The Derivative - Engineering Alpha using Trend and Volatility on Equity Beta with Eric Leake of ALTUS Private Capital

Episode Date: October 23, 2025

Buckle up for a wild ride through the markets with Eric Leake, founder of Altus Private Capital, as Jeff Malec explores the investment world with a quantitative maverick who's about to reveal the hidden playbook of market mastery! From analyzing market waves to navigating volatility, Eric uncovers his unique approach combining long-term equity market trend analysis with short-term volatility management. Discover the secret sauce of strategies that don't just follow the crowd - they dance to their own quantitative beat. With insights sharper than a guitar riff and techniques more calculated than conventional wisdom, Eric shares how he aims to turn market chaos into calculated returns, smoothing out market bumps and turning volatility into opportunity. Blending market insight with analytical precision, Eric provides insights into managing risk and understanding the patterns of investor behavior. Learn how his multi-factor strategy aims to deliver returns while protecting against market downturns, all while maintaining exposure to market upside. This conversation is a great listen for investors seeking to understand sophisticated risk management techniques in today's dynamic market environment - SEND IT!00:00-00:51= Intro00:52-09:10= From Music Major to Market Maverick: Eric Leake's Unexpected Journey09:11-22:33= Decoding Market Dynamics: The Art of Trend Following and Volatility Management22:34-39:14= Risk Management Unveiled: Smoothing Market Volatility Through Quantitative Strategies39:15-49:27=ALTUS Strategies: Balancing Short-Term Volatility and Market Momentum49:28-01:03:40= Navigating Market Extremes: Hedging, Positioning, and Investor PsychologyFrom the Episode:Making Market Music with Roy Niederhoffer:https://www.rcmalternatives.com/2021/03/making-market-music-with-roy-niederhoffer/Don't forget to subscribe to⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠The Derivative⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠, follow us on Twitter at⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠@rcmAlts⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ and our host Jeff at⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠@AttainCap2⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠, or⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠LinkedIn⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ , and⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Facebook⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠, and⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠sign-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, visit⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠www.rcmalternatives.com/disclaimer⁠⁠⁠⁠

Trend following is a clunky brute force instrument. The trend is the condition of the market. And in order for the math of trend falling to work, you need multiple days to deliver a trend. You need to compound that over time. And there are going to be noisy days in between. They're just not a part of the trend. welcome to the derivative by RCM alternatives send it hi I'm Eric Lake

Alta's private capital here to talk about delivering better results through smoothing volatility hey Eric how are you good um I need to know two things quickly one the guitar just for show or you can play I was there. I was cleaning up my office. No, I was a music major. I played guitar and other instruments for a long time. I thought I was going to be a rock star when I was in high school going to college. So there's some leftover for the now. It's just mostly DJing and as a side

for fun gig. But no, my guitar days are a few and far between it now. Music major. Where'd you go to college? Went to a Zusa Pacific University, a little private Christian university in Southern California. California, went there to play volleyball and study music. And the music major lasted, I think, a semester and a half. Two things happened. Number one, I realized that I had to, per the major, I had to sing in the all-male choir and travel around.

And that was not going to work for me as an athlete. And I just didn't want to do that. And number two, I realized every other person in the major was way better than me. could sing better than me they could play piano better than me i realized you know what i don't think i want this to be my living but music's always been a passion for me it's always been something that that i've been involved with and i'm still today involved with in various ways so my daughter actually um was a candidate on american idol she's producing an album so music is definitely in the family um it's still kind of around in various ways but um not my focus we'll put a link to the uh

we did a podcast with roy needa harfer i think the other one um he's way into music but to me there's a link between like the musical brain and systematic quant brain you think so or yeah i i i 100% support that i think that um it's really um almost about patterns and and you know music a lot of times in pop music it's a formula um and there is a way of taking people from emotional you know you build and then you have a transition then you have a break and then you build the chorus and so um there's definitely some rhyming to how markets work because I think markets are a lot driven but we'll talk about it obviously but there's a lot of human psychology and behavior finance that

drives prices and there are times the markets are efficient times they're inefficient but definitely I'm not smart up to figure it all out but there's definitely a link between the patterns and the math of music and markets I totally well that most people don't realize right like the far end of music is math really it actually is it is I tell people that with philosophy and logic also. The far end of philosophy is actually you circle back around to Matt. Yeah, no, that's true.

I think until you study, once you study music and you're forced to sit in a classroom and study scales and keys and different triads and all those things, you don't realize how mathematical it is. I think music for people that haven't studied, it seems like this magical, whoa, it is, no, there are only about five chords that you can play. you can probably i can probably play five chords and sing 30 different pop songs you would recognize because it's the same math over and over and over again it's very it's very reputable there's that famous uh yeah i can't remember who some english group on youtube that does that they're like

yeah exactly the favorite best songs of all time are just these five chords wait that song wait that song yeah uh and then the second non sequitur i forgot is your last name it's spelled L-E-A-K-E but you pronounce it lake so what's the background on that I've been told it's like been that my whole life I spent you know kindergarten you get a substitute teacher Eric Leak is Eric Leake here? It's Lake

apparently there's a there was a town outside of Yorkshire England that was L-EA-K-E and they pronounce it Lake that's what I'm going with that's what I've been told and not Leaky Leakey would be like E like it yes yeah sometimes I just mess with people and make a different up you know it's spelled la qua you know you just i just mess with people but no it's officially lake it's what it's supposed to be but you can call me smith call me johnson

whatever you want to call it doesn't love it um and i was lucky enough to go visit you during future proof out there in beautiful sunny california so give us a little where you live why it's the best place in the world or not uh it's definitely god's country i don't know if it's the best place in the world i've been to better one of we're uh we're in laguna beach california It is beautiful. And if I could point the camera out that way, you'd see the ocean. This is the hands-down best time of year. Total complete side note.

If you're not from California, I haven't been here. You're thinking of visiting when I have your California summer vacation. Come in August, September, and October. We have this crazy thing in June called June gloom. And so I always feel bad. You have folks in the middle of the country, Nebraska. Hey, it's June. kids are out for summer let's go to california go surfing it is your worst nightmare it's like

san francisco in january the fog comes in off the water because the water's still cold this time of year it is it's stunning it's like 80 degrees i mean if you watch a football game yesterday with the with the charters you saw a sophy stadium um they got murdered by the way but um it is killer weather right now so we're really going to beach i've been in orange county in south orange county for 30 years um went to I guess I went to school at APU, came down here and found this area. I grew up surfing in Santa Cruz, and once I found South Orange County, the water's warmer, the way it's more consistent, the people are actually doing something with their lives and going somewhere.

Most of my friends in Santa Cruz are kind of just hippies sit on the beach. So I've been here a long time. Who's to say who's right, though? They're loving their life too, right? Yeah, I mean, for me, this is more my lane. I think I have extreme ADD, if you can't tell. I need to be moving all the time. So I'm more comfortable here.

Yeah, it's a great spot. Did you ever surf Mavericks, right? Is that up there? I did not surfs. That's intense. I didn't say I was a fantastic surfer. I said, surfed. So one of my good friends, actually, I won't name his name, but a very good friend from

high school, he was one of the original Mavericks surfer. He's actually in that movie chasing Mavericks. And he's a great dude. But no, I don't, he told me a story one time about, I asked him what it was like to surf that and he said at one point in training he was held down for so long after not hitting a wave the right way

that his blood vessels in his lungs would burst and when you finally come up with that vest you're coughing off blood sorry if that's too graphic for this you know Markets podcast but yeah that is not for me I am a fair weather water surfer

how do you go back in the water after that like oh just a few bursted lung blood Yeah, it's a passion for these guys. They survive. I think that's the win. And just because you told me this story, and I think it's cool, you had your own little sporting accident on the mountain bike. Give us the quick.

We're talking about that, really? I think we're going to go there. Give us the quick one. So, so I, so rewinding, I grew up playing volleyball. I played in college. I used to coach with the high school teams here. And getting down on the beach was just, it just wasn't working. It was too far.

I was living in Lisa Villa at the time, so they picked up mountain biking. And yeah, about four years ago, I got some young kids take off in front of us and they stopped in the middle of the trail and I'm flying down and there was nowhere to go. And I went off a cliff and went, you know, it wasn't a good, it wasn't a good outcome. But I'm here today. That's what we had. So we're at helmets. So that's why I may sound strange as a risk manager talking about flying off a cliff, but that's why we have helmets and, you know, pads and things. And it was fine.

A few stitches here later. refused to sit in my chest. It was all good, though. We've had them. Vanier Bensali's been on here talking about backcountry, hell is skiing and hiking into avalanche territory and stuff. So, yeah, you're a risk manager and your day job. That's fine.

That's right. So how did California boy end up in the markets? What was the path to get you? Yeah, I know it's a really strange story. So like I said, I went to school thinking I wanted to do music and realize pretty quickly that that was not the path for me in terms of a living. And I wound up in marketing and communication. And about that time, it was early 90s, for some reason, I started getting recruited by these financial advisory firms. And I thought, very young and stupid, that sounds really fun.

I'll go try and do that. And so this isn't maybe the best story. but I was I was lifeguarding down at Salt Creek Beach and they said if you can pass the series seven you come to work for us so I passed the seven on the first try and they said congratulations you're you're a stockbroker I was like yeah I'm probably about five minutes I was fist pumping and then after I'm like what does that mean I don't know what that means right go call all your family and friends and make them yeah welcome to uh well yeah we even know the name the firm yeah so um I literally started my career

as an advisor, a cold calling through the Dana Point phone book, and it was a grind, it was rough, but it ended up, you know, building a few clients. And then within a couple of years realized that my path really was not talking to folks about their hopes and dreams and planning. I was really

fascinated by markets. Market pricing, how things move, why they move, technical analysis really was fascinating to me much more so than work. You know, I was a young man. I was 24 years old, and it's way more so than your brokerage bosses, I'm sure.

Yeah. So it's like, look, what was driving me and my interest at the time was markets. And fortunately, on the West Coast, we have a number of leading technical analysts and thought leaders. I will mention John Bollinger is a friend of mine. He was a great mentor for a while. But without naming how much of names, there's a community of folks out here that really had the passion to give back and to bring people along. And so what started off, as I think a lot of things do,

what started off as what I thought was going to be a path of advisory, really moved into money management. And so in the early days, we built strategies very basic, trend-following strategies that worked phenomenally well because markets were very different back then. Remember, when I started in this business, you brought a client on, the markets, when they closed at 4 p.m. Eastern, they're closed.

There's no after hours. There's no futures. There's no options. There's no ETF, you know, 415 trading. That's it. Your Maryland's broker in New York is on the golf course or at the Happy Hour by then. So the pace of markets then was there was an official time out. You don't look that old though.

It's that good California living? I look good for 75. Let's just go with that. So, you know, markets, basic trend following worked really well because, you know, trends needed time. People weren't trading on their phones after hours. I mean, think about the innovations we've had since then. I was in those markets before there. We were still in fractional trading, you know, we've had decimalization.

We've had ETFs. We've had inverse ETFs. We've had index features, single stock futures, all of those things, derivatives, all those things that we wanted would give us more transparency. give us more liquidity, those have the side consequence of those is that you get faster-paced markets. I know we're jumping into markets while we were supposed to be talking about background, but back then, that's, that worked well. And as time went along, I found myself managing separately managed accounts and then SMAs for individuals and then institutions. That eventually morphed into, I mean, we licensed models for a while and tech 2005, six, seven.

Eventually that led to launching a series of mutual funds. And so really, up until last year, for the past nine years, I've been running liquid alternative mutual funds, traditional FOIAQ mutual funds, running long short strategies, long short credit, long short equity, and then just recently launched Alta's a year and a half ago. But started off 30 plus years ago, and that's kind of been the path. That's how I ended up Southern California doing all this. And so for the private clients, when you first started getting into modeling, for lack of a better word, you were like, trend following, this is working.

And then are you saying that you saw the speed increase and it stopped working, and then you moved to long short equity stuff? It was more of an evolution. I wouldn't say it stopped working because we still use momentum and trend falling as a core component of what we do. I wrote a white paper a million years ago that talked about, well, let me back up. So trend following that became more bumpy, right, more volatile, more lumpy. The main complaint with trend following is you go through these series where you get these pullbacks in the middle of the trend. And it forces the investor or the manager or whoever to question, okay, is this pullback a new downtrend or is this just a pullback?

You know, I know this is timeless content, but in terms of last week, just recently, you know, last Thursday, we had a President Trump tweet. You also had an implosion of some credit with Zion Bank. And you had this mad gnarly 3% beat down to the S&P. It's already gone. But at the time, right, we're already new highs on today's close. So is that, uh-oh, this is it, canary in the coal mine, right? So the challenge with trend following is that you're inevitably always going

to get the short-term pullback, the counter trend opposite of what the macro trend is. And so it inevitably creates a challenge to stay invested. The challenge of short-term volatility trading is just the opposite. You can go through periods where you're up, up, up, up, and away, and there's no volatility. And then that's frustrating as well. So what I figured out in 2003-4 or something like that was that trying to, this is my philosophy, trying to smooth out the returns of trend following

you can't do it with more trend falling because these are the things that are part and parcel this is part of the character of trend falling like so if I'm like hey it's too much with this long-term trend I'm going to do short medium and long-term trend following to smooth out that journey

you're saying not so much multi-factor absolutely works and we do that as well but even on a short-term basis so show me the example for deep seek Monday, what short-term trend-flying model had you hedge for that Monday? Yeah. No. What short-term trend model has you hedge for last week's 3%

veto? What short-term trend model had you hedge for the Powell missed up in December? And if they are are they really trend if they have that exposure at that point? Yeah. So our, my objection, so when you back up as a quantitative manager, I didn't look into that, but we're

quants, we're based on math, we're based on price discovery. Our philosophy is this. Here's the way I can put it. The framework for our economic process is this. On a long-term basis, trend following works because markets are relatively efficient. Markets generally price on fundamentals. So if you put up a monthly chart of the S&P for the past 10 years, it will generally mimic what's happening in the economy, right?

It leads the, it leads the drawdown, it leads the top. You know, 2007, the S&P topped, you know, a quarter to before we were officially in recession, right? You bought it in 2009, you know, a month or two before the NBR came out and said, oh, we're officially out of recession. So on a long-term basis, S&P or NASDAQ or Russell, they are generally fundamentally driven on earnings, GDP, cost to capital, you know, earnings, whatever. But when you move your analysis from looking at long-term to months, to weeks, to days, to hours, markets are highly inefficient. and they're driven exclusively by investor behavior, by hurting, right? And hurting, in our view, is short-term tail risk. There's no trend, the hurting trend on the long-term works.

So that's how we combine short-term volatility tail risk exposures and hedging with long-term trends. And the result is the two smooth each other out. You might call this return stacking. You might call this multi-strategy, multi-time frame. we come up with all these different ways to package it. But what you're really doing is we're exploiting as we deliver returns, the two things that we always want to be able to exploit things

that are observable, measurable, scalable. And the things that we know are always going to be with the market, we will almost always have momentum and a theme and trends. There's going to be FOMO. It's going to be some sector. Right now it's AI, you know, it's recently biotech, it's energy, it's eye structure, right? It'll be a new theme in another couple of years, but then you're also always going to have short-term

risk and short-term headlines. And so our process is get in line with the macro long-term, but be prepared when that rubber band stretches too far, because it always does. But that's the $1 million trick, right? Like it can seemingly stretch in infinity, right? Like, what's the old line? It can stretch longer than you can hold it. Yeah, yeah.

Yeah, the Keynesian quote is markets can remain irrational longer than you can remain liquid. Yeah, exactly. And so we have a series of quantitative driven measures of is the trend that we currently too stretched. And these are, you know, proprietary models, but they're based around volatility bans. They're based on cumulative tick on the New York Stock Exchange when you get these, these big tick bombs that's showing institutional buying and panic buying or panic selling. Tick bombs. I like that.

Yeah. That means something different up here in the Midwest, like you're in the woods. Yeah. Yeah. Yeah, no, it's not fleas and ticks pump. And then we also look at, we have some volume adjusted RSIs. Some things that basically we're just measuring. Look, you know, we're in the race car.

We're ripping around the track, but the oil pressure is too high. We're revving out. The engine temp is too high. something's going to break. And so the analogy I give all the time, which is probably not a great one, is there are certain times in markets, everything is fine, that the macro trend is, is in place, and we're fully in gear with that trend. We're benefiting from this momentum behavior. But there's a two-year-old running around the living room with a stave knife. I can't tell you exactly what's going to happen. I can't tell what the headline is that's going to create a problem, but this is probably

not going to end well, right? There's a condition, there's a macro environment where we've, where we work, everyone is on the same side of the boat. And so where we end up applying that is we don't short the whole market, we don't make a market call. We just take futures and we short against our core exposures and we bring the exposures down, let that trend reset and get back in gear. So it's a process of continually adjusting our exposures to get in line. Again, that was going to be my, in the race, I don't, I don't know, I can't work it into the two-year-old with the knife. I'll go back to the race car.

Like, so the oil pressure side, do you pull over and park? No. For it to go. Or it's just, hey, let's take the foot off the gas a little bit. Let's slow it down. Let's let that pressure come back. Go from 95% long. Put some S&P futures against the core positions.

Hedge it down a bit. Let things reset. And because our total objective is to deliver consistently positive returns, smooth and up to the right because at the end of the day this is a conversation about where is a strategy like ours in our hedge fund or a managed

features account where does it fit in an overall portfolio we are built we want to be we've proven it over and over and over again with the prior funds I've managed we want to be that low correlation asset class that provides the diversification

that everyone else is supposed to be providing so there are times where we have high correlation I mean, right now, look, it's not bad to be highly correlated to the S&P. Yeah, that means you're making money. Things are going up, right? But when the volatility picks up, you want to be able to hedge that volatility down and be the one or two, three things in the portfolio that's truly diversifying and giving, whether it's family offices, other hedge funds, individual advisor,

your portfolio construction, we want to be able to deliver that consistency of return, low drawdown, you know, but high upside exposure to markets. When we first started talking, I thought you're going to say it's basically a trend-fowing portfolio, but are we saying this is only in the S&P? No, so we are in S&P, we are in NASDAQ100, we are in Russell, so it's basically U.S. equities. Got it, but only U.S. equities, not a full-on trend portfolio. Yeah. No, no. That's what we're differentiated a bit. I think of other folks in our space are trading all the, they're trading the softs or trading, you know, a goal. They're trading currencies, training equities. This particular strategy that we're focused on right now is, is purely U.S. equity. And the kind of the thinking there is that I think pretty much every investor in the world, the majority, have U.S. equities in their portfolio. Right. So it's the most broadly, has the potential for the most broad usage.

If we can help solve that problem in portfolio, as we roll out other strategies and products, those will come secondary. But the ability to use my 30 plus years experience, we haven't talked about my mutual fund experience yet, and we'll get at that. But we've delivered consistently positive returns. I was at the desk in 2020.

I was at the desk in 2008. We've sailed through those markets. If we can deliver those, that consistency here, as we build out a new company, new asset management company, we will it will pave the way for other asset classes but right now we're starting with equities because that's that's the most important one to get right in our view yeah and would you view that as hey this is equities plus or like I'm trying to give you equities but with

half the risk or something of that nature uh we've generally speaking since our inception we've delivered basically very close to market returns with with with half the risk yeah that's yeah so that's that's that's the whole game that's that's the game is is is is a more reasonable way to get access to equities, a way to participate in U.S. equities, but with a level of comfort that there's someone at the helm with a proven process to manage risk and volatility around that. And, you know, since we launched, after running the mutual funds for nine years,

we launched Altus in August of 2024 straight into a 10% drawdown. I mean, we've had so many headlines over the past year and a half. It's pretty crazy. I mean, we went, we launched the mutual funds in 2016. We went from 16, 17, 18, 19. We had a 20% drawn out of 18. But other than that, we went almost three and a half years without a significant volatility event. Yeah.

Since we launched all this. Right. 17 was famously, right? Like a record number of days without 1% move or something. Yeah. I wrote a commentary called Let's Go Streaking. And it was about those streaks. Yeah.

And that is, that's part and parcel. that's very descriptive of bull markets, a high liquidity-driven, you know, Fed-supported, you know, bull market. We're in a similar situation now, although there are some differences we can talk about. But going back to my point, you know, we had multiple years of low volatility. Since we launched Altus 15 months ago on this new delivery of this strategy, we had, what, five major events. You know, August was the Yen-carry trade. No one even remembers that now.

But August 2024 was the Yen-Carrie blow. Well, S&P had about an 8, 9% drawdown. Then you had Palom missed up in December. You had the AI, Chinese AI moment in January. Then you have a massive 20% drawdown, 15% drawdown in the S&P from February to the April lows. There's been a lot going on, I said, over the last 15 months. And fortunately, we've been able to deliver consistent returns through that process. So it's been a good environment for us to demonstrate our risk management and trend following.

but those two concepts for us are inseparable. We will not ever do momentum without a risk management approach. And I don't think that you can do just short-term volatility trading on its own without participating in longer periods of momentum and trend. So they fit really well together. And what would you say if someone try and put you like you're a timer? Are you timing these up and down moves? No, not at all.

And in fact, I used to, I was on the board through a couple of different tiny camps. So I know that very well. So timing in my definition would be risk on, risk off. So one of my favorite games I used to play when I'd go speak at these advisor events, I always start off the conversation with, okay, show of hands, are we in a bull market or a bear market? And the punchline was, it depends on your time frame. Both are true, right?

So I think one of the biggest challenges for, for people who don't um having built a framework this way is the human brain wants to solve for the simplest explanation possible always is how we're built right yeah um homeostasis just to our our bodies are built to be to be efficient so um are you bullish or bearish well yes i don't know yes so so all i feel like right now everyone is both like i'm i have to be bullish in my positioning, but I'm bearish as hell. I think this can't last. I've just seen this process over and over and over. I coined a phrase a long time ago that I think is still relevant. You can tell me if you think it's relevant. Headlines change, but investor behavior is always the

same, right? So the headlines that created the panic, the catalyst for the panic in 0708, those headlines are very different than the headlines that created the panic and the catalyst of the 2020 decline into COVID, right? And those are very different than the terrorist. headlines. But how markets react to short-term news in the context of a longer-term trend, it's consistent. It happens over and over again. Part, I mean, it's such a long-winded answer of why. Some of it has to do with how we deliver financial markets, like the business of an FCM or a prime brokerage or an ETF company delivering products. Some of it's just pure industry stuff about hedging and gamma walls and things like that. Some of it is as basic as just

following headlines and people getting over their skis but but markets departments for some people out yeah yeah yeah um volatility is a cycle it's not a condition a trend is a condition of volatility is a precise moment in time um in terms of how how we how we see it i'll push back on you a second there because we talked earlier like the it's getting shorter though so it may react the same but is the timing condensed? So I should mention it. So we're updating this piece about in 2015 or 16, 17 or 18,

I wrote a piece called the Bear Market Roadmap. And we'll make it available to put it in the show notes, yeah. Yeah, and we're updating it now for current markets. But I spent a lot of time talking to back then. It was mostly retail advisors because we were on some different SMA platforms. And the common question was,

well, how do you make money in a bare market? Well, you have to start by studying bare markets, understanding how they work, okay? Bull markets are defined by day after day after day of small gains. They're not volatile events. The VIX compresses, right? Liquidity is everywhere. Lots of correlation to the upside. Lots of themes. But it's day after day after day because the investor, if we're talking with the retail investor or the advisor, some institutions, they're going, man, we had that bare market in 2009 and 08. I'm not going right now. And For a couple of weeks, you look like a genius.

No, we're hedged out. We missed that last 10% of the downside. And then what happens? Volatility calms down. And the market starts going up day after day, after day. And eventually that's where the FOMO and the herd kicks in. Because you cannot stand to be out of that market, right? Yeah.

And it's kind of like the analogy of the, we've all done it, you know, a big wheel back in the days, maybe a wagon down the hill. You start off, maybe, you know, skateboarding. It's fine. And then you get a little faster. then the speed wobbles start and then eventually those speed bubbles get so gnarly your you're disaster right that cycle is what momentum's all about and and that's what ends up becoming the volatility part the speed wallows is the volatility part so when when bull markets are low volatility boring events

but all of a sudden you look back over the year SMP is up 15 18 20 percent managers are behind they start chasing bear markets are completely opposite they're not um considered downside. So if they were the same, you'd have consistent day after day upside, bare markets are a consistent downside every day. It's not how it works. Bear markets are the most violent rallies and the most violent declines because the emotions are running so hot. The volatility is so hot. The option pricing is so hot. People are every night trying to manage their exposures and their credit. What's my overnight risk? The banks are talking to each other. So we wrote this piece called the bear market roadmap. And I can't remember

the exact dates right now. I think we went back to like 1950 or something, but we looked at what are the 50 largest one-day moves in the S&P? It was like, I think, don't quote me, I think it was 1950 to 2017 at the time. And we're going to update this piece. But what's interesting is the worst days in the market every year and the best days in the market all happened when the S&P was below a 200-day moving average. that's when the best days as well yeah the even the best days even the single best winning days in the s&p and that's so counterintuitive right it's like wait a minute if you're a bull market you should be having these big ripper up days no your your biggest like i remember 2008

i was i was at the desk when we lost lemma brothers i was at the desk when i watched all the congress people Pelosi they were all arguing about um where they're going to do castra clunkers and and the stimulus programs and there was a big political standoff and you had a very massive sell-off on that Friday. S&P was down. I think that week was down like 13, 18% in the way Monday. S&P were like 9.5. I think it was like 11% on that Monday, right?

Because over the weekend, the politicians finally bent and, okay, no, we're going to save some banks because we lost bear's turns, right? Bottom line is, these massive moves up and down happen in bear markets, not bull markets. It's also a funny aside real quick. like everyone oh this we've never had news driven markets like this and a tweet like go back to oh wait that's yeah you want to see how much wine i was drinking on midnight when we lost uh uh leman brothers you know i was managing money for a large firm in in uh in georgia at the time and you know it was midnight third time and nine o'clock rock town because we're in california and i'm like

well we're hedged either way we'll see what happens i remember just sitting there on watching bloomberg and just watching this thing just melt and that's what that's what we lost leman no one thought it was going to happen. So again, we've been through these cycles so many times and the headlines are different. The catalyst is different. The setup is different. But look, how banks, investors, FCMs, think about their capital. When you get to a certain pain point, those are the massive inflection points. And trend following by itself will never pick that bottom. The math doesn't work, right? Even short term. Well, I would argue by design. Because if it's trying to pick those bottoms it won't catch the full down trend or the full up trend right it's by design it has to

skip those but by by design if you read any trend following book or you study anything or you you know this you guys are in a space from yeah this is your entire world right if you listen to this podcast yeah well the point is by design we want to ignore though we we call those short from volatility a day's noise stay with the trend ignore the noise right volatility trading in our book is trade the noise. Benefit from that short-term panic. Benefit from that. So the reason we were hedged for Deep Seek Monday is not because I have some, you know, insight into Chinese AI. It's because if you go back and look at Marcus, look at S&P futures, look at NASDAQ futures. In the week leading up to that, I remember we were down in Miami at the time for that

I Connections event. And there was a Fed meeting that week. So I was telling my partner, I said, we're hedging down because we were at peak peak peak um tick bombs to the upside all of our models we're screaming we're over our skis there is a chance you're going to move higher but we've seen this over and over again at some time in the next few sessions some headlines some catalyst you're going to erase multiple days of gains it's what we've done for over two decades we've seen this over and over again so I thought I always put out a commentary but I didn't because I would look like an idiot. But I thought it was going to be, yeah, I thought it was going to be the Fed that week saying

something wrong or being interpreted wrong, you know, Powell, they don't like what Powell said and they're going to dump the market. But no, we woke up Monday morning, all of a sudden there's a new super cheap AI solution and all the all the cap-ex spending in the US is now irrelevant. And that was a 3% reset on the queues, cover the hedges, get back along, get back in gear with the macro trend. So the short-term volatility acts like a regulator around the extremes to try and give a better return stream than just multi-time frame trend fall and can deliver on its own.

Which I want to dig in that in a second, but it's interesting to me, like part of me thinks like, oh, well, you were lucky because the models were protecting against a Fed announcement. It was some other announcement. But the other half of me is like, no, it didn't matter what the announcement was. Didn't matter if it was the Fed or Deep Seek or whatever or some bank. Like it was so topy and so overbought that any little thing, right, with the straw. Yeah, no, we're quantitative. So, I mean, look.

Right, but how do you do that of like, is it luck or to my point? Like, it doesn't matter what the cattle says. It's so overbought that it's just ready for something to trigger it. Exactly. Like, I mean, a good example is this last last Friday or Thursday, you know, we've been doing so well with China, you know, the administration has been doing well. The market's kind of taken out of the pricing scheme. We're starting to get overbought again.

And out of the blue, you know, the administration's using this as a negotiating tactic. And the market just was not prepared. So you create this air pocket, which then we're buyers. So we're on that big selloff last Friday. We're big buyers at that because you went from, which happens a lot. You went from too much complacency. The VIX was compressed to almost one year lows, right? No one's taking it seriously.

You've got a stream of people on the news networks saying things like, what could go wrong? You're like, uh-oh, don't say that. That's the curse. Don't say that. I'll find something. Yeah. But just to reiterate, you're not looking at those tea leaves and saying like it's get it, totally quantitative.

We are completely math-driven, completely quantitative. These are rules and a framework of risk management we put in place 20 years ago. We've used in SMAs. I use it to win a five-star morning start rating in the mutual funds that I ran. It's a repeatable, observable process. And let me tell you something. It's not always fun. Um, you know, last, last Friday, you know, there's a, look, if the market sells off three per, if equity sell off three percent one day, there's a headline where you have to consider, wait, is it different this time?

Yeah. Um, you don't get a three percent sell off on just like, I'm sure it's fine. No, it's a panic moment, but my job is to have the discipline to exploit that, right? And, and it's, it's, it's not always easy, but I'll tell you this, Jeff, top secret. no one i want everyone should all off your monitors just this is between us don't listen my favorite trade is a panic friday if if if our models confirm that you are completely oversold that is one of the now that i say this will probably not make it true but yeah it's one of the most it's one of the more consistent things you can observe

is when you have a panic friday you're exploiting people saying um they repeatable human behavior of i don't know all the information here the market is smarter than me. I want no exposure over the weekend. We'll sort it out Monday. Everyone gets a break. They go to football games. They have a glass of wine. They go to the barbecue. There's a market axon, right?

Like the market bottoms on Monday. Doesn't bottom on a Friday. Or they call it Turn around Tuesday as well. Sometime of those days. So how how would I also explain is this? trend following is is a clunky brute force instrument the trend is is the condition you know of the market it's it takes and in order for the math of trend following to work you need multiple

days to deliver a trend if it's a five-day trend 20 30 200 day trend whatever but you need to compound that over time and there are going to be noisy days in between they're just not a part of the trend right um but volatility trading and our definition addition, while a trend falling as clunky, volatility trading is a precise moment in time. It's a one day, two day, three day event when, yes, the trend is up, but statistically, you are exposed to a pullback. Whether that pullback is a 1% pullback or it's the beginning of a new nasty bear market, it doesn't matter because we can harvest alpha over and over again by using this multi-factor approach. Our trend models and momentum.

models are going to deliver the return 8% of time. But there are times where you really need those short-term swing trades on the volatility portion, and they're right within two, three sessions, by the math, by the definition how they work. We only use those when the market's really extreme. So let's dig into those. So that's using futures only, options, VIX, all the above? All the above.

So a VIX compression is one of those things. We don't like to short VIX, but we will. we will uh the the vix exploding higher is one of the conditions that that why we went very long in that friday meltdown um we look at volatility bands around uh these indexes as well they're not bollinger bands but they're volatility bands uh because when you break out above or below the uh these bands the way we construct them you've they contain 90% of the price movement so statistically if you're having wine with uh john bollinger you're like sorry john i'm not yeah i know john's gonna hate me now my phone's going to start blowing up.

No, listen, I'm a massive fan of John. We work together on some different things over the years. He's a great guy, but he really helped help people, you know, with his percent B and bandwidth and volatility bands. I remember, well, we worked on a lot of stuff together. And he was a great mentor to me in my, early in my career. There's a number of other folks, too, that worked with him. We're all kind of this little group of people that he wanted to pass on, you know,

technical analysis too. it's going to your goal is to hedge that downside by grabbing little pieces of upside in between it and getting so so this goes back to that idea of being a market timer or exposure manager yeah we're exposure manager right so um think on our our return stacking of our three levels right so we have we're in getting here with our core exposure um right now the s&P the NASDAQ the russol that are all above whatever moving averages that they're all in their our proprietary trend models the trend is green get get invested right if that was our only process then we'd be forced to just sit back and and take the beat downs every now and then and for some CTAs manage features trend followers

that's totally fine and that's the process do you have stats on that if you just ran your trend model on the indices is it like yeah it's and it's probably it's still good right it's good but I think most investors will get shaken out yeah exactly it's not an enjoyable experience it I If you look at it on a 20-year basis, it's like, hey, pretty good. Look, that also works for buying a hold, right? So if you look at a 20-year, I mean, who were you 20 years ago? Were you making the same investment? Are you going to stick with the same?

This is human behavior. We're not going to stick with something between years. I had the same hairdo. Yeah. I know. My hair is a lot longer now. So if you had permanent capital and you literally were managed money for yourself, you don't clients you don't care you could use just tread falling or momentum the reality is we serve a lot of people who serve other clients and they're not just one strategy they want to see how how can we add alpha reduce drawdown improve the portfolio and when I started off in this business a million years ago my first clients were professionals they were doctors dentists lawyers who had already achieved a certain amount of wealth and their objective was grow my money but don't lose it

right so i didn't start off from a place of in the you know i started in the 90s so we're going into the dot-com bubble a lot of my friends and other broker's firms of things were all shooting for the moon they were all you know buying i could list all the all the tickers i kind of by mandate who i was working with from day one risk management controlling downside is just baked into what i do i can't do anything else that's just that's just how how i function and so um the the the volatility management is about getting investors involved and getting them into something that will deliver results over time, but not have that moment to get shaken out. Because the reality is, any strategy, volatility trading, momentum, pairs trading, stoutar,

whatever you're doing, multi-commodity, you know, diversified, whatever. There's going to be moments where we have volatility. If the volatility is tolerable, you'll be there for the incredible upside, right? But if you panicked at the April lows this year, you missed a 30%. run. So when you have a discipline proven model to say we've officially gone down too far, it's time to cover hedges and step in, that can help smooth the experience and keep people invested for what you hope they're there for, you hope they're there for the upside.

But if the drawdown of the volatility is too high, people won't be there for the reward. That's been in my experience over the last 30 years. Talk through how the hedges actually work one more time? So without giving away too much of the... Yeah. We're looking at, we've got six or seven models that look at different price points. It's all price driven because at the end of the day, the narrative doesn't matter. The fundamentals don't matter.

Investors vote with their wallet, right? For us, in our world, price dictates exposure. So when we are in an up trend like we are now, we are fully invested until we get too far over our skis. And those volatility models, we package that. But volatility for us can mean too little volatility as well as, to much volatility. So when volatility goes away, the VIX is compressed to one-year lows. You're breaking down, you know, you're up above our volatility bands, we call them.

Our volume smoothed RSI is screaming. All those things are red lights going, hey, this has been great, but the party's gone on too long. There's an accident coming. Doesn't mean the trend is over. Doesn't mean you're not going to reset and go higher. But there's an opportunity for two things. extra return and alpha and also smoothing downside.

That's how we've been able to deliver 89% of the upside of the indexes with half the volatility, half the risk, is because this little short-term process is monitoring, are we too fast or too slow in context of the trend, right? You'll also dial the trend piece down, the trend exposure? No, so that just exists. Because our margin equity, yeah, because of the power of doing this

And that's, I should say this, this vehicle too, being able to do this, I'm having so much more fun doing this in managed futures and private fund because the mandates that you have in a 40 Act fund of the rules around the SEC about exposure that you have to have really dampens and limits what you can do. So with the margin to equity of futures and our ability to change exposures, we can keep those core exposures on and use features to dial up and increase the exposures or, hedge against and get neutral and the tax efficiency of futures makes that just a night is just an ideal way to execute this strategy yeah other strategies you know single stock and and and fundamental bias and

the a i trade might might be great for etf or mutual or mutual funds for us going back into um where we have no no cc uh restrictions in terms of can we can we be completely neutral do we have to have this exposure that exposure um the returns have been phenomenal when we've had just such a better vehicle to execute the strategy. Love it. So the nine, you said, in the hedge? Nine inputs?

What was the nine? I just said six to seven. I always say that for some reason. I think there's seven inputs measuring different. Like I said, cumulative to our volatility bans. And it's around each one of those two. So we may have times where it gets really fun. And one of the reasons that we can generate multi-factor

smooth of the returns is it's, It's not that market timing risk on risk off. We might be short Russell against a long S&P because the whole market has been coming up. You're getting this Russell reinflation trade that's happening right now. We're expanding because the cost of capital has come down. Small cap stocks have to borrow a lot of money, right? They don't have the massive profits. They don't have international profits.

And so in our experience, small caps tend to have the most interest rate exposure in terms of dampening. when the fed started cutting rates and now that the market's getting a narrative where it believes that the fed's going to continue cutting rates you're getting this expansion of russell so russell has been getting a lot more violent lately and it's beginning up above and hitting so we may have a time where okay the macro long term trend is green across the board but uh-oh russell is uh little over the skis here so we're short russell but we're still long smp and and nq what that does is on a down day if russell's down three 3%, but S&P is only down 1%. We're almost neutral exposure, but we're still making money on that day. So we can make money on the trends. We can make money on the spread of performance between the positions. And then we could also make money on the volatility or lack thereof.

So all those hedges are working independently in those three markets. Each of them will signal, hey, it's getting crazy. We're measuring trend. and overbought oversold on each one individually, and they're functioning differently. That's why our exposures, we can be, you know, we came in today, you know, 68% long. We added some exposure. We're going to end of 90% long in a couple of days. If this, we're coming to the end of the month.

There's a lot of factors this week. I don't know when this is going to be put out, but this, you know, this week we've got a bunch of earnings. We've got CPI. We've got Fed coming up. The Fed's in its blackout period. And now we're going to the October 31 mutual funds selling tax loss harvesting, all kinds of awesome things to exploit in terms of volatility and trend. Meanwhile, you have the S&P pushing 12, 13, 14% year to date. Here we are again.

We're back to that same part of the year where a lot of managers are going behind the S&P again. And so that exacerbates the moves and you begin the year-end chase, which inevitably leads to the whole cycle repeating over and over and over. again. Yeah. How do you view it as compared to like, all right, I'm going to be long, I just hold my long. We'll start basic 6040. Seems pretty obvious compared to that. So maybe we skipped that one. But if I'm like, I'm going to add tail risk, right, I'm going to have my long equities and just tail risk with like 20 or 30% out of the money puts. Yeah. Yeah. How would you compare to that? Because you're saying, well, those are only have one single path where they can. Well, the problem. So if you're comparing to like a buffered ETF or like, like, Like you just sit kind of with those exposures. Like I'm a 30% long tail. The problem is those, we call those collar positions, color trades. You're permanently limiting your upside, right? You're protecting.

Well, I'm saying, no, not a collar. If I'm just, right, I'm 80% long stocks and I just hold 2% long tail risk. Yeah. But I just keep buying those puts rolling them month over month. So it's a guaranteed drag. Because it depends how far out of the money those puts are, depends on the daily pricing. how I've seen most of those strategies work over time is that the protection only kicks in if you have a blowout event, you know, one or two-day event, but you're still going to,

you're still going to suffer the two to three percent, you know, a couple of day drawdown because those deep out of the money puts just don't, you're not up there far enough yet. We do look at those. We look at, so it's not quantitative. It's more just, I've been a manager for 30 years. so I'm just, I'm passionate about markets and I watch and pay attention. So we look at the gamma walls, we look at the delta walls, we look at what's happening in terms of skew.

We look at all those things as a secondary indicator. But the difference is, I would say, that type of strategy is okay, it serves a purpose, but that's going to have a fixed correlation. You're going to get so much downside, but you're only going to capture so much upside. Should you be held back all the time. ours is a dynamic exposure management so there are a lot of days out of the year where we don't need that put volatility is no

we're compressed we want to have full exposure to markets we want to deliver the return of of SFPQs Russell when the volatility picks up is when our hedging picks up so there are times where we just look like the market which is okay with us but it's usually yeah

yeah um and point of confusion for me here if the market does go say we do have that 30% down and the trend reverse is now a short trend in all those markets you're flat you're out are you short we are a net short yeah so so the whole process is now the trend is now short and the alpha piece is still working start from the top we're going to get we're going to get the core positions in line with the core trend right we're going to get we're going to short those those equity indexes And then as we now start to reach oversold, we'll cover those shorts and get long. And we'll be buying those dips as you bounce on the way down.

And per- You'll be getting longer, quicker because you're not waiting on the trend. All the alpha pieces are kicking it. And if we go back to where I talked about- Which you call them what, volatility trading pieces. I'm calling them alpha pieces. Yep, volatility triggers. Because remember our discussion about bull markets versus bear markets.

Yeah. In bear markets, the most dangerous. thing to do is to be short for too long because they're violent oversold rallies and there's so much opportunity for my favorite market is a bear market because um you know we're busy you know not surfing at two o'clock in the afternoon because you know we're we're training there's a lot to do but everything speeds up and and you know again take a look at our at our piece and we kind of we use 2008 and nine um as an example of this is a typical path for for a bear market I wouldn't gets that you had 20, 30% rallies from mid-2007 to 2009, yet overall the market finished down

like 50, 54%, right? So it's bear markets are very exploitable. We had a little mini bear market last February, March, and April, and it's a good example. There was a period of time there during March where we were really rolling and our cord bottles went short, but we were short for a week, week and a half, and then you began to reach just panic, oversold. where our models are going, yes, the trend is now to the downside, but you're so far oversold, you're so panic.

Now the tick bombs are the downside. Now the VIX has exploded above, it's upper volatility bands. All the opposite. You covered hedges, you get long. We were one day early off the bottom. I remember exactly the way we were. We were in Palm Springs for an event. And I think I was actually talking to Bobby about something that day.

And he was at another event, some conference. and I was telling about our positioning and you know it was like wow you're I said we're buying this we're covering shorts we're getting long and when 24 hours later that was the low and the market had that 12% update or whatever it was so the headlines change but investor behavior is always the same right so it's a you're either in a bull market where you're taking advantage of the momentum to the upside but using short from volatility to hedge or you're in a bare market and you're short but you better be quick because those rallies come fast and hard and then you once once it's relieved you get back with the trend and then those could also just take get neutral

at the bottom like towards the bottom they tend to that's the power i truly believe of what we do because when you're using just momentum trend falling even multi-time frame you need multiple days of moves to get in gear change your positioning but market bottoms and tops don't work that way they tend to work themselves out it's a couple of big up days and then you're like you know and then you get a couple down days, when you're able to apply short-term mean reversion volatility trading to complement the momentum trading, you just have your opportunity set is just so much wider. Your opportunity set to deliver returns is wider. And so because they're all of those independent, you know, think of these as like independent strategies inside the entire portfolio,

Russell might be oversold, but S&P is not. So you're buying the dip on Russell. Um, S&P's not down there yet. So it just all of these tend to work together to create a smoother top and bottoming experience and listen we're not perfect um there's there's times where you know if the market is fully in geared and it's ripping and we're doing little hedges along the way we're gonna we're gonna not perform uh you know i could do 150% of the upside i was gonna as like a 17 is would be bad for you because it's like no 17 was a great year for us oh because it's there's no blips it's just super there was uh i think in 17 you had um a correction into october that our models picked beautiful 18 was more challenging, but 18, we finished positive while the market was negative.

I'm saying, like what type of environment? Something where it's a big rally, but there's a lot of false volatility spikes, basically? Well, so you're asking what's our best environment or our worst environment? Worst. Oh, dude, 2015. Are you kidding me? I remember that like it was yesterday. So 15, we were doing SMAs back then, hadn't launched a mutual funds, and we brought on this

about a $400 million allocation. We're super excited. We're doing backflips. We're going to Javier's and celebrating Margaret is all the time. And the market did nothing for 15 months. I think the only return for the S&P

for the entire 15 months was the dividend. There was no volatility and no trend. So in a flat market, no one's making money and we're not either. You just didn't have enough extremes. And that was going into the first. get chopped up a little bit?

Both of them did. And the trend, yeah, yeah. The trend following is just kind of whipswing back and forth, like for everybody and the volatility trading, but it was such a, it was such a narrow, you didn't really get the big extreme sell-off or the big extreme upside. I'm not going to say we'll never have a mark like that again, because I, then it will start tomorrow, obviously. Yeah.

But I think where we are in the world, in terms of, of central bank intervention and crypto now being a real currency, a real, you know, factor in trading. I think there's some moving parts now where it'll be very difficult to not have some volatility to exploit. It's possible we get into that environment. But if you're looking where a strategy like ours can struggle, we're exploiting momentum and trend and volatility.

If you have neither, what do we doing? Yeah. It's very challenging. It's almost not just volatility over here. It's like a gamut, more of a gamma trade, right? Like you want. Yeah. what do you view it like that like your gamma scalping on that volatility trading

sign pretty much yeah we're we're yes we're exploiting the skew for example tomorrow I think I think VIX futures expired tomorrow so you finally have the spot and the futures coming together both of them today are down 2 and a half percent sorry 12 and a half percent off that spike from last year last week but as you go As you roll the contract down to November, you're going to see that November contract get pushed down again, and it will be much higher than the spot. So, yes, there is also that factor that we have to pay attention to and we watch a lot. Awesome.

What do we miss? I don't know. Talk about that. Music, DJing. Yeah. I see maybe your wedding picture behind you and got a shout out to your wife. I've had the pleasure of having dinner with both of you twice. Yeah.

She's a just killer in her own right in a good way. Amy's phenomenal. Amy, yeah, we've been married for over two years now. She is a financial professional executive in her own right. JP Morgan, head of National Accounts, J.P. Morgan, State Street. Yeah, very accomplished. She basically helped kind of build the Utef industry. I think she was employee number five or six or something.

Don't quote me on it when JCP Morgan started launching UTIF. So I know she's a UC Berkeley grad, incredible, incredible partner. Yeah, thanks for mention. Right, as I said, a killer. And then your son, which I got to imagine, he's doing some work for the firm right and has become a bit of a quant. Was it like a reluctant?

As my son's looking at colleges and stuff, I don't know if there'll be any jobs in the future, so I'm a little worried about it. Was he a reluctant participant, or how'd that work out? No, no, no. So look, my son's not what I was doing for a long time. He's one of my best friends. He's a great, great kid.

I'm not a case of man now. He wanted to fall in the footsteps of his dad and do money management. So we talked about our process of multi-factor risk management for years and years. He was trading on his own. Went to UC Santa Barbara. I had no idea how well he was going to do there. Ended up getting himself into one of the investments, Dean's investment group where he was managing a portfolio there. He's meeting with boards of companies getting recruited.

And that was part of the part of the part of. the decision making for me to do one more run after running my last firm for 30 plus years decided to launch a new firm and so Ryan is my partner he's a great partner the the kid is a better quant than I am he's surfing better than I am he's playing guitar better than I am so man you know not happy about it but I'm happy about it what do you have left you don't know yeah yeah right take him in anything yeah uh listen yeah I still I still take him go come Don't tell him about there. I love it.

All right, we'll put some links in the show notes where everyone can find you and all that. And I think we'll leave it there. Yeah, thanks for the time, man. Great conversation. Ditto. We'll see you next time out there. Okay.

All right. See you. All right. Thanks, Eric. Bye. You've been listening to The Deriviviv. Links from this episode will be in the episode description of this channel.

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