Transcript
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Going back to 1926 where the database starts,
just invested purely on a quantitative basis
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without any qualitative overlay and small
stocks with low price to book values.
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Today, you would have $491,000.
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And that annualizes out to a 14.3% return.
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If you compare that to large cap growth, the
exact same analysis investing in large
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companies with high price to book values or
growth stocks, you'd have $13,900 and about a
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10.2% return.
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So you have over a 400 basis point spread
between small cap value and large cap growth
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going back to 1926.
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Why is this strategy not more widely accepted
or implemented in investment management?
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If you're a multi $1,000,000,000 family office
or institution, typically, you'll just have
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James, welcome to the Tenex Capital podcast.
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David, thank you so much for having me here.
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I'm so excited for today.
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So you worked with Nobel Laureate Eugene Fama
at the University of Chicago.
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Tell me about that.
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He was a really tough guy to work for, very
demanding.
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Essentially, what I did for him is I helped him
assemble a database of information on publicly
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traded stocks.
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So I would go into the depths of the Regenstein
library and grab the Moody's manuals and
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Wiesenberg manuals and manually enter stock
prices, income statements, balance sheets into
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a database that was used to produce his three
factor model that was published in in 1992.
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Since Harry Markowitz published his CAPM study
in in 1959, there really hadn't been any
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updates to that work to describe what exactly
moves prices.
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And the Markowitz model explained about 70% of
stock price variation.
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And, the FAMA French three factor model
described 90% of it.
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So using 2 different factors.
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The work that I did still carries forward to
everything that I do today, 30 plus years
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later.
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Is it overly simplistic to say that Eugene Fama
and Ken French developed a market to better
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explain the efficient market hypothesis?
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Essentially,
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the Markowitz model, the CAPM model, there was
really 2 factors, one being beta and the other
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one being alpha to describe the difference
between the variation in stock price returns.
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So what FAMA and French did is they added size,
what the market capitalization is of a company,
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a publicly traded company at that point in
time, and what the price to book ratio is for
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that business.
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What the data found, which had never been
looked at this closely before, is that the
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smaller a stock is, the better it tends to
perform.
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And the more book value a company has relative
to its market capitalization, to better
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perform.
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So combining those two factors, small stocks
that are value oriented historically have
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provided excess returns to investors.
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Eugene Fama is an academic.
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Ken French is an academic.
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Is this a purely academic insight?
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How How much of a difference does this actually
make in returns?
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It's truly incredible.
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$1 going back to 1926, where the database
starts, just invested purely on a quantitative
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basis without any qualitative overlay in small
stocks with low price to book values, today you
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would have $491,000 And that annualizes out to
a 14.3% return.
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If you compare that to large cap growth, the
exact same analysis investing in large
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companies with high price to book values or
growth stocks, you'd have $13,900 so and about
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a 10.2% return.
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So you have over a 400 basis point spread
between small cap value and large cap growth
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going back to 1926.
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If you fast forward to where we are today, when
you look at a declining interest rate
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environment, historically, small cap value has
produced almost a 20% return annually when
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interest rates fall for 6 months.
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And that compares to the overall equity markets
at about 15.5%.
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So you're getting once again over 400 basis
points of alpha in a declining interest rate
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environment.
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So as we sit here today, it's a very good time
to be looking at small cap value as an asset
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class.
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So going back to 1926, which is where this data
was, almost a 100 years, you have a 400 basis
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outperformance for small cap value versus large
cap growth.
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On top of that, you also have this 20% return
going back to 1976 in terms of in a declining
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interest rate environment, small cap value
doing 200%.
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So double the returns.
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Why is this strategy not more widely accepted
or implemented in investment management?
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The reason why everybody's not doing it is is
primarily due to scale.
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It's very difficult for a large institutional
investor with 1,000,000,000 and 1,000,000,000
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of dollars to deploy the amount of capital
necessary to take a meaningful position in the
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asset class.
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So if you're a multibillion dollar family
office or institution, typically, you'll just
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have a couple percent allocated in the public
markets into small cap stocks.
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And the best way to achieve that allocation
typically would be through an index fund that's
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diversified over 100 of companies.
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If you took a more concentrated position, you
would end up owning very large positions in
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these individual companies 2%, 3%, 4%, which
makes it difficult to get in and out of that
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position as you see fit.
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For example, the fund that I ran at advisory
research, we capped it at $1,000,000,000 and
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had that money spread across 40 stocks because
that was enough money for us to have a
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meaningful position in individual companies,
but not get to the level that we were
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extraordinarily affecting what the stock price
did relative to our allocation.
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Talk to me about the intuition behind why small
cap value investments outperform large growth
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investments.
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There's several reasons that would explain that
dynamic.
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The first one is the higher risk premium
associated with small cap stocks.
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So historically, small cap stocks have been
slightly more volatile or have a standard
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higher standard deviation of return pattern
than large cap stocks.
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So in order to be fairly compensated for that,
you need a higher expected return.
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So the risk premium would kind of be the first
reason.
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The second reason was would be that there's
very, very little analyst coverage, if any, on
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these stocks.
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And what that does is it creates inefficiencies
in terms of information knowledge, as well as
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earnings expectations and how a company is
performing relative to those.
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So you can really find stocks that are
mispriced because they're overlooked and
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they're under followed by other institutional
investors as well as the street.
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The third reason would be that typically what
happens with any publicly traded company, if
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you have underappreciated fundamentals relative
to where averages should be, there's a mean
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reversion that takes place.
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So by definition, a value stock will have
fundamentals that don't match where the market
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is at.
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And typically, what happens is you have that
reversion back to the mean, and you have a
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higher return in the stock price.
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The last thing that I would mention that I
think is a driver for this phenomenon is that
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you're operating off of a lower base.
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And typically in periods of economic expansion,
smaller stocks tend to do better than larger
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stocks.
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And if you go back over the last 100 years,
we've been in economic expansion periods many,
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many more times than we've been in depressed
economic periods or recessionary periods.
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So I think once again, if you take a long term
horizon on that, all of these phenomenon
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combined explain why small cap value tends to
outperform.
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So when you're talking to clients or for
institutional investors listening to this
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podcast, they should essentially sell their
large growth and invest in small cap value.
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How do you take the theoretical strategy and
turn into practical advice?
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Sure.
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So we certainly advocate having exposure across
the capitalization spectrum.
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We take a very academic and mathematical and
thoughtful approach to those allocations on the
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larger cap side.
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For example, we don't think that having the S
and P 500 as a market capitalization weighted
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index makes a tremendous amount of sense.
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It actually is counterintuitive because what
that implies is that the larger a company is,
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the better it will perform relative to other
companies.
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So if that continues, if that phenomenon
continues in the future, those large companies
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will keep getting larger within the index, and
then the concentration will be untenable.
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A great example would be at the beginning of
this year, you had, 10 stocks that represented
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about 35% of the S and P 500.
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That concentration was unfathomable.
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And then what happens eventually is the
government stops in and says, you're too large.
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You have too much power.
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We're going to break you up.
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And that just happened to Google 2 days ago.
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The government came out and said, we are going
to challenge your status as a non monopoly and
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advocate some sort of breaking up of your
company.
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So having an equally weighted approach, taking
all 500 stocks that are in the S and P 500,
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investing the same dollar amount in those
companies, historically, gives you 2% more
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annually in excess return just simply by
investing in the same stocks in a different
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proportion.
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Which sounds intuitively like the wrong
strategy.
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It sounds like you're using a blunt instrument.
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Where does the 2% come from?
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Is that the fact that you're not selecting for
monopolistic companies?
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And talk to me about that 2%.
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It really comes from the fact that small
stocks, as we've talked about, do better than
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large stocks.
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So you have the stocks that are smaller
weighted in the index that are outperforming
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over long periods of time, the larger stocks in
the index.
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Why not take that to a more extreme and do a
total equally weighted stock index?
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Why actually invest in the top 500 biggest
companies?
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That's a good idea in theory, a very difficult
idea to implement in reality.
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So if you take the universe of if you just take
the Russell 2,000, for example, you're
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investing in 2,000 stocks.
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Some of them trade by appointment only.
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So even investing on an equally weighted
fashion in those less liquid stocks becomes
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very difficult.
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There have been some people that have used kind
of a sampling approach in order to to get close
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to an equally weighted Russell 2,000, but still
it hasn't been widely accepted.
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Really the best way to approach it, once again,
because there are so many inefficiently priced
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stocks within the small cap universe is to roll
up your sleeves to do the work that nobody else
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is doing on the financial statements to drill
down with management teams to find out exactly
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what their strategy is to unlock value and
establish positions in those.
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So having an active strategy within the small
cap universe really, really works over time if
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you do your homework.
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And that's what you did at advisory research
investment management for 24 years.
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So walk me through that.
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Talk to me about that strategy.
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Yeah, so I had an absolutely fantastic
experience at advisory research.
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Started there in my early twenties as a
research analyst.
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Once again, I had small cap value running
through my veins, and the firm was dedicated to
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a small cap value strategy.
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At the time, we had individual investors.
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Some of them might have had 10 stocks in the
port their portfolio.
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Some of them might have had 25 stocks.
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So we institutionalized the product.
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In other words, we kind of got all portfolios
to be homogeneous.
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And at that point, we're able to create a track
record and start to build alpha, put it in the
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institutional databases.
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And we are very fortunate that we did our
homework extraordinarily well and created a
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tremendous amount of alpha and grew the small
cap product from a $100,000,000 or so, once
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again, up to over a little bit over a
$1,000,000,000 over about a 6 year period.
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After that, the natural progression is to go up
in market capital a little bit.
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So we created a SMID cap value product from
scratch and got that up to about $5,000,000,000
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So I I was one of the portfolio managers making
decisions on which stocks to buy, how we're
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positioned from a sector allocation standpoint,
and talking to management teams on a daily
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basis.
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And you continue to do this strategy at Renbon.
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To play devil's advocate, your active
management of portfolios does not not really
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take away the, you know, 200 basis points of
performance.
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That's kind of always been the criticism of
active management is yes, maybe there's a
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little bit alpha, but isn't that?
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Aren't you losing that in fees?
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I know, historically, you know, we've been able
to add 3 or 4 percent in terms of alpha to a
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client's portfolio, not only in the small cap
side, but also in the way that we position in a
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more thoughtful way, the way large cap stocks
are weighted and positioned.
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We also charge an extraordinarily reasonable
fee.
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So net of fees are we've been very, very lucky
in our alpha generation capabilities.
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So tell me more about Redmond, your CEO.
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Tell me about the firm's strategy.
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So really, the firm's strategy is to provide
individual investors with an institutional
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framework for investing in.
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So when we build portfolios, we want to take an
individual and provide them access to
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institutional level and quality of investment.
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So if we talk about the publicly traded
markets, typically, and obviously from this
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podcast, investors tend to be very
underweighted in the small cap space and
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they're not utilizing active management to a
high enough degree.
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So we wanna make sure that we have a target
allocation that's very appropriate for each one
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of our investors.
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Tell me what you think the ideal profile should
be for a liquid institutional public book.
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Assuming that you have unlimited time horizon
associated with your investment portfolio, I
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would say probably 40% of your portfolio on the
public side in small cap stocks that are
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actively managed, 40% in mid and large cap
stocks and then 40% in non US stocks, both in
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developed markets as well as emerging markets.
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And you mean sorry, 20%?
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20%.
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Yes.
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20% in non US stocks, both in the developed
markets as well as the emerging markets.
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So that's on the public side.
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It seems to be the appropriate way that I would
think about structuring asset allocation for,
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once again, wealth or an endowment that has no
time horizon associated with it.
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Also value?
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TILT?
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On the
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The large cap.
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On the large cap side?
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Not necessarily.
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I think you get most of your alpha from small
cap stocks.
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So we're trying to get beta on the large cap
stocks, but once again, using an academic
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approach.
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So when we look at most portfolios that come
into us, and we do portfolio analysis on a
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complementary basis for prospective clients,
almost every single one is overweighted to
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large cap growth.
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00:16:35,409 --> 00:16:38,654
And certainly that has worked for the last year
and a half.
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In 2022, it didn't work at all.
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People have short memories.
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I think a lot of people forgot the Nasdaq was
down around 40% during that period.
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The entire market was down.
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Our small cap strategy was out about 5%.
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So we looked like we were super smart in 2022,
roll into 2023.
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It's why don't you own Nvidia?
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Why don't you own Microsoft?
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Why don't you own Tesla?
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00:17:03,570 --> 00:17:09,184
And the reason is we do own those stocks, but
we're not weighting them in an aggressive
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manner because we don't understand those
businesses.
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And we don't have a crystal ball that gives us
a clear vision into what those companies are
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going to look like 10 years from now.
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00:17:20,119 --> 00:17:23,960
Why put 20% of your liquid portfolio in
developed and emerging markets?
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The rationale is it provides you with
diversification.
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So there are a lot of economies, emerging
economies that are going to do extraordinary
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things from at a company level perspective.
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And having an allocation to those businesses
just makes a lot of sense.
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There certainly are times that when the pistons
are firing overseas and they're not necessarily
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firing over here, So having that
diversification worldwide and globally just
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makes sense to us.
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And the 40% in small stocks, you believe in
active management.
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On the 60% of large stocks and developed and
emerging markets, Do you believe in indexing?
258
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Do you believe in active management?
259
00:18:06,044 --> 00:18:11,964
Once again, we believe in indexing and large
cap stocks within the US equity market in a
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thoughtful manner.
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00:18:13,085 --> 00:18:18,950
So not using market capitalization weighting,
using quality weighting or equally weighting or
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some other more sensible way of weighting the
stocks.
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00:18:22,950 --> 00:18:29,210
Once again, market capitalization way of
weighting stocks is completely arbitrary.
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If you talk to any active manager, probably in
the United States and ask them, do you weight
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your portfolios actively managed based on
market capitalization?
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The answer will be no.
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00:18:41,434 --> 00:18:47,500
So the largest index that is investable in the
United States has that structure.
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00:18:47,500 --> 00:18:49,839
So there is this large disconnect.
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And that's almost a marketing thing.
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It sounds intuitive, but it's not actually
fundamentally sound.
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That's true.
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00:18:56,934 --> 00:18:57,414
That's true.
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I mean, I don't think there would be a big
difference between saying an index should be
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alphabetically weighted.
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00:19:03,734 --> 00:19:06,934
It's an arbitrary method, once again, of
weighting Well,
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00:19:06,934 --> 00:19:12,140
isn't it a momentum trade that's saying that
the faster companies grow, the more you should
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00:19:12,140 --> 00:19:12,960
wait for them?
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00:19:13,660 --> 00:19:14,160
Exactly.
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00:19:14,539 --> 00:19:20,220
And that momentum, once again mathematically,
cannot continue, or else you'll have a
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situation
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00:19:20,700 --> 00:19:25,384
To say that another way, since 1926, value has
actually outperformed growth, which is a
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00:19:25,384 --> 00:19:26,684
momentum trade of sorts.
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Right.
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Right.
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And a very interesting exercise that I didn't
do for this podcast, but it's very Google able,
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is looking at the top 10 stocks in the S and P
500 kind of by decade.
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00:19:39,839 --> 00:19:43,140
And it changes dramatically by decade.
288
00:19:43,200 --> 00:19:52,335
There are very, very few companies that stay in
the top ten market capitalization of stocks for
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00:19:52,335 --> 00:19:53,535
10 years in a row.
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00:19:53,535 --> 00:20:00,494
I can remember when Exxon was the largest
capitalization company for 15 years in the
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00:20:00,494 --> 00:20:03,535
United States, and Apple was a mid cap stock.
292
00:20:03,535 --> 00:20:05,279
Which is pretty obvious if you zoom out.
293
00:20:05,279 --> 00:20:09,840
But everybody, to your point, has such a short
memory that they're only focused on the last 6
294
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months in terms of market cap.
295
00:20:11,200 --> 00:20:11,700
Exactly.
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00:20:11,920 --> 00:20:15,620
So going back to 1926, small value has
outperformed.
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00:20:15,759 --> 00:20:19,595
But last 10 years, there's been large growth,
outperformance.
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00:20:19,654 --> 00:20:23,255
Tell me how painful that is to portfolio and
walk me through the numbers of what happens
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when there's a different trend in the market.
300
00:20:25,414 --> 00:20:30,454
If you're diversified, once again, across the
entire market capitalization spectrum, you're
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00:20:30,454 --> 00:20:34,890
not going to be hurt badly in those types of
situations.
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00:20:35,190 --> 00:20:42,470
So most of our clients are focused on capital
preservation and participating in upward
303
00:20:42,470 --> 00:20:48,164
movements of the market and and really, once
again, preserving the capital that they've
304
00:20:48,325 --> 00:20:50,345
worked so hard to to earn.
305
00:20:51,605 --> 00:20:58,644
So if the market is up 35% in a very
concentrated fashion and you have 15 stocks or
306
00:20:58,644 --> 00:21:04,320
so that are responsible for half of that
return, our clients typically aren't going to
307
00:21:04,320 --> 00:21:10,080
be disappointed with a 20% return that we can
provide them with in a diversified manner, once
308
00:21:10,080 --> 00:21:15,434
again, in a thoughtful manner and not chasing
trends and not chasing stocks that look like
309
00:21:15,434 --> 00:21:19,054
they could be inappropriately valued based on
history.
310
00:21:20,315 --> 00:21:26,494
The other side of the equation is when the
markets go down, they can fall very, very
311
00:21:26,634 --> 00:21:27,134
quickly.
312
00:21:27,835 --> 00:21:38,329
When the NASDAQ bubble burst in 1999, it took
20 years for it to get back to the levels it
313
00:21:38,329 --> 00:21:39,609
was before the bubble burst.
314
00:21:39,609 --> 00:21:41,884
The Nasdaq was down over 80%.
315
00:21:42,184 --> 00:21:46,424
I think a lot of people forgot about that too
when you look at returns now.
316
00:21:46,424 --> 00:21:50,585
So periods like that, we look pretty smart at
what we do.
317
00:21:50,585 --> 00:21:56,580
So in kind of down markets, sideways markets,
slightly up markets, we tend to do
318
00:21:56,640 --> 00:21:57,680
extraordinarily well.
319
00:21:57,680 --> 00:22:02,559
But those markets that are very, very
concentrated in a handful of stocks or a
320
00:22:02,559 --> 00:22:06,180
particular sector, we tend to trail in those
environments.
321
00:22:06,559 --> 00:22:11,565
And for those who might not hit your minimums,
what's your favorite indexing tool for the
322
00:22:11,565 --> 00:22:13,025
large for large stocks?
323
00:22:13,565 --> 00:22:16,684
Do you like DFA over Vanguard or Fidelity?
324
00:22:16,684 --> 00:22:18,945
Talk to me about the differentiation in the
market.
325
00:22:19,005 --> 00:22:23,059
I like the RSP, which is the equally weighted S
and P 500.
326
00:22:23,119 --> 00:22:24,559
It's extraordinarily liquid.
327
00:22:24,559 --> 00:22:26,579
It's very easy to buy.
328
00:22:27,200 --> 00:22:32,900
So having that at least as a complement to the
S and P 500 makes sense for most investors.
329
00:22:33,279 --> 00:22:38,494
DFA is a very good place to look at for small
cap index investing.
330
00:22:38,494 --> 00:22:43,634
It's passive investing, but they're more
mindful about the way that they construct their
331
00:22:43,934 --> 00:22:45,535
indexes that they're investing in.
332
00:22:45,535 --> 00:22:51,554
So it's purely quantitative, but it's based on
quality or other factors that have historically
333
00:22:51,694 --> 00:22:56,910
proven to be the things that tend to drive
alpha in the marketplace.
334
00:22:57,450 --> 00:23:00,570
So you take an active approach to your for your
clients.
335
00:23:00,570 --> 00:23:03,789
Talk to me about what it means to be an active
investor in the stock market.
336
00:23:03,930 --> 00:23:09,595
An active ist strategy in the market today is
something that we've looked at.
337
00:23:09,595 --> 00:23:10,734
It's something to consider.
338
00:23:10,875 --> 00:23:13,615
I kind of consider ourselves by activists.
339
00:23:13,994 --> 00:23:18,575
So when we take a position in a company, we
certainly want to communicate with management
340
00:23:19,029 --> 00:23:23,910
in terms of the strategy that they should be
looking at, the strategy that we're looking at,
341
00:23:23,910 --> 00:23:28,650
and hopefully we're aligned in our vision about
how to unlock value in a company.
342
00:23:29,109 --> 00:23:35,545
The differences between that and a true
activist investor is typically there is a large
343
00:23:35,605 --> 00:23:42,244
disconnect between the management team of a
company and the activist investor in terms of
344
00:23:42,244 --> 00:23:43,845
the direction of the business.
345
00:23:43,845 --> 00:23:46,884
So the activist investor agitates change.
346
00:23:46,884 --> 00:23:49,490
They try to get individuals on the board.
347
00:23:49,490 --> 00:23:54,049
They try to force sales of the company or
divisions of the company.
348
00:23:54,049 --> 00:23:58,950
And this can be a very successful strategy, but
it tends to be messy.
349
00:23:59,009 --> 00:24:01,589
It can be very litigious at times.
350
00:24:01,890 --> 00:24:08,454
Friend of the pod, Bill Ackman would say that
governance is the only true lever on investing
351
00:24:08,454 --> 00:24:12,214
and that if you have the same board, they're
unlikely to take different actions.
352
00:24:12,214 --> 00:24:13,194
Why is he wrong?
353
00:24:13,335 --> 00:24:17,974
I would hate to say that Bill Ackman is wrong
because he's he's right a lot more than he's
354
00:24:17,974 --> 00:24:18,474
wrong.
355
00:24:18,649 --> 00:24:23,450
But I think from a governance perspective,
sometimes a board needs to see things from an
356
00:24:23,450 --> 00:24:26,809
investor's perspective in order to open their
eyes.
357
00:24:26,809 --> 00:24:33,315
Sometimes boards can be very insular in terms
of the paths that they're looking at once again
358
00:24:33,315 --> 00:24:36,914
to create value or governance issues or of the
like.
359
00:24:36,914 --> 00:24:40,934
But activists and investors coming in and
saying, have you thought about this?
360
00:24:41,394 --> 00:24:43,075
You might be better off doing this.
361
00:24:43,075 --> 00:24:44,375
This is better for shareholders.
362
00:24:44,970 --> 00:24:50,029
Sometimes open up opens board members' eyes up
to a different way of thinking.
363
00:24:50,169 --> 00:24:56,250
So I think, Ackman certainly introduces a
different way of thinking for board members and
364
00:24:56,250 --> 00:24:59,945
sometimes in aggressive fashion, And it tends
to work.
365
00:24:59,945 --> 00:25:04,525
Sometimes internal party just wants an outside
champion, wants a friendly investor.
366
00:25:04,664 --> 00:25:04,825
Correct.
367
00:25:04,825 --> 00:25:05,325
Exactly.
368
00:25:05,625 --> 00:25:11,485
Using our history as a guide, the most
successful investments that we've had have been
369
00:25:11,819 --> 00:25:14,319
assets that we bought at a significant
discount.
370
00:25:14,380 --> 00:25:21,119
The management team realizes the stock does not
reflect the net asset value of the business,
371
00:25:21,339 --> 00:25:25,019
and they have a specific plan to unlock that
value.
372
00:25:25,019 --> 00:25:26,934
It can be buying stock back.
373
00:25:26,934 --> 00:25:29,115
It could be selling a division.
374
00:25:29,174 --> 00:25:31,674
It can be putting the whole company up for
sale.
375
00:25:32,294 --> 00:25:40,009
So when we're aligned with the easiest way of
of approaching small cap value investing in
376
00:25:40,009 --> 00:25:44,569
terms of the way that we do it is having a
management team that says, yes, my stock is
377
00:25:44,569 --> 00:25:47,789
undervalued and here is what I'm going to do
about it.
378
00:25:47,929 --> 00:25:52,190
It's more difficult to say, well, why don't you
do this instead?
379
00:25:52,409 --> 00:25:57,544
Because you're going to get pushback from
management saying we've thought about this and
380
00:25:57,544 --> 00:26:01,085
this is the reason why we don't think that this
is the best idea.
381
00:26:01,224 --> 00:26:06,664
So once again, you create that contentious
relationship and then it's harder to work with
382
00:26:06,664 --> 00:26:07,724
management directly.
383
00:26:08,130 --> 00:26:13,430
And then the information flow and other side
effects of going activist on a company.
384
00:26:13,730 --> 00:26:14,230
Exactly.
385
00:26:14,289 --> 00:26:14,769
That's right.
386
00:26:14,769 --> 00:26:15,250
That's right.
387
00:26:15,250 --> 00:26:19,009
What would you like our listeners to know about
you, Redmond Wealth Advisors, or anything else
388
00:26:19,009 --> 00:26:19,890
you'd like to shine a light
389
00:26:19,890 --> 00:26:20,055
on?
390
00:26:20,455 --> 00:26:25,035
Being mindful of fees is one thing that's
exceptionally important.
391
00:26:25,575 --> 00:26:29,595
Having an appropriate asset allocation is
something that's exceptionally important.
392
00:26:30,055 --> 00:26:33,674
Having access to unique investments is
exceptionally important.
393
00:26:34,109 --> 00:26:38,289
Using an academic approach to the public
markets, also very important.
394
00:26:38,430 --> 00:26:43,470
And that's why we founded the firm in order to
achieve all of those different things as an
395
00:26:43,470 --> 00:26:44,690
independent firm.
396
00:26:44,829 --> 00:26:44,990
Yeah.
397
00:26:44,990 --> 00:26:50,605
And if anybody that's listening would like to
learn more about what they do or have us take a
398
00:26:50,605 --> 00:26:56,845
look at your portfolio, we do that for free,
kind of a a doctor's physical on what your
399
00:26:56,845 --> 00:26:59,725
investment strategy is, you know, reach out to
us.
400
00:26:59,725 --> 00:27:02,470
My personal email is jlanger@redmontwealth.com.
401
00:27:07,650 --> 00:27:09,650
I might actually have to take you off on it.
402
00:27:09,650 --> 00:27:13,430
I have an embarrassingly non reflective public
portfolio.
403
00:27:13,809 --> 00:27:20,005
My whole personal narrative has been spend 99%
of your time on alternatives, on alpha, etc.
404
00:27:20,065 --> 00:27:24,244
But I've embarrassingly not really been
introspective about my public portfolio.
405
00:27:24,704 --> 00:27:26,278
So I might actually take you off mute.
406
00:27:26,491 --> 00:27:27,904
Very, very happy to do it.
407
00:27:27,904 --> 00:27:35,339
We break down how you're allocated by sector,
by market cap, by biases on the growth side,
408
00:27:35,339 --> 00:27:36,319
the value side.
409
00:27:36,700 --> 00:27:41,819
And, it's it's a really interesting way, once
again, to be introspective about the way that
410
00:27:41,819 --> 00:27:42,779
you're currently positioned.
411
00:27:42,779 --> 00:27:48,545
Whether or not you you work with us, we provide
that service to be helpful to the greater
412
00:27:48,545 --> 00:27:49,565
community and
413
00:27:49,585 --> 00:27:50,144
build that up.
414
00:27:50,144 --> 00:27:51,505
Essentially, you're buying an index.
415
00:27:51,505 --> 00:27:54,164
You just see the ticker, but the ticker is
underlying companies.
416
00:27:54,304 --> 00:27:58,224
And then you have to take that pooled
underlying companies against your other indexes
417
00:27:58,224 --> 00:27:59,940
and actually have a holistic view on it.
418
00:28:00,339 --> 00:28:01,399
That's exactly right.
419
00:28:01,779 --> 00:28:03,220
What tools do you use for that?
420
00:28:03,220 --> 00:28:10,019
We actually have a proprietary tool that we
have built out that we load tickers up, load
421
00:28:10,019 --> 00:28:15,734
number of shares in, and it will spit out an
analysis, providing us once again with
422
00:28:15,734 --> 00:28:22,954
everything that we've talked about, breakdowns
on market capitalization, exposures, sectors,
423
00:28:23,654 --> 00:28:25,355
industries, biases.
424
00:28:26,750 --> 00:28:28,829
Fee analysis also comes into play.
425
00:28:28,829 --> 00:28:34,450
And then we overlay that with our practical
investment experience and provide meaningful
426
00:28:34,509 --> 00:28:34,990
advice.
427
00:28:34,990 --> 00:28:39,230
We've never had a client come to us and say,
can you take a look at my portfolio and say,
428
00:28:39,230 --> 00:28:40,575
yeah, that didn't help us at all.
429
00:28:40,575 --> 00:28:41,855
It's like going to the doctor.
430
00:28:41,855 --> 00:28:45,934
You're gonna hear something you might not like,
but it's gonna be helpful in the long run.
431
00:28:45,934 --> 00:28:50,034
I also wanted to dedicate this episode to Ken
French, who is my business school professor.
432
00:28:50,174 --> 00:28:54,369
He was very formative in the way that I look at
the public markets, although he would be
433
00:28:54,369 --> 00:28:56,549
embarrassed by my my lack of sophistication.
434
00:28:56,690 --> 00:29:02,289
But, you know, when Eugene Fama won the Nobel
Prize in 2013, a lot of people believe that Ken
435
00:29:02,289 --> 00:29:06,230
French also deserved that, due to them working
together.
436
00:29:06,769 --> 00:29:11,654
So it's it's a bit of a shame, but, I just
wanted to dedicate this to Ken French.
437
00:29:12,194 --> 00:29:13,154
Yeah, that's amazing.
438
00:29:13,154 --> 00:29:18,034
And, you know, certainly I worked with Ken
French and remember when I was 21 years old,
439
00:29:18,034 --> 00:29:22,934
putting floppy disks in envelopes and, and
sending them off to Dartmouth.
440
00:29:22,994 --> 00:29:32,350
So, you know, a really special individual, and
he was very important in the analysis and the
441
00:29:32,350 --> 00:29:32,590
work.
442
00:29:32,590 --> 00:29:38,954
And I think Gene Fama would certainly agree
that there should have been a shared prize to
443
00:29:38,954 --> 00:29:41,275
to honor the work that he did as well.
444
00:29:41,275 --> 00:29:44,234
Well, James, I've enjoyed really learning about
the public markets.
445
00:29:44,234 --> 00:29:45,615
Thank you for jumping on podcast.
446
00:29:45,674 --> 00:29:45,914
Yeah.
447
00:29:45,914 --> 00:29:47,035
Thank you very much, David.
448
00:29:47,035 --> 00:29:48,494
I really appreciate the opportunity.
449
00:29:48,555 --> 00:29:49,095
Thank you.
450
00:29:49,494 --> 00:29:50,554
Thank you for listening.
451
00:29:50,615 --> 00:29:55,275
The 10x Capital podcast now receives more than
a 170,000 downloads per month.
452
00:29:55,335 --> 00:29:58,315
If you are interested in sponsoring, please
email me at david@10xcapital.com.
