The Derivative - RE-RELEASE: Texas Trend Following with Salem Abraham

Episode Date: September 17, 2026

Some episodes are worth bringing back. This is one of them. Salem Abraham is a bit of a legend in the trend following and managed futures world. With 30+ years in the business, he’s got the experience, the war stories, and, thankfully, the willingness to tell them. We originally sat down with Salem a few years ago, and the conversation was too good to leave in the archives.  In this re-release, we cover tiny Canadian, Texas; why you need noodles and red sauce if you’re competing to make the best spaghetti; the Turtle Traders; a tourist boat capsizing in front of the nude beach; just how low oil can go; hanging out with Boone Pickens; honeybees; sending the first computer-generated orders electronically to the CME; trend following, naturally; why an apple salad is not a fruit salad; bonds at zero; and pecan and apple orchards. You know, the usual. Salem is the founder of Abraham Trading Company, a research-driven investment management firm that has managed alternative asset portfolios since 1988 for families, individuals, foundations, endowments, and institutions. Today, the firm runs the Fortress Fund for endowments and institutional investors.So whether you caught this one the first time around or somehow missed it, we're digging it back out of the archives. - SEND IT!Chapters:00:00-01:20= Intro02:20-13:14=Canadian, Texas: Orchards, Eight Kids, and Community Capital13:15-34:45=From 1987 Crash Kid to Panhandle Prop Trader: Lessons, Oil Busts, and Early HFT34:46–38:45 = When Everyone’s on One Side of the Boat: Crowded Trades, Crashes, and Naked Risk38:46–58:38 = Building a Hurricane‑Proof Portfolio: Bonds Are Broken, Alternatives Step In58:39–1:09:59 = From Crashes to Coronavirus: Rethinking 60/40 and Birth of the Fortress Fund1:10:00–1:19:49 = Salem’s Lightning Round: Favorite Things, Real Assets, and Star WarsFrom the Episode:T. Boone Book: The First Billion Is The HardestCheck out our Trend Following Guide!Follow along with Salem and Abraham Trading Co. ⁠on LinkedIn, and be sure to check out abrahamtrading.com to learn more about what they are up to.Don't forget to subscribe to⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠The Derivative⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠, follow us on Twitter at⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠@rcmAlts⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ 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

Welcome to the derivative by RCM Alternatives. Send it. Hello there. Welcome back. You found the derivative brought to you by RCM Alternatives, where we've been doing trend following, about as far back as I can remember. It's been quite a good year for trend.

We've got energies, we've got gold, short bonds recently. So want to learn more about it, head on over to RCMaltz.com slash white paper. RCMaltz.com slash white paper can check out our guide to trend following. Okay. on to this podcast, which keeps on the trend following topic. I was on a call with Salem Abraham a few weeks ago, Trend Legend, talking about his mutual fun product

and thought back to what I thought was one of my favorite podcasts like four or five years ago where we had Salem on. So in a little smartless inspired re-release, for those you may be new to this feed or can't remember the talk with Salem, here's Texas trend following with Salem Abraham. Send it. Welcome to the derivative and thanks for tuning in with us.

Today's special guest is someone who anyone familiar with the history of managed futures will know well, with many stories from being far removed from Wall Street and LaSalle Street, to extensive work with nonprofits, to creating his own fund. He's got a lot to share. And we're talking about Salem, Abraham, of course, and his Abraham trading group, which has about as long a history and trend following in futures markets as you'll find. his newest venture finds him focusing a little more on the total portfolio, not just the Alt-Spart and weathering the storm for a total portfolio approach, which we'll get into.

So it's just sure to be entertaining and educational. So welcome Salem. We're so glad to have you with us. I bet, Jeff, it's great to be here on the derivative. Thanks for having me. No worries. And so I've known you for a bit, having crossed paths of various conferences and whatnot. But let's give listeners a little more color on you outside of the trading world.

you're down there in Canadian, Texas, right? Where in the world of Texas is that? So Canadian is a little town of 2,500 people, two stoplights. It's up in the panhandle, that top square in the northeast corner, about 100 miles northeast of Amarillo. It is a town that's ranching. The main industries are ranching, and then oil and gas. And so I had two great-grandfathers settle here with Lebanese merchant and an Irish rancher. and the Lebanese boys kept marrying Irish girls for a couple generations.

Really? They'll seem like an odd mixing, right? Oh, no. Well, the Lebanese are real mean and tough, and the Irish have a good time. So it's a nice mix. And so you're far north. You're like further north than Oklahoma City. Right.

Yeah, no, we're as far north as you can get in Texas. Right. Yeah, no, you go, if we go about 50 miles north, we're out of Texas, and then about 30 miles east, we're over into Oklahoma there too. So we're close to five other state capitals than we are to Austin, including Lincoln, Nebraska, so way north. Really? And so you spread out your roots there.

You've got some farmland, you've got some ranch land, you've got some orchards. So tell us a little bad about all that. No, yeah, well, we're so, you know, out here in the country, everything's cheaper, so they just give this stuff away. So we're at ranchland. And then I've gotten over the last 10 years or so into orchards more. So I've got an apple orchard here in Canadian, then a peach orchard over in Oklahoma and a pecan orchard down in central Texas.

And so just mainly is a source of fixed income for me that is. So, you know, and I have some other real estate investments that are just really fixed income type. I don't like bonds as well, but I like the fixed income component. And as a trader, you know, you kind of tend to make money in lumpy ways and it's feast or famine. So to have that fixed income component's good, but I'd rather have it in the form of kind of real commodities, not fiat money. Got it.

And so I'm envisioning you like out there working the ranch and the orchards. Is that the case or no? No, not so much. I go out there when they let me. I usually break things or maybe hurt myself if I go out there too much. But no, but I do have, you know, my kids, they'll keep honeybees and I help them with honey bees. So we've got honey bees out here. That's kind of fun.

And then we, and then to go steal some apples or peaches when you're, you know, it's a minute, 45 seconds. If I go straight to work halfway across town, so I could swing out to the orchard and make it a five-minute commute and still some peaches or apples on the way to work. So that's nice. And you've separated? You don't have the work compound as part of your house and everything? No. You've got a separate office? No, I'm in.

Yeah, no, I'm in. So my house is in the middle of town. And then offices, yes, halfway across town seven blocks away. So. Got it. And then it's been hard to separate Canadian from you for a while, right? Like you've helped do renovations and buildings and a bunch of good for the town. Sure.

Well, well, I've been. real blessed, you know, financially. And I think, you know, when you look at a town and you look around, it's especially a small town, you look around and there's really a group of, you know, a small group of people, maybe probably even 50 people that are going to, that really are able and willing to make a difference. And so you, you know, you end up, people step up and do different things, what they can. And, you know, that's true of even running, you know, the local government, things like that. And so, no, we try to help out where we can and do things, you know, invest in the community.

And there's sometimes a return on investment that can't be measured in dollars. But yeah, the best job I don't get, Jeff, though, the best job in a small town, you know, isn't mayor or anything like that. It's you want to be fire chief. Fire chief, you get to drive a truck and talk on the radio. Yeah, every boy's dream, right? Yeah, no, and I'm not cool enough to be on the fire department. There's 32 people and you got to be in the club and really cool. And so now Scott Brewster, my friend, Scott gets to be fired chief.

And so no. So I'm sure. In a town that small, it's just all volunteer, I'm sure, right? Oh, yeah. So the bell rains and they leave what they're doing and go grab the truck. You bet. No, that's right. No, and with eight kids, you know, so my wife and I, we dated in high school here.

Then I went off to Notre Dame, got a finance degree, came back. and we've been married now almost 32, let's see, yeah, 32 years this year. And we have eight kids, so, you know, there's not as much to do in the country, so we had to make our own entertainment. And so we, but I was on school board. So school board is bad. I was on school board for 12 years. I make everybody, you know, after 12 years, everyone's mad twice.

So it's time to get off. They're like you, they're mad at you, they like you, they're mad at. Yeah, no, that's it. So eight kids, what's the sports? spread there in the ages. So today there's really, there's 10 years, 10 months, oldest, youngest. So there's seven, almost 17 on Saturday. It'll be 17 to almost 28.

So this Saturday. So we're, yeah. Four brothers and two sisters in my world, but they're from many different fathers and mothers and mixtures, few divorces and stepmoms and stepdad. Yeah, no, everybody wonders if there's a trick and you're like, no, no, no trick. It was the two of us. There was no surrogates, no twins, just. No, no Netflix.

No, no, nothing. No, no multiple wives, multiple husbands, no adoptions. It's all, yeah. So what's the secret on 32 years of marriage? How do you, you got an algorithm for that or a? Yeah, no, you, I have, it's crazy coupons. So everybody gets probably, I think, it depends me. I need a few more extra crazy coupons in my wife.

She's less crazy than me. but if you can just say, look, you're allowed to have, say, you know, for me, four crazy coupons, you could be really crazy and make no sense on four things and I'm going to love you anyway. And so I think you just got to give them a pass on some things. And then it gets instead of trying to fix them, you just say, you know, you're fine, crazy and all. I like that. And do they give the coupon then it gets ripped up or they can be crazy on the same thing for their whole life? Oh, no, it's pretty just one thing.

You just say, no, this thing, but we're going to work on you. you elsewhere. There's some ways that, yeah, you'd like to try to fix them on some other spots. But no, we, I think you just got to say, all got our crazy. And we're going to, and that's okay. I love it. And then besides your work in the town, you're doing some, you've been heavily involved in a few different charities as well. Well, you know, I think being just, you know, in the land of the blind, the one I've been is king. And, and so if you, if you know something about about investments and there's, you know, there's foundations and endowments out here that need, you know, that need investment advice. So I get on a lot of investment committees and things

like that. And so, yeah, so different foundations and endowments trying to help. And really and truly, what you notice, you know, I know there's this red state, blue state and city and country and what, you know, I get to go to the city and I can put on my suit and I can take the subway in New York city. I don't know my way around the city well. And I've seen you in a suit. Yeah. That's right. Nice. And so, but, you know, I always think they talk about a frog and a well. So frog, you know, you, you just know your own little world. And I think that's true of in today's society with politics, what they are, where you're in the country, you know, this country perspective. And if you're in the city, you know, the city perspective. I think you need to know the tune. And everything makes a lot

more sense why people think what they do. And out in the country, really and truly, I mean, I mean, you look around and it's like if, if, you know, if you and I lived across the street from each other and there's no one within miles of us, you'd say, if we've got a problem, Jeff, you and I have to figure it out. And out in the country, that's what you've got to do. People have to step up because if you're, you know, if if, if not, you know, this small group of people, then who? And it's nobody. And so you, you really, you step up and help. And so I've, I've done that. And then, and then that's led to some other things where, you know, now I'm on the investment committee at. St. Jude Children's Research Hospital out of Memphis. And so I've been, you know, from that, which is about a $5 billion endowment down to, you know, a $500,000 endowment. And then, and then I've done things with Boone Pickens and I, he's a neighbor, he was a neighbor to us on a ranch. And then he bought our ranch back in 2008. And, but he and I have been friends for about 30 years. He was a friend of my grandfathers. And so, and he's, his big ranch is right here near town. And so, He and I started a foundation together back in 2008, and that was a lot of fun.

Yeah, best biography book name ever, the first billion is the hardest. Yeah. Yeah, no, and I'm in the book, too. I haven't read it. I know the title, but I was in Colorado once at a bar, a restaurant or something talking with a guy, and he's like, what are you doing in town? He's like, oh, I'm writing this book on Boone Picking. Yeah, yeah.

So, and he passed not so long ago, right? It was a year ago. In September. Yeah, September. He was, but he's, yeah, we had, I was real fortunate to get to spend time with him and he was a good mentor and we, a good friend. And, yeah, no, I was a Paul Barrett at his funeral. So we were, we were, that was nice to get that honor. And he, you know, he was a good guy and a lot of fun.

We had fun together. Yeah. Oklahoma State, Cowboys. That's it. That's it. That's it. That's it. So how did, how did you go from Canadian?

in Texas to become a hedge fund manager, for lack of a better word. I don't know if you like that moniker or not, but. Yeah, well, no, it's, it's fine. That's, you know, I started, I started trading futures in college. And so I was lucky to, Jerry Parker, I'd met him through a family connection. And he, um, Chesapeake fame. Yeah, right. And so, um, I was, I've always been. there's a lot of things I'm not good at, Jeff, but I am good at math and data and statistics. And so he had mentioned,

and I know, was studying finance at Notre Dame, and he had mentioned to me while I was about halfway through college, he had talked about what he does with basically technical analysis and basically using data to predict where markets may go. He was there at Notre Dame or he was passing? So I saw him in, I met him in Canadian.

So his first wife, she and I had mutual for his cousins. So we were at, we were at those mutual first cousin's houses here, the house here in Canadian. And so I met him, the new husband to a cousin of a cousin. And so he, he told me about trading and what he did. And I thought, wow, that's fascinating. And so he was an original turtle, right?

And it was when he was a turtle. He was still working for Richard Dennis at the time. Oh, wow. So he said, hey, well, you could come to Richmond and I could, you know, at least show you some of what I'm doing. He was just being nice to the new, you know, here he comes and meets, you know, 30 people, his wife's family. And so I know he was just being nice looking back, but at the time I thought, okay, great. Well, so then about three days later, I'm on the phone to him,

said, hey, when can I come to Richmond? And so. Well, you were probably the only one of the 30 that wanted to talk math instead of ranching or something. You know, I asked him, I said, well, had anyone ever taken you up on that offer? Because he had made this offer and it was, I guess, just an offer that no one says yes, I'm, but I was excited to go hear about it. So he was nice to kind of show me some things and point me in the right direction. And then so then I started trading

during my last semester at college and then right out of college. And I got out of semester early with honors out of Notre Dame with a finance degree, started in January of 88, managing money. But it was interesting.

I started in August of 87 with a $50,000 account. I was taking 21 hours at Notre Dame, a big load, classes. I was hurrying to try to get back to my now wife, my then girlfriend. My grandfather was back here with a job and he was a great guy to work with. But so the crash of 87 was two months in. And so that was an interesting time. So you were trading from college during the crash of 80s. Yeah. So, you know, it's interesting. Like here we are now in the middle of the coronavirus crash. And

it's and you know, we've had some crashes in between. So crashes tend to, They're each one a little unique, but they all rhyme to some degree. There's probably some kid at Notre Dame or elsewhere right now trading some account. Yeah, no. Doing something we're not even thinking about. Yeah, no, that's right. We're getting an education. I know that first crash in 87 was an education for me.

It was a, so the euro dollar, the interest rate markets moved 37 standard deviation move. Wow. And, you know, I'd taken statistics about a year before. And I thought, you know, they talk about one, two, and three standard deviations. 99.7 is within three standard deviations. Well, it's that point three that's outside of three standard deviations really is the most important part and that's the part they never talk about because that's the part that breaks you or kills you is the, you know, that that point three percent outside of three standard deviations. And you think you understood that from that

early point that the markets aren't normally distributed and have these outlier moves? No, no, but when they took half my accounts value, I had a $50,000. count. It sunk in a little bit. It went to 66,000 in two months and then to 33,000 on October 20th, 1987, that Tuesday was the day after the crash because the Eurodollar futures, that's when they moved up, that 37 standard deviation move. So no, but it takes a while for some of that to sink in. So you don't realize it right away, but I did know it was a historic event. I was lucky to survive without, you know, without losing all my money. And, and I tried, you try to set up a model. What are you doing?

It's trend following. I was trading 21 markets and trend following model. It was a turtle version. Kind of a turtle version. Yeah. Yeah. And then said, all right, I'm coming back to Canadian. I'm going to do this for a living.

Right. Right. You know, my back of a 50% drawdown. Right. Yeah. My grandfather, he said, of all the ways to lose money, why in the heck do you have to pick the very fastest one? So he was a businessman.

He had been, he had done deals all his life in oil and gas. And he had seen, you know, he was a, He was an interesting dealmaker guy that he was just great. So the oil and gas to me always is a good corollary to trend following and to, right? Because you're digging a lot of holes that don't pay off but doesn't cost a lot. And then boom, when one hits, you got this huge outlier outlier gain. So it's lumpy like classic trend following would be. Absolutely.

Yeah, no, it's an interesting. There's a lot of parallels. Risk management and diversification apply to oil and gas. very much. So how to side topic, how are all those people doing in the current? I tell you, it's panicking or they're hanging? It's really bad. I mean, right now it's worse than 86. So 86 and 14 are both kind of parallel to me. But right now, we've gone from bad to incredibly bad. You know, there's literally there's people with oil right now in the last 48 hours there have been, I've been hearing stories of just shutting in wells, just go turn off wells to say, look, we're not even selling the oil and the gas.

Usually that they at least produce what they've already drilled. They stop drilling new wells, but they at least produce what they're doing. I think I read today, we're rallying today. And because of that, because they're just shutting down production. Yeah. Yeah. And they're, I mean, literally, I know people who are out, the guys that what they call pumpers, and they go, they're turning off. wells. We've got a company on a, you know, and I invest some too in oil and gas as well. And we've got

a company that is saying, we're not sure we're even going to buy any oil from you. They canceled our contract two days ago. And so they just say, you know, and, you know, you could, and then you see $20 oil on the futures, but it's out in the field. It's like $10 oil. Really? So it's not, yeah, you've got this big basis differential. And then jet. fuel I'm reading. They don't even have enough places to put all the unused jet fuel. Right. So there's not enough physical storage out there in the world. Yeah. No, oil and gas is going to be really hurt. You know, there will be like if you had a restaurant, you could see in six months, you go open the restaurant back up. Everybody's back to work. But oil and gas, you know, you're really,

you know, it's bad for six months, but it's going to be bad for another six to 12 months because of all this excess supply that's been stuck everywhere. Right. And you're not, no one's putting the investment in right now. No. No. And that's on top of 18 months of terrible MLP and the whole industry's had a tough go of it. Yeah. No, we've really gone from bad to not worse, bad to horrible. I mean, really, I've never seen it in my lifetime this bad. I saw 86 was bad, 14 was bad. 08 was bad and back. It was that V drop. But this is, I mean, this has gone to a point where it's just catastrophic for the oil and gas business. And a business really that's used to booms and busts.

Yeah. Well, Godspeed to those guys. Oh, yeah. So then you're there in what, so you started in your 80, eight once you got back to Canadian started managing money and that was just small friends and family and whatnot. Right, right. My two brothers and my grandfather and me and yeah, my grandfather, he said, it was, so he had his, his provision was, I put in 45,000 and then two brothers put in 10 and 15.

and so I had 30,000 my grandfather put in to round out the 100,000. And I mean, he would, I mean, this is a guy who would go drill a half million dollar well and come up zero. So 30,000 is kind of in 88. In 88. So chump change to him. So he was a real wheeler dealer and did. And so he said to me, he said, he said, okay, I'll put the 30,000, but if you get down to half, if we lose half our money, we stop this commodity trading nonsense, throw that quote machine out the window and get back.

to real business. And so I said, okay, so that's January of 88. Well, it's funny then. So January, well, February, March, April, May, it's going down. 81,000. I start May. Well, May, the first 10 days of May were bad. And I'm down to just above 70,000. Well, then I remember about mid-May, because I was hoping would stay above 70,000. Well, it dropped below 70. And I'd get this fax in, you know, those curled up fax machines from my little thermal paper. Yeah, that, whenever that paper was. Yeah, yeah, that's right. And so he comes in. And so he comes in. my office, sticks his head in that morning. He said, where are we today? And I said, $68,742. And he's just a matter of time. He wanted to get you into the oil business. Oh, yeah. He was like, let's stop this junk.

And this is a waste of time. And you know, and I remember I showed him a big, a big simulation. I said, look, granddad, if I had done this, look how much money I'd have made over this year. And he said to me, he said, oh, Salem. He said, you know, you think that, you and that Notre Dame degree you think you're pretty smart but those guys in chicago man they're going to eat you for breakfast spit you out for lunch he said he said you know he said what do we do all this paper i said well look at look at all that he said what do we do this we send it to chicago they cut us a big check and i said well no not really but and so yeah so he was to say he was a non-believer is a is a big understatement but so the funny thing then is middle of may 88 you know then if you remember the drought of 88

kicked in. So I was 68,000 in the middle of May. By the end of May, I was back above 100. By the end of June, I was at like 170,000. And it ended the year after I was at a fee of zero and 20. So a 20% incentive fee. After that, it was like at $240,000. So it made 140% year one. So that was a pretty good cost of living increase in Canadian Texas. Oh yeah. You bet. 88. Yeah. No. So that was so that, so that, so Well, then I traded till January of last year, January, end of January, 2019, I stopped trading. And had a great time. And we had, you know, as much as 600, a little over 600 million at one point. When we shut down, we had a little over 200 million.

But we, you know, the hedge fund space had gotten tougher. Fees had gotten lower. You know, I think we've, and expenses at higher. So what used to be a great business had gotten to be a good business. And it had nine years of, oh yeah, very tough, the toughest on record trend following environment. And we had, and then we had this new idea with the Fortress Fund, this new fund that we're doing. We had started it a year earlier back in the middle of 2018 and we were excited about what it could do. And really, it was an opportunity to kind of come from being, it's like being a baseball player going to be a manager a bit.

So the Fortress Fund is a little bit of a hybrid between we manage it and we trade a little in it, but we also have a lot of outside traders, third party traders, hedge funds in there. So it's an interesting opportunity for us to, and for me personally to kind of slow down a bit, but really, too, to interface with, it's really well suited for foundations and endowments. And it's kind of, it's playing off of my role as being on investment committees. and then in the nonprofit world, and you see a lot of small foundations, and by small, I would say, really anything under 100 million, they just really tend to do a poor job of managing their money. Some do a really good job, but some, I'd say the majority have trouble either if they do a good job, then the fees are high or they, so, and they, and we just say they don't have a lot of scale. They don't have a lot of leverage.

It's all about resources. Right, right. And so that makes it harder. and they can't attract good people on those are investment committees. And so that's, yeah, that's it. We'll come back to Fortress in a little bit. I want to go back to 88 in your quote machine that your granddad wanted to throw out. What were you used in?

How were you generating your signals and all that way back then? So I had a Tandy 1000, I used Tandy 1,000 computer that was, you know, that orange screen and big mock. Is that like a Texas Instruments? Was that its own brand? Tandy was its own brand, I think. Maybe it was a part of Radio Shack, I don't know, but I couldn't afford a new one. So I bought a used one. And I had charts.

I'd send it every week, and I'd mark the charts every day, you know, update them. And then I would just generate signals from, you know, running the numbers. And I'd have my numbers every day. And so. And you'd actually run a basically a back test manually. So I had, yeah, no, I had, it was back then it was system writer. So which now became Trade Station. Yep.

I remember. And I had a, I had another programming. It was called Keyworks was a, you could, it would memorize your keystrokes. So you could essentially write a macro on top of system writer. And it would, it took about 24 hours to do one simulation. Wow. And this is before you had a team or anything. You're doing all this.

Yeah. yourself. Right. No. Your story of bringing your granddad the, uh, the results, the back results reminds me. I was starting attain capital and I spend all this time on a business plan and all these projections and took it to my dad and be like, hey, we check this out. And I was so proud of it. And he just turned to me, he goes, nobody loses money on a spreadsheet, son. Well, and it's good advice. You know it's good advice. But do I do it? He's like, do whatever he want. But it's not going to look like that. I'll guarantee you. But I think, you know, it instructs me when I, with eight kids, when I want to kind of scoff

at them and say, you know, kid, it's not that easy. And, you know, no one cares. No one loves you. Your mom and I sort of love you, but that's it. You know, you want to give them that speech. But I remember I got that speech, but they were wrong because it did work. Right. And so now about three out of four things he told me I was wrong on he was right.

But the one was a good. That's right. So I wonder with my own kids, well, maybe this is one of those one out of four. I better give them the benefit of the doubt. I don't want to throw water on cold water on everything. And then somewhere in there you told me the story once you were one of the largest electronic traders or you had a whole. So you started to hire a team and have technology in the whole bit. Well, so we had, so in the late 90s, so hedge funds, you know, the stocks, if you look at 95, 96, 97, 98, 99, those five years.

I think the worst stock performance was like 22% to 38. And it averaged about 25% stocks did for those five years. And I remember someone said to me, at the time I was working for Commodities Corporation, which was a great group of people. And I was one of their traders. And they, well,

someone said to me, why would I want the risk of futures if I can make 20% in stocks? And I heard that the last three years. Yeah. And I said, yeah, exactly. the same that we've heard lately. And I said, well, no, I get it, but I just don't think it'll keep that up.

Well, so we had a lot of money leave. We were having five years of tough performance. Stocks were doing great. So when the money left, what we did in 98 is I got a membership on the Chicago Mercdil Exchange, got a quote machine. What was then, Globex, their Globex machine. And we started coding and we got permission. We are the first people that had permission from the CME to automate order entries,

to have a computer generated order. It took us, we had to get board approval. And so we started doing arbitrage electronically with my personal money. Because so in like 95, I had 130 million under management. In 1999, I had 3.7 million of which it was 90% family and friends and my money. And so then I had, I opened a broker dealer with my own money and started doing this arbitrage and you know just stuff where we were trading like an ETF like the spiders SPY versus the S&P futures or you know a lot of

ETS versus futures and there were a lot of groups in Chicago doing that on the trading floor right and so it's doing it from Canadian Texas a little different setup well and the thing that was interesting is kind of like you know the game slapjack you know except if you had you're the 10 year old that shows up with the optical recognition and on a computerized arm at hand slaps it. And you start getting nine out of 10 jacks. So we were competing against people that were doing it on the phone. And we did real well for a while.

And so we did that from 90, really 99 through 0, let's see, 05, we stopped. We stopped in 05. So for about six years. The competition started to get there. Everybody got faster. kind of the high frequency training was being born. Yeah, like true today,

what we think of in nanoseconds. Right. So when we were, when we were doing it early, we would, and we had a lot of fun. It was a great experience because you're programming. You program all night.

And then during the day, you know, you can see how it goes. But at night, it was quiet. So you could play around with their machine, basically. It was quiet.

So it was a neat opportunity. We have a lot of fun. It was fun to program like that. It was fun to see, really, the floor operation. And I think to me, I'll say, you know, this high frequency trading, it's so much better than the floor. I mean, I get the floor was good.

But I think just to be anonymous as an off as an off exchange trader, that anonymity is good to be able to feed orders in. It's cheaper. Everything about now I understand. Well, you mean basically electronic training, not necessarily high frequency. High frequency, but electronic versus the floor. I like, I just people kind of badmouth it. And I said, well, I get it. There's problems with everything, but it's better than the floor, even though I have a lot of

friends that were floor traders and did a great job. I tell people when I was a clerk and I'd go down there at 6.20 in the morning in the bond futures, you know, as a 20-something year old, hung over from the night before. And I'd have to reconcile trades with other clerks. Right. At 6 in the morning, I'm like, this is insane. We're matching millions of dollars of trades. And people are just like, it was kind of go fish.

Do you have a four lot you're looking for in the bonds? Nope, okay, I'll try this guy. I mean, so inefficient. Oh, yeah. You know inside of all that inefficiency people were like walking away from trades and hiding trades. Well, those guys with the light blue coats, they were the, isn't that the ones that the reporters? Yeah, they would end up, well, the out trades all the morning. You were fixed. It's like four percent of all trades were out trades. There was, you know, it's hugely inefficient. Yeah, no. And it's, but, but yeah, I know. So we've, and so I've had a fun. I mean, I've really, as a math geek and a data geek and to get to have a front row seat with the markets, it's a lot of fun. Just to. And for you, especially

not being a Wall Street guy or Ivy League's or right to even the playing field on electronic front is nice for you, I would assume. Yeah, no. We, because there were days we were doing over one percent of the volume of the Chicago Mercil exchange from Canadian, from a two-stop like town in the middle of nowhere, 100 miles from the nearest airport. I would have loved to see that meeting when someone at CME figured that out. And I'm like, wait, where's this fine coming from? What the heck's down there? Somebody get down there.

I could tell you 10 funny stories about people just saying, like, how did you cancel and replace an order 800 times? And you go, yeah, that's probably. It's like you did, you canceled to replace every two seconds. It's like, yeah, that's probably right. And now they have rules of like your messaging rates and all that. Oh, yeah. No, we were on the front end of a really interesting time.

And, you know, but to read like Flash Boys, the book, you know, you see Michael Lewis book. Yeah. It's interesting because about half of that I knew, half of it I didn't know. And there was probably a whole other half that he didn't know that, you know, there were interesting things that, but, but, you know, progress. Things move and the world's changing all the time. And we got to adapt. As of the end of your trend following training career in the beginning, like how much did the model change over those years? You know, we just kept, it was evolving always.

We added more, you know, we added different timeframes of trend following from shorter term to really long term. And then we even had some mean reversion things. And we had some things that were more pattern recognition. So we, anything that we could, our toolbox was find any kind of, any kind of. kind of price pattern that has a predictive value. And so we were able to find things that we were constrained just a trend. So we were able to do other things too. So I think just kind of the repertoire of models expanded.

Did you ever find yourself? I've been arguing for a while that a lot of the trend fathers have had to kind of add long bias, add a longer time frame in order to survive and stay afloat. Like you fight that battle internally of like, do I stay true to the? the core philosophy of what I'm trying to do or do I try and stay in business? No, absolutely. No, we had that, we had exactly that for, I would say, 10 years because what you saw really was the biases to add beta because you could basically go in and add, you know, you say, well, I'm a trend follower and G-WIS. Stocks are going up, so I'm to get

long and you're like, look, this is just an excuse for beta. So really, you're adding beta to the market to the model. But the research, I had one research guy that was always like, yeah, but it's better. And you go, yes, it's better. But if we have a big market sell off, we don't want to be, we've got to be that diversification. We can't be correlated. It's better if it's the only thing on the planet. Right. If they're using you to be not that thing, then it's not better. Right. And that's where, see, in a way, the fortress is that where it's like, no, we've got beta in the fortress. We got stocks, bonds, and alternatives. We do all three. But they know there's beta. So they expect it. But with us as a trend follower, there's always this pitch in alternatives. We need to be,

you know, we're going to be non-correlated and the non-correlation pitch, which is true in most cases. But I think what's happened is different groups have let beta kind of sneak in. And you've really got to be diligent in analyzing their returns to see, I know what they're telling me, but is it true in that, is there beta in here? Well, it's hard to believe, right? We just, just posted our asset class scoreboard yesterday for March. I think the SOC Gen C-C-T-N-DX was up 17 basis points in March. Wow. Yeah.

And see, that shows that they did their job. That's unbelievably hard to believe. But no, it did their job. But in the old days, you'd expect it to be up 10. Well, yeah. With energy making that move, with bonds making those moves, you'd expect it to be a lot bigger upside than it was. And for the years, it's flat to maybe down slightly.

Well, you get some guys that. that have openly added beta, but others that haven't. But we didn't see as much beta in our group of traders and fortress. We didn't see, we had one trader that really had some beta, but for the most part, we didn't see it. So it was, I think if you picked the right traders, you just got to be careful now. And I think for the managed futures business,

if I were to speak to everybody in the industry, I'd say, look, let's stay true to what we do. Let's make sure that we provide non-correlation. People have stocks. Don't give them more stocks. But the flip side of that is, yeah, but, you know, I've got to survive. It's insanely hard proposition of, right. Hey, you could manage $8 billion by putting stocks and futures together.

Right. You could manage 200 million and be a small percent of someone's overall portfolio. You know, people got to feed their families and make a living. they're going to probably choose the former. You bet. No, that's right. That's right. So, yeah, let's dig into the Fortress Fund.

We've been dancing around a little bit here. So we explain that. Can we talk about just kind of lessons before we go to Fortress? Can we talk about? Yeah, let's talk lessons. You know, over the last three plus decades, the lessons that I've learned. and I think there's things that your listeners can get some that, you know, I had to pay for some of these lessons.

So I'm going to try to give for free. Anytime you get free lessons is better. So the one thing that I've thought of is I always, you've got to be aware of where the crowd is in the market. If you think of the crowd as 100 people, some people, you know, 100 pounds, the big traders are 500 pounds and you've got to say, where are they? and if ever they're all leaning one way, then sometimes you get in a situation

where the market can't get worse or can't get better and it can only go the other way. And those are times, I think, in the markets that you need to watch for, they don't come along as often as we would like, but when they do, you've got to be paying attention. So like, for instance, I think the energy market, which we talked about are sort of that way now.

They're horrible. They can't, I think you wait another week or two and they can't do anything but get better maybe. You know, once that gets priced into the market. Doesn't it seem like that's a little counter to trend following though? It is. Oh, no,

it totally is that concept. All right. But trend following works. Oh, yeah. No, you're always with the trend. And the thing about trend following that you've got to remember is it'll go further than you've ever imagined.

Right. Like crude oil. You've got to imagine crude oil could go to $2 of barrel. I think crude oil could go to $2. $2. So that's where be open to extreme possibilities. But once you get to extreme, then you end up, you've got to understand, okay, it may not go any further than this. Well, so I always imagine it like a boat. And if you could sit at the back of the boat, watch 100 people in the boat, and you say, is everyone ever get on one side or the other,

then you need to pay attention. Generally, there's somewhere in the middle, probably 99% of the time. But every now and then you see them lean one way or the other. I was listening to the radio and they were talking, this has been 10 or 15 years ago, and they were talking about a tourist boat down at Austin at Lake Austin. And there were these tourists and they were going around, giving the tour of Lake Austin. Well, I guess part of the tour is they go by the nude beach at Lake Austin,

which is a place called Hippie Hollow. When I was telling the story, I think you had heard it at a conference. I think he called out Sean Jordan in the middle of the conference and said, Sean, what's the name of that? What's the name? Yeah, I know. He would know, and he did know. He actually did know.

Hippy Hollow, he calls it. So, yeah, so, so, tourist boat goes by a nude beach. Nude Beach is on the right, lake is on the left. Which side are the tourists on? Well, they're all on the right. They're looking at the new beach.

And now, unfortunately, nude beaches, we would imagine, they would be full of supermodels. But generally, they're not full of super models. Not so much. No, not so much. It's unattractive naked people that are fine being naked.

And so you've got these tourists on the right side of the boat gawking at the unattractive naked people at the new beach. And then so they get so far on the right side that instead of, you know, I would think, well, it can only come back. Well, there's another option. The boat capsizes. So now you've got the boat capsizes. is now you've got the tourists in the water and who comes to their rescue to help them get ashore is the unattractive naked people.

So that was the real life story of this isn't going to lower in 20. The boat capsize it went to 10. That's right. That's right. So, so, yeah, so the lesson is if you're with the crowd, you've got to be careful because at some point you may be, you know, you may find yourself being rescued by unattractive naked people. And so that's a bad outcome. So beware when you're with the crowd, particularly if the crowd is going to an extreme, you might want to say, no, let's go to the left side of the boat while everybody else goes to the right side.

And you're the one person not being rescued. I love it. I love that story. Yeah. So there's that. And then I think the other, you know, the one thing, too, is that idea where we talked about earlier, the things beyond the three standard deviations. I think to survive a financial storm, you need to study financial storms.

You say what happens in a financial storm and how do I build a portfolio that can survive a financial storm? And so that's where really, you know, we hear about diversification, but that's where that diversification and really smart and thoughtful diversification needs to come in because Right. We're talking just value stocks and growth stocks isn't diversification. No. No. And national stocks and U.S. stocks isn't diversification. Right. No, you get, you know, you can, you know, what I's liking it to is someone that does a fruit salad. And they say, hey, Jeff, try my fruit salad here. It's great. I've got red delicious apples. I've got Granny Smith apples. I've got honey crisp apples. I've got Fiji apples. You know, all these. And, you know, you know, pink.

your apples. Yeah, and you just say, yeah, no, I'm an apple orchard guy. And so, so you say, look, hey, you would say to me, Salem, this is just an apple salad. You know, you might want to try a grape or a banana. So when we just do versions of equity, we've got an equity fruit salad. Yeah, that's it. So it's not diversification. And study it in the recs. Say what happens to this portfolio in the financial recs? Challenge to, you know, when, you know, um, have, um, how, um, have, um, um, how much, um, um, um, how has been with fixed income in the last, really since 08, with fixed income getting, the rates getting so low. And now we're, you know, last week they were,

you know, they've actually been dipped a little bit negative territory on the front end of the yield curve. Yeah. So you see that and you say, well, what used to be, say, 60, 40 before 08, now is actually the benchmark is 70, 30 because people keep creeping more and more toward equities.

And, you know, equities. To the lower, lower yield. Yeah, because bonds are worse and worse. And, you know, equities are kind of like a, you know, say it's like a dog that is really nice, 99% of the time. But every now and then it goes crazy and bites you and craps on your carpet. You say, you know, I think I think you need to be an outside dog. And not even bite you, but like rip your face off, right? Right.

Right. Right. So that dog, you say, no, you need to sleep outside. I don't want you in the bed with me. If you, if that 1% of the time happens. So stocks, you don't want to get too close to stocks. In my career about once every 10 years, it goes haywire and really hurt you. And so you've got to think about that.

12 year one, a little bit of an anomaly of taking a little while to go. The flip side of that is people would argue, right, of, well, hey, you told me this and I had, I was buying puts for 12 years. and lost 40% or something, right? So it can't just be something that's negatively correlated and bleeds to death. You got to have something that survived. I think that's still the argument for bonds. But I would agree with you that bonds at 5, 6, 7%.

Yeah, no brainer. Have that in the portfolio. You're getting paid for protection. Bonds at zero or negative. I don't know if I want to get nothing for protection. I'd rather have some absolute return potential in there. Yeah. No, no, bonds are the worst.

You know, I'd rather own gold than bonds. If I'm not going to have to be in something really like that, I'd say, well, at least I get inflation. But better than that is, that's the alternative space. That's why you love alternatives. It's because, and again, as a math geek, I'm saying, well, you know, alternatives are if they're non-correlated and they have real return, like I can make a decent rate of return with them, then they really bring something to the table that's nice. And so I think in the time of, you know, when bonds,

like you say, we're yielding 5, 6%, a 60, 40 portfolio is a good portfolio. You know, 70, 30, it's funny, no one's 30. No one has 30% bonds. You go looking at the largest college endowments, everybody. They're 5 to 10% bonds. And sometimes they're high yield bonds. So it's like, well, this isn't even, this is zero bonds. Which got dumped on this in March here.

Right, right. They're equity like when, again, and then a lot of the hedge funds that they sometimes pick end up being, you know, equity like. You know, like you get long short hedge funds. You're like, okay, let's think of it. Long stocks is long equities, which is going to have a correlation, even though they say, well, the beta's point five. And you go with a beta is point five because it has half the ball. But if it's correlated at a one, it's not going to help you. So it's going to go down and it goes down less. It's just watered down stocks. Yeah, I agree. So you've had a nice story on your watered down whiskey.

before. Oh yeah, no. Well, that's it because you pay for, you're like, well, if you're going to pay for whiskey, would you rather pay, you know, $5 for whiskey or $5 for watered down whiskey? And that's where Yeah, right. People have been like, great, I'm cutting my fees. I'm giving you this new low fee product. But yeah, all I did was water down the whiskey. Yeah. No. So yeah. So you got to be you got to be worried about just, you know, in that case, you're paying hedge fund fees for watered down equities. And you're like, well, if you bought half equities and half treasuries, you've got half. You've got half. half of all, and you've got the correlation of one, you've duplicated that, you know, a lot of hedge funds that are long short.

But, you know, you get some of the alternatives like global macro, manage futures, some that are, you know, stat, ARB, that are equity neutral, not a long bias. There are some things, hedge funds that really have no correlation. They have a decent rate of return. And even better, I would argue, right, even better they have negative correlation in a crash. Right. So they have on average non-correlation but negative correlation in a crash versus some of the other products you're talking about have on average non-correlation but positive correlation in a crash. Yeah.

Yeah. You know, that's that deal of if you want to have, if you want to kind of hurricane proof your portfolio, study the storms. And in the storms, you hear people say, well, when that happens, the correlations all go to one. We say, okay, you need to pay attention to that. That's important. They do often throw that out. Oh, well, you shouldn't look at that because everything went haywire. Yeah.

Look, I don't want it. Like the compass had a magnet next to it. You can't pay attention to those. Yeah, yeah. Yeah, it's kind of like a guy that tells you, hey, Jeff, I got these seatbelts. They're really great. But, you know, on the average day, they're awesome. Now, in a wreck, they don't work.

But, and you're like, well, that one time I need a seatbelt to work is in a wreck. If the seatbelt does not work, if my diversification model does not work in the wrecks, I need a different diversification model. Agreed. So that's, so study the wrecks. if you've got something that correlation goes to one and the wrecks, that's not what you want. You want to create something that's that you want to build your financial house with the storm in mind. And then it can survive the storm.

And you've got to know, I can't put my, it's like back to the seatbelt analogy, I cannot do this in the split second while a crash is happening. If I'm in a car wreck, it's not in the middle of a car wreck. I put my seatbelt on. You've done that when you left the driveway. when everything was calm in an environment where you could build your financial, you know, your financial house that is that is hurricane proof. You built it long before the hurricane came.

So it's this idea of thoughtfully building a portfolio before the storm and how do, what things can you include that are helpful. And when you, when you do that research, you find that there's stocks and then bonds aren't, sadly are not as good of an asset anymore. But that's where alternatives can come in too. And alternatives I think are more important than ever now. And with two comments on that. One, the storm, quote unquote storm you're talking about.

I feel like people have a too narrow view of when and if that storm is coming. Like you think of that on decades long or a hundred years long. How do you view that of like what time frame you need to be potentially? for on this storm. Well, it's kind of like, you know, it's got to be, you figure your investment career, me as an investor, starting when I started trading when I was 20, I've got pretty good genes in my family if I take care of myself. And, you know, so let's say I trade till I'm 90. So I'd say over 70 years, you know, it's kind of like dying. It only has to happen once for the game to be over. Exactly. And that's where, you know, you say, okay, if I only have to,

have to go broke once to be broke forever because you lose your stake. So you've got to, I think you've got to look at it. And then if you look at it in a, you know, a 70 year time frame, you say, well, it's not if it's when. There will be a storm. And in my experience, there's an extreme storm about every 10 years. And so you, you just, it's, it truly is like wearing your seatbelt. I mean, the odds of needing your seatbelt, you probably need it once or twice in your

life. You're glad you wore your seatbelt. And you want to make sure, you know, the same with building a portfolio. You say, I need to build it knowing that there will be a financial storm at some point. And I have to be always ready for it, just like I have my seatbelt on. And then my other comment on this whole concept would be, you know, the person who's like, I love everything you're saying. I get it. I didn't used to get it.

But now I'm scared. Is it too late for me? Like, you know, that's, that's, I'm hearing a lot of that lately. I'm like, great, I get it. I should have had all this long volatility exposure, but I didn't. So what do I do now? Well, you know, it's kind of like when in October 20th, 1987, I lost half my accounts value. But what I did was, I soaked up the lesson. And, you know, I think that first storm, and even there was a storm came in January of 1991. I think it was a 17th. It was a Wednesday night, 6 o'clock.

The U.S. starts bombing Baghdad. Yep. And crude oil, I lost. That was the biggest percentage lost day of my trading career as a hedge fund manager. Again, it sinks in because it was a losing time. But those times, so when something bad happens, you can either say, well, I'm to learn from it or not. And to me, what, a crude rallied? You were short?

No, so everybody thought crude was going to go up and it paid. So it sold the news, yeah. Yeah, it was, yeah, buy the rumor, sell the fact. And I sat there, and I wrote it down when I was done. The markets didn't behave like I thought they would. I thought gold would go up. I thought stocks would go down. I thought crude would go up.

Everything went opposite of what I did. And then as a trend, as a systematic trader, what I did was I let my system run. And there's times that I would say the systematic model is always looking and assessing risk in the rearview mirror. And sometimes as a human, you have to say, okay, it's not assessing risk properly because there's something getting ready to happen. Let's say there's an earnings report or something like that. Like if you had a Black Shoals option pricing model where implied volatility is different than not than the historic fall, because you say, well, there's something getting ready to happen. Therefore, the market's built in a higher ball.

So as a systems trader, I learned I needed to override the risk parameters and add more risk in the models so it would lower my position sizes. Yeah. My example to clients I was there is say there's some huge asteroid coming to hit the Earth. and they send a probe out to check out if it's on the exact trajectory. Vol is what it is looking backwards until they say, hey, Wednesday at 4 p.m., the probe's going to tell us if the asteroid's going to hit the Earth or not. Like there's just a total phase shift.

It's binary. If it comes back, yes, volatility goes 50X. If it's no, so, yeah, I agree with you on there that you can't always be looking in the rearview mirror. No, and you need to adjust your positions knowing that, hey, there's going to be a big event. because like you say, it's either all good news, all bad news, a binary, and the market's going to react. But in the meantime, there's no vol. Everyone's on the edge of their seat, ready to move one way or the other. So my back to your point is it's never too late because there's another train wreck.

There's another storm coming. It may be another 10 years from now, but it's never too late to do it. And sometimes they're not evenly spaced. You know, when the crap hits a fan, it's not evenly distributed, and it doesn't come. It doesn't come in nicely spaced intervals. And so we don't know when the next storm's coming. It could be in six months or it could be in, you know. Right.

And who knows if we're even out of it yet, right? Oh, yeah. No, there's plenty of storm left. This, you know, the interesting thing as a data person, you know, I panicked on panic. I kind of rang alarm bells at Abraham trading on January 26th. I said, look, this is a big deal. We need to watch it. And then over the next, because there was about, I think, 500, less than 500 deaths in

China and about 22,000 cases. And I said, I wanted to see if, if, if, uh, what I would consider a top medical country had people die. So, so it was about a week or two later, someone died in Japan. And I said, no, this is serious. Yeah, that's a real deal. Yeah. Because they, you know, they can't blame it on well, the medical care in China. Hoam, well, the, well, now we're hearing that they're really like 40,000 deaths in Wuhan. And they were underreport. And they were underreported. morning. But to me, this whole thing's been interesting. You can quickly see the type of people that understand exponential movement and outlier events and all that. They were worried and they were preparing. And other people are like, what do you time about? There's only 20 deaths. Right.

And it's like, yeah, if you double that every two days, it's a big number. You know, it's that joke, would you work for me for 30 days? I'll pay a penny the first day, but I'll double it every day. And by the end, you want a million dollars now or a penny doubled every day for 30 days. Yeah. And by the end, it's, like, 450 million or something at the end. Yeah. Yeah. The last day. So it's crazy. But, you know, because it's a penny, two pennies, four pennies, eight pennies, 16 pennies, 32, and you're like, this is, this stinks. You're like, give it time. Right. My kids have that of how many times do you have to fold a piece of paper to reach the moon? And it's, I think it's 46 times. Wow. But that's the, right, the 45th time, you're halfway there. You're halfway there. The big, that 46 fold is a big one.

We've tried it. We can only actually physically fold it, I think, six times before it's too unwieldy. Yeah. Well, that's fascinating. Well, that's good. Well, the exponential piece is the part that you, it's kind of like compound interest. People underestimate it. So those lessons, that's what led to the fortress. The fortress fund was an idea that, you know, where we were in an alternative space with a hedge fund. And we would say, You know, Jeff, we do this one thing in the hedge fund space. We could be one piece of your 20-piece puzzle. And then we would see them really mess up the other 19 pieces. They wouldn't do a good job. And so that's-

It might even fire you because they screwed up the other 19, right? Right, right. And so what we did, that's it. And so with the Fortress Fund, and it's an outgrowth, too, of Boone Pickens and I did a foundation together. called the Pickens Abraham Foundation. We both had put in two million bucks to help kids in these these two counties of Hemphill and Roberts County, Texas, where Canadian is and where his ranch was. And, you know, total population in the two counties is about 4,500 people total. And you've got two

school systems. And we wanted to help really kids and do college scholarships, things like that. And so we did that. I knew you were down playing your. charitable efforts earlier. Okay. Well, so. So congrats on me. Yeah, no, well, it was fun. It was fun working with Boone. And we, he cares, you know, about obviously OSU and, and there's a lot of kids in our area, go over to Oklahoma to go to go to school to. And so we, so we, it was fun for me because I got to be king of my own investment committee. So I had my two million, I got to invest. And Boone invest is his two million. And so we ended up then, um, so I got to be. Um, so I got to invest. to try out what I wanted to do if, you know, if I could be king of my investment committee,

because, you know, they say what a committee formed to build a horse, you get a camel. And anytime you're on a committee, I always remind myself when they're doing something that I think is stupid, I'm like, okay, I guess here's one of these stupid humps. And I just kind of keep my mouth shut and know that this is the inevitable outcome. Steve Jobs famously said, we have no committees at Apple. Yeah. We run it like a startup and he would say like, no, that button's stupid. Well, sir, everyone thinks it's like, no.

Yeah. Yeah. Yeah. No, no. Well, there's some, yeah, there's good and bad with it. I'll say I've seen the wisdom of a committee, but I've seen the bad of a committee. And the part that's bad is a committee. They don't believe the math.

They really want. We've all been taught like 60, 40. Who came up with that? I mean. Yeah, it just became a thing. Yeah. Yeah. 73 people pull these numbers out of their ear and everybody says, well, you know, we've been all been taught.

I'm like, well, have you ever done the math? Because the math will tell you a different outcome. And to me, what I always saw when I looked at the math is I'm like, look, your stock portfolio, your stock piece is way too big. You've got way too much risk to stocks. You need to reduce that. And you need to bring in alternatives, but the right alternatives. So there was this real clear way I had in mind.

And so I did that for 10 years in the Pickens, Abraham, and it did really well and had this proof of concept. And so then, and at a much lower risk. And so then that's where the team said, we ought to have this as a product because there's a lot of foundations and endowments that could do this. And so that's where the Fortress Fund came. And we, you know, and then our fee was just 0.65 percent. So we have this low fee. And we say, look, and I've got, you know, I've got over 10 million of my money in it either personally or my kids or then now my foundation. And so I'm like, look, you basically, you co-tell me I'm going to invest in stocks, bonds, alternatives. It's the whole package. And really, you know what, it's like Ray Dalio's All-Weather Fund. I thought that was a neat idea

what he did. And so it's, and it's probably half the work for me. It's a smaller team on my side. You know, it's, again, back to the baseball analogy, I don't have to get up for 6 a.m. workouts. And, but I've got a great, you know, so, but we have between 6 and 12. hedge funds that we invest in, third-party hedge funds. So it's a neat product. And so the Abraham classic model is not one of those funds? No. It was for the first year of it from 2018 to 2019. No, we don't. We just say, no, we're going to let third-party people do it. And then, and so it, I just think it's a cleaner model. And I think, too, it becomes a model that, you know, someone says, you know, Salem, you just handle it.

You know, I was talking to a lady this morning who does a foundation in Lubbock, Texas. And, you know, they're worried about people in Lubbock now with the coronavirus and how do they, you know, they've got, they're worried about the mission they have. And what it allows us to do is we can come in and say, look, let us be your investment committee all in one. Your foundation's invested along our, my own foundation and my own retirement money and some of my kids money. and so you say, yeah, and then just coattel me and, and so it's a fun product. But, you know, it's like what you all do at RCM, where if someone comes to you and you say, look, we would like to understand alternatives. Can you help us?

And, you know, and you all can look at their portfolio and you can give them a piece of that portfolio. Because the hard part is, and I see this on investment committees, people don't understand alternatives. They don't do the math. They don't have the depth of knowledge that, like someone like y'all would have or others there's you know there's I think there's probably a dozen really good alternative shops in the country that understand it well and friends of ours and people like RCM and so and it feels like they usually end up with a big name because of that lack of understanding of like all right if I don't know the right one to pick

I might as well pick the one everyone else picks yeah and no one got fired by an IBM approach right no yeah no absolutely you see the The big, yeah, the big, the big marquee names, but the reality is, you know, and I had this discussion with a consultant not long ago. I said, look, they're a big name, but I think the smartest people don't work for the big names, really. They go out on their own and do their own deal. So me and the business, I've just seen the smartest people go do their own deal because

that, you know, the big name, you pay to be at the big name shop. so they can't the best talent the business goes and does their own thing so yeah I agree I mean yeah and so then on fortress are you guys also running the beta piece we yeah no we do the stock so we do beta and we'll do stocks and bonds and there's no so we don't do there's no mutual funds no we just pretty much index those so we say look we're going to give you you're not trying to add out there just let's get a pure beta right so we do beta by ETF or whatever right but no but no not even but we don't have ETFs. We build it like, you know, when we did the, so going back to say the equity arbitrage stuff

that we did, so we would build baskets. And so we were like, well, we know how to build that. So there's no cost. So we don't want the nine basis points of SPY even. We just say. I love it. There's not too many people are worried about nine basis points. Yeah.

And we know how to get around that. Yeah. And the piece of just the third party, I don't want to have my money in an ETF. I'd rather have the exposure directly that. then, you know, my grandfather taught me about CIF, and CIF is cash and fist. It's like, look, you better be in your fist if it's your cash. So I want to make sure I haven't given my money. I want to have it close to my hand.

Yeah, and we've seen in this crash some of the bond ETFs and getting dislocated from their nags and whatnot. Right, right, right. And it's in the storm that you have trouble. And that's when you don't have trouble. And so this started just for your Pickens, Abraham Foundation. Right. We should have come up with something more clever for that,

the Abraham or the Abram. I have a lot of respect for Boone, so he gets to go first, Pickens Abraham. And but then you said, hey, where other people are approaching you? And you said,

well, we've got this programmer running for this foundation. We can run the same thing for you. Right, right. So, and then it's since, so the way the foundation was set up is, if either one of us, if Boone or I, the first to pass away, then it gets split.

So his part went to the T. Boone Pickens. My part is in the Salem and Ruth Ann Abraham Foundation for my wife and I. And so we, so then, and really that's then where, and the Salem and Ruthie and Abraham Foundation is invested in the Fortress Fund. And so it's, you know, we don't pay fees. The foundation does not pay Abraham training fees because of conflicts of interest. but it um so that's where 100% of my foundation is it is where uh about 90% of my kids money is and then i've got a big chunk of my um retirement in there as well so it's it's a safe place

to put money your wonderful daughter kate works for the fortress fund she i know she's and ham training and yeah no so she's the oldest of the eight kate is and she is director of marketing and a smart girl yeah and you know that the good thing jeff about eight kids is i tell people said you know the diversification works in all ways. And with eight kids, you know, you're bound to have a few winners out of eight. And there's not as much pressure, you know. And then, and, you know, like in your family, you're one of the winners, see. But you go, but, you know, there's bound to be a few losers too.

Oh, we got so. And you go, okay. We love them, but, you know, but you say, but again, there's no pressure. You say, you know, if you have one kid or two kids, you're like, oh, they got to be winners. And you're like, with eight, you're like, no, I'll just accept the average. Let the chip see where they, where they, where they, I love all my kids, but yeah, no, Kate's one of the winners for sure. I'm not sure about some of the others.

They're all. I get it. I'm in the same boat there. Yeah. In a quarantine, too. Now with the quarantine going on, we're not sure if we like him as well. I love my wife. So how old's the youngest?

Are there any still in high school? Are they all out of them? Two in high school. It's a junior and a senior. The youngest turns 17 Saturday. So we're, yeah, about 17 to, we're in that 10 year, 10 month, that two-month window where there's from going to be 27 to 17. So my kids are young, eight and 11.

So I've been saying, like, I feel bad if you were in high school right now during this lockdown and all this stuff or even in college, like taking away some of your best years. Yeah, so three of our kids are in college. They got sent home from college. We have a senior who she's, you know, no junior senior prom, no, probably no graduation. know all the end of school stuff. So no, it's kind of a bummer for them for sure. Yeah, this is going to shape that generation in ways.

We probably don't even realize yet. Yeah, they'll all be tulip paper hoarders. I don't get that, but we do have a lot ourselves. Yeah. All right, we're going to wrap things up here. Anything else you want to add on the Fortress Fund? No, no. I just think it's in the portfolio approach. No, I think it's good. I just think yeah, no, I think we've covered it well. I actually had a question. I just remembered. So is part of the whole idea there's the rebalancing as well? So right. Well, so. If stocks are doing really well, I'm going to take chips off table, put it into the alts. Right. In a period right now, the alt's just paid out. I'm going to take that off. It's going to allow me to buy into stocks at these lower levels. Right. No, yeah. No, we there's, there's some rebalancing. There's some risk management to, you know,

you know in January and February we were actually you know a stock volatility went up we there's some rebalancing there that doesn't happen very often that would be something rare but typically we're about 45% allocated to stocks 20% bonds and 35% alternatives and so will you amend that per our bond discussion or that'll stay no we always have some exposure to bonds I don't like it but we're gonna have exposure to it it's how the math works yeah no you well you know and if you're competing our competition is really we're trying to beat the top 10 college endowments. And, you know, if you're in a, if you're in a, you know, a contest who can make the best spaghetti, you got to have noodles and red sauce.

So we got to have stocks and bonds. It's the spices, Jeff. Yeah, Harvard's been coming under a lot of fire because they're like laying off their cafeteria workers and stuff. It's like, why do you have this $50 billion endowment if you're not going to use it in a scenario like this? No, exactly. What is it for? All right. Well, it's just to keep building bigger and bigger. No, no, I think that's right. Great. Well, I'm going to switch over my background here for our favorite section. Yeah. Give me a second. There we go. Inside the Millennium Falcon.

Hey, look at there. There go. That's great. Yeah. So this has been a great episode. Thanks for joining us and sharing all your wisdom. We wrap up all our pods with a little bit rapid fire favorite section. So I'm going to ask you some of your favorite things. Okay. Favorite animal on the ranch out there.

Oh, you know. So honeybees wouldn't count. That's an insect because we like our honeybees. I think an insect's an animal. We could give you. Yeah, I'd say chickens. So the chickens we just got so we can get our eggs. Yeah.

Yeah, my wife's cousin, they're in Seattle and they have three chickens actually in their little backyard. So they say they get an egg a day. Yeah, no, that's it. You bet. You bet. Do you listen to podcasts at all? Sure, some.

Yeah, what are your favorite podcast? Oh, man, the derivative. You don't love the one you live, right? Yeah, besides this one. Besides this one. You know, I like the one that the systematic investor, with Jerry Parker and Moritz and Neals, those guys. That was fun.

Very good. Yeah. Favorite orchard crop. they call it a crop or a a crop yeah peaches i like peaches now apples i make more money from pecans though yeah there's a uh a old fund a fun a guy here in chicago he quit retired moved out to californ and started an almond operation and say makes 10 times more money than he ever did in the hedge fund business well it's a it's a good um fixed income substitute i would say because you you make Now, it's a little lumpy, but it provides regular income.

And it isn't, you know, negative rates. It's a, you know, I think you can make on an orchard. If you're willing to kind of put up with the extra work with it, you know, you can make 8 to 10% on your money and really not work that hard. So really. And then, so does that, are there management companies or people run all that and you're just the investment or you got to figure all that out? No, I've got, I've got, I've got, I have managers that run it.

And then there's a one main orchard manager. that he runs the orchard here and then he manages the other two. Helps manage them. It kind of oversees it. I could do a whole podcast on orchards. I'm so curious, but I'll just, the last bit on orchards is,

have you seen a downturn at all with what's going on? No, you know, less likely to get there in an upturn, they want more? Or is it such a long lead time? It doesn't matter. No, it's kind of a little of both.

You know, I think ultimately there's going to be, it'll help, but we've got to pivot where we've got to do more kind of deliver to your door. You know, if I could say, Jeff, hey, in these trying times, we're going to deliver a box of fresh peaches to your door. Then you say, hey, right from the orchard. And so I think that's what that kind of thing with peaches and apples and that pecans.

Pecons will be interesting. But I think people right now, you know what, pecan is a food that you can, it stores well. So you don't have to refrigerate it and it can sit there, you know, in the shell. and so I think that the things I have are going to work well. I think others, it's a little harder. It depends on how well it stores. And so it'll be interesting. We don't know yet.

Yeah. It's odd to me you've chosen crops without futures markets to hedge. Yeah, no. No, it's more fun. It's in a way, you know, the volatility, you get, you, you get, I think, rewarded for that being willing to take a lumpy set of returns. And if you diversify, it's kind of like, alternative. If you diversify on their non-correlated stocks or non-correlated crops, you know,

in this case, you say it'll work out. Yeah, pecans and apples are pretty, I mean, I guess you could have both those could be a nice pie, but. Yeah, I need a pineapple orchard and then I can get in the fruitcake business. So I don't know if that's as lucrative. Favorite investing book? you know i i really like jack swagger's uh market wizard and new market wizards i like those were you were you in either no it would have been better if i was in there but yeah i was featured no but you were in covel's book right yeah no i was and you know i think with um to read an interview just you know i think to really hear the words of a trader is important sometimes you see there's something lost in translation so i liked it where it's that interview

style. I think that was helpful to me. You know, I like two other books I like, which are just good financial advice. There's one called The Richest Man in Babylon. And then there's a book, Rich Dad, Poor Dad. And they both are really talking about the importance of saving. And, you know, to save 10% of your, you know, in that discipline to save. You know, I think one of the, you know, the one of the biggest things about building wealth is saving. And saving early, especially early. Right. And it talks about those in those two books. So I think for someone that says, hey, I want to have some money and have a good retirement, read, yeah, richest man in Babylon or rich dad, poor dad. Both of those are really good books too. Got it. Favorite, what do you have down there in Canadian? Tax Max or or barbecue or

Mexican food? Oh, all of it. Yeah, no, it's all good. Yeah, you can, you just, it depends on the day of the week, right? How many restaurants are there there? In Canadian, so we have the Dairy Queen and Pizza Hut are the only two chains. The nearest Starbucks was 101 miles away. Then they put one in a grocery tour 45 miles away. So we don't have, but there is a good coffee shop. But then there's the best restaurant in town is, so we're on the second and third floor of our building. And the first floor is the cattle exchange steakhouse and barbecue place.

And they were listed as one of the top barbecue places in Texas. And, you know, it's a barbecue that's just one floor below you. Stakes 1 4 below you is better than barbecue and steaks 500 miles away. So that's got to be at the Cattle Exchange Steakhouse for both barbecue and steaks. I love it. I can't wait to go back out to a restaurant. Yeah. Yeah. Absolutely. And then we ask everyone lastly, your favorite Star Wars character as I'm sitting here in the Millennium Falcon. Yeah. No, you bet. And it looks very cool too. You know, I would have to say Luke, Skywalker, because just because, you know, Yoda, it would be great to be, you know, I would, I guess I'm trying

to identify who, Yoda is way, he's, he's like there. He's arrived. Luke is too meta, yeah. Yeah. Luke is on the journey. Luke is still seeking knowledge and Yoda's given knowledge. I don't know, you're probably pivoting more to Yoda these days. No, well, I don't think. You're giving out knowledge. Any trader, yeah, you never get to Yoda. The Yoda is the ideal. And Luke Skywalker is all of us on that journey to our best version of ourselves. So I think whatever you're doing, you know, you always hope for that force to be with you and good and all that. So I like that. I love it. That's our best answer yet out of anybody. Oh, man. Well, all right. Well, thanks so much for joining us, Salem. This has been fun.

And good luck with the Fortress Fund and all you're doing to help everyone down there in Texas and St. Jude and everything. Yeah, well, Jeff, thanks for having me. Thanks for having me, man. It's great to be with you stay safe too, and I look forward to sitting down maybe to some barbecue or steak sometime soon in person instead of just. We'll do. I got to make it down that way. My brother's in Dallas. Maybe I'll drive and stop in. Yeah.

Stop in. We'll take good care of you. We'll make sure you show up in Dallas heavier than you left Chicago. Okay. That's it for the pod. Thanks to Salem belatedly five years later. Thanks to R Sam for sponsoring. Thanks to Jeff Berger for producing.

We should be back next week. I'm not sure of the exact schedule, but tune in and we'll let you know what's going on. Peace. You've been listening to The Deriviviviv. Links from this episode will be in the episode description of this channel. Follow us on Twitter at RCMaltz and visit our website to read our blog or subscribe to our newsletter at rcmaltz.com. If you liked our show, introduce a friend and show them how to subscribe. And be sure to leave comments.

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