Episode #409: Meb’s Corner – Ben Rollert, Composer – Democratizing Access To Quantitative Investment Strategies
Date Recorded: 4/20/2022 | Run-Time: 57:32
Summary: In today’s episode, Ben shares what led him to start a new company in the midst of COVID mania in April 2020. He shares an overview of Composer and the different trading strategies they give you access to, including ones by the likes of Swensen, Dalio, Buffet, Markowitz, and yes, even me. We touch on how ease of mixing and matching some of these strategies, who the early users have been, and what future expansion into things like crypto and options may look like.
As we wind down, we talk about his fundraising journey and what it was like to get investments from firms like First Round, Not Boring, Basecamp and Draft Ventures.
Comments or suggestions? Interested in sponsoring an episode? Email us Feedback@TheMebFaberShow.com
Links from the Episode:
- 1:02 – Intro
- 2:15 – Welcome to our guest, Ben Rollert
- 3:32 – Jicaro Island Lodge
- 4:37 – An overview of Composer
- 13:31 – How Composer has evolved since launching in April 2020
- 15:54 – Trillions: How a Band of Wall Street Renegades Invented the Index Fund and Changed Finance Forever (Wigglesworth)
- 18:44 – The Dragon Portfolio; What is a symphony and how they allow you to replicate strategies from people like Ray Dalio, Chris Cole, Harry Markowitz, David Swensen & more
- 20:38 – How Composer improves upon past attempts at this idea
- 28:01 – The Man Who Solved the Market: How Jim Simons Launched the Quant Revolution (Zuckerman)
- 28:44 – How trades are implemented and managed by Composer
- 36:42 – The Acquired LP Show: Composer (with CEO Benjamin Rollert); Composer’s customer acquisition strategy
- 42:55 – Why Composer has a cognitive scientist on staff
- 43:51 – Composer’s biggest challenges ahead and long-term goals
- 46:12 – What their fundraising experience was like
- 51:04 – Interactive Brokers
- 52:48 – Ben’s most memorable investment
- 54:10 – Learn more about Ben; cmpsr.co/meb
Transcript of Episode 409:
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.
Sponsor Message: Today’s episode is brought to you by Composer, a platform that lets you invest in or build quant strategies using their drag and drop Visual Editor. Go to cmpsr.co/meb today to learn more. That’s cmpsr.co/meb or check the link in the show notes. See a disclaimer at composer.trade/brochure.
Meb: What’s up, everybody? We have a really fun show for you today. Our guest is Ben Rollert, co-founder and CEO of Composer, a platform for investing in and building a quantitative investing strategy for free in an easy to use no-code solution. In today’s episode, Ben shares what led him to start a new company in the midst of COVID mania in April 2020. He shares an overview of Composer and the different trading strategies they give you access to, including ones by the likes of Swenson, Dalio, Buffett, Markowitz and yes, even me, Faber. We touch on how ease of mixing and matching some of these strategies, who the early users have been, and what future expansion into things like crypto and options may look like. As we wind down we talk about his fundraising journey and what it was like to get investments from funds like First Round, Not Boring, Basecamp and Draft Ventures. Please enjoy this episode with Composer’s, Ben Rollert. Ben, welcome to the show.
Ben: Hey, man, thanks for having me.
Meb: I think you are officially our first call-in guest from… Where are you? Tell our listeners, where do we find you today?
Ben: I’m in a very remote area in Prince Edward County. Not to be confused with Prince Edward Island and Ontario. Right on Lake Ontario. So, about 15 minutes from the nearest sign of civilization by a car.
Meb: All right. Well, you can look across the lake and see Buffalo. Is the water too cold to get in right now? What’s the vibe there right now in Canada?
Ben: Honestly, I was, like, rethinking my life choices when I was driving yesterday and I saw snow on the grass. It just like was an anomaly. I didn’t just see that. There’s not snow.
Meb: Well, you’re like half American, right? Your Boston origin story. How’d you get displaced in the Canadian wilderness?
Ben: I’m new here. I’ve been nomadic for a while. And actually, there’s a whole other shaggy dog story, but I’ve actually built mostly Composer from Nicaragua. So, I was there for about two years. Basically got stuck there for COVID.
Meb: Were you just like a big surfer or what was the Nicaragua draw?
Ben: My wife is from there, originally. We met in New York. She went back to Nica right before the COVID lockdown. I came essentially like visiting her and then, like, the whole world imploded and they shut down the airports. And I was there for two years, but we survived.
Meb: I love Nicaragua. I love all of Central America. It’s such a great vibe. Nicaragua has had its moments of ups and downs over the decades but where were you guys in the country?
Ben: All over but like we spent most of the time in like Managua. Even people from there don’t really think of Managua as the most fun place, the most beautiful. It’s just like very central. And the awesome thing is you can, every weekend, go to a totally different microclimate zone, beach, an hour, max two hours, and you’re in a totally different part of the country. So, that was pretty awesome.
Meb: We did a one or two-week trip, my wife and I, pre-child, around Nicaragua. I actually had a work conference down in Rancho Santana once, which is down near McCool, which is like the super fancy resort. But there’s some beautiful surf breaks down there. Beautiful location. But I had a funny story where we went and stayed in some eco-lodge on the lake. Beautiful. And I’ll put the name in the show notes. I can’t remember it. But we had this hilarious moment where we went out paddle boarding around the lake and some of these Central American storms, it’s like being in Colorado or something where it’s beautiful, and then within like five minutes, it’s monsoon essentially and we’re, like, these two gringos just drifting away in the middle of the lake. And eventually, they came out with a boat like, “What are you guys doing? Come on. Let’s go back in.”
Ben: Yeah, lightning storms there are like the most intense thing I’ve ever seen in my life.
Meb: Yeah, it was crazy. But we had the best time. I remember we had a pickup truck and driving through a town. Like, a whole bunch of locals just jumped in the back seat, so default hitchhiking for a while, then hit the top of the pickup truck. Time to get out. Beautiful people. Beautiful country. I need to get back down there. Awesome spot. All right. So, you’re down in Nicaragua. Tell us real quick what Composer is. We’ll spend a lot of time on this, but I want to hear the origin story on the inspiration.
Ben: Sure. So, first off, as to what Composer is, Composer is a trading app but instead of centering the experience around individual stocks, and sort of like annual discretionary trading, like most retail trading apps, we centered around trading strategies, specifically systematic trading strategies. And we offer customers two main gateways to get exposure to systematic trading strategies, these automated trading strategies. One is through a library of pre-built strategies that we’ve curated and built internally or increasingly, our community has built, that we’ve thoroughly vetted, and we have some confidence in that cover a range of different styles. So, that’s one pathway if you don’t want to build something from scratch, or you have this other gateway, which is to actually build your own trading strategy from scratch using our no-code visual editor. And that no-code visual editor makes it really easy to combine and yes, compose, hence the name Composer, using the building blocks to construct, basically, a very large percentage of anything that you could imagine you could accomplish through our visual editor.
Meb: Was the name origin is this like The Verve “Bittersweet Symphony” or are you more of a classical fan? Where did you come up with the name Composer in Symphony?
Ben: There’s a musical allusion there that’s kind of personal. When I was younger, I wanted to be a musician or a composer. I had the good sense to realize that I did not have the raw talent to ever do that professionally, pretty early, kind of had that like late adolescent early 20s crisis to realize that that was not going to be my career path, ultimately, but I’ve always loved music. So, that’s part of it. And then it gets a little deeper than that. It’s also this concept of composability, which is to say that the way that we’ve built everything is that all these building blocks that you use in our editor can be composed with. So, in other words, you can use them to construct larger strategies. So, a strategy can be composed of like a sub-strategy or a subset of logic or assets. And then you can keep stacking them together, like LEGO blocks in this sort of almost like Russian doll structure. And that thoughtful way of thinking about software design makes our software very extensible, very modular, and very easy to keep extending. So, like, every time we add a new feature, it has this sort of like multiplicative effect with all the existing features. It harmonizes really well with everything.
Meb: I’m excited to dig deep on this. We’re going to spend a lot of time on the symphonies. I was a very poor saxophone player in middle school. I had about two years. That was the extent of my musical. And I come from a musical family. So, I’m assuming it’s just skipping the generation down to my kid, I hope. And by the way, the name of the lodge was Jicaro. I just remembered it, and then maybe crushing the pronunciation of it. J-I-C-A-R-O Island Lodge.
Ben: Okay, I know that one. Yeah.
Meb: So okay, I want to hear… You’re hanging out in Nicaragua, and maybe it’s before that, and you’re like, “All right, this Robinhood account I got is garbage,” or maybe you’re like, “This target date fund is just not doing it for me.” What was the initial inspiration? Did you come from a traditional investment bank background or were you working for a hedge fund? How did you come to the idea of Composer?
Ben: My last real job, I was an executive at a company called Breather, which was like a workspace as a service company. It wasn’t finance. It was real estate.
Meb: What does workspace as a service mean? Is that like WeWork?
Ben: Yeah, exactly. It was in that similar vertical. In this case, it was like private spaces that you can book on-demand. It’s frankly, a little wacky. I can say that now.
Meb: Have you watched the new WeCrashed documentary?
Ben: I feel like I lived through a microcosm of out of it. It was a wild time. Yeah.
Meb: Well, it’s fun to see because my wife… And so, I think you’re Newman in this one. You love tequila. Is that the situation? You love silent disco parties, but my wife knows nothing of this story. And so, it’s kind of fun to see it through her eyes. She’s like, “This can’t be real.” And I was like, “Oh, yeah, I remember when the S-1 dropped and this was just like, oh, my God, like this is a serious situation. Anyway.
Ben: Of course, if Adam Newman was in crypto, he would be celebrating…
Meb: Oh, my God.
Ben: …right now. So, you know, it’s all about timing.
Meb: Hundred percent. Hundred percent.
Ben: But yeah, I lived through like a microcosm of that. We raised a lot of venture capital, although it feels very small compared to WeWork. I left when accelerating on the wall. I think I was less than a Newman character, more than a guy trying to keep things together, however well. Anyways, so I left. And during that period, I had some liquid savings at a time but enough that I’ve been so busy that, like, knew that I needed to do something with my savings. And I was like, “This is a good project.” And then like backstory is I’ve been interested in trading, investing since I was a teenager but I had this background in data science. Before I got out of the dark side of management, before that, I was a data scientist. And I was like, “What if I applied my data science skills to investing?” And I think that’s been the discovery path for a lot of people and, like, the sort of DIY thing.
So, like, a lot of people I started cobbling together these … and Python scripts, and trying to connect it to the Interactive Brokers API. And what I was trying to do was just implement some, like, really, really simple strategies, very watered-down versions of risk parity, for example, really simple. Ray Dalio has white papers on risk parity and things like that, and then struggling mightily because the difficulty is extreme when it comes to trying to implement some of the stuff because the tooling was not there at all. And so, even if you wanted to implement a really simple strategy, systematic trading strategy, it just took hundreds of hours of dealing with all kinds of crap and incidental complexity that had nothing to do with anything intellectually, frankly, that interesting, but just you needed to do it. That was when the early light bulb went off. I still had no interest in, like, commercializing anything. I was like, “Okay, this is like an interesting opportunity,” but really, it started with me sharing what I was working on with friends and family.
And again, I was like, “Look, I’m not licensed to manage your money. I can’t do any of that.” But they were pushing me like, “Please, can you manage my money? Can you invest my money using your trading strategies and these, like, Python scripts?” And my answer was no. But, like, I can set up a Slack channel and maybe, like, print some trades, and you can copy my trades. But, like, hey, it’s not investment advice. I’m not licensed, buyer beware kind of thing. So, set up this like Slack channel, I would print these trades. And I really realized, like, okay, I need to bite the bullet and do this as a job. A, I was spending a lot of time on it. B, whenever my little, like, Slack bot broke, and it wasn’t printing the trades, people would get mad at me and be like, “Can you fix it?” And I was like, “Well, I have a real job. I’m not getting paid to do this.” One friend was like, “Well, can I pay you to quit your stupid job and do this?” And I said, “Okay. Okay. That’s a sign of this market pull to this idea.” But it grew very bottom-up like that. It wasn’t like, sometimes they’ll have MBAs, they’re in a class, and look at some top-down market opportunity and say, “Okay, I’m going to go raise a bunch of venture capital and address this marketing.” It grew very serendipitously, very bottom-up. And we incorporated almost exactly two years ago and raised some pre-seed financing shortly after that, but that’s the origin.
Meb: You have this as every entrepreneur does… And I’m saying this as a compliment, by the way, because I put myself in the same camp, and we have a lot of startups on here. You have this naive optimism that every founder has, like, “You know what? I can do this. This is an idea that needs to be birthed into the world.” What was the next step? You’re like, “All right, I’m going to straight up incorporate and start,” or were you like building it and then actually started to…? Where are we on the timeline? What year would this have been and what were the next steps for this?
Ben: This was April 2020.
Meb: Okay. So, at the depths of the zombie apocalypse, you’re like, “I got nothing else to do. I’m going to think about investing and starting a company.”
Ben: Yeah, exactly. I had actually started a job as like a head of data science for a pretty big company. And I essentially lost my job two weeks in, I mean, like, before I started. Essentially, everybody who started in that period, they freaked out because it was in a very travel sensitive sector. So, a super cyclical sector. So, they just furloughed most of their staff and rescinded all the offers to new hires. So, like, I didn’t have a job. I was in Nicaragua stuck. And then I actually reached out to two close friends and said, like, “Look, I have something actually to focus on, to work on.” Because it happened to become this obsession, anyways. “I think there’s a real market or commercial opportunity here. I can’t pay you anything, obviously. But if you want to come work on this with me, I’ll give you equity. And if we’re going to work on this, we’re going to have a Zoom call tomorrow and we’re just going to start doing this.” And those are my two co-founders, Ronnie, and …,both people that I’ve known really well. So, I knew that I could trust them and that we could actually work together remotely in this way. And they both were available as well, because of the situation. They’re also in travel sensitive sectors and cyclically sensitive sectors. So, we just kind of got together and started jamming on this. I was literally getting relief payments from the Canadian government. And I started using those to pay for our first designer who’s still our head of design, … who helped us to mock up some of the very first prototypes. We used the software called ProtoPie to basically create these somewhat high fidelity prototypes of what Composer would look like.
But it was mostly just like a video that plays back. It wasn’t like an actual product. So at this stage, it’s an idea. Because I had these scripts and the idea was like, “Let’s actually create this visual with no clutter. It’s interactive, so that people can build this stuff without having asked me to like modify a script. We have this idea for what this composable visual editor would look like. And we created that demo in ProtoPie, and then we built out a deck to raise finance and actually build because obviously, it’s like a fairly ambitious project. So, you know, it was going to take engineering resources, and legal resources we knew, and all of that. So, it all started with this demo.
Meb: Give us… Because this isn’t too long ago, let’s walk through it now. We briefly highlighted the beginning. But I assume the initial inspiration is pretty similar to what you guys are doing now.
Ben: I was thinking about that recently, actually. It’s like, we’ve learned so much. Like every startup, we screwed plenty of things up, plenty of things that we thought were so just weren’t. But interestingly, if anything, we cycled back, we always end up coming back to the initial vision. It hasn’t actually changed that much at all. And certainly, I wouldn’t say when it comes to the core of the product, we really haven’t shifted at all. It’s been two years, okay, which isn’t that much time but in the startup life, that’s actually a fair amount of time. A lot of people, they throw everything away. That really isn’t the case. So, I think that’s a little different in some ways. So in some ways, I started very lean. We’ve always been pretty lean in some respects. Our only expenses are basically staffing the office, all distributed. We always try to do everything, you know, starting out on a shoestring budget and all this. But the product, we didn’t do this thing of like throwing spaghetti at the wall and then rewriting the product. The core idea behind Composer is remarkably consistent since the start, even before two years ago, frankly. Some of that ideation really began a year before that before we’ve incorporated. And that initial ideation, it’s been pretty consistent.
Meb: All right, so I’m going to pull up the website. Listeners, you can go to Composer… What’s the domain for our listeners?
Meb: .trade. That’s a domain you can even do now. That’s cool.
Ben: Yeah, exactly.
Meb: All right, Composer automated trading platform, build a portfolio of hedge fund-like strategies in a snap. So, walk us through the concept. You talked about risk parity, but you can pick one that you like. It’s a well-designed website. It’s got some hash tags for some ideas, including a few Faber research papers in here.
Ben: And that’s before we ever got linked up. That happened organically Yeah.
Meb: Maybe walk us through it. If somebody comes to your website, signs up, which I have, what’s the next step?
Ben: The first thing we would ask you to do, of course, is to complete the KYC, like your bank so that you can actually fund the account and get going. But right after that, the main page that people land on is this discover page. That’s our library of what we call Symphony. So, Symphony is just our term for a trading strategy because Symphony, the way we think about it is like a container for a trading strategy. What’s so cool about Composer is that we’ve created really like a new abstraction. Like, if you think about like an ETF, an ETF is actually a really powerful abstraction that you can buy and sell a single ticker. And people just take it for granted but it’s actually an incredible innovation. I know you know that. A lot of people don’t. There’s a great book that came out recently called “Trillions” that talks about this a lot.
Meb: Wigglesworth, was that Wigglesworth’s workbook?
Ben: Yeah, exactly. It’s awesome. But there are whole chapters on this. All the innovation that had to go into the creation and redemption process. And the idea of all of that was a really sophisticated innovation to make ETFs liquid enough to trade during the day. But an ETF is really like a container for a set of assets, if you think about it that way. And Symphony, for us, is like the container for not just assets, but actual logic. So, the assets could change. But it’s the container for all the logic that would define a trading strategy. I’m going to pull up this first one. It’s stocks or bonds, right? Like, this is a super simple strategy. So, if you click on that Symphony, stocks or bonds ride the winner, you get what’s called our fact sheet. That’s like a prospectus. Like, you get a prospectus. And if you scroll down to that, it has a natural language description of what this Symphony is doing. So, you can see here it just says every month, ask whether the SPY, S&P 500 ETF 68 cumulative return is above the TLT, which is like 20-year plus treasury bonds, 60-day killer return. If it is, you hold the S&P, you know, SPY, if no, you hold TLT. This is like a super simple Hello World strategy. I’m not saying it necessarily is the best strategy. Although at least on its backtest, it actually does outperform in risk-adjusted terms the S&P. Whether that will continue, who knows? But this is like a really good proof of concept. Yeah, you have this backtest. I can see how it’s doing. And I can follow it. I can click a Follow button. Now, essentially, like paper trading. I can follow and see how it does going forward. So, it’s like forward testing or paper trading, or there’s this invest button at the top. And I can actually click that and then I can choose the amount I want to invest in this. I can actually say like, “Okay, I’m going to put $1,000 into this.”
And then as soon as you have your account set up, you will actually be start executing those trades at the next trading window. So that’s around 3:00 pm every trading day. It’ll queue and then we’ll start executing at 3:00 pm in that trading window. And right now, this trading setting is that monthly. So, the logical run every calendar-based rebalancing. Now, that’s if you just want to run the strategy. The cool thing is, if I go to the top right, I can click Edit a copy and I can modify every piece of this. That’s the other really innovative thing here versus like an ETF for a normal fund. There’s a limit to the customization or transparency of those things. In this case, it’s transparent to the point that you can actually edit every component and create, copy and do whatever I want. So, like, here, I’m in the editor, I have this conditional it says if the 60-day cumulative return of SPY is greater than 68k cumulative of TNT, I can change all the parameters here. Instead of 60 days, I could put 20 days. Instead of SPY, I could put QQQ. I can edit every piece of this. I can save that copy, I can invest in it. And then I can also share because all of this is all browser-based that’s highly shareable. Once I’ve created something, I can share this with my friends or family. And that goes back to the origin story, original inspiration is I wanted to be able to share stuff with my friends.
Meb: And I actually get a lot of emails about this. You guys have your interpretation of the Dragon portfolio, which is something we talked about with Chris Cole on the podcast. We get a lot of people always asking us, “How do we implement the Dragon portfolio?”
Ben: Yeah, that one’s really tough.
Meb: Now, I can say, “Just go to Composer. Stop pestering me.” But you got the Swenson, the Markowitz, the Dalio, the Buffett, tell me a little bit about how much of these Symphonies are y’all designed? So Composer designing them. And then what is the community aspect like? Could I just go in and crank up a Symphony and share it if I wanted to, or keep it private? How’s that work?
Ben: Yeah, I mean, well, because you’re a star, you could definitely create one and we’ll put it on. But we don’t have a totally self-serve two-sided marketplace yet. We do have community Symphonies, but these are heavily curated. So, you’ll probably recognize some of these. These are like well-known creators that have published these here. And the reason for that is, frankly, if you follow this space, you know that a lot of these two-sided marketplaces for strategy idea, like nothing’s totally original but that is a concept that has existed for over a decade. A lot of them are, frankly, garbage. And the reason why is because of serious principal agency problems. There’s a real incentive to just flood it with junk, because it’s like a free call option. The strategy is shit. Well, the creator doesn’t lose anything. But if it works, you end up making money. So, that creates the incentive to just flood the supply side with crap.
Meb: What’s the amount of history you guys have as far as the engine that can backtest? Is it all ETFs? How’s it work?
Ben: It’s all tradable… Basically, all liquid securities that trade on major U.S. exchanges.
Meb: So, it’s not just ETFs? It could be…
Ben: Oh, no, it’s stocks. Yeah, it’s anything, any cash security, basically, that’s above a certain volume. We don’t do penny stocks. But yeah, we have everything that trades on the major exchanges, it’s basically all cash securities that aren’t penny stocks in the U.S.
Meb: Let me tell you why I like what you guys are doing. I’ve used a lot of these platforms over the years. I go way back. Like I’m old school. I’m showing my age where I used TradeStation and it must have been in the 1990s, early 2000s, TradeStation, similar idea and concept. But the challenge is TradeStation had its own programming language. So, you had to learn what they called, and I think it was called easy language. And let me tell you, there was nothing easy about easy language and TradeStation. And then this comes from an engineer. I programmed in college. And so, all throughout the 2000s, I used probably every possible iteration of software off the shelf. A lot of different companies have tried similar ideas to yours, but almost always, it involved heavy programming. I don’t know what percentage of the trading market that excludes, if it’s 90% or 99% but it’s the majority for sure. And that is a huge barrier.
Ben: I think it’s 99%. Do you know why I think it’s 99%? Because I know how to code too, and that’s what I was doing, and it sucks. And I even enjoy it. The problem is that, who has time for that? And also, as you get older, you lose your chops of atrophy. That happens. That’s usually when people start accumulating more savings. So, you’re basically alienating people as they start to actually move into like management roles, or they stopped coding, and they’re not up on the latest tools. And then they go into it, they’re going to be too busy, right when they actually have the liquid assets to really start doing this stuff. And then you have other people that don’t want to code. So, a lot of our early users are actually engineers, good engineers, too. We’re talking very capable ones, like principal engineers at Google and Facebook, killer engineers. And they want to use a no-code tool. But yeah, I think that the problem with those past attempts you were referencing is that making something flexible and usable at the same time is insanely hard. You can do one or the other. It can be really flexible, but it’s impossible to use or it’s highly usable but it’s like one of the Robo advisors, Robinhood. It’s not powerful. You usually have to trade one for the other. So, the UX challenge for us was the hardest initial thing. That was the core of this. How do you define a visual interface that’s flexible, but that doesn’t give someone an aneurysm trying to use it?
Meb: Yeah, well, y’all’s is fun. I started to go down the rabbit hole, and I was like, “I got to stop because this is seductive on how easy it is drag and drop and play around.” But you can see how this to me is a much different experience than anyone who has worked with a lot of these platforms. And I’m blanking on a couple of… There used to be some managed futures ones, and on and on. I go way back. So, I even remember the crowd sourced stock-picking platforms like Marketocracy. Back in the ’90s. Do you know them?
Ben: I was on them. I was like a kid. I was on that. Yeah.
Meb: I wonder if their fund still exists. Existed a few years ago.
Ben: You remember that? Yeah. They created like a crowd sourced mutual fund thing, like a Marketocracy fund.
Meb: For a lot of startups, you have your vision, Ben’s vision of what he wants, and starts building but then once people start pounding on it, you often have this experience of realizing that people are using it in different ways or wanting different things. What’s been the iteration process after some of the beta testers have come on? What did they seem to be interested in and request that was really different than what you guys started building?
Ben: One of the biggest learnings is the importance of the discover page that people could use the interface. So, we solve that UX challenge. The problem was even more fundamental, which is people would be like, “Yeah, but where do I start?: People want help to start with some sort of inspiration. More and more, we talk with the people, we’ve talked with hundreds, if not thousands of people at this point, I’ve really started to appreciate that’s why Netflix or Spotify, or any of these companies spend so much energy on search and discovery, and surfacing things, and sort of that homepage, and the recommendation algorithms, and all of that. You start to realize why they spend so much of their R&D budget and so much of their resources on making that first experience great. That and then onboarding, education, learning, making it possible for people to understand these concepts without dumbing them down but making them accessible, that’s a big part of that for sure.
Meb: There’s certainly a ton of literature on the concepts behind a lot of the ideas you guys present. We always talk that maybe this is an idea for you guys, it’s too much work for me. But a number of writers over the years have written books, of course, on the topics of system design and trading. There’s probably a dozen that are actually pretty awesome. And different flavors, of course.
But also, there have been newsletters. the late Nelson Freeburg had a really great one called formula research that he wrote for a long time that I remember when I was a young kid being unable to afford his subscription, which I eventually got, and became friends with him. I was able to buy all the archives from somebody in Germany. Literally, they mailed me this box of his newsletters from 10 years or something. Nelson Freeburg, a lot of his work overlap with Ned Davis’s research and stock market logic. These are old school books, but a lot of the concepts bubble up into some of the ideas that you’ve seen, not only from me, but from others. And he would profile a lot of systems and write about them. If you’re super nice, I’ll send you copies of all the old letters.
Ben: I’d love that.
Meb: It’s work that’s been done by a lot of famous people. He spent dozens of hours reading about these systems. But like you said, for someone who’s starting from scratch, it helps to have that journey on, hey, here’s a sample system. Here’s some ideas you can play around with. But your site has got a great user interface. So, kudos to whoever designed it on your team.
Ben: Well, it’s not one person but yeah, I mean, a shout out to the team.
Meb: So, what’s been some of the most commonly observed Symphonies well as most esoteric where you see something you’re like, “What in the world?” What do people gravitate to? And it’s got to be the word crypto, I imagine.
Ben: Actually we haven’t integrated crypto yet. When that comes, I’m sure that will be really, really popular. Definitely, the high-level answer is stuff that involves leveraged ETFs, which actually makes total sense. And it’s not as ominous as it sounds. Composer actually makes it possible to use leveraged ETFs, at least somewhat responsibly, instead of just holding them and dying from the volatility decay. We actually have stuff like risk parity type weighting, and systematic rebalancing, so that you’re not getting killed, you can actually use them in interesting ways. So, yeah, it’s been really popular when people are looking for leveraged ETFs.
Meb: That makes sense because if you’re just going to do some plain vanilla, you don’t need to have a Symphony to do it. You can just go buy and hold and throw it over here and be done with it. But really it’s more of how do I build a hedge fund of funds that can cobble together? And is there that Russian doll nesting? Are you seeing people do that? Is it like “Inception” where they have like 50 different systems? And what’s the typical way people are doing it?
Ben: I think that book, “The Man Who Solved the Market” influenced a lot of people. Like more and more, it’s coming out in the financial media about how multi-strategy is killing it. That’s where all the money is going on the institutional level. So, then the more sophisticated retail people are like, “Okay, clearly, there’s something going on with multi-strategy here. Like, a lot of the best funds are multi-strategy.” We have one power user, I think he had 100 strategies running in parallel at one point, that would give our engineering team a lot. It was a really early beta tester. And that was one of the greatest, like, tests of our system was when he’s trying to run 100 things parallel.
Meb: I was going to say, that’s the kind of beta tester you want, just a full adopter.
Ben: Yeah, it was awesome. He’s like, “No, I want to have this black box of over 100 strategies. We’re like, “Okay, that might actually be overkill but this is a great QA test for us,” 100 strategies, most of which were returning daily. So, we had to, like, firefight that in the beginning, but it really proved the stability of our systems. So, that’s pretty awesome.
Meb: Well, it’s funny, you mentioned the book, which is profiling RenTec, Jim Simons, which listeners, if you’re not familiar, is the best performing hedge fund of all time. I actually, randomly ran into him hiking in the woods in Long Island at a wedding once. And I was joking with my wife who comes from not our world. And I was like, “You know who that was?” She was like, “Who? That old man?” And I was like, “Yeah, that’s Jim Simons.” She’s like, “Okay. Cool. Great.” I’m like, “That’s the Michael Jordan of our industry.”
Ben: Yeah, it is.
Meb: She’s like, “All right. Good for you.” Anyway, a great book, listeners, if you haven’t read it by Zuckerman. I think that’s who it’s by. So, where does the platform stand today? If I wanted to go on, go listen to this “Meb Faber Show,” say I’m going to go implement five of Meb’s models, and I’m going to just click, can I actually implement them and invest today?
Ben: Yeah, it’s all ready.
Meb: And how does that work? So tell me, if I select five, click Invest, what happens?
Ben: We actually execute the trades for you. We’re becoming a broker-dealer, we’re already live as an RIA. And we have a white label partnership with Alpaca. So, they handle our trade execution, but it’s fully integrated with our software. You actually set up, fund a Composer account, transfer funds. And when you invest, you can invest on real money and it will execute the trades automatically for you. We don’t cost to the assets, obviously. Assets are costly as BMO Harris, you don’t have to worry about having a startup cost of your assets. Because a lot of people ask us about that. But then the nice thing is, from the user’s perspective, it feels like all one seamless, integrated experience. You don’t have to try to stitch together one account here and one account there. You just fund your account, everything runs there. You can manage everything there like you would with a typical brokerage.
Meb: And so, people are doing that. When did that go live and what’s that experience been like for some of these early users?
Ben: That went live, the full brokerage experience, a couple of months ago, it was pretty recent. Obviously, I’m biased, but just going on for what people are saying, I think it’s been awesome. I think the jump in quality of users’ experience has been enormous. Before that, what we were doing is, you could separately set up an Alpaca account, and then, like, authenticate into that Alpaca account from Composer. And frankly, that was just not a great user experience. It was very cumbersome to like have one account and have to link it to a second account. It just didn’t feel like stable, whereas controlling the experience has been great. I think people watching are a lot happier with the product.
Meb: Is it a trading window? Are these marketing orders…? How does the actual sausage get made? Because I feel like my nervousness is, like, all right, I designed this multifactor system. I’m going to birth it into the wild. It’s going to start trading next Monday. And then you kind of sit back and watch. And I’m sure the first day or two is a little nerve-wracking for some of the users or you guys in the early days, but I’m sure it’s fine now. But what’s that experience like? Let’s say it hits a trade, what does the actual implementation looks like?
Ben: It executes market orders around a 3:00 pm trading window. So, towards the end of the day. One thing that we definitely focus on is the quality of order execution. From the spreads we’re seeing, it’s slower than most retail trading apps, but the market orders, towards the market close is when they actually get executed.
Meb: So, the lesson is, you definitely want to be not mucking around with some really illiquid stuff.
Ben: No, we try to block that actually. And we’ll even tell you, we’ve even gone so far as to actually notify people, like, we don’t recommend trading this. We really try to make sure. And the other thing that’s really cool that we have is we actually allow you to estimate slippage. I’ve never seen a retail trading app that does that. We all try to hide it because a lot of them make money. The more illiquid the spreads are, the more they make money. We’re really playing a long game here. We actually in the backtest allow you to input… It starts at five basis point model, where it adds a five basis points spread, so that the backtest actually account for slippage and spreads, which is about typical about how much you pay. And it will even estimate the dollar slippage based on turnover, spreads, all of that, to try to give you a sense of what you’ll lose from the spreads on these market orders. And then in the future, one thing I want to do is offer the premium version that you pay, where we do more advanced order execution on our side to really get those spreads down even more.
Meb: I would love to subscribe to, and I imagine you guys would probably want to do this for free, because it would be like a content strategy, but something that would write about various systems and ideas, maybe monthly, maybe weekly but there’s so many famous systems in history, everything from dogs to the Dow to we obviously felt this when we wrote my first white paper, whatever that is 15 years ago now, there’s definitely an interest in quantitative type of strategies. And people love to read about it. I remember even the old Larry Connors’ books and James Altucher, “Trade Like a Hedge Fund,” and some of these concepts that have been around for some of them decades, 100 years even. But to me, that’s endlessly fascinating, so maybe an idea for you guys, at some point. What’s Ben’s favorite Symphony so far? You can answer with up to three. What are you attracted to at this point?
Ben: I’ll tell you basically what I invest, and I created my own custom Symphony that’s not even public yet. I’ll come out in a bit. It’s a take on risk parity, that also has a risk on, risk-off mechanism that kind of combines a bunch of things. It’s a Symphony that I think will continue to do well during rising rates regime, because obviously bonds are getting…treasuries are getting crushed. So, the idea was to actually balance the traditional risk parity between equities and bonds with some things that will do well in rising rates, and in with inflation. So, balancing that with, for example, bullish U.S. dollar futures, gold, and even financial sector ETF, as rates rise because of the increasing interest margin, things like that. And then it adjusts based on volatility of the bond equity market. So, my favorite is my custom one.
I also really liked the Dragon Symphony, just because it really leverages the power of Composer that has all these nested sub-symphonies in it. And like you said, it’s cool because that one is so hard to implement for retail. There are still things that I wish we had that would make it even better. For example, there really is no great long volatility strategy for retail. There are only a couple of these VIX futures ETFs and they’re not super well constructed. They’re not very capital efficient compared to, like, if you’re doing it with like futures or options. There’s just better ways to get long volatility exposure. But one thing I really liked that’s actually like a building block is some of the stuff around that allows you to hedge volatility without having something like super negative expectation. So, like, combining gold, different currency futures, different things like that, that when you combine them into a Symphony, it makes a very useful block, where it actually has a roughly slightly positive expectation but is inversely correlated with the market, which is really nice because most of the VIX stuff obviously, VIX ETFs, they’re very much negatively correlated to the market, but they’re also massively negative expectation if you hold them over time. So, that’s some of the stuff that gets me most excited.
Meb: I was just digging into the Dragon. And it’s fun just to look through the weights. This is so customizable. It’s pretty cool because it shows you not only that, it shows you all the stats, pretty good Sharpe ratio and drawdown, survives the pandemic, and is doing A-Okay over the past decade. The fun thing about this too, that you guys have gotten ahead of is, eventually, who knows when, we’ll have another bear market in the U.S. stocks, maybe it’s this year, maybe it’s 2025 but you tend to see a renewed interest in trading systems, and diversification, and other versus by the effing dip for the past decade, this culture of only owning these high growth… And a lot of growth names have been kind of taken to the woodshed over the past year or so. That’s lost its luster. But even the S&P is still hanging out up around all-time highs, whatever, within 5%, 10%, I think at this point. And it’s normal, totally normal to have these bear markets but eventually, when that happens, you start to see a renewed interest in how to protect your booty and also other ideas that not only can defend against it, but also potentially profit too. So, we’ll see.
Ben: Yeah, I think that most retail investors heavily underestimate concentration risk. That’s the biggest thing if I were to impart something to most retail investors. You know, even smarter ones… Like, I know some really smart retail investors, but they’re really hung up on identifying the right handful of stocks, I’m like, “I can still be. I will beat you on risk-adjusted returns long-term if I don’t have that level of concentration,” which is just, like, very hard. You don’t think you’re the next Warren Buffett. It’s just very low. Particularly people tend to concentrate on the industries they know. So, my industry already concentrated in a handful in like software. Well, you’re going to get a ridiculous drawdown if you do that. You know, I don’t care how much you know the industry, you’d be better off having way more diversification. And if you want to take more risks, then yeah, you can use some leverage. That’s actually smarter than just having this insane concentration risk.
Meb: How do you guys find people other than “The Meb Faber Show” and acquired, we heard “Yawns,” great podcast, listeners. You get in some Wall Street bets community? Is it the AII? Is it ARP, Motley Fool?
Ben: We are starting to get, yes, some attention on Reddit. Some comments are really funny. So, it was like… I saw like one comment was like, “What does Composer Trade do?” Then someone replied, “It composes trades.” And then like it got all this stuff. It was really fun. Yeah, it’s that, some mentions from some thought leaders in newsletters. Some people shout it out on fin twit. It’s been mostly those things versus Facebook and Google ads. So, it’s not really like displaying that. It’s been mostly like organic or semi-organic mentioned from influential people has been the main route people have discovered us. And then the other thing we’re doing is spending time just talking with people. We get a lot of signups and then we’re starting to schedule calls, talk to people. I’ve been speaking at schools. I spoke at Wharton recently.
Ben: Yeah. That was coursework at HBS. We’re getting invited to speak at schools that I neither got into nor could afford to attend.
Meb: Right. There’s definitely… And others have danced around something similar, where there’s also a social element that I don’t know if you guys are trying but eventually could be part of the plan, you can correct me either way, or say why it’s stupid, or why it’s interesting but the concept of having people who build I imagine at this point, it wouldn’t be necessarily like single systems, but it could be an entire Symphony grouping of here’s my fund of funds that I’m doing with these 15 different Symphonies that I’ve created and blast or whatnot, that somehow there would be a subscription fee or revenue share or something that if you had certain people doing that…
Ben: That’s coming.
Meb: Okay. Okay. Can you tell us more?
Ben: Yeah, marketplace is coming. Yeah, we’re going to have a marketplace. Like I was saying earlier, it’s going to be heavily curated.
Meb: How do you curate it? That’s the challenge there too, because we all come with our inherent biases, and you say, “Man, that’s stupid. Why would anyone want to invest in that?” And it turns out that a lot of people want to invest in that. What’s the thought process here?
Ben: We have like an internal Investment committee that’s multidisciplinary. Like, I really think that goes back to data science days. Even if you have a high variance, you’re not super accurate. If you have a diverse enough number of predictors, you average those and assemble them, you tend to get better decisions and cancel out some of the bias, right? It’s honestly like having diverse perspectives, I think helps. But yeah, I agree. We haven’t solved for this entirely. That’s a very difficult intellectual challenge. So, I think crowdsourcing offers, like, super, super hard. A lot of people try that, it generally fails. It’s very, very hard to crowd source alpha. I know Quantopian tried that and I have a huge amount respect for those guys. It’s super innovative, super important company. But ultimately, like as a business model, crowdsourcing alphas, it’s really tough.
Meb: What do you think was their main struggle? They raised money. They had a big community. What was their challenge, if you even have an opinion on it, but did they have something that seems like their fatal flaw, Achilles’ heel?
Ben: Fundamentally, business model didn’t work. They were trying to pass the torch off. They had this community… The problem was, they were like almost shorting their own user base in a sense that the more users they got, the more likely the strategies that were being submitted were shit because the more likely that it was just spurious, that are just sleepy hacking, basically. Then like the CIO is almost at odds with the CMO. CMO wants more users, the chief investment officers at that point is like, “No, I want less,” because they’re actually making it impossible to figure out what’s just over fit crap. My understanding is they got money to run crowd source strategies on institutional money and they just didn’t work. Because generating alpha is just extraordinarily hard, and there’s an adverse selection process where generally speaking, the type of people who just anonymously submit stuff are not going to be the ones actually generating alpha. The people that can really do that well are actually working at a hedge fund. My understanding of a lot of these platforms, they actually have this whole maturation process where it’s training wheels, and they actually get a lot but then they like churn and go work for Citadel, right, and then you lose them. And so that’s why I said, “Yeah, I really think Quantopian is an unsung hero.” The amount of positive externality that they generated for the industry is insane. They taught so many people quant trading. And it’s just so many funds actually absorbed the economic value they produced. I really feel for them. Some startups fail, they’re just garbage, they’re scams. Quantopian, it’s so obvious that they are all doing that. They obviously, really had good faith, really wanted to contribute. They created a lot of value for the world and were not able to capture it themselves.
Meb: Yeah, it’s a challenge because as old Charlie says, “You show me the incentives, I show you the outcome.” And so, designing these thoughtfully ahead of time, these communities, even people within the company can be at odds with each other on how they actually see their goal and their job, and what they’re doing. That’s a tough challenge. As you guys look to the horizon, you’re new, you’ve been at it, but you’re growing, what’s the future look like? Give us some behind the curtain. You’ve mentioned a few things so far. But we do this talk again, down in San Juan del Sur, or somewhere in Nicaragua, or even up on Lake Ontario, and we’re talking in person, I say, “Man, that’s been a crazy year, two, or three years.” What does the future look like for you guys?
Ben: This is going to sound grandiose, again. I want to redefine active investing, really. What I see is, first, that the universe of things that you can do with this just keeps expanding using the same basic core product, but I really want to move into the custom indexing space, so that you really have the universes and then, you know, can replace a lot of these less liquid ETFs or thematic ETFs. Instead you go to Composer, you build exactly what you want in Composer. And then we actually take on custom indexing right there. Adding other asset types is inevitable. So, adding crypto, adding options, ultimately futures, and also as other things become more fractional and liquid, adding those as assets that can be combined. And commingling different assets is going to be huge.
Ultimately, there are going to be people that don’t want to use Composer themselves, in the sense of building things themselves, but they want access to what it can provide. There’s two ways we’re going to attack that. One is through the marketplace. Again, it’s going to be heavily curated because of this principal-agent issue. And then also through RAs, we already have a lot of organic interest from RAs and investment managers who are like, “Hey, can I integrate this with my own setup and systems? This is way better, way more powerful than what I have.” So, building out a suite of tools for RAs that leverages our core product, but integrates with institutional-grade brokers or prime brokers, that’s going to come too.
Meb: There are so many brainstorm ideas coming through my head. I don’t want to distract you guys with Meb’s terrible ideas. But certainly, we can rap about that later. I saw in my notes that you have a cognitive scientist on staff. Is that true? And what does that person do?
Ben: Yeah, so that’s Anya. She’s one of the very first people. She joined us right after Michaela, I think. The UX challenge here is insane. It is literally a cognitive science challenge. How do people understand something quickly that is new and foreign? She is actually now head of product. She started out in a UX research role, researching what people wanted to do, what they wanted to see the product, recording how they used it. She’s like a really, really top-notch qualitative researcher. That was her background. I actually worked with her at Breather. She’s a featured speaker. She speaks at Google and other places. She is a preeminent expert on how people interact with different environments and how they interact with algorithms, taking that qualitative research specialization and then applying it to this domain. She’s a supercritical part of our DNA and a huge competitive advantage for us.
Meb: What’s the biggest roadblock for you guys going forward? What do you think is the big challenge? Is it acquiring customers? Is it building out knowledge base and education? What do you look at that gives you some brain freeze up there?
Ben: I know that the biggest thing I’ve learned thus far was always the thing that I’m not worrying about. Almost by definition, like, there’s the black swan equivalent with that company. I learned whatever I’m worrying about is not the thing that’s going to be the where it’s from, because I’m probably already addressing it. The biggest challenge, I don’t worry at all about our ability as a team to execute. We really can tackle any problem. Even when we have hard things, I now sleep better knowing that we have a team that can execute on anything. So, the biggest challenge then becomes frankly, counterparty risk. We depend on a whole set of people in the ecosystem. And for the things we want to do, the faster that ecosystem can move, the faster we can move. There are some external dependencies there. I would say that’s probably the scariest thing. Not the scariest thing, just like the biggest impediment to doing all the things we want to do.
For example, you have to depend on external data feeds, external brokerage services, custodies, all these things, particularly with cash equities, or even crypto, frankly, there’s a lot of legacy tech. There’s regulations around it. And sometimes those things you’re just not in control of. You can be as talented and work as hard as you want but if there are blockers in the ecosystem, in terms of the technology partners we use, that can make things slow. I think that’s some of the biggest challenges in FinTech. For example, Plaid, I think it’s really… Okay. They’re great. But they have to contend with legacy bank tech. Funding an account is still a little annoying. You don’t have instant transfers yet. Doing an ACH fund transfer is still kind of annoying. This legacy technology, we’re not in control of that.
Meb: Is there a scenario as you guys think about this, at some point, where you guys would have, okay, here’s our bread and butter, it’s this community, it’s the Symphony, it’s just what’s going on? But you know what? This family office just hit me up and they say, “Yo, Ben, I got 10 million bucks, 100 million bucks. This is what I want. Can you build it and run it as a sidecar, a fund or start tracking this for gifts or whatever it may be?” Is that something that’s possible or not a focus?
Ben: In the future, yeah, definitely. Think about our early markets more like prosumers, weirdo’s like myself, systematic DIY freaks. And I say that affectionately. But then the really big market opportunity is more B2B. It’s family offices. It’s RIAs. It’s smaller hedge funds. That’s the next frontier. That’s definitely in the cards. No question.
Meb: Tell me a little bit about this fundraising journey. What the climate’s been like. You got some pretty impressive backers, First Round Capital, Not Boring, Basecamp Draft, some big names. What was that experience like? They get it immediately? They’re like, “You know, I like this idea,” or does it take some convincing?
Ben: Definitely not right away, actually. I’ll be totally candid. In the beginning, it was super painful. A year in, it was very easy. Definitely had more investor interest about a year into the company’s life than we could handle, or that we had space for level of maturity. But two years ago, when we just had a deck, an idea, and this is my first time as a venture-backed co-founder. So it was also partially I didn’t know what I was doing. I really didn’t know what I was doing when it came to pitching, and there’s a whole set of things that VCs look for in how to explain things, and you’re at a real disadvantage if you don’t know those things. In the very, very beginning, there were concerns around the TAM, and the total addressable market. And then all this stuff happened with WallStreetBets, and GameStop, and that completely disappeared. And they actually went the other way. So, originally, we were getting a lot of rejections that were, “Oh, we don’t know, this is too niche, the TAM’s too small.” We never get that anymore. It’s really interesting. That was also just timing. Some of it was us learning what we’re doing, how to pitch and all that. And then some of it was the market changing and the market timing being in our favor. That’s a lot of it. And the third was, when we started, we didn’t have the connections for context, Paki, Not Boring Capital was the first one in. He’s a friend. Except when he put that money in nobody knew who he was either. So, that was a coincidence.
Meb: They know who he is now.
Ben: They do. But it was a coincidence at the time. So, that was luck. That helped a lot. And then that snowballs, you get one connection. You know, there haven’t been no connections to VCs. I’ve never worked in Silicon Valley, never worked in any of the companies in Silicon Valley that tend to produce founders. I went to college in Canada, most of my time in Montreal. You don’t have network to VCs there, not to the ones you want. Not to put them down, but frankly, they’re not the right ones.
Meb: Well, there goes our 10 listeners in Montreal. Thanks, Ben. Just kidding.
Ben: I still love Montreal. Montreal has amazing talent. It’s just… Yeah.
Meb: I really want to ski Tremblant. That’s on my to-do list. I’ve checked most of my Canadian boxes in British Columbia and elsewhere, but never been on the… I’ve always wanted to go. So, next year, we’ll hook up. This is going to be a weird event for you and I, dual Nicaragua, surfing and skiing, quant finance systems design. Yeah. Yeah. As you talk to the VCs because VCs are weird, they’re oddballs in and of their own right, I love them, but often they see or are attracted to something that may be part of the narrative, or maybe not so much that you are necessarily pitching. What part of this did they gravitate to? Because VCs, in general, they’re looking for that 100x, this big-scale idea. What do you think it was that really resonated with them as you had these conversations?
Ben: In the last round, the first real, real round, it’s 100% product. Last round, I didn’t have a deck. Again, still not professional at pitching, just 100% the product. I showed up, I pitched. I remember pitching feature, one of the VCs basically cut me off. When I was talking, like, “Okay, I don’t know what you’re talking about. Can you show us the product? We heard it was really good.” Did a product demo, cut me off again and said like, “We’re just going to send you a term sheet. We don’t need to see anything else.” And the reason why I think it was there, like okay, this is weird. I can get why some people think it’s a niche, but like, it’s so different that I think the better VCs have really realized is that a lot of these markets are so big that it becomes…it’s fine if it’s niche. The thing that’s harder now is are you differentiated? Is there a moat? There’s so much money sloshing around, in part because people are realizing how huge software online markets are. But the flip side, there’s a lot of competition. And that’s where you get these flameouts of companies like Fast or whatever, where If you had no product or distribution moment, you raise $100 million, big market, but there’s nothing differentiated. Whereas they looked at this and they were like, “Okay, this is highly, highly differentiated. There really isn’t anything like this.” It’s not replicable, not easily. There’s a lot that went into this. It’s not something that you could be a KYC cohort and do this in a couple of weeks or something as part of a pivot.
Meb: Just the API stuff alone makes my brain spin, but you worked with one of the hardest ones in the early days, Interactive Brokers.
Ben: Yeah. It’s so hard, so hard. It’s impossible. It’s actually impossible. I would actually go so far to say most people just give up.
Meb: I’m always curious with that company, I say, “Man, if they just splash a pretty front end user interface, made it just a little easier to work with, it’s like a 10x on that business.”
Ben: It’s the most underestimated misunderstood business. By the way, you asked about VCs, a lot of the VCs have never heard of Interactive Brokers. They said that we should be more like Robinhood. And I tried to explain at that time, you know, Interactive Brokers is actually a much better business than Robinhood. And they thought I was crazy. Like, he doesn’t get business. So, now I think anybody knows the space would agree with that statement, Interactive Brokers, I think their market cap right now is three times Robinhood. And it trades like a value stock. That underestimates its potential if they actually like cared.
Meb: I mean, I know so many hedge funds and RIAs that have plugged in there that have had to build literally entire businesses and software just to interact with Interactive Brokers, because it’s so atrocious, but it’s the best experience from the trading and rate side. Someone will figure it out. There was an interesting article recently about the Interactive Brokers family and the son, and what’s going on. We’ll put a link in the show notes.
Ben: Yeah, send that to me, it’s a minor obsession of mine and the story of this company, because again, it’s so fascinating.
Meb: It’s just weird to see. If you think about it, and you’re like, man… It’s like Vanguard, sometimes. Vanguard also, despite their success, if you look at some of their user interfaces. I’m like, this is almost intentional from these guys. It looks like it’s 1985. I joke I once was… I can’t remember if I was transferring to or from Vanguard retirement account or something, and it took like four months. But it was during the worst market drawdown. And so I joke the most alpha I’ve ever created in my career was luck from just how long it took Vanguard to transfer a stupid account because it was impossible.
Ben: I think it probably stems from, like, goes all the way back to Jack Bogle. Like, he apparently dragged his feet on ETFs. He was against ETFs. He’s just very conservative. He’s like, “No, index funds are all we need.” Like, he made some bad calls at the end. He’s just very conservative about product innovation.
Meb: Yeah, interesting. Although they’ve gone full boat turn in the opposite direction now with a lot of stuff they’ve been rolling out lately. We’ll see how it goes for them. They’re like this big private equity offering and some of the other things. It’s a curious branding, but we use a lot of their funds. We love these guys.
Ben: We do too. In fact, Kyle is awesome. He was on our team. He was a PM for many years, Product Manager at Vanguard. We definitely like Vanguard ETFs. They’re still really well constructed and cost-effective.
Meb: Yeah, well, you could do worse. Certainly, that’s for sure. What’s his old great quote? He was talking about his investing portfolio and he says, “I do indexing, US-based only. Is it the optimal portfolio? No,” but he’s like, “There’s infinite worse,” which is guaranteed.
Ben: Infinite worse. I like that. It’s actually not a bad framework.
Meb: What’s been your most memorable investment, you look back over your career? Anything good, bad, in-between?
Ben: So, if I think about my best investment, the funniest one is I bought into NFTs pretty early through something called Whale. That was really funny.
Meb: And what does that mean? When you say you bought into NFTs, what’d you buy? You buy some gorillas?
Ben: I bought something called Whale, which was really early on. It’s an asset-backed token. The asset here is NFTs. So, it was pretty wild at the time. This was like pretty early on. So, that was pretty revolutionary. It was like the first token that was asset-backed by NFTs. I bought it before the NFT thing kicked off and then remember it going up like 600% or 700% a week or something when the NFT thing went off. I sold some of that to then diversify further into crypto because I was never like big on crypto. This was like a very weird thing. I was doing it more for learning. So, it was more of an educational investment. It was like a small enough amount to be like, this is education. I just want to learn what’s going on with this. And I sold some of that and then diversified it into other networks that have gone on to do well. I still don’t feel like I understand crypto enough to actually recommend doing anything I just said. It was definitely memorable. I just remember looking at that and I was like, “Wow.”
Meb: I can’t wait to be doing this by a hologram in 2025 and you and I are talking about the Symphonies for NFTs and we’re buying the dip system on those. It’ll be fun, fun to see that world evolve. It’s weird to say… I was trying to think… I don’t think I’ve ever bought an NFT. I tried to the other day, a friend’s just to try to do it and didn’t. Anyway, Ben, it’s been a blast. If people want to find out more, what’s the right place? Where do they go to find out what you guys are up to, sign up for an account, and start composing?
Ben: Just go out to composer.trade, set up an account, and that’s it. It’ll walk you right through and it’s easy.
Meb: Perfect, listeners. Send me your best-edited iteration of the Faber systems, find them, improve upon them, send me, and let me know. I’ll follow them and see how they’re doing when we track them and report back. Ben, thanks so much for joining us today.
Ben: Thank you.
Meb: Podcast listeners, we’ll post show notes to today’s conversation at mebfaber.com/podcast. If you love the show, if you hate it, shoot us feedback at firstname.lastname@example.org. We’d love to read the reviews. Please review us on iTunes and subscribe to the show anywhere good podcasts are found. Thanks for listening, friends, and good investing.