Episode #225: Eric Crittenden, Standpoint Asset Management, “I Enjoy Trying To Win A Marathon Rather Than Winning Sprints”

Episode #225: Eric Crittenden, Standpoint Asset Management, “I Enjoy Trying To Win A Marathon Rather Than Winning Sprints”

 

 

 

 

 

Guest: Eric Crittenden is Chief Investment Officer of Standpoint Asset Management. He has over 20 years of experience designing and managing investment strategies, with an expertise in systematic trading in both mutual funds and hedge funds.

Date Recorded: 5/21/2020

Run-Time: 1:04:55

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Summary: In episode 225 we welcome our guest, Eric Crittenden. In today’s episode, we’re talking managed futures and trend following.

We get into investor behavior, and the challenges of getting people to allocate to managed futures, despite the data that shows they should. Eric has come up with a creative way to re-frame the conversation around managed futures to help investors break through, and deepen their understanding.

We even walk through Standpoint’s managed futures process. We cover portfolio construction and what the allocation looks like right now.

All this and more in episode 225 with Eric Crittenden.

Links from the Episode:

 

Transcript of Episode 225:

Welcome Message: Welcome to “The Meb Faber Show,” where the focus is on helping you grow and preserve your wealth. Join us as we discuss the craft of investing, and uncover new and profitable ideas, all to help you grow wealthier and wiser. Better investing starts here.

Disclaimer: Meb Faber is the co-founder and chief investment officer at Cambria Investment Management. Due to industry regulations, he will not discuss any of Cambria’s funds on this podcast. All opinions expressed by podcast participants are solely their own opinions and do not reflect the opinion of Cambria Investment Management or its affiliates. For more information, visit cambriainvestments.com.

Meb: Welcome, podcast listeners. We got another great show for you today. Our guest is chief investment officer of Standpoint Funds. He has over 20 years of experience designing and managing investment strategies with an expertise in systematic trading in both mutual funds and hedge funds. In today’s episode, we’re talking manage futures and trend following. We get into investor behaviour and the challenges of getting people to allocate and manage futures despite the amounts of evidence that shows they should. Our guest has come out with a creative way to reframe the conversation around manage futures to help investors breakthrough and deepen their understanding. We then walk through Standpoint’s process and portfolio construction, and how they’re positioned right now. Please enjoy this episode with Standpoint CIO, Eric Crittenden. Eric, welcome to the show.

Eric: Thank you, sir. Good to be here.

Meb: And explain to our audience where here is.

Eric: We’re in virtual land so I’m Phoenix and I believe you’re in, what, Manhattan Beach?

Meb: I am. They just reopened the beaches and it feels like July 4th. Other people respectfully distancing but it feels like everything is open. I was talking to a friend who said Old Town Scottsdale just looks like Daytona Beach right now.

Eric: I was riding my bike through there yesterday and yeah, I had to be careful with the traffic. It went from being as ghost town into being crowded pretty quick.

Meb: I think you run a higher risk of picking up all sorts of other infectious diseases in Old Town Scottsdale rather than just COVID, riskier either way. All right. Let’s talk about investing. Listeners, if you haven’t yet, go back and listen to Eric’s podcast. One of the originals, one of the OGs on “The Meb Faber Show.” Probably four years ago, we had Eric on. It was a lot of fun. But how is 2020 looking for you? The world look pretty formal?

Eric: No. Anything but normal. It’s a very, very interesting year. I had no idea what we were signing up for at the beginning of the year but it’s been a good experience for us. We’re alternative investments focused but I don’t know that I would wish this environment on my worst enemy for people that have stock-heavy portfolios.

Meb: So, I can say this, you probably can but I had looked up your new funds and saw they were actually up on the year which is a rarity in this world. But two big topics we’re gonna talk about today, all things trend-following managed futures. I also wanna hear about you did a little sabbatical talking about studying artificial intelligence, which we’ll get to later. But let’s start with trend following. You’re one of my favourite students of history that has probably done more research and simulations on all markets, not just stocks. You also started a new firm. Tell us about the new firm. When did you guys get the ball rolling?

Eric: Yeah. So, we launched Standpoint Asset Management late last year. It’s a small firm, it’s a new firm. It’s our baby though, we love it. We have a great crew of people, small company of people that have aligned interests in a shared value system. And we started the firm to solve a problem in the market place. We recognize that there’s a large group of people out there that realize that they need diversification beyond just stocks and bonds. But in our experience, they don’t want the experience of alternative investments, they don’t like it. So, the problem we’re trying to solve is to meet that diversification need in a way that people actually want or can tolerate, find the overlap between those two things. And that’s what Standpoint is all about, and it’s been an interesting experience to get a firm up and running in this highly regulated new world that we live in. And then to be hit with COVID right out of the gate was sort of a blessing in disguise because it demonstrated the benefit and the need for alternative investments. But like I said, it couldn’t have predicted that.

Meb: So, give us a little overview. You’re a trend follower at heart or inoculation, I don’t know which, or by logic. But give us a broad overview as you have shifted a little bit over the years on this new offering, there’s almost behavioural element to it. So, maybe take us a step back, talk about sort of manage futures and trend following over the years, and kinda what has led you to sort of your current belief system and iteration of where we are in 2020.

Eric: Sure. Well, let me first start by admitting that I hated trend following early in my career. I was actually an arbitrage guy coming out of…in college. The concept of trend following, the connotation of that phrase was not appealing to me. It sounded juvenile, you’re just hopping on to something and sticking with it for as long as it works and then kinda the greater full theorem. But having been a student of data, and finance, and econometrics, and computer science for 25 years now, you get to see history in different ways. You can reconstruct history in different ways and you can do a deep analysis on data. And it turns out that in my strong opinion, there’s a very good reason why trend following works, and why it’s sustainable and durable, and why it produces diversification that you just don’t see in other alternative asset classes.

So, you mentioned that my views have changed a little bit over the years, that’s true. I’ve tried to improve, I’ve tried to take the knowledge that I’ve acquired over time and convert that into wisdom. But I will say this, they haven’t change that much. The core belief that underpinned my previous company and the one before that was that trend following manage futures is the best diversifier out there, and I think the empirical data really drives that point home. And I’ll share some experiments that I’ve done with you, the psychological experiments with people to illustrate that. My transition recently has been into accommodating investor desires. In other words, finding the overlap between what people want and what they need so that we can actually do business, and I can get people to use enough manage futures to make a difference long term in a way that they’re willing to tolerate. And I think that’s the big difference between what I’m doing now and what I’ve done over the previous 24 years.

Meb: The behavioural aspect that you mentioned is so important and you actually have a quote in your Standpoint deck that I’ve never seen before but I’m gonna steal it. It’s from John Lintner. I’ll read the quote and then kinda let you talk about it. But it’s on page four and we’ll post this to the website show notes if you let us, but it’s talking about manage futures. And to the listeners who aren’t familiar, Lintner was one of the co-creators of CAPM, right? All the way back in the ’60s which is Nobel worthy. It says, “The results are so compelling that the board of any institution, along with the portfolio manager, should be forced to articulate in writing their justification and not having a substantial allocation to the liquid alpha space of managed futures.” That is quite a statement. Do you wanna dig in there?

Eric: Yeah, it’s a bold statement. The most interesting thing about that is how little impact that statement actually had on the world. So, here we are. I think he wrote that in the early 1980s, so here we are in 2020 and that statement from person with very high credibility and all the data to back up his assertion had almost no impact on the world. Which is interesting to me because I’ve seen it over and over. I mean, look, you know as much about managed futures as I do. You’ve been doing this for as long as I have. You’ve seen the data, you know how much of a difference it makes, you know how many blind spot problem it solves in the portfolio. And yet, it’s like pulling teeth to get people to use enough managed futures. Why is that? Why do you feel that is?

Meb: Well, there’s… And for the listeners who aren’t familiar, who are new to Meb Faber Show, managed futures, Eric described it better but it’s a long short approach to all the world’s markets. But I think it’s pretty simple, spending enough time in our world, you start to realize there’s what Lintner talks about 50 years ago. There’s the optimal portfolio and then there’s the portfolio that people can handle, not just emotionally and psychologically but career-wise if you’re holding the purse strings. And so, finding that balance between what’s optimal and not looking too different or not selling at the bottom, whatever equities, etc., folding that all together and managed futures has like all the problems. First of all, it has the marketing problem of a name sounding scary. Futures anything sounds scary. But add spice in those other things of looking different, of being something that a lot of people just aren’t familiar with. That sound reasonable, what else you got for us?

Eric: Yeah. It’s the lack of a narrative. Managed futures is the antidote to comfort for most people when they first experience it. So, let me share with you my somewhat unscientific experiment that I’ve been conducting for the past two and a half years and I think this will drive the point home. And I’ve done these dozens of times, maybe over 100 times now. I sit down with somebody. They’re a high net-worth person or a financial adviser, or a friend, family member, and I’ll show them a spreadsheet that contains the annual returns of the U.S. stock market going back to some year, ’80, ’70, something like that. And then next to those calendar returns, I will put the results of a credible managed futures index. So, we’re looking at the 1980 return for the S&P and the 1980 return for one of the soc gen managed futures indexes, and then ’81, ’82, so on and so forth up to the current year.

And then, so they can see that sometimes they move together, sometimes they move opposite, sometimes managed futures is down when the stock market is up. And I asked them, “How would you feel about a 5% allocation to this managed futures category?” And they all do the exact same thing. They start going down the list until they find an instance where the stock market is up and managed futures is down. And then you see that look of “ahh” on their face, “Uh, that’s not good.” And then they find a couple more of those. They’re looking at the relative performance between the two, and they noticed the managed futures is up sometimes when the stock market is down but they really focus on the inverse of that. And so, when I do this, 9 out of 10 people tell me, “I can’t do that. I’d be out of business in this year, this year, or maybe not out of business but I would have 200, 300, 400 client calls, and that’s enough to just kinda derail my business.”

And they’re just being honest with me and my estimate is that 9 out of 10 people just would say, “No, I can’t do it. I don’t even need to go any further, that’s gonna cause a problem.” So, then I say, “No problem.” I remove the managed futures and I replace it with something I call the mystery asset class, which between you and me is just a 50-50 blend of stocks in managed futures rebalanced annually. So, I put this mystery asset class on there and I tell them, “Let’s repeat this but I’m not gonna tell you what the asset class is until after you make your decision.” So, now they go through and they’re looking at it and they do the same thing. And they get to the bottom and they say, “Yeah, this is what I’m looking for. If this isn’t something crazy, I could see using this. It makes a lot of sense.” And ask them, “Why?” And they say, “Well, it’s got nice up capture and it’s got reasonable down capture, and it doesn’t fall too far behind, and I can see here that it’s not highly correlated. I could see myself using this if it’s not something crazy.”

Now, they wanna know what it is but I still won’t tell them. Now is where I get a little devious and I ask them, “All right. Well, before we were talking about a 5% allocation. What about 10%? How would you feel about a 10% allocation to this?” And they consider it and they look at it again. They go through the exercise again and their answer is almost always something similar to, “If this isn’t something crazy, yes, I could see myself putting 10% into this mystery asset class. Now, tell me what it is.” So, when I reveal to them what it is, that it’s just a 50-50 blend of stocks and managed futures which you just rejected, they’re always flabbergasted, shocked. And then when I tell them that our 10% allocation to this is the same thing as a 5% allocation to the thing you rejected. So, think about what’s happened here. I went from a 90% failure rate and by blending them together, I have an 80% success rate.

Opportunities like that don’t come along very often in life where I’ve done nothing. Mathematically, it’s the same thing. That is a 5% allocation to managed futures, it’s just being delivered in a format that they both need and want at the same time. You have to satisfy both the needs and the wants. And the reason that this approach is so powerful or at least convincing to me is that I don’t have to sell my soul to do this, because that’s how I invest. It’s basically half stocks, half managed futures, and a little bit of bond sprinkled in. So, I think it’s a good way to invest. I think that’s a great all-weather approach and it meets the wants and the needs. So, hopefully, that drives on the point.

Meb: There’s a lot to dig in to, the first of which is you may have said it to me or maybe somebody else sent me a piece from an investment bank and it was 90% sure it’s Goldman but they did a study on managed futures and they were showing, “All right, let’s run the optimizations and how much should you include.” And the result spits out something like 70% of your allocation should be managed futures or something. So, I said, “No, no, that’s not realistic quote. We have to now constrain it because we all know you can’t put 70% in managed futures. So, they said if you constrain it to, you know, less than 30% or whatever, then what’s the optimum amount? Of course, the optimum amount was 30% because that was the maximum. It’s just a funny, perfectly illustrates the mind-set of one of the smartest institutions on the planet that the math is somewhat, you can’t argue it but once you bring in all the real-world emotions and psychological misgivings, it changes the output.

Eric: That reminds me of another experiment that I did. I would use on more sophisticated people that really wanted to dig into the portfolio map, that this one’s more brief though. I would anonymize four asset classes, stocks, real estate, bonds, and managed futures. And I would show them these asset classes, they’d be looking at the quarterly returns. And then down at the bottom of the spreadsheet, I would have the compounded annual return, the annualized standard deviation, the max drawdown, and then the average covariance with the other asset classes. And I would tell them, “All right. You’re gonna build an optimal portfolio for yourself. We’re gonna force you to be objective and unbiased, I’ve anonymized the asset classes and I’m not gonna show you the equity curves. All you have to work with are those metrics that I just gave you.”

So, 100% of the time people choose managed futures first as the foundational asset class based upon those objective metrics, 100% of the time. Now, as a small sample size I probably did this with 30 people but 100% of the time they choose managed futures because they had a good return, lower vol, much lower drawdown, and the lowest correlation with the other asset classes. They put 40% in managed futures. So, the way I did it was 40%, 30%, 15%, and then so on and so forth. And then after they were done building their optimal portfolio, whatever to reveal the asset classes and then ask them, “How is this compared to your actual real-life portfolio?” And the answer was, “Almost always the exact opposite of what I do in real life.” So, it’s stuff… But here’s the point, Meb, you can do all of this and you don’t change people’s behaviour.

They don’t then go out and liquidate a bunch of stocks and real estate, and reallocate to managed futures, never ever. So, that’s the one thing I’ve learned that’s crucially important. It’s not enough to be right. It’s not enough to educate. You actually have to facilitate behavioural change. That’s a whole another level and that goes back to the original experiment is that if they’re not willing to build or not able to build the optimal portfolio themselves, stop trying to cram the individual ingredients down their throat. There’s something that you don’t understand or they don’t understand, or that the real-life just won’t allow it to happen. But there’s nothing stopping us from creating the optimal portfolio and delivering it to them. Maybe that’s our job, maybe we’ve just been missing the point for five decades.

Meb: Yeah. It kinda reminds me a little bit about the branding. We talk a lot about, obviously, dividends and buybacks. And buybacks just have such a bad stigma in brand which essentially have it just been labelled tax-efficient dividends. People would have a totally different mind-set than if you call them buybacks, it generates a different part of the brain. The same thing with managed futures, we just came up with the better, you have to go back 40 years to do this, 50 years, so that ship had sailed. So, I like your idea of framing it or packaging it in a way that’s more palatable because, I mean you’ve spoken to hundreds, thousands of advisers over the years in institutions that allocate. And I always love asking my managed futures buddies. I say, “Have you ever spoken to an institution that makes a significant, meaningful allocation and trend following, which I mean 25% plus?” And there’s very, very few and certainly, none that really approach 50%, you know, any that are even in that ballpark. Most people I feel like they allocate maybe 5% or 10%. Is there anyone that really goes all-in on the trend following allocation?

Eric: There’s been a few in my experience and it has killed them. Doing that has really put them in a bad position. But, again, if they didn’t have 40% or 50% in pure managed futures, if they were in all-weather products and those products were 40%, 50% managed futures, their experience would have been radically different. Because when people get their statement, they inevitably drill down and look at the top performers and the bottom performers, and automatically assume that the bottom performers are doing something wrong. They hate the feeling of diversification. They don’t like the dispersion and it’s just human nature. And no amount of education, or bullying, or yelling at them is gonna change their psychological response to that phenomenon. But we have the power to smooth that out to empower these people to embrace diversification.

It’s like this, if you went to a restaurant and they brought out your meal ingredient by ingredient, by ingredient, and made you each one individually, how would your experience be? Atrocious. You eat a fist full of onions and then you consume all the mustard, and then you eat the burger patty, then you eat the bun. Nobody does it that way for a good reason. So, we’re asset managers, we’re portfolio managers and maybe we’ve just missed the point. Maybe we’re supposed to deliver something that people need and can tolerate.

Meb: It also goes to the point of saying, by the way this reminds me of my three-year-old who will not eat salmon but he will eat salmon chicken. So, the marketing and how it’s presented certainly means something, but I think that’s an accurate description. One of the challenges that managed futures has, it’s a future, not a bug, is that it’s very different looking. The challenge of being very different looking is fantastic when it’s different looking to the upside and a game-changer, career-ender when it’s different looking to the downside. You and I, four years ago, chatted about a study I had read institutional that asked the institutions, it is trillion dollars of institutions, how long would you tolerate a manager underperforming before firing them? And it was like 95% said less than 3 years or something.

And I said, “There’s no way that’s actually true because all those people should be fired.” So, I actually recreated that on Twitter and my Twitter followers, by definition, I tweet about quant investing. So, it tends to be skewed towards more professionals ask the same question, same answer, which is so horrifying. It was something like 85% was less than five years, when in reality it should probably be almost different. And managed futures has these periods and the last 10 years certainly have been one of those periods where, I don’t know, maybe what, 6 out of last 10 years, 7 out of the last 10 years. They want to perform on a yearly calendar basis. Does that sound about right, ballpark?

Eric: Yeah, I think that’s right.

Meb: And then has the years like 2009, certainly 2020 everyone is waking up? Tell me a little bit about how you guys actually construct, build your strategy? What does it look like? Are you trading hundreds of futures markets? Are you trend following on stocks? Are you doing value? How do you put it all together? How do you take the onions and the ingredients and put them into a final entree?

Eric: So, earlier in this conversation you mentioned my sabbatical. I did take a little over a year off, about a year and a half and I decided to just take stock of everything I’ve learned. Try to convert that knowledge into wisdom. Talk to my mentors, talk to my peers in the industry. I did study artificial intelligence, machine learning, genetic algorithms for the second time. I studied that stuff back in the ’90s when those names weren’t cool. And I just decided to build the best-managed futures program that I could build and that was a very interesting experience. I learned a lot about myself and about the industry because you approach it with much more knowledge, much more experienced, and a clean slate and a fresh perspective. And I won’t go into the details of every single thing I learned but there’s an interesting point to all this.

I built a really, really complicated, elegant approach that I thought, “Wow, this is the Lexus of managed futures program and it’s harnessing all the interesting things I’ve learned over the years.” And then I built a benchmark for it, which is just a simple, plain vanilla, old school, just get the blocking and tackling right, really durable, just three moving parts CTA program. And then when I looked at the difference between the two, it was so minuscule. It was so tiny that I couldn’t justify the potential fragility and model risk of the Lexus version. So, I made the decision to go with the jeep, 1948 jeep version because the thing has just done exactly what you wanted it to do for 50 years. It just keeps on collecting that risk transfer premium in the futures markets and does it in a risk-controlled manner. It’s lumpy but that’s what you want from something. If you wanna be able to trust a managed futures program, it better be pretty lumpy, otherwise, it’s probably got too many moving parts and eventually, it’s gonna stumble onto a market environment that it can’t handle.

So, that was humbling to take this thing that took me a year to build and then compare it to the relatively simple, durable benchmark. But then when I talk to my mentors like Tom Bazo, he’s the chairman of our board, and other people in the industry, they all basically said the same thing. Eventually, you get to the point where you just got to put your ego aside and realize that the CTAs they’re all collect in the same risk premium. The only real alphas don’t charge the same fees and don’t blow up, meaning take risks seriously, be humble, be pragmatic, and stay disciplined. So, in the end, that’s what we’re doing and I’m excited about that. I really enjoy winning by not losing. I enjoy playing defence. I enjoy trying to win a marathon rather than winning sprints.

Meb: Well, we often say on Twitter and on the podcast the whole key to the investment business and entrepreneurship and anything is just surviving. So, it’s true in the investment world, too. I’m glad you use the analogy of ’40s jeep instead of 1960’s land cruiser because my land cruiser basically spend all the time in the shop and I would have said that’s a terrible, terrible analogy.

Eric: What did you do to that one?

Meb: I had to sell it anyway because the seats go sideways in the back and I don’t think you can put a child seat in there. Okay. So, you’ve been a craftsman as far as it comes to actually putting the portfolio together. And I love the sort of takeaway of the simplicity but for many people still, what you’re doing is not that simple. What is the portfolio, how does it actually…you obviously don’t have to give the specific algorithms but how is it, like what markets are you trading? Are you targeting a certain level of fall? How do you kinda put it all together? Give me the Thomas Keller chef’s summary of what the product looks like.

Eric: So, we’re trading the 75 most liquid futures markets in the world that are legally accessible by U.S. citizens. So, it’s gonna be a who’s who of markets that you know, probably the least liquid, most obscure market that we’re trading would be feeder cattle. And we’re trading some markets that other people might not trade like carbon emission credits in France but they’re deeply liquid and those European CTAs are trading them. So, it’s 2-year treasury, 5, 10, 20, it’s crude oil, brent crude, natural gas, gold, silver, corn, and wheat. It’s all global features markets that you know and love. And I have a process for adding new markets and eliminating all markets because everything we do is liquidity weighted. So, we’re essentially aligning our participation to the open interest in those markets. So, if you think of the S&P 500 or the Russell 1000 as a market cap-weighted index, our futures program has an open interest weighted participation in all the different futures markets.

Which sounds a little radical at first glance but when you look at the big CTAs, the guys over in London and whatnot, they have to trade this way. There’s no other way for them to put $40 or $20 billion to work. And this was eye-opening for me as well because in the past I tried to put an emphasis on including less liquid markets like Malaysian palm oil, Japanese kerosene, obscure markets. And in assimilation they make a difference but if you’re managing a meaningful amount of money, you simply can’t participate in those markets. So, I wanted an intellectually honest representation of what history would have looked like for a program like this. And the only way to do that accurately is to open interest weight your positions. And then when I did it I was actually very pleasantly surprised at how effective that has been for the past 40 years.

So, I think that answers your question about what markets, how are we doing it. This is an important concept. So, I talked earlier about keeping it simple and just doing the same thing that’s worked for the past 40, 50 years. There is a risk when you pick an individual manager. There’s a lot of dispersion between the annual results of different trend following firms. Summer up 20% year to date, this year summer down 12%.

Meb: Well aware. I owned one of the ones that was down 12%. We’ll keep going.

Eric: Some of the guys that are down 12% are just sticking to their nit. They could be up 30% when the industry is flat, it cuts both ways but I’m not a fan of that kind of dispersion. I want the returns of managed futures as a whole. But I am a single manager so how do I deal with that? Well, I went with three different models. I went with a short-term model, a medium-term model, and a long-term model. And they zig and zag and there’s some dispersion between them. But if you look at the net blended result, you get something that’s very consistent with the industry at large. So, that’s what I can do to minimize this “single manager risk” which I think is important. If I’m telling people, “You need to use enough managed futures to make a difference, that’s hard for you to do because of all the stuff we talked about earlier. So, I’m gonna do it for you and roll it into one product.” Well, I don’t wanna subject them to excess individual single manager risk.

Also, I’ll say for the record that in the end, the decisions that we made at the end, they needed to be overlap between the stuff that we’re offering to other people has to be what we do with our own money. We got to find the overlap between I would be willing to invest in this for 30 years and it has to be something that’s appealing to other people. That was the mandate, so we do eat our own cooking in that sense.

Meb: So, it’s just for kinda illustration wherein mid-late May to the extent you can, what are some of the markets that would be long right now, some of the ones that may be short, just sort of a snapshot on what the world looks like here at the end of May?

Eric: The style of trend following that I’m looking at, obviously, are short energy have been short and that’s been an epic trade so far this year.

Meb: I mean do you remember back in the day when there was some trend-following indexes. They were like, “No, no, no. We’ll go long short except for energy. We won’t short, we won’t short energy.” And this is when the [inaudible 00:29:47] index back when, you know, oil is like 130 or something and it was like the most classic example of just back fit optimizing. Why in the world you wouldn’t short energy? Because it would hurt the back test but here we are fast-forward 10 years later and futures contracts straight at negative. Anyway, that was a fond remembrance.

Eric: It’s baffling. I’ve had that argument ad nauseum for years with people, even recently. As recently as December and January about crude oils all the way down to 50 a barrel, how much lower can it go? I can’t short this thing here from season veterans in the industry, and I respect their opinion. They’ve got rules and that’s their system. But I look at it and say, “You don’t make money on the short side from outright direction or price moves, you make it from the roll guild off the contango, typically, at least over the long term.”

Meb: Explain to the listeners what that means, by the way.

Eric: Sure. So, you could short crude oil at…where’s it at right now, 30 a barrel? You could short the August crude oil at, would you say 36?

Meb: I don’t know, just whatever. Let’s use 30.

Eric: Yeah, let’s say it’s at 30. Short it at 30 a barrel and then roll from August to September, and then September to October, so on and so forth. It can finish the year at 30 a barrel and you could have made a 40% return, because every time you rolled out of a contract, you were rolling into something, it was trading at a premium. And that premium exists in the future’s world because expectations, interest rates, and storage costs get baked into the futures curve. So, trend followers need to understand this because half their returns come from the roll yield component. That contango is a downward pressure yield and then backwardation is an upward pressure yield. So, it’s kinda like dividends. If you’re looking at a stock and you bought it at 50, it finished the year at 50. And then you look at your statement and you said, “Why am I up 6%? It finished where it started?” Well, you got four dividends along the way.

You have to factor in the total return. Roll yield in futures is just kinda like a dividend except that it can be positive or negative depending upon the term structure and what’s going on in the world. So, in the energy world right now, there’s an enormous negative dividend in the form of skyrocketing storage cost that’s being priced into the futures curve. If you’re a short seller, you’re essentially a synthetic storage provider right now. And you could make a lot of money being short even if the price of crude oil doesn’t go down. So, it sounds complicated but once you look at a chart and think it through, it’s like, “Oh, I see how it works.”

Meb: What was the experience like for you? And to my knowledge, I assume there has been at some point, I think I asked this question and somebody mentioned it happened in natural gas once before. Had you ever seen negative trading futures markets in any commodity or anything before?

Eric: Not in real-time. When you back to just contracts you see negative prices all the time but that’s not what people are talking about. Some electricity forwards go negative at times. I do think there was an obscure natural gas contract, I think it was over in the UK that went negative once a long time ago. But beyond that, no. This has really caused problems for a lot of people having prices go negative and it’s a dangerous thing to talk about. Well, it’s easy to talk about it now but I was on a podcast a few months ago and someone asked me about could crude oil go negative? And I said, “Well, theoretically it could if the storage cost exceeds the salvage value of the toxic substance in there.” And I got all kinds of phone calls from people yelling at me and saying, “That’s absurd. Prices can’t go negative.” So, anyways, it’s one of those things where you learn after the fact.

Meb: I think it cost, was it interactive brokers, like $100 million for trading errors because they couldn’t deal with the, they just went to zero and that was it, they couldn’t deal with software. Anyway, all right. So, your short energy, what else? I assume fresh gold is probably a long at this point?

Eric: Yeah. So, some of the precious metals are in uptrend, some of the bonds are technically in uptrends. Most of the grains and [inaudible 00:33:44] are in downtrends, so CTAs are generally gonna have short positions and things like cotton and corn. Wheat is a little different but canola, soybeans, bean oil. There’s a lot of deflation out there, the meats, lean hogs, live cattle, those are generally short right now. So, it’s mostly of short exposure. The only long exposure that it really jumps at me are bonds, a little bit of dollar long position. So, it’s an unusual posture for CTAs but it’s not unbelievable given the current market circumstances.

Meb: Think about bonds is interesting, too, because certainly when you and I were going to university, they weren’t talking that much about sovereign just trading it negative interest rates. The modern reality of plenty of the world trading at negative interest rates at this point is sort of a new phenomenon. But it’s interesting because as you think about managed futures in general, too, at least I’m just kinda spitballing here, and you think of the potential outcomes of the world and what the future may look like of inflation, which is one that a lot of people say, “Look, managed futures is great because you’ll end up owning commodities and be along these nutritional portfolio.” But deflation scenario is also potential benefit with managed futures positioning, too. I think I saw someone talking about on Twitter the other day where the Fed futures for end of the year was saying negative interest rates. I don’t know if you have any thoughts there.

Eric: I have too many thoughts about that. My third and final experiment that I’ll tell you about, this is a newer experiment obviously. But I try to explain the opportunity to invest in bonds to people without identifying that I’m talking about bonds. So, I just described the attributes of this investment and I say, “Look, here’s an asset class. It’s got a lot of history, 99% of your return comes from the yield component. There are some capital gains or losses from time to time but those net out to basically zero overtime. The current yield is about 65 basis points and the fees are really low. How do you feel about… Oh, and it’s negatively correlated with stocks most of the time recently, it wasn’t in the past. About 30% of the time it’s negatively correlated with stocks for the past 100 years but recently it’s been negatively correlated. How do you feel about investing in this?”

People ask me, they’re like, “Well, isn’t that below the rate of inflation?” I’ll say, “Yeah, it’s below the rate of inflation.” “It’s 65 basis so that’s my expected return going forward?” And I said, “Well, it could be a little more, a little less, but generally speaking, yeah, whatever the yield is. It’s about 90% accurate at predicting your future compound of return.” And they shake their head. They’re like, “Why would I ever invest in such a thing?” And then they say, “Oh, wait a minute. But if the yield goes up though then we’ll get a higher yield?” And I said, “No, you’re locked in and you’re gonna take a capital loss if the yield goes up.” And that’s not strictly true but it is for the purposes of this explanation. So, basically, 10 people out of 10 say, “That’s absurd, I would never invest in such a thing.” And then I reveal to them, “I’m talking about the 10-year treasury.”

Meb: So, wait, I have 40% of my portfolio in that. What do you mean? Yeah. The long-held beliefs are hard to really change. How do you guys handle the stock component? You just index it? You just do market cap weighting, do you do some other approach? What do you guys do?

Eric: Yeah. So, you know, from our conversation over the last 10, 12 years that I did a lot of strategies on individual common stocks and sector in disease and whatnot, trend following in nature, vault trading, stuff like that. And I looked at that, I did my best to come up with well thought out, constructed, trend following approaches on equities. But I wanted to look at everything on an after-tax, after inflation, after transaction cost, operational costs basis. And knowing what I know about managing money inside of a ’40 Act mutual fund structure, there’s some other considerations that you have to be aware of. This was actually very surprising to me. I built some really nice sector rotation and trend following on sectors programs that, on a standalone basis, they look great. I had been very comfortable investing in these, not the most efficient but reasonable tax efficiency and really good risk adjust of returns. That was my opinion of the research that I was looking at. But then when I blended it with managed futures, I’m like, “Oh, that looks good. It looks good.” And then I said, “All right, again, let’s look at the baseline benchmark which is market cap-weighted indexes,” which we know are ridiculously [inaudible 00:38:14] sufficient, where the fees are almost zero. I think you can get most of these things for three or four basis points.

Meb: Bank in New York, there’s a handful now, they’re straight-up zero. Bank in New York have some…who is it? SoFi launched some that were zero, one is negative at this point. It’s a way over but obviously that’s not sustainable but essentially zero.

Eric: Yeah. Effectively most of them are negative at this point if you’d factor in the shortage whose credit they’re collecting and putting back into the fund because they’re up performing their benchmarks. So, I compared my tactical rotational trend following on global equities to these kind of buy and hold fee-efficient, tax-efficient, market cap-weighted indexes. And I really liked the tactical ones better on a standalone basis but something very interesting happens when you blended in with managed futures. The plain, boring beta version blends in nicer with managed futures which was, well, humbling but at the end of the day I get to do what, again, that overlap between what people want, people need, and what’s intellectually honest. But I needed to dig in and say, “Well, why? Why does this thing that has 50% drawdowns every 20 years and 15% vol, why does it blend better with manged futures?”

Well, it’s because in the managed futures program, you’re trading those same indexes. And would you get short signals with your various trend following systems in the managed futures program, it acts like a hedge. The problem with the rotational trend following on equities component is you’re double hedging if you combine that with the managed futures program. And so, in other words, managed futures program and the tactical equity stuff, they share the same blind spot and that’s what happens after during the recovery, they share the same blind spot. So, they look good when combined but combining managed futures with just market cap-weighted indexes look better. And you still have the hedging kinda risk mitigation strategy it’s just over in the managed futures program, so that’s what we do.

Meb: Yeah. We often will describe the people market cap weighting as trend following at its very core. It’s one of the simplest and oldest trend following systems out there. But the idea that I believe you wrote about and propose way back when with your capitalism distribution paper which, and you can correct on this, it may or may not be true. You can tell me about the paper which is I’ve seen six academic and investment bank papers after yours came out and I still don’t think anyone has given you attribution for being one of the first people to write about this. Feel free to correct me if I’m wrong but you’re the first person I had seen that had done work on this. Is that accurate? Do you wanna tell listeners what we’re talking about?

Eric: Sure, yeah. You put me on the spot. So, yeah, I really enjoyed doing that research. Those papers are still floating around out there, one is called this trend following work on stocks and another one is called the capitalism distribution. I don’t have the rights to those papers but the research is good, and it basically showed that the vast majority of the stock market’s gains came from a very small minority of stocks, very small. It’s kind of 80-20, or 80% of the gains came from 20% of the stocks. It’s actually more like 90-10 and that was consistent across different countries, Canada, UK, Japan, U.S. So, we called it the capitalism distribution, where a small group of really large winners drive the performance and most docs are actually below average. So, from that, we developed kind of a thesis that maybe you could figure out a way to concentrate in the stocks that are gonna be the big winners going forward.

And maybe the best way to do that is with the trend following approach using some sort of a stop lost, kinda call the herd and get rid of the below-average stocks, and I believe that does work. I believe it has worked, I believe it will work in the future. The degree to which it works needs to be pretty high to offset the subsequent taxes, transaction cost and what not but I think there’s enough room there. My point though is that I’m a chef, I’m blending ingredients. Asparagus maybe better than parsley but not for this particular meal. So, market cap weighted indexes which you accurately pointed out are really just kinda slow-moving trend following systems in and of themselves without a lot of risk management. They blend better with managed futures from my perspective than these standalone, superior, tactical strategies. So, that’s why we do it.

Meb: You know who has been arguably one of the best framing and marketers of trend following is the private equity space, specifically venture capital, which is essentially very similar to equity, public market investing, market cap weighting but on a much, much, much smaller market cap basis where they’re investing in companies around 10 million, 20 million market cap or less. And then essentially, it’s a trend following approach where if you do 100 investments and one or two of those goes 100X, 500X, essentially their stop loss is zero where they just assume. But it’s the same return distribution which is that massive power law that you’re talking about. But the reason they’ve done such a good job and they’ve been able to raise so much money is two things that managed futures doesn’t have. One, a 10-year lockup, meaning you’re not gonna find out the returns of this portfolio for 10 years.

And second, you can’t sell the holdings even if you wanted to because they’re not accurately, at least for the most part, you don’t even know in many cases market to market. And so, the venture capital as an angel investors have figured this out. And if you could just blind managed futures, that’s a better idea maybe to think about ways to talk about this and say, “Look, on a 10-year basis…” But that’s an area where they’ve raised and they continue to raise so much money and rightfully so. But, again, a very much long volatility parallel distribution, it’s interesting. I often talk to all of my friends in venture capital and angel, and there’s very little crossover with guys that actually do trend following and public markets, too. I don’t know that many, maybe you know some. I actually don’t know any if I can think about it accurately. Anyway, random aside, all right. So, enough in that brand. You put half together stocks market cap weighted. Do you use ETFs, do you do direct? What do you do?

Eric: So, we chose to go with ETFs. I spent a lot, I probably spend six months studying the microstructure of these different TF markets and there were no surprises. It was the big brand names, the Vanguards, the Schwabs, the State Streets, and BlackRock. Those guys do such an amazing job under the hood of negotiating their custody fees and the foreign taxes, and then lending the shares out to short sellers and collecting the short interest credit and rebating it back to the fund. And then HR due three basis points for that whole thing. So, if I was going to replicate what they’re doing myself which I could do, I estimated it would cost me about 18 basis points. So, why don’t I just pay them the three and call it a day? They’re really good at what they do and the fees are just almost zero. So, we looked at using index futures but it’s much more tax-efficient if you can buy and hold those ETFs.

You just don’t sell them. Relegate all your active tactical stuff into the managed futures program, the hedging and what not because it is all pulled into one vehicle so you get the benefit. So, the idea here was to minimize taxes as much as possible and the best way to do that is hold your equities as cash equities. Don’t use leverage, don’t be tactical, don’t sell them. Keep all that stuff relegated over to the managed futures side. Minimize taxes over there as much as possible through product structuring and then you’ll get enough reasonable tax rate at the fund level, that’s the idea behind it.

Meb: And you guys have two of the better tickers for the mutual funds. I’ll say them, I won’t spell them out so I think we’ll pass compliance with Blender and Remix. But Julian Robertson famously said when a young hedge fund manager said, “I need some advice.” He said, “What do you recommend? I’m launching this new fund complex.” And he said, “Just be lucky, have a great start.” So, you guys launched December 31st of last year. Can you walk me through maybe sort of a real-time diary, blow-by-blow of what the first three to five months of this year were like as someone who just launched a new fund? How did the systems perform? What were the conversations with advisers? How are they reacting? How do they continue to react? It happen so fast in equity market. I think it was the fastest ever from all-time high to bear market in U.S. stocks. You can correct me if you have a different perspective. How’s 2020 been start of a new decade?

Eric: Like we were talking about earlier, it’s been very, very interesting. I did not predict this, I didn’t know. And I can’t talk too much about the fund or performance or anything.

Meb: You can talk about the strategy, however.

Eric: Yeah. So, the strategy was well prepared. You’ll hear me use the word preparedness 50 times a day. That’s what’s important to me is just not being caught off guard and just being as prepared as you possibly can. So, I’m very gratified by the resiliency of the strategy in what you described accurately, and that was the fastest 30% decline in the history of the U.S. stock market. It has really caught a lot of people off guard. And a lot of the alternative investments out there had been exposed again for offering almost no diversification benefit when you needed the most. And I think managed futures has done, you know, an okay job this year of demonstrating that managed futures and it’s a shortlist of all that actually stand up and deliver when you need them. Most of them just crumble when you need them the most. So, yeah, I would say that the short energy trade and the long bond trade really paid off for trend followers that went with those trades this year.

Those that didn’t go with those trades, they may have had good reasons, that was part of their strategy. They’ve suffered some consequences from that this year. So, yeah, I would say I’m very happy and pleased but not surprised, that’s why I built it this way. And I’m not trying to make a lot of money when the stock market goes down. I’m not a bear market guy, I’m not a perma bear. I just want that really truly diversified all-weather approach that we can stick with and people can stick with that’s gonna compound into the future and help us finish the marathon.

Meb: Two questions, one quick one. Are you guys in the stock allocation, is it U.S. only or is it global?

Eric: It’s global. Now it’s about 60% U.S., 20% Europe, 20% developed Asia. And no emerging, no China, I just want the global equity market risk premium from developed countries.

Meb: So, this is a personal question, as a rules-based algorithmic guy, one of the biggest surprises I saw this year was a lot of what you saw as these quote, “passive indexes” with the supplies that are all slices or quants, whether you call yourself active or passive, whatever. A lot of these indices in firm companies said, “Hold on, we’re not gonna rebalance or we’re gonna change the rules just kind of on the fly.” Seemingly, a fairly discretionary decision and I think it caused some ripple effects. At one point, I think it was not Janice in Bestco that had to pay their fund $100 million. Do you see this? Because, yeah, they had to pay $100 million because either they forgot to rebalance or the index didn’t rebalance and they did. Something happened but it was clearly out of perspectives. Anyway, talk to us a little bit about when would you ever consider adding discretion or are you fully on-board with it? And is there instances in which you would turn the dials, maybe covering your energy shorts at minus 50 or something? When and how does that play, have any influence in what you guys do?

Eric: For the record, I don’t trust people that say, “We never ever use discretion. We’re 100% systematic and automated. We’ll never intervene.” I do this for a living and I have for a long time, that’s just not possible. You have board of directors, you have the SCC, you have people changing the rules and these are interpreted rules, there’s grey areas. You have to be willing to take action. I had to take action already this year, where I had to get out of the front-month crude oil contract because it was turning negative. And I’ve got people on the phone, I’ve got powerful compliance people calling me from multiple different firms saying, “We need everyone to get out of this contract.” So, who could afford seeing that. And if they call up and they get your automated system on the phone with them, giving them ones and zeros, how do you think that’s gonna go over?

And then I saw what happened. I mean I talk to people in the industry. Everyone had to get out of the contract because it was down 300% in one day, it was up 124%, 144% the next day. Stuff like that comes along. And there are circumstances. So, here’s my philosophy on that. I built an automated process to help me. I use algorithms as tools, like you would use a shovel or a pick or an axe or something like that. They’re there to minimize grief, they’re there to maximize efficiency and make things accurate. But you just can’t rely on the computers across the board. And my philosophy is, if the system collectively that I built isn’t doing what I designed it to do, I’ll intervene. Now, could be that there’s an error in your system and that’s bad and you need to fix that and go back to the drawing board. But more often it’s the environment is changed, crude oil went negative, they changed the rules.

The SCC said you can’t too much notional value in the two-year treasury. It’s not the system’s fault. You built it with one set of rules, the rules changed now and now you go back to the drawing board and say, “Okay. Given what I know now, how would I do this?” So, from that perspective, yes, I have to always stand ready to intervene with some discretion. In my experience, about once every two years, something comes up that you need to go in and use your judgment, make some changes and move on.

Meb: And so, your strategy and, you know, 50% stocks in the futures, do you have some collateral sitting in, bonds or anything else, too? Or is it just stocks, futures contracts, and sitting in short-term cash or something?

Eric: So, I did have some bonds earlier in the year but when the interest rates plummeted to where they’re at now there’s just no reason to deviate from cash. I own some treasury-based ETFs for collateral purposes but most of it is cash. There’s no yield right now, it’s not worth it.

Meb: I think the last time we just chatted there’s no, crypto market wasn’t liquid as a futures market. Is that still the case or is that something you guys include?

Eric: It’s still the case. So, I look at it every day. I got a lot of friends that are crypto enthusiast, Python developers, JAVAscript developers and they swear up and down every day that tokenization and crypto and all of that stuff. And so, I keep up with it and I watch it and open interest in bitcoin futures has been climbing but it’s still very small. It’s not meaningful enough to include in the program. I’m not gonna rule it out though. I actually do think that three to six years from now crypto assets, once they get over some regulatory hurdles and you can get some feeling for what the intrinsic value is of these things I think that you need to be open-minded about participating in them. And that’s gonna be a challenge for some people from a regulatory perspective.

Meb: So, as you’ve been in the trenches for the first five months of the year, what are the conversations as you’re talking to advisers about your old strategy. A, what have they been saying, what’s the reaction been, what are their concerns, what are their complaints so far this year? And then also, how are you positioning it? So, is it something you say, “Look, I know conceptually you could be 100% of a portfolio but I’m guessing most advisers don’t do that. So, how do they sort of, like what’s the conversation been like and what are they doing?

Eric: Well, truthfully, there hadn’t been that many conversations. I think it’s because they’re having a lot of conversations with other managers in their portfolio. This COVID thing has people working from home, the advisers I know and do business with had been on the phone. Their client calls are 10 times higher than normal. So, the feedback I’ve gotten is that you’re not the problem in our portfolio, so we just don’t need to talk to you right now and I just can’t do one more phone call.

Meb: This damn small-cap value guys, I think they printed down half this year at one point.

Eric: Yeah. And I see that debate out there in the space between what’s the AQR guy and someone else, and it’s interesting to see this all playing out in real-time. You also asked the question, how do we position it going forward? I just say what I say. I have conversations just like this with people and I just tell them why we did it, what problem we think it’s gonna solve, and this is what we do with our own money and then ask them, how would you position it? And the answer we usually get back from them as well, it’s a clever way to get alternatives but it gets rid of 80% of the cognitive and psychological problems that alternatives create, so we can see the value from that. It’s also a clever in the sense that it’s got enough of the upside capture that you’re not gonna get left too far behind if the market where I’m just sharing with you their opinion.

You’re not gonna get left so far behind that clients are gonna be screaming for this thing to be removed from the portfolio but also there’s enough long vol managed futures in there to make a difference if we go into seriously hostile market conditions. And they say, “Just frame it as an old weather strategy.” They basically come back to my argument that this is your all-weather multi-asset global portfolio. It’s not stocks, it’s not bonds, it’s everything else that you need. And just stick it in the old sleeve if you want to, preferably have like an old weather, a multi-asset sleeve. I think alts [SP] have a bad name at this point. And see if it ever gives you a reason to one you can’t get out. And that’s our plan is to get in there, get a 2%, 3% allocation, how people experience it and say, “You know what, I don’t hate this thing,” and just grow. Because eventually, they’re gonna find something in their portfolio they don’t like and you can gather assets that way and just get our spot in the portfolio and grow that over time. That’s my thesis anyway so we’ll see if I’m right.

Meb: There’s got to be a lot of that that’s gonna get the boot after the first quarter through the year. You got a curious mind, I know you can’t help yourself. What else is on your brain as you look out to the horizon for the next decade? Any studies you’re working on? Any things that got you curious other than growing the fund and the firm? What’s burning on your brain?

Eric: The biggest difference between me today and me in the past is I spend less time agonizing over the markets and why they do what they do. And more time on empowering investors and advisers to be not be their own worst enemy when it comes to alternative investments. So, that’s really what’s on my brain and I shared some of those unscientific experiments with you earlier and there’s another one that I think you really like this one, it’s extremely revealing. I ask people what they want, “Describe it to me,” and they always describe something that’s got alpha over the market, it never underperform, it’s got really low fees. Always describing this kinda superman fund that, kinda like the Bill Miller fund for 15 years where it just always outperformed. The drawdown has to be less than a market, the vol can’t be more. The return needs to be higher and the fees need to be low.

So, I went out and I created that hypothetically. I just took the market’s returns and I increased them such that they had, they call it the perfect alpha fund. It had 200 basis points of pure alpha every year and it never underperforms, not one quarter, not one month, not one week, not one day. And then you go back to the original experiment and let them blend that in and compare it to managed futures without telling them that it’s the perfect alpha fund. And it never gets a high waiting because it offers no diversification benefit. So, this thing that everyone says they want, if you get them to actually build a portfolio without biases in an objective manner they never give it a high waiting. So, there’s this disconnect between what people want and what they need. So, doing stuff like this, that’s how I spend my time. It’s interesting and I think it’s empowering. But, again, you can’t just show people that they’re wrong, that doesn’t help anyone. You actually have to give them a solution if they want to accept it.

Meb: This is a great lead gen tool idea, like how do you not just build this into a website, call it Crittenden’s Paradox and you have to go through this quiz and it spits out what they are at the end. That would be a highly revealing exercise I would think or at least do it as, you wanna come do it on the show. We can do it as a webinar or demonstration. But that’s powerful because I think that really demonstrates the people, these behavioural biases and beliefs they have, that’s a pretty powerful demonstration.

Eric: Here’s another even more powerful way to kinda demonstrate to people how bias they are. You just give them an all-weather portfolio. Just give it to them and say, “This is what you’ve got and your job is to run this endowment or this family office for the next 20 years. Oh, wait, I forgot I need to take asset class E out of there. I wanna remove manage futures because I don’t think you’re gonna like it.” And when you remove it, they get to see the delta, they get to see what happens to the portfolio when you remove it. You remove it and now you’re taking something away from them and they can see the degradation. They can see the returns went down, the vol went up, and the drawdown doubled or whatever. And then if you had that tied to a retirement planning software that’s showing you the Monte Carlo simulation and then the percent of surviving portfolios, they can see all that degradation, too. Good luck with that.

People don’t like it when you take stuff away from them. It’s hard to get them to adapt stuff but if you just give them the final result and then try to take managed futures away from them, all of a sudden their psychology shifts and they’re owning that decision to keep it. So, there’s all these weird… Cognitive psychology is the most interesting field in the world and I think people use it incorrectly. They go around beating people over the head and saying, “See, this is how you’re wrong. This is how you’re wrong. See this mistake that you’re making? Just invert the whole thing, use it for good. We’ll see.”

Meb: Yeah. We got a whole list of studies, academics if you’re out there looking for some research material. I mean the old one are favourites which I wanna run is you take the newspaper headlines throughout the last 120 years, and it can’t be market [inaudible 01:00:56] They can’t always be like the market goes down 20% today. But literally like Pearl Harbor, whatever, the biggest headlines the last 100 years, and then say, “Can you correctly predict what the stock market is over the next week or the next month or the next year?” And we know what the outcome would be, it would probably be pretty random for the most part. But a lot of these ideas, you start to see some of the behavioural nudges and hacks that get people into behaving well. Like famously, I think the target date funds are ones where people, they at least view them as somewhat different bucket rather than they’re investing market bucket. I don’t know why but they do and tend to behave a little bit better. I don’t know, it’s something I struggle a lot with obviously. It’s hard to figure out.

Eric: So, I’ve got these notes in front of me and one of the words on there is action. You know, independence, discipline, humility, preparedness, wisdom, but I’ve got action on there. That’s been an eye-opening thing for me and then humbling in the sense that I use it they go is enough to just show people evidence and point stuff out, and then expect them to go make changes on their own. And I’ve been historically disappointed in the results of that but it’s my own fault. You got to take it one step further and help them take action. But it means correctly diagnosing what the real issue is. So, was it a lack of knowledge? That was part of it but it’s a lack of an actionable plan, something to do. So, with Standpoint, the whole point is to rectify that and see if did we actually do it? Do we meet an unmet need in the marketplace that overlap between what people want, what they need? We’re gonna prove ourselves right hopefully but we’ll see.

Meb: We’ve got five minutes, three minutes. Any final ideas, thoughts, anything to leave us with before we have to let you go to your board meeting?

Eric: What I would say it’s never too late to start doing the right thing. Obviously, when the market sales off 30%, there’s this heightened interest in anything that didn’t go down and then people, they get excited and then they back off and say, “Well, every time I do that I get bad results or I had bad results with managed futures and whatnot.” I think the winners in this game, at least in advisory, financial advisory are asset allocators for the most part. There are a few people I know, I talked to some yesterday that are actually really talented at tactical decisions and whatnot. But the vast majority, we much better off with set it and forget it type portfolios. And for that purpose, it’s never too late to start doing the right thing. I’m not saying we’re a solution for them but don’t lose sight of that and don’t make emotional decisions, especially right now.

Meb: That’s also the beauty of where we are in the markets late May, you had this massive downdraft in so many markets but then you’ve had this bounce. And so, it kinda affords everyone the opportunity at this point, if you’re bearish, you’ve had the up move, here’s your chance to get more bearish. If you’re bullish, fine, you have this balance. You can reassess the portfolio. But in particular, the big lesson to me when talking to people is if Q1 was super painful, you couldn’t sleep at night, it was driving you crazy, now is your chance to adjust that. And then there were something wrong you can turn the dials to get a little bit more balance. But if it didn’t bother you at all, god bless you, you probably have an allocation that’s probably okay. And even if you have 100% stocks if it doesn’t bother you, hey, that’s good for you, too. Eric, I got to let you go sadly. We could do this for two more hours, I’d like to do it again. People wanna find out more about Standpoint, what you’re doing, you’re fun, where to go?

Eric: standpointfunds.com.

Meb: That’s easy. Eric, it’s been a blast. Thanks so much for joining us again.

Eric: Thanks, Meb, we’ll talk soon.

Meb: Podcast listeners, we’ll post show notes to today’s conversation at mebfaber.com/podcast. If you love this show, if you hate it, shoot us feedback@mebfabershow.com. We love to read the reviews. Please review us on iTunes and subscribe to the show. Anywhere a good podcaster found, my current favourite is Breaker. Thanks for listening, friends, and good investing.