:34,640 you like the greatest idea ever. And you're like, whoa, yeah, we 1005 00:53:34,720 --> 00:53:36,240 should, Yeah. You know what works about that 1006 00:53:36,240 --> 00:53:39,480 is the prompt that you gave it. Just assume right because it's 1007 00:53:39,480 --> 00:53:40,320 it. Yeah. 1008 00:53:41,200 --> 00:53:43,560 Thanks man. And I do that all the time. 1009 00:53:43,560 --> 00:53:46,480 I mean and then you then you also say okay, that's too 1010 00:53:46,480 --> 00:53:48,560 egregious. Can you give me some economic 1011 00:53:48,560 --> 00:53:51,240 substance or business reasons of of you? 1012 00:53:51,400 --> 00:53:54,000 Know why I can do this? Yeah, and they're like, Oh yeah. 1013 00:53:54,000 --> 00:53:58,320 I mean the things insane man. Yeah, yeah, the problems are 1014 00:53:58,320 --> 00:54:01,600 really important. I've I've been like studying a 1015 00:54:01,600 --> 00:54:04,240 lot about this. I've I'm a year late and I 1016 00:54:04,240 --> 00:54:08,960 acknowledge that but it's wild. I'm what you need, What I found 1017 00:54:08,960 --> 00:54:12,560 is if you just you, you need to unfortunately know a lot to make 1018 00:54:12,560 --> 00:54:14,760 it very effective because you can call it on. 1019 00:54:14,760 --> 00:54:17,760 It's bullshit and hallucinism. Who hallucinate? 1020 00:54:17,800 --> 00:54:20,360 What do they call it? Hallucinations, yes, I think. 1021 00:54:20,360 --> 00:54:22,280 Whatever that word is, yeah, yeah, it's. 1022 00:54:22,360 --> 00:54:25,360 But if you can give it very targeted, like, no, look at this 1023 00:54:25,360 --> 00:54:28,400 code and then also make sure you're aware of this code and 1024 00:54:28,520 --> 00:54:31,200 it'll literally say like, oh, wow, actually a good idea. 1025 00:54:31,200 --> 00:54:33,200 Let me reanalyze that with that knowledge. 1026 00:54:33,520 --> 00:54:36,520 And like, so if you're like pretty smart about the topic, 1027 00:54:36,880 --> 00:54:39,280 but you just want it to like even be smarter and like 1028 00:54:39,280 --> 00:54:42,560 creatively, like it's crazy. You just don't want to act. 1029 00:54:42,560 --> 00:54:45,640 You don't want to just say, hey, please go find me this. 1030 00:54:46,000 --> 00:54:47,960 Yeah, it'll just have to be pretty specific. 1031 00:54:48,400 --> 00:54:49,880 You know what's interesting? Specific. 1032 00:54:50,040 --> 00:54:53,600 I sort of wonder, and I'm playing around with this lately, 1033 00:54:54,120 --> 00:54:58,280 Yeah, if you're not an expert in something and you say to it. 1034 00:54:59,440 --> 00:55:02,320 So on a tax code part, OK. Yeah. 1035 00:55:03,120 --> 00:55:05,640 You know XYZ and it gives you an answer. 1036 00:55:06,760 --> 00:55:10,080 I've started to ask it. Is there a part of the code that 1037 00:55:10,080 --> 00:55:11,960 you might be missing? Right? 1038 00:55:11,960 --> 00:55:16,960 Like something like that? Yes, what I do also is say I do 1039 00:55:16,960 --> 00:55:20,800 this now I always do deep research and I say please give 1040 00:55:20,800 --> 00:55:24,800 me sources on everything. Yes, and I want direct links to 1041 00:55:24,800 --> 00:55:28,680 the sort site it and I do not hallucinate and spend more time 1042 00:55:28,680 --> 00:55:30,120 if you have to. Yeah. 1043 00:55:30,800 --> 00:55:33,200 Like you just got to like, literally kind of like, like be 1044 00:55:33,200 --> 00:55:36,280 mean to it. I need sort like, kind of like a 1045 00:55:36,280 --> 00:55:37,800 student, like when I was a professor. 1046 00:55:38,040 --> 00:55:40,400 No, I need sources. Wikipedia doesn't count. 1047 00:55:40,440 --> 00:55:43,520 I need, I need you to cite it. I need like the page number. 1048 00:55:43,520 --> 00:55:46,360 Like you kind of like tell like a student, Like, no, I need you 1049 00:55:46,360 --> 00:55:49,480 to do this correctly, do your research like accurately. 1050 00:55:49,760 --> 00:55:52,320 And then, you know, and if you tell it, you'd be mean to it. 1051 00:55:52,320 --> 00:55:54,160 It'll actually be like, oh, yeah, yeah, yeah, sorry. 1052 00:55:54,160 --> 00:55:56,000 I was just trying to tell you what you wanted to hear. 1053 00:55:56,320 --> 00:55:57,800 And I'm sure it's probably smart enough now. 1054 00:55:57,800 --> 00:56:00,160 It actually still tell me what I want to hear, but at least it's 1055 00:56:00,160 --> 00:56:03,880 doing it in a sophisticated way where I don't even know at this 1056 00:56:03,880 --> 00:56:05,280 point. Dude, you know, it's wild is 1057 00:56:05,280 --> 00:56:08,440 like perplexity from my understanding has been trained 1058 00:56:08,440 --> 00:56:11,280 and some of these models, I know perplexity is the rappers. 1059 00:56:11,280 --> 00:56:14,520 So there's models within perplexity, but my understanding 1060 00:56:14,520 --> 00:56:20,000 is some of these models deliver things to you in a more they 1061 00:56:20,000 --> 00:56:24,400 appreciate your feelings. So like people to your point, 1062 00:56:24,400 --> 00:56:27,400 you have to be mean to IT. People feel like, Oh, I don't 1063 00:56:27,400 --> 00:56:29,560 want to be mean to the model, right? 1064 00:56:29,560 --> 00:56:30,880 But the model doesn't give a shit. 1065 00:56:31,000 --> 00:56:35,000 But there's this perception that it's got feelings, which is kind 1066 00:56:35,000 --> 00:56:38,880 of interesting. It's, I mean, I used to not be a 1067 00:56:38,880 --> 00:56:40,480 buyer. I'm like you, I was late to the 1068 00:56:40,480 --> 00:56:42,200 party. I was like, all right, whatever. 1069 00:56:42,200 --> 00:56:45,280 These tech guys trying to get overvaluation on their stock. 1070 00:56:45,280 --> 00:56:48,640 They're going to pay 100%. Isn't that the bias that that we 1071 00:56:48,640 --> 00:56:50,880 have? Yeah, it's a value bias. 1072 00:56:51,120 --> 00:56:52,000 Yeah. Yeah, I started. 1073 00:56:52,000 --> 00:56:55,440 I've done all these studies on value companies and fuck these 1074 00:56:55,440 --> 00:56:57,160 guys. Exactly. 1075 00:56:57,160 --> 00:57:00,800 But then I then I started using the thing and I kept using it 1076 00:57:00,800 --> 00:57:05,280 more and I'm like, Oh my God, this stuff is, this is scary. 1077 00:57:05,280 --> 00:57:08,280 Actually, I kind of agree with these tech guys a little bit 1078 00:57:08,280 --> 00:57:10,720 now. And maybe they're not, you know, 1079 00:57:10,840 --> 00:57:13,480 FOS like they might be on to something. 1080 00:57:13,520 --> 00:57:16,680 Because this stuff, it's, it's honestly, it's fast. 1081 00:57:16,680 --> 00:57:19,720 Well, dude, the bull case for the S&P is that your operating 1082 00:57:19,720 --> 00:57:22,040 margins are going to go a lot higher because you need fewer 1083 00:57:22,040 --> 00:57:23,640 people, right? I mean, that's. 1084 00:57:23,840 --> 00:57:26,240 Yeah. That's at least what I think it 1085 00:57:26,240 --> 00:57:29,280 is. Yeah, scale tech, like less 1086 00:57:29,280 --> 00:57:32,920 people, you know, more, more return on every dollar invested. 1087 00:57:32,920 --> 00:57:36,480 I mean, I could believe that. But, you know, they used to say 1088 00:57:36,480 --> 00:57:39,680 that probably on AT&T, like, oh, they got a network monopoly. 1089 00:57:39,680 --> 00:57:41,440 They got every phone line on the planet. 1090 00:57:41,440 --> 00:57:44,200 Or like, you know, the old Washington Post Buffett thing, 1091 00:57:44,200 --> 00:57:46,320 like newspapers, they've got network monopoly. 1092 00:57:46,320 --> 00:57:49,760 You know, there's always some great story, but because we're 1093 00:57:49,760 --> 00:57:52,360 not smart enough to know like what the next innovation is 1094 00:57:52,360 --> 00:57:54,560 like. Yeah, because we can't even 1095 00:57:54,560 --> 00:57:56,800 envision it. And maybe that blows AI out of 1096 00:57:56,800 --> 00:57:57,800 the water. I don't know. 1097 00:57:57,880 --> 00:58:00,080 That's why I like. That hopefully AI doesn't get so 1098 00:58:00,080 --> 00:58:02,520 smart that it can start seeing the next innovation. 1099 00:58:02,520 --> 00:58:05,680 Then then it becomes a snake that's like eating itself and 1100 00:58:05,680 --> 00:58:07,920 creating the world. Then then we're all just along 1101 00:58:07,920 --> 00:58:10,880 for the ride. Yes, I actually that's my number 1102 00:58:10,880 --> 00:58:14,600 one concern is because like you know, most of the time it leans 1103 00:58:14,600 --> 00:58:17,200 on human knowledge and research to date. 1104 00:58:17,600 --> 00:58:19,920 But but the reality is like, well, is it smart enough to 1105 00:58:19,920 --> 00:58:22,880 actually do new research and add to that or is always just free 1106 00:58:22,880 --> 00:58:26,760 ride on all the stuff we fed it? And you know, it gets real good 1107 00:58:26,760 --> 00:58:29,840 if they can actually do their own research and build on 1108 00:58:29,840 --> 00:58:32,040 knowledge. And I'm just, I don't know, I'm 1109 00:58:32,040 --> 00:58:34,280 not a tech guy. But if if it ever gets to that 1110 00:58:34,280 --> 00:58:38,240 point now, it's like now it's on the exponential, Oh my God 1111 00:58:38,240 --> 00:58:39,920 phase. Whereas right now I still feel 1112 00:58:39,920 --> 00:58:42,360 like it's kind of hindered by in the end, by the collective 1113 00:58:42,360 --> 00:58:45,240 knowledge of all humans and all the crap we've put out there. 1114 00:58:45,480 --> 00:58:46,920 It kind of needs to use all that. 1115 00:58:46,920 --> 00:58:48,840 And it's really good about putting it all together. 1116 00:58:49,080 --> 00:58:53,480 But can it really generate new knowledge per SE or new ideas? 1117 00:58:53,560 --> 00:58:55,720 I don't know. I mean, I imagine it well at 1118 00:58:55,720 --> 00:58:56,880 some point. But well, you know, the 1119 00:58:56,880 --> 00:59:00,160 interesting conversation is, I've heard the argument that as 1120 00:59:00,160 --> 00:59:04,160 long as we it can watch what it's doing, then we can monitor 1121 00:59:04,160 --> 00:59:06,720 the progress and it's OK because somebody will know when to 1122 00:59:06,720 --> 00:59:08,760 unplug it. And then in the same 1123 00:59:09,000 --> 00:59:14,320 conversation, they will say, but boy, like AI created that move 1124 00:59:14,320 --> 00:59:17,560 and go that humans would never have been able to appreciate 1125 00:59:17,560 --> 00:59:19,480 until it did it. And it's like, well, how do you 1126 00:59:19,480 --> 00:59:23,360 know when, when we've sort of like jumped the shark versus 1127 00:59:23,360 --> 00:59:26,440 like, I don't know who? If we're monitoring it and we 1128 00:59:26,440 --> 00:59:28,760 don't know what the hell it's doing, what good is monitoring 1129 00:59:28,760 --> 00:59:31,160 it? Yeah, no, I'm, I'm with you. 1130 00:59:31,640 --> 00:59:32,320 I. Don't even know. 1131 00:59:32,320 --> 00:59:34,880 To be fair, I don't even know where I am on all this. 1132 00:59:34,880 --> 00:59:39,440 All I know is this is the biggest innovation that my eyes 1133 00:59:39,440 --> 00:59:42,160 have ever seen that I've actually bought into. 1134 00:59:42,160 --> 00:59:45,320 Because most of the time I am a guy that's like, this is 1135 00:59:45,320 --> 00:59:47,280 bullshit and I do not believe it. 1136 00:59:47,280 --> 00:59:52,680 And this has like tangible benefits that I can experience. 1137 00:59:52,720 --> 00:59:54,920 And for the first time, I've been like, wow. 1138 00:59:55,200 --> 00:59:59,400 Yes, I'm with you and when a couple of old fuddy Duddy value 1139 00:59:59,400 --> 01:00:02,400 guys are saying that because, you know, we're like the last 1140 01:00:02,400 --> 01:00:05,360 people to believe the the bullshit train of like the next 1141 01:00:05,360 --> 01:00:08,440 promised God out there or whatever, like I'm with you, 1142 01:00:08,440 --> 01:00:11,680 man, like like I'm sold at this point, like I don't know where 1143 01:00:11,680 --> 01:00:14,360 you guys are going to take this meaning like all these tech 1144 01:00:14,360 --> 01:00:18,000 people, but. Whatever you're doing is amazing 1145 01:00:18,000 --> 01:00:20,440 and it's it's going to be incredible. 1146 01:00:20,440 --> 01:00:22,720 It may be incredibly bad or good, but it's going to be 1147 01:00:22,720 --> 01:00:24,640 incredible. Well, that's right. 1148 01:00:24,920 --> 01:00:29,040 And look value as a factor may still outperform the AI Basket, 1149 01:00:29,040 --> 01:00:31,840 but AI basket is going to change the world. 1150 01:00:31,840 --> 01:00:34,720 And I just, I'm along for the ride and there's nothing I can 1151 01:00:34,720 --> 01:00:37,240 do to get off this train, so I might as well stay on it. 1152 01:00:37,680 --> 01:00:39,160 Yeah, yeah, No, I'm with you. Yeah. 1153 01:00:39,160 --> 01:00:41,760 And the, and the good news is, is Warren Buffett's ideas are 1154 01:00:41,760 --> 01:00:43,320 Evergreen, right? Yeah. 1155 01:00:43,480 --> 01:00:45,960 You know, price is what you pay, value is what you get. 1156 01:00:46,120 --> 01:00:49,440 You know, buying Joe's Chicken Shack at 2 times earnings could 1157 01:00:49,440 --> 01:00:52,880 still be a better investment to buy an open AI at 10,000 1158 01:00:52,880 --> 01:00:55,400 revenue. Even though open AI might change 1159 01:00:55,400 --> 01:00:58,640 the world and Joe's Chicken Shack is worthless, it might be 1160 01:00:58,640 --> 01:01:01,320 a better investment just on valuation. 1161 01:01:01,320 --> 01:01:03,920 So good news is that hasn't changed. 1162 01:01:03,920 --> 01:01:08,200 I don't think AI will ever, you know, take away macroeconomic 1163 01:01:08,200 --> 01:01:10,280 fundamentals, but maybe it will, who knows. 1164 01:01:10,280 --> 01:01:12,360 Well, and I and I think bringing it back to where the 1165 01:01:12,360 --> 01:01:17,080 conversation started, if you had an ETF of the AI Changers or the 1166 01:01:17,080 --> 01:01:20,720 Joe's Chicken Shacks, given those two starting initial 1167 01:01:20,720 --> 01:01:25,000 conditions, Joe's Chicken Shack, probably that ETF. 1168 01:01:25,000 --> 01:01:27,240 What? JSK or no? 1169 01:01:27,240 --> 01:01:30,040 Yeah. Yeah, yeah. 1170 01:01:30,400 --> 01:01:32,680 I'm sure there's a ticker we could we could come up with. 1171 01:01:33,120 --> 01:01:35,280 That's right, that's the one that I would want. 1172 01:01:35,800 --> 01:01:38,240 Yeah, I would too. It'd be the most hated ETF with 1173 01:01:38,240 --> 01:01:44,440 no AUM, but I'd be a buyer for the next 20 years versus the AI, 1174 01:01:44,800 --> 01:01:47,320 you know, 10,000 times earning fund. 1175 01:01:47,400 --> 01:01:50,480 But anyhow, all good man. Yeah, well, thanks for pinging 1176 01:01:50,480 --> 01:01:52,880 me, man. And you know, people want to 1177 01:01:52,880 --> 01:01:53,960 find you. Where can they find you? 1178 01:01:53,960 --> 01:01:55,800 We've done this before, but where can they find you? 1179 01:01:55,800 --> 01:01:59,480 Yeah, just, you know, alpharchitect.com, Twitter 1180 01:01:59,480 --> 01:02:02,400 Alpharchitect or just Wested Alpharchitect. 1181 01:02:02,480 --> 01:02:06,440 And yeah, I mean, like I said, if you've got this concentrated 1182 01:02:06,440 --> 01:02:10,800 public stock problem and you can't do a normal 351, like I'm 1183 01:02:10,800 --> 01:02:15,200 not saying our, our solution is perfect, but it's, it's getting 1184 01:02:15,320 --> 01:02:18,000 pretty good and and you're pretty limited in options. 1185 01:02:18,000 --> 01:02:19,560 So you might want to at least check it out. 1186 01:02:21,520 --> 01:02:24,000 All right, sounds good. Anytime you want to come on, you 1187 01:02:24,000 --> 01:02:27,200 hit me up. Well, I only have good ideas 1188 01:02:27,200 --> 01:02:30,160 every so often, so I get over. Talk like once every three 1189 01:02:30,160 --> 01:02:31,320 years. Yeah, we could talk. 1190 01:02:31,320 --> 01:02:34,280 Yeah, exactly. I'm good for a, a new innovation 1191 01:02:34,280 --> 01:02:37,480 every, you know, a couple years. It's only been a couple months, 1192 01:02:37,480 --> 01:02:39,480 so I look forward to the next time. 1193 01:02:39,920 --> 01:02:42,600 We've been on the the Fast Innovation train, but I can't 1194 01:02:42,600 --> 01:02:45,160 promise that forever, so all good. 1195 01:02:45,160 --> 01:02:48,240 Good for you, man. I I root for you and I do have 1196 01:02:48,240 --> 01:02:52,200 one, one follow up final question out of your businesses, 1197 01:02:52,640 --> 01:02:55,560 yeah. Has a Better Business been and I 1198 01:02:55,560 --> 01:02:59,240 know, I know Box was a major hit for you, but as a better 1199 01:02:59,240 --> 01:03:03,440 businessman coming up with your own ETFs or has been the ETF 1200 01:03:03,440 --> 01:03:08,480 platform? Well, the problem is like, like 1201 01:03:08,680 --> 01:03:10,840 it's hard to have one come before the other because they're 1202 01:03:10,840 --> 01:03:13,040 kind of like natural symbiotic things. 1203 01:03:13,040 --> 01:03:17,200 But, but business wise, you know, obviously platforms where 1204 01:03:17,200 --> 01:03:20,040 there's way more freedom, like we just had the value 1205 01:03:20,040 --> 01:03:23,160 opportunity, value creation opportunities much bigger 1206 01:03:23,600 --> 01:03:27,760 because, you know, I have a lot of crazy structuring ideas and, 1207 01:03:27,760 --> 01:03:30,240 and other things. They may not be applicable to 1208 01:03:30,240 --> 01:03:33,720 some weirdo 50 stock factor fund, but they might be 1209 01:03:33,720 --> 01:03:37,840 applicable to 100 operators who are like, I could definitely use 1210 01:03:37,840 --> 01:03:40,640 that, right. So it's just a platform where, 1211 01:03:40,640 --> 01:03:42,800 where, where like the innovations, they may not be 1212 01:03:42,800 --> 01:03:45,840 applicable to the very narrow boutique thing that we're trying 1213 01:03:45,840 --> 01:03:49,000 to do on investment side. It could be applicable to many 1214 01:03:49,000 --> 01:03:53,400 others and and it's just a scale deal, right, whereas we keep 1215 01:03:53,400 --> 01:03:56,560 getting bigger, we can drop the cost, we get more efficient, you 1216 01:03:56,560 --> 01:03:58,680 know, it just makes the service offering better. 1217 01:03:58,960 --> 01:04:01,760 So it's just, you know, that business just has massive 1218 01:04:01,760 --> 01:04:03,720 potential, whereas like. Big time, Sam. 1219 01:04:03,840 --> 01:04:06,560 Yeah, yeah, exactly. Like whereas you know, you know, 1220 01:04:06,560 --> 01:04:10,320 investment business is awesome and it's a way simpler business, 1221 01:04:10,320 --> 01:04:14,240 but it's not, you know, it's not going to be Vanguard or iShares. 1222 01:04:14,240 --> 01:04:17,120 Like it's just not, it's just not the nature of like a weirdo 1223 01:04:17,120 --> 01:04:19,040 boutique asset manager. You're not going to have a 1224 01:04:19,040 --> 01:04:22,600 trillion dollars and you know, realistically it's just 1225 01:04:23,200 --> 01:04:25,720 boutique, but the the platform, I mean. 1226 01:04:25,920 --> 01:04:28,040 Until you get boxed. Well, I mean, you could get 1227 01:04:28,040 --> 01:04:29,400 lucky. That was good. 1228 01:04:29,400 --> 01:04:31,840 Yeah, that was pretty. But you know. 1229 01:04:31,840 --> 01:04:34,080 Pretty good, as Larry David would say. 1230 01:04:34,800 --> 01:04:36,520 Yeah, yeah, yeah. But but like, you know, you 1231 01:04:36,520 --> 01:04:39,680 never want to budget for your best, you know, you kind of, you 1232 01:04:39,680 --> 01:04:41,640 know, you just always want to like have like humble 1233 01:04:41,960 --> 01:04:44,960 expectations on that 'cause, you know, the ETF business is 1234 01:04:44,960 --> 01:04:47,800 extremely difficult. And yeah, if you have a bunch of 1235 01:04:47,800 --> 01:04:49,920 hits, that'd be awesome, but that's unrealistic. 1236 01:04:50,400 --> 01:04:54,440 Well, good for you man, but it's it's been nice to watch you. 1237 01:04:54,560 --> 01:04:56,200 I said it before, I'll say it again. 1238 01:04:56,200 --> 01:04:58,600 I root for you and come on anytime. 1239 01:04:59,280 --> 01:05:01,800 Hey, I appreciate it, man, with gratitude. 1240 01:05:02,280 --> 01:05:04,360 Thank you very much. All righty. 1241 01:05:47,480 --> 01:06:16,040 None. The.