The Derivative - Carefully Constructing a Cockroach (portfolio) with Mutiny Funds Jason Buck and Taylor Pearson

Episode Date: June 10, 2021

Who in their right mind would name an investment strategy after cockroaches?  Well, probably the guys who view themselves as staging a mutiny against traditional portfolio construction and the investment business = Jason Buck and Taylor Pearson of Mutiny Funds.  We're digging in deep with the two wunderkids in this episode on what exactly the Cockroach strategy is, what the first year for Mutiny looked like, Jimmy Buffet lyrics, AustinTexasville, applying e-commerce process and principles to asset management, living through the largest vol crush in history (as a long vol fund), the four quadrant model, gold and crypto as fiat protection, the modern hedge fund manager as a social media personality, Pretty Woman, growth stocks, inflation, deflation, diaspora, going full Kelly, and more...  Chapters: 00:00-02:29=Intro 02:30-17:04=Jimmy Buffet & Going from 0 to 1 17:05-27:00= Playing the Orchestra Not the Instruments 27:01-36:44=The merging of Social Media and Investing 36:45-52-12=The Cockroach Fund: Nuclear Winterizing Your Portfolio 52:13-01:05:19=Solving Multi-Generational Wealth  01:05:20-01:09:04=Who in their right mind would name an investment strategy after a Cockroach 01:09:04-01:15:12=Favorites Follow along with Jason and Taylor on Twitter and learn More about the New Cockroach Strategy here = https://mutinyfund.com/cockroach And last but not least, don't forget to subscribe to The Derivative, and follow us on Twitter, or LinkedIn, and Facebook, and sign-up for our blog digest. Disclaimer: This podcast is provided for informational purposes only and should not be relied upon as legal, business, or tax advice. All opinions expressed by podcast participants are solely their own opinions and do not necessarily reflect the opinions of RCM Alternatives, their affiliates, or companies featured. Due to industry regulations, participants on this podcast are instructed not to make specific trade recommendations, nor reference past or potential profits. And listeners are reminded that managed futures, commodity trading, and other alternative investments are complex and carry a risk of substantial losses. As such, they are not suitable for all investors. For more information, visit www.rcmalternatives.com/disclaimer

Thanks for listening to The Derivative. This podcast is provided for informational purposes only and should not be relied upon as legal, business, investment, or tax advice. All opinions expressed by podcast participants are solely their own opinions and do not necessarily reflect the opinions of RCM Alternatives, their affiliates, or companies featured. Due to industry regulations, participants on this podcast are instructed not to make specific trade recommendations nor reference past or potential profits, and listeners are reminded that managed futures, commodity trading, and other alternative investments are complex and carry a risk

of substantial losses. As such, they are not suitable for all investors. Welcome to The Derivative by RCM Alternatives, where we dive into what makes alternative investments go, analyze the strategies of unique hedge fund managers, and chat with interesting guests from across the investment world. So the idea of the cockroach is because we're obsessed with multi-generational wealth. And the idea of a cockroach is to outlive you and hopefully your grandchildren's lifetime, and that's what you want your savings to do. We look at it as the four quadrant model can manage any macroeconomic environment.

So we use global stocks for growth times, global bonds and other sort of income strategies for deflation. For a recession or sell off, we use our long volatility and tail risk strategy that we've already developed. And then for inflationary times, we're looking at our commodity trend advisors. And we use an ensemble approach within each of those buckets to help the diversification. And the part of the way we built it is that's a liquid portfolio that can do extremely well when markets are open. But what really destroys multi-generational wealth is when you have these dislocative events like a war, confiscation or diaspora. So we wanted to

balance the portfolio out with holding a little bit of segregated gold and Bitcoin. So you can try to really manage that wealth over multi-generations, no matter what even comes, even if even if even these cash settled futures markets shut down, you still have at least something on your books that's nobody else's liability that will hopefully help you maintain your wealth during those extreme Ahoy, mateys. We've got a show for you today, diving deep into the unknown waters of volatility trading, plumbing the depths of portfolio construction, how not to run aground with asset allocation, and finding out how it feels to go from mutineer to captain of one's own ship in the asset management space. We've got Jason Buck and Taylor Pearson of Mutiny Funds. Jason is the CIO of Mutiny and budding YouTube Real Vision aficionado,

while Taylor is CEO of Mutiny and author of the book, The End of Jobs, and the Interesting Times newsletter, which is quite interesting. So welcome, guys. Thanks for having us. Thanks for having us, Jeff. Yeah, we had some technical difficulties getting started here but we're here did i overdo it a little on the nautical language no we that's how we talk to each other when i call jason on the phone i just yell a whole way

into the phone um did you think when you started mutiny that it would become the uh was that you had the nautical dreams in effect or it's just kind of a byproduct of that i think we were hopeful as taylor as as many people may not know taylor is actually a huge jimmy buffett fan so uh steering in this direction was definitely a part of his hopes and dreams i own the entire back catalog so i'm ready nice you i run into these people you either get a uh hate jimmy buffett or love jimmy buffett person there's very few who are like yeah yeah he's so so um but i just i'm a buffett fan myself i just converted a guy recently who went well not recently before

covid but he went to one of the concerts hated him going in loved him coming out like there you go i mean the titles are classic the weather is here i wish you were beautiful exactly i couldn't do any better um and here we are that's one of my favorites uh and what a we won't talk about buffett too long or maybe not this buffett but uh what a career right he was like struggling just slinging music on uh Catherine Street Key West and made it happen I would actually like I wanted to write like a long article about him at some point he's it's he I think he's the most impressive like musical entrepreneur in history I think Margaritaville is his biggest song he like cracked the top 10 for like two weeks but he's like on a

network basis like worth more than like the rolling stones he's like one of the top 10 wealthiest musicians of all time so yeah he's like what trump has tried to be but couldn't quite accomplish right of like attaching his name to things and it actually working out i think he has like doesn't have a nursing home chain and some other stuff yeah he's got a big development they're doing in florida somewhere i think it's called margaritaville it's like a assisted living retirement community or something like that. So yeah, he's merchandised it really well.

And you're in Austin, Taylor. And I think the original verse of that song was Austin, leave in Austinville or something, right? Austin, Texasville. I think he was in the airport in Austin and then he got back and they're like, no, that's no good. I'll look that up for you

if you didn't know that um and Jason where in the world are you whenever uh we have calls with you guys it's always a game of where in the world is Carmen Santiago slash Jason Buck uh currently in South Florida so sunny South Florida it's great outside right now speaking of jimmy buffett yeah um we're aging ourselves here as well but um it's fine so taylor's the youngest one and he's the jimmy buffett fan i actually grew up on jimmy buffett my dad used to listen to him all the time and i and i think my dad fantasized more about his grumman seaplane but uh so yeah taylor's the one that's like reverse dating us i love it uh so it's been about a year since you guys launched Mutiny Fund. So just want to go through, you know, kind of how's that year been? What have you learned? Anyone want to jump on that

grenade first? I'll go. So I guess in, you know, launching right into the largest vol crush in market history is that a long volatility fund wasn't exactly enjoyable. Nobody really likes drawdowns, but that's why we built the portfolio the way we did. And so it was somewhat to be expected if we weren't going to have a second or third leg down. But it's always trying times, right? And I think building a new business is exceedingly difficult.

And I think what we also realized, it could have been expected or maybe not, maybe Taylor have a different idea of what we expected, is that the business of running a hedge fund is just as difficult, if not more difficult than the portfolio construction or the investment portfolio. And so, but all in, I think it's been a great experience. And it's been an interesting year to learn, you know, praxis, right. Taking your philosophies and putting them into practice in real life. There's one of my favorite $10 Jason Buck words. What was that word again? Praxis. Praxis. All right. Taylor, what, uh, what have your thoughts?

How's it, how's it gone? Uh, I would echo what Jason said to some extent. I think a lot of it has just been business building that you do in the first year of any business. You get your meeting schedules set up, how you communicate, how you manage your processes. We've worked on sort of automating some of the back office elements. A lot of that kind of just actually more general business building that's kind of the same, whether you're running a heads fund or an e-commerce shop or all that kind of stuff. And there's wrinkles,

but I think I've been surprised at just how similar a lot of the basic business components are. And I think when you talk to most, rarely do I hear a hedge fund people talk about the business hedge fund or like what the administrative operational side of things is. But I think that's, you know, we take that very seriously and making sure that's been sort of set up.

And that's a little bit of your background, right? Was helping companies and more on the e-commerce side, but helping companies kind of get table stakes and get to where they need to be to run a business? Mostly e-commerce, software, professional services. A lot of work on the operational side of the things I said. How are you communicating? Do you have written processes? How are those done? Are there redundancies built in? So if someone's out or something happens,

everything still gets done on time. So I think putting all those things in place has been a big priority and I think sets us up well for the future. Sorry, go ahead, James. I was just going to say, I had really high expectations for Taylor's abilities even before we started this business. And he has extremely exceeded those expectations.

I mean, it's been phenomenal to watch how he's developed and built all of our processes behind the scenes throughout the last year, especially both of us working together in what considered very stressful times with both COVID, with volatility crush. It's been an amazing experience, and especially for two guys that got to know each other online and before the real world. And as a unique, not only experience of setting up a distributed company pre-COVID, but then going through COVID together and going through wall crush together.

It's been an amazing experience. Yeah, to the point of I've had managers reach out to me saying, hey, could you introduce me to those guys? I like what they're doing with their automation and their different things, right? So kudos on that. Anything that sticks out of what's been easier than you expected what's been harder than you expected uh i you know i everything's been harder than i expected i guess for the most part or as i expected um i think and i don't know how special that is to our business

like i think everything always looks easy you. The guy's just going to decide like, oh, I'll just like set this thing up, blah, blah, blah. There's always one of my favorite phrases, reality has a surprising amount of detail. Something looks obvious and once you get into the weeds, it's really difficult. One of my little trivia things or I've heard it ask people to draw a can opener diagram.

Like seems really obvious how a can opener works. But if you sit down with a piece of paper and people to draw a can opener diagram like seems really obvious how a can opener works but if you sit down with a piece of paper and try to draw a can opener it's actually really hard because there's how the gears interact and how does it all um sort of connect I think that's you know there's been that sort of just figuring out all the details of how everything works together and um and those pieces that is sort of typical to any business. I would cheat and just draw the punch can opener. Does that count? Do I get extra points thinking outside the box?

Yeah, sure. And Jason, how about you? Maybe on the portfolio construction performance, anything harder, easier than you expected? Yeah, I mean, just like everything in life, like Taylor alluded to, you know, everything's going to be harder than you expect. And that's part of, you know, I'm definitely the optimist of the group. And so I'm always like, you know, it's going to be, you know, it's fairly simple and straightforward knowing it's going to be incredibly difficult and complex. Part of the portfolio construction side is that, you know, when you're building off a backtest,

we all know this, that a backtest is just an intuition pump. And you get to see how it really works going back to this idea of praxis once you traded it in real time. And one of the interesting things about doing an ensemble approach to long volatility tail risk is during risk on times, our managers are fairly uncorrelated, which allows us to harvest a bit of rebalancing premium. And then during a sell-off, we want them to be correlated, which is correlations going negative one to the S&P. But what we definitely found over time is during that vol crush, the managers may stay correlated and may all be in drawdown or max drawdown at the same time, which is obviously a difficult position to be in. And we would expect it a little bit more dispersion, I guess,

or maybe some of our volatile arbitrage managers to pick up some of that slack, which didn't necessarily happen in 2020. Sounds like you're adding a penthouse to the Fort Lauderdale condo. We'll try and push our way through that. And to me, it's like the entrepreneur has to have that mind, right? Of like, ignore the, you know, damn the torpedoes kind of mind of like, no, we can get this done. It's not going to be that hard. And then you have that kind of, I don't know, one of you will know the name of it, but that entrepreneurial curve, right? Where you're in the pit of despair and

then there's the lights on the other side. A hype cycle or whatever it is. But yeah, to add to Jason's thing too, I think, you know, one of the things is just, we were, I like to think pretty good about communication coming into things, but I think just really being proactively, you know, sort of over-communicating of like what's going on,

you know, what the, how the portfolio is performing. We invest a lot of time in our newsletters and updates each month to give people sort of a good understanding of what's going on. And I think also there's a lot of reminders and this ties into maybe some things we'll discuss later, but just reminding people of the overall portfolio construction and sort of how the different pieces fit together. And how do you think about, right? Like the volatility space,

there's not that many instances of a volatility spike much less a second or third leg down so right it's kind of how do you test that even how do you wrap your head around that these pieces will work in in such an environment and how do you wrap your head around like you know do you have enough data points to have it be a valid conclusion yeah that's the hard part is like thinking about you know what would you have enough data points to have it be a valid conclusion? Yeah, that's the hard part is like thinking about, you know, what would it look like in a ball crush environment if we didn't have a second or third leg down? And Taylor and I actually talked about this when we launched April 17th of 2020 is that, you know, this could be the hug of death, right? If we don't have a second or third leg down here, we're not going to do very well in our first year. And so, but we are willing to take on that risk because we really want to protect portfolios against that second or third leg down, we do need to be a structurally

negatively correlated asset to your equity beta, which allows you to hold more equity beta or be able to sleep at night through these sell offs. And so that's the other piece to it is contextually, you know, how does this fit into an overarching holistic portfolio or total portfolio solution? And knowing, like you said, you can never know what the environment looks like. But I think honestly, even though nobody likes drawdowns, I think that the portfolio overall held up much better than expected in such the largest vol crush, I think, in market history, especially given the V-shaped recovery of the S&P. So that's part of it too, is like the S&P is absolutely torn higher since we launched in April 17, 2020.

And so we've struggled on the long vol and tail risk side. But I think it's commensurate with what you've seen on the equity beta side. Yeah, and I think in one of the newsletters, Taylor, you guys dove into that a little bit of like one doesn't happen without the other. And the whole point of the one is to hopefully get the other and protect against the other. Part of the portfolio construction was, you know, we sort of have the core of the portfolio in buying options. That's our core of the protection. We like that, you know, that P&L of options, right? You know, all you can lose is your premium, but you have, you know, hypothetically uncapped gains, but then the environment over the last 12 months is exactly where you're

sort of expect those options strategies to struggle, right? You know, you start with very high levels of implied volatility and the pressure of the last 12 months has just brought those levels down. And again, Jason said the similar vol crushing when VIX hit 80 in 2008, it took 12 or 14 months to get back down to 20. I think it happened within nine or 10 months from the March 2020 peak of the VIX. So I think that fast vol crash is where we knew those options would struggle. And I think some of those early strategies around the edges that maybe picked up some, but not as much. And to your point, I think in particular

the volatility arbitrage, dynamic fixed strategies which are sort of designed to be a go anywhere strategy that can do well in sort of all volatility environments when you have the SDP to sort of kind of rocketing higher getting into the weeds a little bit but that can be a challenging environment for them. So, you know, again, the way we thought about it was like, we want to protect as many pathogens as possible.

We don't know what's going to happen. We want to have this sort of overall portfolio perform well, no matter what, I think. As I think of it, you're, you're wanting people to, people invest in this so they can participate in the V-shaped recovery, right? In case it's not Vshaped recovery right in case it's not v-shaped in case it's l or w or i don't know all the letters there are but um you know whatever all those different types of recovery are if it's w if it's l if there's a second leg down a third

leg down this is there to protect them the fact that it was v-shaped hey great that's we wanted a v-shape and you had this so you could participate in that, instead of waiting like six months for the all clear or something of that nature. Yeah, I mean, how many people were looking to buy stocks April 1st, right? But if you held long volatility and tail risk, you would have been rebalancing into your equity beta April 1st, and most people wouldn't have been doing so. And that's like you said, that's the point is it helps you sleep at night, but also it helps you get out of the crystal ball game where you're trying to predict the future. And you can be a little bit more equanimous about your decision-making at a portfolio level

if you're just automatically rebalancing with uncorrelated or negatively correlated asset classes. Talk through a little bit where I think the goal is at five million is different than at 50 million is different than at 100 million in terms of the the type of managers you can access um some you know like veneer bonsali who we've had on this podcast like his minimum to invest is you know 10 20 million or something. So in the beginning, if you'd had him, that would have been the only thing you guys had. So how do you weigh that of

like targets that you want in there, but you can't yet afford to get them in there? Yeah, these are the trade-offs of the business that are exceedingly difficult is you have a lot of different things outside of constructing the perfect portfolio that you have to deal with. And one of those is your constraints of your assets under management. And we always knew that was going to be an issue. And that's why we launched our minimum viable product required $5 million. And with that 5 million, we were able to have access to five managers. So we thought we were at least starting off with a fairly diversified portfolio. And then we knew as AUM grew, we would be able to diversify and other managers that had larger minimums or larger restrictions on what we're allowed to invest in. And so since then, you know, we're up to, you know, $40 million in assets

under management, we're allowed to have up to 13 managers now in the long ball and sling tail risk series. And that provides better diversification of what we're looking for is if we can have an ensemble approach, but then you across our three buckets of VIX arbitrage options and futures, but within those buckets, if we can diversify across managers too, it gives us a much better signal to noise ratio. And we're really striving for that beta return signal that we can get from the different strategies that we employ. So we always knew it was just a function of let's grow AUM as fast as we can to make a better portfolio. And do you view it as over time that ensemble will kind of equate to like, right? It's got to, you're hopeful it's better than a naive put buying strategy or something, right?

And then will it equate or you hope it's better than the long ball index or something of that nature? Well, the difference is with our ensemble approach is one, you want to reduce any of the idiosyncratic manager risk. So if any individual manager is going through their max drawdown, it's not going to be devastating the portfolio if you're only invested in that one manager. The other way we look at it, though, is across the different buckets is the volatility arbitrage is supposed to provide a little bit of balance to the portfolio while you're paying for the insurance premium of those puts. And so that's the difference we have is that we're a combination of relative value or absolute return strategies combined with those historically tail risk strategies. And that's the difference between what we do versus most people. People are either usually tail risk or absolute return fall. And we're trying to mix through our ensemble approach and our three different market structures to try to have as much differentiated path dependencies that we can cover in a sell-off, but also hopefully maintain that absolute return, slightly flat to slightly positive return profile over an entire business cycle. How much more is it going to look different

when you double assets, when you triple assets from here, or is it pretty, you know, is it going to be 90% the same? Yeah, I think from here on, it's going to be relatively the same. I mean, we use diversification, as we were saying, to reduce the signal to noise ratio. But if you look at any of the academic literature, you still want to have a bit of a conviction trade. And usually that minimum size is going to be, you know, 7.5%, let's say. So within each of the buckets, we don't want to have too much diversification where where one, we're trying to reduce any single manager hurting us, but then any single manager that's up that provides that balance to the portfolio, they have to have a bit of conviction to their position sizing as well. So we think about it as like we play the orchestra and not the instruments. So we want to diversify within each of our three sleeves of long volatility,

but we still want to give those managers an ample trading size to be able to really provide that diversification. So we're at 13 now, we're probably maxing out between 15 and 20. So there's not a lot of managers to add from here on. We might look to cover more of the moneyness or the path dependencies in our options bucket to kind of create a much more robust profile and a massive sell-off and different monetization heuristics across the path dependencies of moneyness and stick in those tail risk puts. But from here, you know, from 40 million to a hundred, 200 million, it'll look relatively similar. It was really getting off the ground to try to get, you know,

those first dozen managers on, onto the books. Love it. And then I've, one of the newsletters you put out showed that, right, like what you're trying to do is perform better than a naive put, you know, strategy that will bleed all the time. But in order to do that, you have to take some risks, right? So you have to risk underperforming the naive put buying in order to over the long term outperform it. So how do you kind of view that and weigh those those seemingly contradictory thing of in order to outperform this, you need to risk underperforming it. I think, you know, the main thing is we try to take just a long term view of it. Right.

It's like, you know, what's what's going to be the best in terms of how it fits in the overall portfolio over 10, 20, 30 years, any strategy is going to have some period of underperformance relative to some benchmark over a 20 year timeline. So I think that's the, that's the main frame that we've thought about it through. The other way to look at it is like, like you said, if you're just buying tail risk puts, you're going to have that bleed,

that deterministic bleed of say anywhere from negative three to negative 10% a year on those deterministic bleed, depending on how far you add your money. So if we go through a 12 year risk on cycle, like we just went through, it's very hard for people to hold that negative line item on their balance sheet. They're constantly looking at it as like, why am I paying on the insurance? You know, granted, we're willing to do it on housing insurance, car insurance, life insurance, but for portfolio insurance, people aren't willing to hold that. But when you invest in a strategy like ours, there's trade-offs. Instead of having that deterministic bleed, you're giving that up for a variable return. So that variable return can be positive on any given quarter or annual

basis or negative on any given quarter annual basis. And it may exceed the cost of just that naive put buying strategy. So that's what you're giving up. You're giving up a deterministic negative return for a variable return that we hope over a business cycle will be a flat to a positive return. It seems like you're fighting behavioral economics there a little bit, right?

Like those polls of like, if you said, hey, if you want a guaranteed chance of losing $10 or a 20% chance of, or even a 10% chance of losing $50, someone would, they usually pick the, right. The guaranteed chance of losing more money, even though the expected return of the other bet is, is higher. And I think it's true.

It comes back to how it fits into the broader portfolio and then the diversification within the portfolio. Like as Jason was saying, right, there's, we have some absolute return elements for what we do. And, you know, part of that is recognizing that there's a behavioral component and investors, you know, look at things as line items, as opposed to part of an overall portfolio. And so we want something that people are willing to hold for the long run. And, you know, that's constructed with them.

It also folds into the broader portfolio, right? So, you know that's constructed with them it also folds into the broader portfolio right so you know the idea is by combining this with um you're combining along well so these strategies with a more broadly diversified portfolio right you're actually that that's the really easier thing to some extent like you're hopefully having something that's it's always making money somewhere um and not having those large drawdowns or trying to minimize them as much as possible. And Jeff, I might push back a little bit. You were semi-right on your behavioral analysis, but it's actually the opposite. So they found that exactly what you've seen in markets a million times is people will take the guaranteed return, but they'll take the variable loss. That's what

the behavioral studies have actually shown. And then part of it is just, just seeing and talking to other managers that know that, you know, just like CalPERS did, they pulled their tail risk in Q1 of 2020, you know, right before they need it the most. Cause they, they, they got tired of having that negative line item for 12 years. Right. And it's, I view it as a little bit of kind of passive versus active in this ball space, right? Like you can go the passive route and just buy this guaranteed lead put basically,

but it can get super duper expensive, like in Q2, Q3. And then it can be quite attractive in other times when things are low. I think the other thing relative to just like naive put buying too is just thinking about the second leg down or the third leg down right

when you're when you're starting with a very high level of implied volatility and those put prices very high you're not going to have the same convexity and so I think you know a lot of from what we've seen a lot of sort of volatility managers just sort of don't worry about the second leg down because it very rarely happens and it's really going hard to to manage I think we've always been you know very conscious of that and trying to strengthen the portfolio in a way that if you did have a W or whatever the letter was where you had another major sell-off after March that we still feel like it would have done its job to protecting that equity data allocation.

Is there a little bit there of like they're cleverer by half? I don't know exactly what that statement means, but right. Like that maybe they're the air quotes, smarter ones by saying, no, don't worry about the second, third leg down, because if it happens, everything blows out and we don't really need to worry about that. And in the meantime, we're going to outperform other stuff because we're not covering that path dependency.

Yeah. It's definitely a smarter business decision. It's hard to make a business case for protecting for something that happens once every hundred years right because it's probably not going to happen and when it does happen it'll be someone else's fault kind of thing but you know we we don't think about it in those terms right and it's almost right like every year further that it doesn't happen is greater probability of it happening so i want to talk a little bit about your media and i know you i think you posted taylor a tweet saying the modern manager has to be uh kind of on social media or something along those lines you can talk to that but um or just yeah go Talk to that, of what you put on there, what that quote was.

Yeah, I don't remember that exactly. I mean, I think, I think we are moving towards a world where not, and I think a lot of ways, finances, you know, behind the ball compared to, you know, direct to consumer companies, e-commerce companies that, you know, every brand has, you know, a media component brand has a media component. Right, or Tesla. Tesla's a perfect example. Like, did you ever know, after Henry Ford,

did you ever know who the CEOs of the car companies were? Right, yeah. I think not necessarily is there like a, like Tesla has this strong cult of personality with Musk and all that sort of thing. But I think one brand that has done this really well for a very long time that I think is kind of the model that is somewhat Internet native that is still being adopted is Disney. Right. You know, they have their core IP, whatever, Marvel Comics, Star Wars now.

And then they just like, right, they have all these media properties, they have the theme parks, they have the movies, they have the shows. They have merchandise, got this kind of this media ecosystem where they're moving everything around. I think that's you're seeing a lot of other businesses start to move directions. I think that is that is sort of the internet business model. Instead of people finding information through referrals or whatever, people are using search. There's this whole industry called search engines. We take that for granted but like it that's it gets a fairly novel development like there was no you know the yellow page or something but there wasn't

sort of an effective way to to search all these you know all the data you can find all across the world and now that's that's changing but i think right like maybe even 10 years ago if i'm doing due diligence on a hedge fund and i see their managers all out there in the press and doing all this stuff, it's like, Hey, who's, who's watching the shop, so to speak. So how do you weigh that? You know, like being out there with, are you supposed to be minding the shop? I think people are doing both these days. Right. And it's part of our 24 seven digital culture. And I think Taylor's tweet, I think was something along the lines of like every business is a social media marketing business kind of thing at the end of the day. And that's a lot of like a 16 Z has come out with this something very similar. And whether we like it or not, it's

interesting. I think like Jeff, you're saying it's a generational thing as well, that like a lot of the boomers would have felt that way. But now it's like, how do you cut through the noise to be able to have a product that people like, you still have to get your foot in the door. and that's what a social media marketing side of your business is going to do and whether we like it or not I think we're all in the business of personal brands like even if you're a bartender these days if you have a personal brand and you're competing with another bartender for a job and they say you've got 10,000 followers on Instagram you're going to get that job and it's the same thing with actors they're looking at actors social media followings first before even hiring them to do the film. And so it's it does. It's a bit overwhelming, but it's just it's part of the job these days. I think it's part of that general Red Queen principle that we're always running faster and faster to stay in the same place. So now is not only do you have to run an investment portfolio, you have to run an investment management company. But then now you also have to run a social media marketing company to get your name out there. But it's also not just to, for, you know, to get new customers. It's also to communicate with your existing customers, right? Like you need to, if you're just like, you get a quarterly

letter in the physical mail, right? How many customers are going to be agreeable to that? They're going to say, no, I need online access. I want to know what you're up to. I want to know your thoughts daily on your Twitter feed. I would push back i i really don't think this is actually that new it's just a different form right like instead of going to the golf course or the country club or whatever you know you're just going to twitter or two right but like this has always been a part of any sort of fun business right there's always a fundraising component and you I don't know, it's always sort of like the new, the old money looks at the new money and looks down at it, right?

Like Goldman became big because they would do all the M&A stuff in 70s and 80s, like all the other old, quote unquote, prestigious banks wouldn't do this. I don't think it's that. Like you said, spending the time at the golf course,

spending it on Twitter, but you're not really changing the overall allocation of the resources. You've always, the fund managers always have the balance between how much time do they spend on the internal piece of the business and how much time do they spend

on the external piece. And I think we still spend the vast majority of our time sort of on the internal components. Most people are like 95.5 and we're 85.15. Yeah. No, I wasn't necessarily calling you guys out,

but you're in an interesting place of like bridging the two worlds kind of having come from e-commerce and then doing this piece of it. So, which is why people have sought you out of like, how do you navigate this whole thing? But I like that of like, it's just additive. Like you're probably tweeting from the golf course now, right?'t give up golf you have to you have to do it both

and i think also i don't at least i can speak for myself like you know we learn and we meet people right some of the you know being able to interact with these people being able to like share ideas and as we're like um flushing them, like that's a good process, right? When the whole GameStop saga happened, there was all this stuff about like, you had these hedge fund dinners for all the hedge fund people would come together and like share ideas and blah, blah, blah.

So that's been going on forever, right? So it's happening in a restaurant. And now maybe more of that happens on Twitter. But again, I think a lot of this stuff is just same old and just a new sort of medium. Yeah, I think a lot of this stuff is just, you know, same old and just a new sort of medium. Yeah, I think that that's a great point, because it's just hyper speed, networking and information flow, right? Like, to your point, yeah, I would have had to fly to San Francisco and talk to Ben Eifert, I would have had to fly to New York and talk to Chris Sidio or whatever,

like I would have had to physically go have dinner with these people or wait for some conference where everyone's there. And now it's just real time information flow flying back and forth. So Jason, you've been doing the Real Vision videos. And then you and Corey Hofstein launched the Pirates of Finance, similar to the Pirates of Penzance, which is a great West Wing episode for anyone out there wondering. We'll put it in the show notes. Also a great Pretty Woman reference. I feel like that's the... Nice. Which is in our best investing movies of all time. That was a

movie about a private equity guy who was going to buy a ship company, break it up and sell the pieces, right? So anyway jason what have you and what do you do this for fun you feel this work is it a little bit of both like how's it going oh man that's a uh that's a question fraught with a lot of avenues to go down i think it's and i appreciate you you pronounce it pirates of finance i think if cory and i can do anything if we can get people to just say finance now from now on that'd be great um I think if Corey and I can do anything, if we can get people to just say finance from now on, that'd be great. And I love that.

And Taylor's reference to pretty women is obviously a big part of it too. And Jeff, I love you stepping into that. It's surprising. Yeah, the pretty woman's on the maybe top 20 list for finance guys. But in general, it's a blessing and curse. It's going back to what you said,

we have this 24 seven information flow in the digital age. And it's part of getting our name out there and doing those things. But for me, as somebody who's surprisingly introverted, it's also, it's very anxiety provoking. And to be always in the public eye or doing these things technically on camera, even though it makes it a little easier

that it's with Zoom, that they're more one-on-one. But also, I enjoy talking to people in our space and picking their brains, but yeah, it's, it's definitely a, um, another part of the job that is, is both exhilarating and exhausting at the same time. So it's, it's got a lot of pros and cons to it, but yeah, I've done probably over 20 interviews on real vision and then, you know, talking Corey into doing a YouTube channel. That's a little bit more irreverent. It's a lot of fun to do. But then you have that weekly deadline that's always looming.

And then doing our own podcast and all of our own content as well is just adding to the different pieces to the puzzle. Yeah, that was the exact word I was going to use, irreverent. But it seems to me like that's your blow off steam, be silly, have fun avenue while still talking about some real stuff. You're talking about

crop cycles and yield farming and Bitcoin and lumber and all the rest. You're touching on some interesting topics, but having fun with it. For anyone who hasn't checked it out, check it out. It's fun. And they're quick. And that's it. That's the best part.

You don't want to devote too much time to it, but it's a big shout out to Corey Hofstein because a lot of it's coming from the mind of Corey. And, and as you alluded to earlier, you know, historically people would have said, you know, you, you shouldn't be on YouTube and have this irreverent take on things. But I think it speaks volumes to, to Corey and myself that, you know historically people would have said you know you you shouldn't be on youtube and have this irreverent take on things but i think it speaks volumes to to cory and myself that you know we're willing to make fun of ourselves a little bit and have a little fun on the side but still cover you know topics that may have a high finance background to them well i think that's probably the best part of i don't know if that's digitalization or what but but it's just in the past, you had to be the wizard, right. And you could in front of the curtain and like,

here's the persona and I got to live up to this persona to get allocations and for clients like me and all this. And now I feel like we've shifted to just, Hey, this is, you are who you are. If you want to invest, invest, if not, there's other, there's other shops. Go talk to them. So on to your newest product. So everyone thought you were just Volguys, but deep down in the background, you've had other ideas this whole time. So you're launching a new product called the Cockroach Fund. We'll get into the name in a minute, So you're launching a new product called the cockroach fund. We'll get into the name in a minute, but I'm launching a new product called the cockroach fund. So maybe break it down, tell us what the new products, the goals are, what it does.

Sure. I'll try my best. So the idea of the cockroach is because we're obsessed with multi-generational wealth. And the idea of a cockroach is to outlive you and hopefully your grandchildren's lifetime. And that's what you want your savings to do. We look at it as the four quadrant model can manage any macroeconomic environment. So we use global stocks for growth times, global bonds and other sort of income strategies for deflation. For a recession or sell off, we use our long volatility and tail risk strategy that we've already developed.

And then for inflationary times, we're looking at our commodity trend advisors. And we use an ensemble approach within each of those buckets to help the diversification. And the part of the way we built it is that's a liquid portfolio that can do extremely well when markets are open. But what really destroys multi-generational wealth is when you have these dislocative events like a war, confiscation, or diaspora. So we wanted to balance the portfolio out with holding a little bit of segregated gold and Bitcoin. So you can try to really manage that wealth over multi-generations, no matter what even comes, even if even if even these cash settled futures markets shut down, you still have at least something on your books that's nobody else's liability that will hopefully

help you maintain your wealth during those extreme dislocation events. So you had a Jason Buck $10 word in their diaspora. Yeah, when people are when people leave their homeland, you know, for usually in sort of any sort of war of atrocity scenario, people are going to leave their homeland and spread out across the world. And so how, how you, so a few things there. So these are fixed allocations, fixed percentages, and then you're rebalancing what monthly, quarterly, annually? Yeah, that's a great question. So they are fixed buckets in general with our four quadrant model that are going to be, you know, they're rebalanced either quarterly or monthly. A lot of that

depends on asset flows actually from our investors. Sometimes we can delay, you know, they're rebalanced either quarterly or monthly. A lot of that depends on asset flows actually from our investors. Sometimes we can delay, you know, rebalancing the gold or Bitcoin on a quarterly basis, but some of the other strategies within the buckets will be rebalanced monthly, but they're fixed weight for a very specific reason. You know, if you have a Ray Dalio style risk parity structure, that's volatility targeting. When you have an event like March 2020, that's going to trigger a vol or a var event, and everybody's going to have to reduce their exposures to all of their asset classes at the same time, which creates an endogenous liquidity event or a degrossing or deleveraging of their books. And they're all rushing for the exits at the same time. And they're just selling down all of their positions, including things like gold, which they would love to hold as a ballast, but they just need to go to

cash because they're ball targeting at the portfolio level. We don't do that. We hold in fixed weights and we view that because rebalancing over time will help you compound your wealth more efficiently and effectively over time. So if you have a sell-off like March, 2020, the long volatility and tail risk piece is going to have a convex position that's going to accelerate. And then if you rebalance the first of the month into the other asset classes, hopefully you're raising that portfolio plateau to a new level. And then you're able to chug along just fine, waiting for the next event to happen. And you never know which bucket is going to do well in any environment into the future. So if Ray Dalio was here, why would he say that's wrong? Right?

Because it's going to be more volatile? Or he would probably say like, well, only a dummy would put equal weight stocks and bonds when bonds are so low volatility, right? Like you need to juice that up to get more return out of the bond piece. So you're risk weighted. So in theory, that in equal weighting across all those isn't equal risk weighting because the S&P is going to have higher vol in theory. Correct. So we think about it as the different asset class return drivers over long cycles of macroeconomic environments. If somebody was going to say to risk weight based on Sharpe ratio or return to volatility, that would be only what look back are you going to use, right? And that's done exceedingly well over the last 40 years, if stocks and bonds have been uncorrelated. Over long stretches of history, going back over 100 years, stocks and bonds have been highly correlated during most of the economic cycles. So if you're juicing up the bond side of your portfolio to us, you're

taking extreme risk that doesn't need to be taken. And also, if you have these different, let's say the stocks are a little bit more volatile, but you're rebalancing frequently, it creates like a ratchet like effect where you're able to ride those equity returns, but you're rebalancing across the rest of the portfolio. So you're also reallocating to something that you could need even more in the future. A way to think about it is having proper diversification across these asset drivers is your scale trading the equity curve of those different asset classes. And so as money moves around the world and chases returns, you're buying low and selling high and you're scaling incrementally in and out of those positions with your rebalancing. And now I'll put my,

I'm an asset allocator and I'm going to write like, why would you be equal weight stocks when stocks have done so well, I can read the T-lens and know stocks are going to keep going up or they're in a good period. I'll allocate more to them when it starts to look bad. I'll allocate less to them. And, or maybe there's an AI piece to that or some systematic model of just, Hey, I'm going to, you know, even if it was a simple trend following model, when, when things are in a trend up, why don't I allocate more to stocks? So the difficult piece to that is you're saying you can predict the future.

And that's what we've got out of the crystal ball game. We don't believe that anybody can consistently predict the future. And if they could, they'd own an island and that island would be New Zealand. So that's part of the problem. The other thing is within our asset class buckets, though, we actually, especially in long volatility and commodity trend, we actually allocate to managers that think they can produce alpha. That's arguable to us over time of whether you can produce alpha. We'll see over the long term. But we do allocate to managers that think they can produce alpha. But creating an ensemble of them within each asset class provides a higher beta signal for us.

So it's a combination of kind of alpha and beta at the end of the day where we're trying to diversify across asset classes and then within each asset class, get that diversification and trying to find those niche managers that can hopefully produce alpha. But we're not guaranteeing that and we're not necessarily relying on that. Yeah, I guess my pushback, like the bond example, like, oh, well, it's in an obvious downtrend. Just when it gets out of that downtrend, I'll allocate more to it. Sure. But as you know, you have whips off X, right? Downtrend for rates, uptrend for price. Yeah.

Right. And if you're trying to time markets, you can have whips off X and you can miss out on them. And that's exactly what happened to a lot of trend followers. Right. In March, in April 2020, um you know you you were an uptrend so you got your face ripped off in march then you got out and then you missed the the equities coming back up in april so you you have losses based on that whipsaw effect depending on how long the trend is and what your trend windows and your analysis um so that's part of it the other thing is like you said with bonds uh just to kind of touch on an outside point, is right now part of proper diversification. And Harry Brown talked about this, is that you're going to hate at least a portion of your portfolio.

Right. You're like right now, who wants to own bonds again? Right. Nobody. Right. And then everything on the news is telling it's a stupid idea to own bonds. But what you don't know is if we continue to have like negative real rates, et cetera, bonds may be a nice income ballast to the portfolio. So the point is of a proper portfolio diversification, there's always going to be a part of your portfolio that's losing or portfolio that everybody's telling you you're an idiot for holding. And that's actual proper portfolio diversification where most people just want all of their parts of their portfolio to be all going up at the same time. Right. And Taylor, you put out a tweet that was even today or yesterday,

kind of talking about this of like a properly diversified portfolio, you're going to be unhappy like almost every year, right? Yeah, I think people get unhappy when they lose money or when they underperform. And, right, if you compare like a, you know, diversified portfolio to the S&P over the last 15 or 20 years, right? It's like you were, at least, I guess, maybe since 2007, 2008, like, you know, you lost money in 2008, even though maybe you lost less than a stock focus investor. So you outperformed, but it still didn't feel good because you still lost money and you you made money after that but you made less money in the stock portfolio the all stock person so it still felt bad because you looked around everyone else and for example this was outperforming you and then you know in march in q1 2020 you was probably saying you probably lost some money but you lost less than everyone else um yeah it's probably the same. You probably lost some money, but you lost less than everyone else. Yeah. It's counterintuitive. Same story happened again. So you're, you're,

you're outperforming over the long run, but at any single instance, it always feels, you know, mostly it feels bad. You lose money when you don't lose money. You just lose a lot less. Right. So the concept there, I guess, is like when you lose less money, it doesn't feel really any better. And you don't see the benefit of that until five years later when that amount that you saved in that downturn gets compounded on the upside. Right. No one's excited that they only lost 5%. Yeah.

And then so we have equal parts, what I'll call managed futures, because I like that term better, but managed futures, stocks, bonds, and I forgot, lost my train of thought on the fourth part. Long volatility. Volatility, oh, where we started, right. So equal parts those, but then there's also a gold overlay. Yes. The easiest way to think about this is this is specifically why we chose to express our portfolio in the futures and options market and the cash settled futures and options market is because you're allowed to get a portfolio margin. A lot of your collateral is sitting there in cash or T-bills. And so what you can do within that structure for much better capital efficiency is you can hold segregated gold. And by doing so, you can use your receipt for your segregated gold as part of your collateral instead of cash and T-bills.

So it's a much more cash efficient or capital efficient way to hold your gold. So that provides a bit of a ballast for a portfolio, like we're saying for those dislocated times where you have something that's not, you know, somebody else's liability, where you have counterparty risk. And we hold 20 percent of the portfolio in that segregated gold. And then outside of that, we also have a 5 percent in Bitcoin. And both of those are there for, like I said, for those fiat protections. When you have for some whatever exogenous reason you have, you you have wartime confiscation, et cetera, you want something that will help offset massive fiat devaluation. And that's why we hold those position sizes in 20% gold and 5% Bitcoin.

So I'll start with gold. We have a love-hate relationship with gold here in my family. So it did very poorly at any sort of crisis protection for 20 years. And now it's done pretty well the last 20 years. I guess this, you're going to come back to say, we don't have crystal ball. We don't care. But right. I've seen other managers who were like, no, this is stupid. You got to hold your basis in gold. And then they got railroaded, right? And their performance was pretty poor. So how do you view the whole picture there?

Is like, just is 20% too much? Is it just right? Who knows? Well, we hope it's just right, but you can never know for certain. And part of that though, is you said something earlier too about what about trying to time the bonds

or trying to time the trends or any of those markets. And this is like we said, about what about trying to time the bonds or trying to time the trends or any of those markets? And this is like we said, we're not trying to time the markets and create the best portfolio. We're trying to create the least shitty portfolio, right? We're trying to have managed multigenerational wealth that will hopefully outlive you and your grandkids. And to do so, you need to have a very robust portfolio construction. And gold may have worked on and off for the last 20 to 40 years as some

sort of crisis hedge. But that's not necessarily the point of gold. The point of gold, as I've always said, it's maintained its purchase power parity over thousands of years. The same it would have cost for a medieval knight to have a suit of armor is similar to a bespoke suit made on Savile Row today. It will hold that purchase power parity. But in the intervening years, it may not be a great crisis hedge. Like we said, March of 2020, people were selling off their gold just because they needed to go to cash. They're selling off everything they have. But in the long arc of history, gold has maintained that purchase power. And where it's really maintained that purchase power, like we said, is if you have some sort of event happen in your home country, any sort of

war confiscation or you need to flee your home country. That's where things of gold have really held up for maintaining your wealth over the long run. And now Bitcoin. So there's 50 percent drop to scare you out of there. What are your thoughts? Still good. And would it be more than just Bitcoin? What if Bitcoin's not the winner? Yeah, I think similar. It has interesting property. The same argumentation made for gold. Similar properties that may make it make sense.

I think to Jason's point of like, you know, what is the least shitty portfolio? It's, you know, having, I think at this point, Bitcoin cryptocurrency broadly is something like one to 2% of global wealth. So, you know, having some allocation there where they're kind of, you know, keeping up with whatever it is. And I think with all these things too, it also, it adds an uncorrelated return stream. It's not just the performance of Bitcoin, it's performance relative to the portfolio and how rebalancing that works. So we just had a 50% drop in Bitcoin, but we wouldn't have been holding, we would have been rebalancing it. So if we would have rebalanced, whatever it was, 500% gain into the portfolio. So I think it goes back to how does it perform as part of a broader portfolio.

And so I think it has some theoretical properties that may make it behave like gold or short value in the future or may not. And even if not, it offers sort of an uncorrelated return stream that we can improve the overall performance of the portfolio. And you're not worried about the holding getting hacked or an exchange stealing it or something? You're going to use futures? Yeah, I think we would look to add other components of that portfolio. As you said, yeah, we don't, you know,

for a number of ludicrous reasons, we don't want to deal with the custody and that introduces a whole bunch of other stuff. So being able to do it through futures and just like there's just Bitcoin and they recently launched Ethereum in the future. So that's something we could potentially include, but I don't think it makes sense to go for that. And the correlations in the space are like so insanely high, like holding any, you know, it's not like these things are performing radically different. It's kind of all one big trade. Jason, I have a message from you back in like 17 or 18, kind of outlining this whole approach. And then you guys have a great slide in your cockroach deck talking about this timeline of this stuff. So talk a little bit of that. What makes it different? What makes it the same? You

mentioned Harry Brown. There's Chris Cole's Dragon Portfolio. There's Back in the Bible. I can't remember what exactly was on that timeline. So just tell us a little bit what was on that timeline and why you're different. Yeah, this general idea of proper portfolio diversification goes back almost 2000 years to the Talmud, where I was holding a third each in real estate, cash and business. And then you go all the way to like the 1490s with a great name like Jacob Fugger, who people call Jacob the Rich. You know, some people would estimate he was the richest man that ever lived with hundreds of almost half a trillion dollars. And he advised cash investments and merchandise.

And then we keep talking about Harry Brown and his work at Seminole work in the 1970s for the four quadrant model. And essentially like Ray Dalio copied that four quadrant model with his all weather, he just levered up the bond side of that portfolio. And then recently, Chris Cole has released his Dragon Portfolio white paper that was fantastic. And it was very similar to the way we were already thinking about the process. Like you alluded to, I had emails, exchanges with you going back several years of this idea is that I think part of it is being obsessed with multi-generational wealth is, Jeff, you could probably feel my pain here as being like a fourth generation is you try to look back at what

the previous generations did wrong and you're trying to solve for that equation. And so I've been obsessed since I was a teenager about managing multigenerational wealth. And so I was always fascinated by Harry Brown, but building these types of portfolios for the better part of the last couple of decades, I always felt that if Harry Brown were alive today, he would have much better instruments that he could use at his disposal. So how would he modernize the portfolio? And part of it is in the last 20 years, we've had much more financialization of the markets and much more derivative exposure to the markets. And as people, we talked about moving out the risk curve with stocks these days or stock

like equivalents or equity beta is I don't think cash provides enough of a ballast for the sharp liquidity cascades that can happen in the stock markets these days. So you actually need those tail risk or long volatility derivative instruments to provide that convex position that can accelerate just as quickly as the stock market can tank off. And so it's really important to use more of the modern tools than what Harriet Brown had at his disposal. And so we always knew that. And then thinking about gold, that was Harry Brown's hedge for inflation. And path dependencies to inflation aren't that simple. And so this is why we believe in the commodity trend advisors. They can trade a lot of markets long and short, but it can also help out with a protracted recession on the short side of the market indices.

So we just felt like filling out this portfolio with an ensemble approach of more modern approaches was a much better, more robust version of what Harry Brown had originally intended. And it would provide a much better portfolio moving forward. And part of that, though, is we always felt the hardest piece for retail to have access to, and this is what Taylor and I came together around years ago is the long volatility and terrorist piece. And, you know, everybody either reads Nassim Taleb's books or Chris Cole white papers. And they're like, how do I hedge my portfolio? And we're like, you have hundreds of millions of dollars. No, well, you're screwed. There's nothing available to you.

And so our intention was always to build the cockroach portfolio. But we knew the hardest piece to build was the long volatility risk, but we knew the hardest piece to build was the long volatility tail risk. So we went out and built that first. We knew the second hardest piece would be able to add the commodity trend advisors. And then it's fairly easy to add those long GDP assets like stocks and bonds and income trades. So the end goal was always to build a cockroach portfolio to manage multi-generational wealth. We just started with that really difficult long volatility and tail risk piece first. And really, Taylor and I are just building the exact things we want for ourselves and our families. I'll push back on this, being able to solve multi-generational

wealth unless it has a prenup bucket as well. That's very fair. Yeah, that's been the biggest dent our this family's multi-generation not this level of it anyway that's another podcast as i've said before um i feel like taylor needs to add so we always say you know we're we're the best thing is if markets are open we're the best thing for you and then if it's a zombie apocalypse what's taylor's you got to have you know guns butter and water maybe you need to add like we're not best thing outside of divorce and you need guns butter and water or something like that yeah if you want to yeah you can go real far out the tail if you want to right at some point you get a bunker in kansas uh but i don't know i'm going down apocalypse i'm you know i'm not

trying to survive and then at some point of this, you might just hold it all in cash or something, right? At some point, you're like, I don't need any return. Or how do you think about that? There's definitely family offices who are trying to probably reach for too much return and they're taking on more risk than they know. But there's probably a flip side that are not taking on enough risk because they don't have the protective pieces, right? So they're mostly in cash or bonds, you know, even though bonds, we can argue, have a lot of risk right now. I don't know, it just popped into my head of how do you think about that of these other groups that are basically this allows you to take on a little

more risk than you might be willing to. And I do a quote unquote risk, but it basically allows you to have that long GDP exposure that you might not want in a pure protective portfolio. I'll let Taylor go first, because I could go in like five different directions with this, and I'll try to remember all of them. Sure. Yeah, I think I guess the way I think about it is you're trying to, I'm going to use this term and I'm not gonna be able to explain it, but you're trying to maximize log wealth, you're trying to maximize the long term wealth. And so you can, you can take too much risk or too little risk. I think the, I think Jason turned me on to it, but a lot of the Kelly criterion stuff that was developed by, I'm blanking on his first name now, but Kelly, he was a scientist at Bell Labs. He worked with Claude Shannon that developed information theory. your odds, you can calculate exactly what the optimal amount to invest is. Even if you have typical odds on the roulette wheel, one to 36, even if you can get one to 20 odds, it's a positive expected value bet. So you want to make that bet, but you're still going to lose most of the time. You don't want to bet your whole bankroll on the first one. Then there's a mathematical way, that's the formula you came up with,

to size that bet. But you're looking at what your edge is in your bankroll and you know what sort of portion to allocate. So I think that's just the way I think of it. You don't know the odds, right? It's not like a closed system like you know leather blackjack or yeah something like that but you have to take some risk do full kelly or half kelly or quarter kelly so i think that you do some family offices might be doing full kelly where our goal is to maximize wealth you know maximize return others might be like hey we're just doing quarter kelly because we're a little nervous well if you know you know the exact odds, right, you should do full Kelly. But like thinking, you know, the exact odds of what the future macro economy looks like

is, you know, good luck, you know, in New Zealand. If you're able to do that aside. Haven't seen anyone pull that off yet. And then, so Jeff, like, why wouldn't you go all the way to cash? And I think there's great historical precedence for this. So anytime, even just buying 90-day T-bills, I've had a 17% drawdown on an annualized basis. So you can get that eroded away by inflation. And what I found studying multi-generational wealth, like I said, for decades now is talking to a lot of families,

is they ended up becoming so conservative that their wealth just got destroyed through inflation and spending. And so they're unwilling to take any risk, where if they had barbelled very conservative strategies with maybe VC investments, they might have been able to keep pace or outpace inflation. And I think part of it is with building, constructing the portfolio we did with the specific return drivers we do, is we call it stability through volatility. By having these volatile assets classes that are uncorrelated and some of which are negatively correlated, it allows us to have a much more robust, stable portfolio. But you have to take on volatility at the individual level to create stability at the broad portfolio level. And so part of it too,

is I think that the industry has lied to us and saying that these are investments when it's really your savings, right? And you want your savings to be there when you need the most, whether it's a year from now, 10 years from now, or 100 years from now. And to build a portfolio that can manage your savings to chug along in any global macroeconomic environment and be there when you need them most, you need these different mix of return drivers. And you need to rebalance frequently, and that will keep you in the game, hopefully over the long haul. The other way to look at it too is this, you know, Cockroach 2.0 is taking this very liquid portfolio we've done and you pair it with illiquid assets. So even if you're a family officer in endowment and you have a lot of private assets, whether it's

private equity, venture capital, or real estate, those are very illiquid asset classes. But if you pair them with a very liquid asset class like we built, then you can manage that liquidity profile. In a sell-off, you may be getting capital calls and you don't have the liquidity you need to make capital calls from your private assets because they're very illiquid. But if you have this liquid part of your portfolio, you can use that during those times of stress. And by pairing those two together, what you're really doing is you're holding the world's entire asset class portfolio. You're buying every asset class that exists in the world, and you're rebalancing frequently. And what that does really is that creates almost like a stable coin that can outpace inflation, or that is the inflationary hedge. This is what Taylor and I

originally came together about. Right. But this is what Taylor and I originally came together about stable coins years ago, because this to me, building a truly robust portfolio that holds all the world's asset classes and rebalances frequently. You don't need to argue about what inflation or CPI is because that's global inflation, because you hold all the world's asset classes and you're rebalancing there. So your savings are now, no matter what, keeping a pace of whatever is going on with the world. Which is essentially like the Norwegian country. Well, I can't remember the name of the fund, right?

The Norwegian Sovereign Wealth Fund kind of owns the market. But come back to that real quick, because that's interesting. So if I'm a family office, cool, I've got my private equity. I've got my real estate. I've got my timber, whatever. I've got all these illiquid, but somewhat similar diversified into these different buckets, but illiquid. Cool. Now I can kind of map that over here with the same thing in a liquid format, where there's monthly liquidity versus private equity. Yeah, I'm locked up for six years and I have a risk of a capital call, et cetera, et cetera. Yeah, we provide monthly liquidity for all of our clients. And we try to strive to do that through separately managed accounts where we can have daily liquidity with our managers or we trade

these futures and options instruments that are mark to market daily in cash level markets. So we have extreme liquidity in the portfolio we built and we did that very much on purpose. There's two ways to look at the general world as far as diversification. One is as volatility and everything is either short vol or long vol. A lot of your long GDP assets are going to be implicitly short volatility. So a lot of your stocks, bonds, private equity, venture capital, real estate are going to be long GDP. When everything's a wash with cash and credit, the good times are rolling. They're all correlated. We have a sell off like 2008 or 2020. The correlations go to one, as they say, and they all go down together. So then you really want to

provide a portfolio that has implicit short volatility assets or those long GDP assets combined with the long volatility and tail risk. Because that's when you need it the most is you can harvest the different macroeconomic environments, those liquidity cascades. So that way you can manage through those environments. The other way to look at it is things are either liquid or illiquid. And so you want to pair those together as well, because you can't have an entirely illiquid portfolio. And if you have an entirely liquid portfolio, you may miss out on a lot of those private assets that take a lot of longer term timeline to play out. So this is kind of the way we look at portfolio construction in general, which I think may be different even than the Norwegian sovereign wealth fund is we really want

probably more of those long volatility and terrorist style assets on our books than most people are willing to hold. Which is a whole separate conversation on whether someone with that much money can even access the terrorist pieces in a meaningful way. But we'll save that for another day. And so we've got to talk about the cockroach name. When you sent this out to people, did they throw up on their computer screens? Were there screams? Were there attaboys? What was the feedback you got on this name? Yeah, I got mixed reviews, I guess. I say mostly people seem to like it. I think a lot of people are like, I don't think other people will like it,

but I think it's funny or something. But like very visceral reactions, right? Like similar to Jimmy Buffett, you either love them. No, nobody loves them. They all either hate them or they can, the cockroaches, you either hate them and you want to run out of the room or you can tolerate them well i think yeah you know it has some visceral reaction and uh you know no one's going to forget it right you're not going to be thinking in two years what's the name of that total portfolio fund i looked at it's going to be it's going to be pretty prominent in your mind and have you gone out and gotten the uh cock uh etf symbol i thought you were doing that that if you want visceral that

would be second place oh i think we have to call up meb i think he owns every ticker name now yeah exactly uh jason what are your thoughts you you came up with it right yeah well we always have you know i i think part of the uh the idea around creating funds or creating names for businesses is we always wanted to be sophisticated like we had original working titles for even our long volatility fund as you know starting off as being like epoque which is like ancient greek fried determined nothing or ataraxia which is unperturbed by external events but uh luckily taylor and i significant others um you know put the axe to those ideas and that's when we came determine nothing or ataraxia, which is unperturbed by external events. But luckily, Taylor and I, significant others, you know, put the ax to those ideas. And that's when we came up with

Mutiny Fund. And then we, you know, we started to play into this idea that, you know, we're outsiders, and we're trying to create something very different. And we take a very entrepreneurial lens to building portfolio constructions. And then so part of it was dealing with a lot of these managers. And they all have, you know, three letter, four letter acronyms that I can never remember because now I've got 50 of them in my head and it's totally unmemorable. And so we eventually kind of settled on this idea of cockroach and it actually, it intrigued me that most people were disgusted by it or thought it was a terrible name and you could never run to fund with that name, which just made me want to do it even more because I

get the, as you know, it just needs to be memorable. And the cockroach is exactly exemplifies exactly what we want to build. We want your savings to out, you know, as Taylor put in recent email, it's nuclear winterizing, nuclear winterizing your portfolio. I can never say that right. So that's always my problem. And Taylor, what was the line? You had a good line in the announcement to have something about cockroaches, parts of what they do that an investment portfolio wants to emulate. Yeah.

I mean, the two main characteristics of cockroaches are they're really hard to kill and they replicate, you know, they compound fast. And so I think that's, you know, those are the two things we'd like for portfolios to do. So in that order, right? Yes. you know, those are the two things we'd like for portfolios to do. So in that order, right. But we'll put a link to the deck, the new deck for coverage in the thing and you can get ahold of these guys. Just quick housekeeping. We've mentioned it on here, but

you get the, you guys used to be black pro management, manage the mutiny fund, which was the long volatility piece. And now your mutiny funds is the management company, right? That's managing, going to manage the Cockroach Fund and the long volatility fund. So I guess I did the housekeeping, but you can confirm that's correct. That is correct. Yeah. So I think people are getting confused, like is Mutiny Fund the investment or that's what

you guys are? So that seems better. So Mutinyiny funds is your new umbrella asset management company so we'll start taylor favorite jimmy buffett song uh boat drinks boat drinks all right that's like but you're a i guess you lived in the north once right but that's very uh it's like a hockey game's on he's cold he wants to get out of there but i'll take yeah it's it's about having a drink on a boat he doesn't like that um jason do you have a favorite jimmy buffett song oh man right. I was going to ask you a different one. Favorite book you read during COVID? Oh, God.

So many of them. And actually, I just finally finished this morning John Gray's new book on feline philosophy. And I enjoy everything that John Gray did. Philosopher, not the men are from Mars when men are from Venus. Feline, what was it called? Feline philosophy. So John Gray is a yeah so he was he was writing about the lives of cats and how you know as humans we we have a lot of anxiety because we like to

think of ourselves as you know different narratives and cats don't worry about that they just live in the moment and they don't care you know who's around or you know and when they die they die i love it how many books do you take in a year? It used to be on average about a hundred. Um, but I think then through the advent of like podcasting, YouTube, et cetera, it's probably down to like 30 to 50. Yeah. But then you're probably 300 to 500 podcasts, right? Yeah. I think Taylor may know the metric on this,

but it's like something like reading the written word through emails alone is like people are reading like tens of thousands of words a day or something. I don't know the metric, but that sounds possible. Sticking with you, Jason, favorite remote locale you've been in. You, you've, I think led the league and traveled during COVID. You've been all over the place, but safely done, but nonetheless. I'm glad you put this safely done on that um yeah hopefully it's been fairly safe I don't know right now I'm on the uh a 21st floor overlooking the intercoastal in the ocean so it's it's pretty hard to beat this and that's

living that Jimmy Buffett life it's up there you that one you were in napa overlooking the valley looked pretty nice too um and taylor favorite place you want to go once we open back up or you're already you're in texas you've been open for six months yeah but i'll leave it i'll leave it as is because maybe you wanted to go to october fest or something so favorite place you want to go when the whole world opens up uh i would like to i'd like to go when the whole world opens up? I would like to go to Istanbul. I've never been to Istanbul. I've wanted to go for a long time. My wife has never been to Asia, so I want to take our ship to Tokyo.

Do like a Japan trip at some point, which is a gateway drug for Asia. But everything is nicer than America and more functional and better. You'd be like honey we were going to go to the Olympics but they canceled it sorry and now they won't let fans in. Favorite bug besides the cockroach? I'm going to go crickets.

You can fish for crappie with them. You can eat them right. I think I've eaten cricket before it's like uh i've definitely eaten crickets in mexico i actually like them you know with a little little uh spice and a little lime on it i was actually going to cheat and go like palmetto bugs which are essentially cockroaches wings it's it's it's south carolina but uh cicadas right you get that beautiful noise at night oh cicadas freak me out i think they're aliens right like how does it be underground for 17 but then you always hear the noise too

so i'm like is it a roll it must be a rolling 17 years i don't quite get it um and then the i wanted to tell you guys i saw i was in northern wisconsin this weekend and the we were all freaking out because there was a perfect line in the sky of stars moving and we thought we maybe had had a little too much to drink but then it was you know at this golf course all these people are coming out turned out it was the starlink satellites that elon musk is putting out into the sky so he wants to do 21 000 there's like a couple hundred up there but that was freaky i don't know where if i had a question in there but um have you seen the star link satellites i haven't i thought you were gonna say it was the milky way like you were looking across the milky way he didn't realize what it was yeah i want to bet with a guy once who was

like we were i'm like that's the milky way he's like you can't see the milky way we're in it i'm like uh i'm pretty sure you can still see it and that that milky thing in the sky thus the milky way um is why we can see it anyway good wager you had good odds i hope you got a lot i full kelly that one i had perfect information um all right guys thank you um everyone go check out taylor's interesting times newsletter check out jason and Jason and Corey Hofstein on Pirates of Finance. What else? Anything else they should be checking out?

Go to MutinyFund.com to find out all the great pieces that Taylor writes about portfolio construction. You can also find our podcast there or you can look it up under Mutiny Investing Podcast. On Twitter, I'm at Jason Mutiny and Taylor's at Taylor Pearson Me. Awesome.

We'll put it all in the show notes. Thanks, guys. We'll talk to you soon. Thanks, Jeff. Thanks, Jeff. All right. The Derivative is brought to you by CME Group. CME Group is the world's leading

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