The Derivative - Timing, Triggers & Transparency: Inside Potomac Funds’ Tactical Investing Playbook with Dan Russo

Episode Date: January 29, 2026

In this episode of The Derivative, Jeff Malec dusts off the dress shoes and steps out from behind the webcam for his first in-person interview since before COVID. He heads to Potomac's studio to sit down with Dan Russo, Portfolio Manager and CIO, for a conversation on why investing theory often breaks down when real life shows up. This chat covers why market timing isn't about catching every move, it's about avoiding the ones that cause lasting damage. Dan also explains how Potomac applies systematic, rules-based models built on trend, breadth, and intermarket signals, why cash is a position, and why many popular investing slogans oversimplify risk. SEND IT!Chapters:00:00-00:19= Intro00:20-08:05 = Tactical vs. Passive Investing, Education in Investing, & Understanding Market Timing and Drawdowns08:06-21:47= The Role of Education in Investing & Analyzing Market Trends and Health21:48-35:32= Combining Technical Analysis with Market insight35:33-45:22= Advisor relationships, Portfolio management & Market Psychology45:23-54:56= Cash as a Diversifier, Tactical Strategies & Risk management54:57-01:01:53= Future directions, Market Adaptation & The Evolution of Trading01:01:54-01:06:35=  Parkerization and Pinot: Hot Takes on the Modern Wine IndustryDon'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

Welcome to the derivative by RSCM alternatives. Send it. Everyone, we've got a special edition here. I'm in this lovely studio in Bethesda, Maryland with Dan Russo of Potomac Funds. Dan, how did you guys come up with this cool studio? What's the story here? So the office here is new. The office here in Bethesda, Maryland that we're sitting in.

We opened early July. We were traditionally, or we were all fully remote for them up until then. We have always believed in content. We were doing a lot of the work, you know, Zoom calls, team calls, just recording from our own home offices. So with that in mind, we kind of said, look, we want to lead with content. We called the content bazooka. And we think it adds a lot of value. So having a professional studio with the people to staff it and all the right equipment to do it right was really important to us.

So it was part of the buildout. It wasn't like we had a spare room or converted an old closet into a studio. It was part of the plan all along because we do like to lead with content. We do believe in transparency. As a tactical manager, we oftentimes look different from traditional benchmarks. So because of that, we feel that we have to not feel, we want to explain what we're doing, how we're doing it, why we're doing it. Because the way we invest lends itself to a lot of questions, number one, and listen, we've been doing content for a long time. We see it everywhere.

It adds value. And there's something to be said for production value. You can see the value right here in the space. You offered that I could put stuff on the bookshelf back here, but I declined. I should have brought a Bears helmet. Hopefully we win. This will probably be out after their next playoff game. So a lot of people like to lament about their football teams or get excited about their football teams.

And they're just, I'm a Jets fan. So the entirety of my life from a football standpoint has been absurd. So I don't even get involved in those conversations. but down here, we are big commanders fans, who also didn't have a great season. Not Ravens? No. Okay.

But I'm not from here, like I said. I'm a Jets fan. You had that one season with Rex Ryan and who was the cornerback? That was the lockdown cornerback. I don't remember. So there was a brief little moment there. The content bazooka. So you actually ended up here because of your own content, right?

Or because of following content? I did, you know, social media actually. Manish Kada, our CEO and co-CIO. We followed each other on Twitter, now X, and I would do these video hits from my home and was doing a lot of writing. It was active on social media, just trying to add value, put content out there. And they were doing the same. So I was following along.

I guess we were following along with each other. And then one day, Manish posted on Twitter that he was looking for somebody to come in and help out as a portfolio manager. So I just sent him a message. Like, hey, I think it's, hey, man. I saw your post, would love to chat. And so we got together that way. I actually don't think there's a copy of my resume here.

But I think it was all just through connections and through the content creation. I guess he was reading a lot of the work that I was doing. I was reading everything that they were doing and watching along. So it ended up working out. You know, we had the conversation. And that was March of 21 I started here. Any Twitter spats between you two? No.

Arguing some finer points of something program. Listen, it's not worth getting into Twitter spots. It's a horrible use of time. You know, I think, you know, like anything else, if you can have intelligent disagreements with people, you'll learn something. If you want to be an ass, you're going to come off looking like an ass. What kind of content were you putting out? What were you doing that for? Just personal?

Just some of it personal, some of it professional. You know, I was working for a small quantitative research shop at a Philadelphia, so I was working from home. So just ideas about the market, things I was looking at, you know, as a chartered market technician, I'm looking at, you know, thousands of charts all the time, things that look interesting. different relationships, just, you know, having the dialogue. It was still an interesting time, you know, coming out, you know, 2020, right, post-COVID and the whole 2021 meme stock craze. You could put a chart out on anything and probably get some, you know, get some following, get some engagement out of it.

But for me, it was always, you know, I don't know. I guess my rub, if I want to rub people the wrong way is I came from an institutional background. So, like, I don't understand the whole retail, me. game craze, game stop, and whatever, maybe to my detriment, maybe not, but I was like, you know, not to sound like the old man, you know, yelling at the cloud, but like, you know this is not going to end well, right? You know these are not good companies. I think it happened recently with somebody that was a hardware company that was an AI play, that everybody was bidding up. And I happened to know the company well from a previous role that I had.

And I would go on Instagram, I'd be like, you all realize that this is a terrible company with terrible management. And I'd get attacked. And I was like, you know what, this is not worth it. We have had one of our most listened to podcasts was back during that GameStop thing. We had a guy on. But one of my college buddies, high school teacher in Michigan, his student came in crying like, I lost all this money.

I don't know what to do. Right? Like getting caught up in this game stuff thing. So he's calling me like, how can he get out of this? I'm like, he can't. Yeah, exactly. And that's,

you know, that's another reason that we're big on content because we believe in education to you. I think a lot. Like I remember during that time, you know, people losing money and then wondering if they could essentially get a refund.

Yeah. Like, oh, hey, I bought this stock. It went down. Can I return it and get a refund? Like what? So I think education is a big part of the content that we do as well. Again, as I said, we're tactical managers. We're not just buying and holding the S&P 500. We're not buying and holding cheap index funds. We're tactical, right? We're in and we're out. And that requires a level of education for people to understand our clients. The financial advisors have to explain to their clients, right, why do we own this? What are they doing? So education is a huge part of investing. I'm actually not a huge believer in the whole. whole like democratization of trading and like the gamification. You go on an app and you buy a stock and confetti is falling all over the place. I think you need to lead with education.

This podcast is not brought to you by Robin Hood. Apologies if they're a sponsor. They are not. No, we, and I've actually talked about that before. I'm like, what, what are you doing? Like, why? And how is the SEC or whoever's allowing that of like confetti, you sold an option? Yeah, I even, you know, regulatory aside, right?

I, you know, it's not a game. You're right. You know, I always kind of tell people, people always ask, like, you know, oh, I read this book and I want to open an account and trade stocks. And I was asked people, do you follow basketball? Sure. Do you know who LeBron James is? Yes. If you got on the court with LeBron James, do you think you could win?

No. You're doing the same thing in the market, right? Yeah, if not more so. You're in there with everybody, right? from the mom and pop investor to the greatest traders and hedge fund managers of all time, right, and everything in between. Like, you're gaining in the ring or you're getting on the field or the court, whatever your analogy, with these people.

Like, why do you think you should take that lightly and like it's a, like, and that you have a chance? Maybe you do in the short run. But in the long run, you know, it'll end up like you said, the teacher wondering how they can get out of this. I'll one up you on that. We did a post once. If Bill Gates was as tall as he. is that much more wealthy than the average person, he'd be 313 miles tall. That's actually interesting.

Right? So it's like you're not just getting on the court, LeBron James, you're getting on the court with a 60-foot, 1,000-pound LeBron James that can just put it in the net. So you keep mentioning tactical. I want to spend a lot of time on that. Is that a fancy word for timing? You know, a lot of managers say tactical because they don't want to say timing. You guys actually lean.

embrace it, right? We openly, there's two schools of thought, right? There's the buy cheap, passive index funds, time in the market is better than timing the market. We flip that equation, right? We believe timing the market is better than time in the market, largely because, yes, the market goes up over time, right? We know this. And a lot of the people who advocate for time in the market will show you a chart, you know, of the S&P 500 going back 100 years. your investment horizon is not 100 years. Okay. Your investment horizon is finite.

Sequence of return risks matter, right? Sequence of returns matter. If you were getting ready to retire in early 2000 and you're like, look at this massive bull market and you were overweight stocks, you might not have been retiring, right? And our whole, we believe in the concept or the idea of max drawdown, right, as a key risk metric. Right. Max drawdown is simply how far your account has fallen from its peak to its trough and, right, the greatest number of that sequence. And the reason we believe in that is because that's the ride you take as an investor, right?

I can show you a chart and say, here's what the S&P 500 did over the past 50 years. And you can see here, these were pullbacks. These were bigger, bare markets. And in your head, you're going to say to yourself, well, I can live with that because look at the outcome, right? But in the moment, can you live with that? right in my career i started actually so i started working full-time on the floor of the n ysce the week that aOL bought time warner right could not have timed it worse yeah um and in my career the market's been the market and by market i mean s mp 500 has been cut in half twice you mean

a well couldn't have timed it worse or you couldn't i could not have time it worse um i o'l was pretty brutal yeah too but um i guess great sale by time warner right right but um the market's been cut in half twice down 30% in a in a second right in 2020 right so these things can happen right and where you are in your life of your investment life cycle matters um so just buying and holding anything doesn't make sense to us right we don't believe that you should have to live through the entirety of a catastrophic drawdown now I think one of the misconceptions about timing is that you think we're we're trading and try to catch every twist and turn in the market. And that's not the case either. Like maybe there are people out there trying to do that. That's not what we're doing. Ultimately,

what we're doing is we're using quantitative technical analysis to create trading systems. We combine those trading systems in different ways to create a composite model. And the composite model answers the question, do you want to be invested? Yes or no. And then from there, we have four funds. Each fund has a different universe of investments that I can choose from, predominantly ETFs and futures. And if the composite model tells you to be invested, each fund then looks at its individual universe and decides where it wants to be invested, again, through technical trend and momentum analysis. That being said, there are times where we don't want to be in the market, right? And it's not because we're trying to, again, catch every 2% move up and down. We're trying to avoid the catastrophic drawdowns.

It reminds me of the old saying, right, you can drown in a river that averages two feet deep. Exactly right. There's a 20-foot hole there somewhere. Well, there's that. I mean, the math of it, right, you can see. But I think more importantly, it's the psychological element of it, right? It's kind of like Mike Tyson. Everybody has a plan so they get punched in the face.

Right? Until you are sitting and staring at a 25, 30% drawdown on your account, you don't know how you're going to react. No. Right? Most people don't. And most people, I think, knowing what the outcome is, say, I can live through that. Maybe worse than don't have a plan. They think they can actually.

They think they're going to be able to execute the plan exactly as they laid it out, number one. They think emotionally and psychologically that they can stick with it. Number two. And number three, and this is the part that I think a lot of people leave out, even the ones who say, hey, you know, the market always bounces back, just hold through it. And that's true. The market does bounce back, right? The market has bounced back through every correction, every bare market, every recession. but the environment that produces a 50% drop in the S&P 500,

80% drop in the NASDAQ 100 plus, right, after the dot-com bubble, is probably an environment where you might lose your job, right? So now walk me through how you're sticking with it because the market always bounces back when you're faced with putting food on table, when you're faced on making sure your kids can continue to go to Little League or hockey or ballet school, whatever it is they're doing, right? you don't always have full control over it. So we are maniacal about max drawdown because, again, that's the ride you take.

And right, we can go through the simple math of it. If you lose 50%, you need 100% to get back. And if you only lose 25%, you need 33% to get back. We all know that math, but get past that, right? Why live through it to be it with? It's behavioral. And are you, I'll get wonky here for a minute, but the mar ratio, right, are you even more so compound return over max drawdown?

It's something we pay attention to. Of course, right? Yeah, because you can avoid max drawdown. Like, hey, returns, right? So, you know, we, we are obviously focused on, you know, upside capture, the mar ratio within the context of max drawdown also, right? Because we talk about this a lot. We talk about the things that people traditionally go to as diversifiers to the market.

And a lot of them are great diversifiers. But if you look at them over time, they have no return, right? So there's always tradeoffs. You know, our goal as a tactical manager is to try to get as much of the upside as possible while maintaining a healthy drawdown relative to historical norms in the market. So why is there the timing is bad feeling in the market, right? Like what's the lived experience of most people are not good at it? The industry of why they arrived at that. I think there's two things.

I think number one, like I said, most people are not good at. Trading's hard, right? Going back to our LeBron analogy earlier. You know, a lot of people. Preferred Jordan analogy. But, okay. Actually, in fairness, in fairness to you in a lot of our marketing materials,

when we talk about how we do what we do it, we use the 90s bulls, all right? I don't even like basketball, but I even Jordan, Pippen, Rodman, and that's the extent of it for me. But, uh, you're off the hook. Yeah, fair. You know, I think that number one, it's hard.

Number two is I don't, there's no real clear definition of what is tactical. What is market timing, right? For us, tactical market timing is we can, will and do take the portfolios 100% to cash. If our composite models tell us to get out of the market, we go to cash. We view cash as a position. And over the past couple of years, it's been a good position, right?

You're getting yield. But there was somebody else who might view tactical as when I'm bullish, I'm 100% long. If I'm a little less bullish, I'm 75%. And if I'm bearish, I'm 50%. That's tactical also, right? And the metrics around that investor are going to be drastically different from us. If you look at correlation, if you look at beta, right, upside capture, downside capture, all the key metrics. That investor, who is also tactical, in fairness, will look completely different to us.

So I think number one, it's hard to define. And number two is I think most people are not good at it. And the people who are not good at it tell you it's just easier to buy and held because the market always comes back. Right. If you just buy and hold. And listen, in fairness, do those people. The past 10 or 15 years, just keep buying has been a good strategy. We've gone, everybody's been ingrained to know that the Fed is going to come in.

In the case of COVID, they had fiscal and monetary backstops. So there are a lot of people who don't know that the market can get cut in half. They know it, but they've never lived through it. Yeah. Right? Especially now. Like we're getting, it's 2026 when we're recording this. You know, the global financial crisis was what?

Yeah. 16, 18 years ago. That's great. Right? So I was sitting on a desk when Lehman was collapsing, right? I was on the floor of the NYSC as the dot-com bubble was bursting as, you know, as Enron was being exposed as a fraud, right, and everything in between. And, you know, people subsequent to that have lived through bare markets in fairness.

I let people are like, oh, young investors have never lived through a bare market. The S&P was down close to 20% in 2022. Like, yes, they have. But the snapbacks have. been a lot faster. I remember graduating. Like I said, I started full-time, the week A, World Ball Time Warner, all through college, especially the back half of college.

It was cutting class. They go day trade in the library, like massive bull market by Microsoft, by Cisco, by Juniper. On, like, the library computer? Yeah, you didn't have a phone. I think I had a phone. It was like this big, right? You couldn't trade on it. You know, going to the library computer.

I don't even know what it was like the national discount broker's account. I remember the duck? Yeah. So, and I'm like, wow, this is easy. Yeah. And then you realize it's not easy. And then, you know, I graduated, it's 2000, the new millennium, Y2K, right, puppy dogs, ice cream. And then it was like literally a shit show for three years.

And then come out of that global financial crisis, two years. I was just like grinding you down. So you've not had a grind down bear market in a while. Like go down, stay down. Every rally gets sold. So in fairness, just keep buying and time in has worked. Could you argue, I could argue, or others could argue that's a feature, not a bug, that we've, like, designed the system to keep those extended drawdowns out?

Yeah, I think that there's this, I mean, you know. I call the financial industrial complex, right? Right. Instead of the military. It's all designed to prop this market up. I mean, I guess you could be, you know, if we want to go down, like, that rabbit hole. but people have Let's peek into it

been trained to know that if the market is under pressure the Fed will step in right somebody will step in there's like you know I'm not going to use the word

bailout because it's not a bailout yeah but I'm not going to use moral hazard because that was a word that got overused a lot after 08 and 09 I think it's just conditioning right and the rationale you as kind of

quant focused technical analysis focused people I always often say the why doesn't matter, right? The why is not what gets you paid. Who cares why it's happening? It's happening, right? Price goes down and it snaps back. You're going to get paid if you're aware of that, right?

You're not going to get paid because you know why it happened. Even worse, if your bias doesn't agree with the why, you could get upside down in a hurry. And there's a lot of people who have been bearish for a long time. And those people are great because when they flip, that's probably the real signal. So, yeah, I think just focusing on data and what's happening with price trends and the health of the market and other confirmation measures, who cares why? And I realize that's not to sound flip. Yeah. Right.

Obviously, we care why things are happening, right? And you want to be able to speak to it and have an understanding. But at the end of the day, it's not going to impact your process. And also it sounds like you're not the type of group or person that. it's going to say I'm betting everything that there's never going to be another 50% drawdown in the market. No, 100% no, right? Yeah, we like sure, maybe it's all designed to prevent that, but I'm not betting against it. Yeah, no, I mean, we are, we're set up for the fact that it probably could happen, right?

But we don't think you should have to live through it. We don't think you should have to wear the entirety of the drawdown, right? Again, because when the market's down 40, what do you do if you get laid off, right? What do you do if that's because of a deeper recession coming, right? You can't just sit there. You don't have the luxury of sitting there and holding, right? You have to live your life, right? I mean, listen, this is my problem with kind of a lot of economic theory in general, right?

A lot of economic theory that you're taught in school. And I do teach a college class on market analysis. But a lot of the economic theory that you're taught in school assumes that you will always make the perfect decision. Yeah. Right? In every situation. and you can't, right? Life gets in the way, right?

You get laid off. You get divorced. Something happens. In your life, you have to move, right? Who knows? Death divorce, taxes. My brother's a realtor. He's like, that's most of my business.

Yeah. Death divorce and money in motion, right? Because life happens, right? So to sit there and say, you just hold through it, the market always bounces back. Look at this chart of the S&P since 1929. It's so disingenuous that it's got to the point. where it's just a running joke now. We just laugh, but it is disingenuous. It's fair. It's true. But that's not the average person doesn't have a hundred year investment cycle, as I said,

and life gets in the way. Coming back to what the last bit on timing, everyone shows those charts or data points of you missed these 10 best days. That's why you don't time. Because if you miss those best days, you've lost most of the gains. Yeah. So that's been completely debunked, I think, by us. others also completely disingenuous and what I like to say lazy research right because the 10 best days often cluster around the 10 worst days and if you miss both 10 best and 10 worst you actually do just fine right compared to buy and hold right so it's a disingenuous form of analysis or a disingenuous data point that doesn't complete the analysis so let's call it disingenuous or worse, lazy at best.

And it's just patently false. Because they cluster. Because volatility clusters, right? This is, you see it. Bare market rallies are some of the most vicious rallies. Right, go back and look at 2000 to 2003, 2008, 2009, right? Massive bare markets with 30, 40% rallies while they're, you know, in the midst of the bare market.

So it's the vol. The 10 worst days and the 10 best days tend to cluster around each other. So if you miss the 10 best, you have a high likelihood of missing the 10 worst also. And if that's the case, you end up okay. And so is that part of your model of looking at when that volatility is elevating, when it might be some of that clustering? So our model looks at the market through three lenses. What is the trend in the market?

How healthy is that trend as measured by breath? And is the trend confirmed by intermarket themes, right? trend is pretty simple up down sideways what is what is price doing health is market breath it's counting how many stocks went up how many stocks are going down how many stocks are making new highs how many stocks are making new lows what's the volume trading the stocks that are going up versus the stocks that are going down in a healthy bull market you would expect to see more stocks going up than going down as we're seeing now you'd expect to see more volume trading in the stocks that are going off than going down and you expect to see more stocks making new highs than

new lows right and if the market is going up the s and p pick your But more and more stocks are going down. To us, that is a sign of deteriorating health. Right. And then the third lens is intermarket confirmation, right? We look at what is the bond market telling us about the stock market? What are commodities telling us? What are different pockets of the stock market telling you?

We use a riff on Dow theory. Dow theory is this concept that was created over 120 years ago where you look at the industrial average and the transports and essentially when we were kind of an industrial. East Coast industrial country, right? A lot of manufacturing, a lot of the industrial companies were located in the East Coast and the railroad companies which ship the stuff, right? The companies that ship the stuff, right? And you want to see confirmation there, right? If the companies that make the stuff are doing well and the companies that ship the stuff or not, right, there's something off.

Right. So we actually still use a riff on Dow Theory. We pay attention to what the transports are doing. They actually just broke out of a four-year consolidation. I was at a conference last week down in Tampa, a bunch of technical. analyst and that's all anyone wanted to talk about. Right? So while the news media is focused on, you know, the MAG7 and AI, we're down there like, you see this chart of the transports?

Like, nobody's talking about that. It's kind of fun that way. Not at all. This whole concept, breadth, transports, Dow theory is like right out of the 60s, right? A lot of it is, which is kind of fascinating, in my opinion, because number one, it speaks to the fact that a lot of these, you know, basic concepts of market analysis and quantitative and technical analysis still hold. number one. And number two is you can get an edge by focusing on those concepts because a lot of

people aren't anymore. Now, some stuff has gone away and we'll never come back. I remember reading a book and making sense. There used to be something called an odd lot indicator. And you'd go into Barons would post it. Right. And if a lot of odd lots are for those who don't know orders of less than 100 shares, right? Back in the day, a round lot was 100 shares, except I think at Berkshire Hathaway because it was so. highly priced. It was one share. But a round lot was 100 shares. And an odd lot was anything less than 100 shares, right? And the concept was retail, unsophisticated investors trade odd lots, right? The person who buys 10 shares, five shares. And, you know, institutional smart money

investors traded in round lots. So if you're starting to see high volume in odd lot trading, That was a sign that like the dumb money was piling into the market. Now we trade in fractions of shares, right? So that's gone. But there are these older concepts from the 50s, 60s, 70s that still hold that people don't pay attention to. And it's fascinating. And outside looking in, you'd think, oh, this is this high tech. Not to say you're not, but like they're using heavy quantitative analysis.

Well, we are. What we've done is we've gone from the lines on charts, technical, analysis, like draw a trend line, right? Draw a pattern. We're not doing triangles and rectangles and head and shoulders. We're taking these concepts, getting the data that we need, writing the code, and then testing it rigorously, right? So it's not like, oh, more stocks went up today.

That's good. It's like, no. How has that changed over time? What is the trend in that matrix, right? Where is it relative to where it was a year ago, right? And we're testing it over and over again, getting all the data we need. And then combining the different systems, right? you take a trend system and you say, okay, fine, the trend is up.

Well, let's combine that with a breadth system and an intermarket system. And then what does that mean? All of three of these things are bullish, great. Well, what if only one of them is? Is that good? Let's test that, right? And we're doing it, obviously, it's more in depth than just three systems, right? There are multiple systems that we're looking at.

And what we're doing is we're looking at the combinations of systems that are currently on a by signal or in an on-off state. The systems are binary, right? The system can be either on or off. when then we look at the systems, the combination of systems that are on, and we say, historically, when this combination of systems has been on, is that a good time to be invested? If yes, great. Four Fortyact mutual funds, each with an investment universe, and we go through it, right? This fund is going to be that own this.

This fund is going to own X, Y, right? We use trend and momentum on baskets of ETFs as well as futures to get the exposure. we want. Is that like a voting machine? It's a waiting. So if you have a hundred models or say it's not waiting. No, it's purely the combinations. And that was one of my first questions when I got here. I was looking at all the different trading systems. I was like, well, how is this one weighted? And it's not weighted. I was like, well, what, what do you mean? It took me a little while to then see it. The combinations are what matter. And that makes sense because let's say you have, let's keep it simple. Let's say you have three indicators. You have a trend indicator,

a breath indicator and intermarket indicator. And you say, I'm going to give 60% of the weight to the trend indicator, right, and 20% of the weight to the other two. That sounds great. But what happens when you're in a market that's not trending, right? Now you're just out. That could last a long time. Or, you know, what happens if you run a mean, let's say you have a mean reversion system, right?

Where you're looking to buy the dip every time. that's great. What happens if there's no dip, right? Or a meaningful enough dip for you to get in and the market just grinds higher, right? And if you think that can't happen, right, it can. If you look at some like a traditional mean reversion indicator or something called the RSI, right? And the default parameters for RSI are 14 days, buy at 30, sell at 70. That's what everybody learns.

You read a book. That is what you learn. COVID, market tanks, 34, 35%. right and then rips out and if you remember at the time all the we're going to test the lows everybody said we're going to test those including myself in fairness like yeah we'll probably test the lows retest the loss right test the retest it ripped up after it yeah you know we'll probably retest the lows so if all you had if you said to yourself i'm a mean reversion trader and i'm going to use this cool rSI thing that i just read about and when the s mp 500 rs i the 14 day rs i and the

S&P 500 goes back below 30, that's when I'll buy, right? Because think about the news at the time. Yeah. The market bottomed, what, March 23rd, 26, like that Friday, Monday. That was it. Yeah, but things had just shut down. Yeah. Only like a week before.

So the news was still horrible and the market was ripping. Obviously, the market is a discounting mechanism. We do believe that. But if you were using just one thing, the RSI, do you know the next. time the market got oversold to give you an entry. 22, was it? Yeah. Wow.

Right before going down close to 20%. Yeah. And the NASDAQ 100 was down 40% at one point in 2022. So our point is, number one, you need multiple, you need multiple trading systems, hopefully all uncorrelated, right? But, and they should be doing different things, a trend system, a mean reversion system, and then get confirmation from other parts of the market, right? Because if all you have is a hammer, everything looks like a nail, right?

said differently, let's say you had a trend system and a mean reversion system, but your mind works mean reversion. I want to buy low, sell high. If you give more weight to that mean reversion system, you might not get in. So you need multiple systems uncorrelated with each other, in our opinion, but not weighted. The combination is what makes the most sense. What if I have two that are saying you want to be invested, two are saying don't be invested. Which two? That's how we look at it. Yeah, which two matters. Because there are environments where, you're, where, let's say you have, again, let's keep it simple for math purposes. Let's say you have 10 individual systems, right?

There could be a situation where three of them are on, but those three are high probability that the market is going to go higher so you get it, so you're in. You could have another situation where five of them are on, but if it's not the right five, you might not be in, right? And that's, you know, that's a concept, right? it's the combination, which ones, right? The other thing that's important in our opinion is you want to be regime aware, right? You want, we have systems that are more likely to fire in a bullish environment,

and we have other systems that are more likely to fire in a bearish environment. And by fire, I mean, get us in on the long side. But the systems that are likely to fire in a bearish environment have really short holding periods, right? Because again, it's... Dip your toe. Quick hit, right? Like I said earlier, bear market rallies can be vicious, right? So we're not saying, like, our model is telling us to get out, so we're just going to stay out.

Right. We recognize that there are opportunities within a bear market to pop in a couple days at a time, scalp some opportunity, and then get back out, right? Whereas the systems that fire in a more bullish environment are likely to keep you in long to take advantage of the fact that the market does have a natural upside bias. And each of the, so the four funds, when you're signaled to go in, it's all four going long, but in their own instruments? At a very high level, yes. Okay.

Right. So what I've been talking about here today is this concept of trading systems, put them together to make composite models. We have more than one composite models. For simplicity sake, let's say if the composite model fires, that's answered. That asks the question, do you want to be invested? Yes. If yes, then each fund has a basket of an investable universe that it could look at.

Our largest fund, when composite model fires, is long the S&P 500, right, through a combination of futures and ETFs. We have two other equity-focused funds. They have baskets of ETFs. There's an aggressive one. That basket contains ETFs that generally have a beta and or standard deviation greater than the S&P. Then there's a conservative fund. Less than. Basket of funds, ETFs, less than, beta or standard dev less than the SMP. Talk to people about it is the conservative fund might own health care broadly, where you get

pharma in there and you get services in there, the traditionally conservative parts of health care, whereas the aggressive fund might own biotex. And then the fourth fund is a combination of high-yield timing and what we call global macro, but really is anything else that's not stocks. So high-yield timing model will look at obviously the high-yield market via ETFs. And then the global macro or everything that's not stocks will look at converts, preferred, treasuries, corporates, emerging markets, the dollar, right, all in an ETAF or an exchange traded product format. But the signal is still coming from like a...

The signals are still, you know, quantitative and systematic. And just like to reflect it in these different instruments. Exactly. But it's not, you know, Dan wakes up one day and he's bullish. the dollar, right? So let's get dollar exposure, right? It's going through a quantitative process. Talk me through a little bit. You guys have done a lot of work getting on all these tamps, turnkey asset management programs, where you're combining all this stuff into different ways for the advisors. So two questions. One, the advisors must love you of like you're doing

all this work for them, right? Hey, thanks, put this. I'm looking for this exact flavor. What's the combo I need? So let's start there. How does that work with the advisors? So look, we work closely with advisors. You know, obviously, you know, we help them, right? We want to make business simple for people, right? We are... A novel idea. It really is a novel idea.

Look, you know, we have the expertise and, you know, we have the willingness here at Potomac to make the investments to make business simple for our clients, right? So one of the big initiatives that we've had recently is a concept called guardrails, right, that we, that we, that we, we've rolled out to our advisors where they can look at different managers and create models and combinations and kind of see what that would look like historically. You know, if you different managers, not just your funds? Not just our funds. Oh, cool. Correct.

You know, they can look at what happens if we combine Potomac with this other manager and what does that look like, right? And you can see historically, well, if you built this portfolio this way with these weights, here's what your return would have been, your drawdown, right? And all the statistics around that. Well, you guys are cheating that because you know you'll look great. paired with anything. Well, yeah.

So, but. In a good way, cheating. Respectfully. Respectfully. But yeah, no, that's what we're doing, right? And, you know, look, we, we think we pair well with others because we think that we are a true diversifier and a core holding. Because, like I said earlier, you know, we look at a lot of these traditional diversifiers. Look at things like treasuries.

Look at things like gold. Look at things like managed futures, right? Pick your diversifier. There are these massive tradeoffs. This is a managed futures pod. Be careful. I know that. We like managed futures.

Bring it. We'll bring it. No, no, no. Listen, we manage future. In that fund where the other 50% is everything but stocks, we have managed futures funds in there as well. Because managed futures are a diversifier, right? And we do make sense. We do think it makes sense.

But a lot of these traditional diversifiers, they work at different times, right? Treasuries were a great diversifier to equities. from 2000 to 2021, right? And then something happened. And in 2022, the 6040 portfolio got decimated, right? What happened? Most people probably don't know. But what happened was inflation. When inflation spikes, correlations among assets change. In particular, the one most advisors care about is the correlation between stocks and bonds. In a disinflationary environment, stocks and bonds tend to have a negative correlation. So a 6040, 70, 30 portfolio works. with little effort, time in, rebalance it periodically, right, and you would be fine.

When inflation spikes, CPI 28 to 3, get above that level, the correlation between stocks and bonds flips to positive. But I'm just like, shit, I got to do some real work now. By the time they realize, not to do real work, but they got to do something even the Fed can't do. They got to have a call on inflation. So it's not about doing real work. The advisors are doing real work, right?

But they're doing it based on historical data, right? Fine. But to understand when you should switch from bonds as your diversifier to manage futures to gold, right, requires you to have a view on inflation and be able to time inflation. The Fed can't do it. So what makes you think you can? I can't. I'm not sitting here saying like, oh, no, Dan can do it. But I don't have to do it, right?

Just by being more quantitative, by being aware of the trends and how they're changing. I don't have to call it. I don't have to care why the correlation flipped. I just have to know that it flipped, right? So for us, we're not trying to get the call on inflation. For us, we are trying to manage that downside, capture as much of the upside as possible, and do all that with a beta and correlation much less low relative to the market. And to us, you know, that's a core holding and that's a core diversifier.

And then second part on the advisor, how have you felt their transition? over the years from when you first started working with them. I debate with my wife. Her father worked at Baird, Midwest. Her money's all with a small group in Kenosha, Wisconsin still. And I'm like, is this, these three guys in Kenosha really the best people in the world? Are they the LeBron James, the Michael Jordan, to manage your money? But anyway, I digress.

But right, that concept of, in the old days, they had to raise the money. They had to go do the golfing and manage the money versus today. You know, I mean, listen. They're finding shops like, you have like, hey, I just need to go find golf with the guys, build the relationship. I'll find someone good to manage the money. Like, how has that transition been? And are you seeing more and more of that? I think we are, right?

Because, you know, I think people understand what they do well and what they can outsource. Right. And we understand what we do well and what we can outsource. I mean, I'll give you a prime example. 2019, 2020, I was actually considering going the advisor route. I went to, you know, local Merrill Lynch office on Long Island for one of their open houses. Morgan Stanley, a few of the bigger places. And to a person, I got rejected.

And to a person, everybody told me the same thing. You would not be good at this. And I said, what are you talking about? I've been doing this for 20 years. Yeah, look at my. I was a trader on the NYSC strategist, right? They're like, that's why. Because you're going to come in here and you're going to be thinking.

Two in the weeds. Terms, exactly. Dr. and Mrs. Smith, Mr. and Mrs. Jones, whoever, they don't care where the VIX is, right? And they don't care where the S&P is relative to its Bollinger bands, right? Or that there's more stocks going up than going down. What they care about is, can we retire? Can we put our kids through school? Can we buy a boat? Can we buy a second house? Can we take care of our parents who are getting older, right? That's what those people care about. And the advisors get that, right? And they are good. at managing those relationships, right? And any time spent deep diving on the market, wondering where the S&P is relative to its lower bolander band, is time they don't spend doing what they're good at, right? And what we have found is the advisor that clicks most with us

understands that, but cares about the market, right? They don't want to just buy and hold. They understand this concept of max drawdown, and that's what you live through. So they take the time to understand what we're doing, how we're doing it through a lot of the content that we produce, through conversations with us, right?

And that is where we have a lot of success. The folks who want to outsource it because they want to service their clients as best as they can, but then still take the time to understand who we are, what we do, and how and why we do it. It's so funny to me, right? Like, I've grown up Max drawdown spin at the front of my mind for my entire career. Like in the, you're looking at a hedge fund, you're looking at a Manch Futures program.

That's the main stat. That's the main thing you look at. So it's, of course, Max Drawn. Like, what are we talking about? Well, yeah, because, again. But it's not, no, it's never been a big thing in the stock world, right? No. In the normal investment.

Because just keep buying. Yeah. But, like, just think about, go back to the psychology, right? Like, back in the day. It's not on your Schwab statement, for sure, right? Right. Well, I was actually just going to. go there with statements because it's not as much of an issue now, but you know, years ago,

you used to get your statement in the mail, right? And, you know, I remember I was, I was young, but I was still investing, you know, when my statement came in the mail in, you know, 2002, I didn't open it. So, you know, it's just the cycle. So it's just a dollar amount. Like, there's no stats. There's no, you don't know where you are. No, but you know it's down. Yeah. Right. Like when you're living through that bare market, and that's the point, you know, At some point, you do open it, right? Because at some point, it deteriorates to the point where you have to say, well, how much money am I down here?

I'm like, what happens if I lose my job? And I'm like, what am I going to do? Right? So you say, so you open it. So you open it. You see you're down 40 and what do you do? You sell, get me out. Yeah.

I can't take it anymore. Can't take it. Right. So, you know, you want to avoid that. But do you think they know they're down 40% or they know they're down 600? They don't think in percent. Right. You know, they know that, they know that I had a million dollars and now I have 600,000

thousand. Yeah. Right. And that's the other thing. I think that the advisors do well, that again, I would not. I'm like a percent person, right? I'm like, no big deal. It's 10 percent.

They're like, you know, somebody might look at you and be like, yeah, but that's 100 grand. And then you have to say yourself, all right, well, it's 100 grand. Yeah. But the real world, that was my, that was my Naples house. Yeah. It's gone. Exactly.

The real world lives in dollars, right? And the advisors, I think the best advisors, right? honestly are really good at psychology and really good at relationship management and really good at education and not golf golf maybe i'm not good at golf so i wouldn't know that's where you're going to go with that story i went to an open house they saw me swing a golf club they said you're out yeah i know well that could happen to they care about their clients meeting their goals and they know that we can help that they say they take the time to understand what we do right and how we do it and ends up being a great relationship. It's interesting to me coming from the, we talked about managed features also heavy in the long

volatility world of that you're going to cash and not trying to add some tail hedging or some kind of optionality there to be like, hey, I'm saying get out. Why not invest in something that's going up when you, when the market's going down instead of just going to cash? So how do you guys look at that? Honestly, so it's a great question because it's the first project that I worked on when I got here. was, I was saying, what do you mean you go to cash? Like, yeah, there's some, there's always something you could buy, right? So, and he actually went in 2020. Yeah, so he said, do the work.

Do the work and see. He knew the answer already. And I got there, I got there myself. It gets back to where I was selling earlier about inflation, right? What do you buy and when? Right. So now you're adding another timing decision to the equation, right? And it basically came out that, sure, if you could do it, but then there's a lot of calls that you have to get right.

Number one. And number two, again, getting back, even though we're focused as quantitative, systematic, right, technical analysis and, you know, take the emotion out of it, there's always emotion, right? There's always second guessing. and to me we have the composite model right composite model again do you want to be in do you want to be out to us the psychological the behavioral elements of the model being right and then you buy something and still lose money like why why deal with it right and that's what so I start started in 21. Let's think about this. I started in 21. It was the first project I worked on. Let's say I determined that, yep, no, no. Treasuries are the thing. When our model says go to cash, let's not go to cash. Let's buy a treasury ETF. Had we done that in 2022, we would have gotten destroyed. All while being right, right, the model told you through most of 2022 that this was not a good environment to be invested in equities. okay cool so we put on some treasuries and we lost money why have that conversation why have that in your head

right so we just kind of view it again it gets back to keep it simple it gets back to you know why what's a diversifier and when right gold is great this year there are plenty of years where gold does nothing

or you know goes down extra out yeah so you know sometimes commodities look great. Then they have a massive max drawn-down. Let's buy real estate. What the max drawdown is on a real estate ETF, it's in the 70s. Right? So this thing that you're buying right, as your diversifier, as your

risk off asset, doesn't always act the way you think it will. And right now, I'll honestly say in fairness, getting back to treasuries, like in 2023, as stocks rebounded, so did treasuries. They moved together again. So that's not a diversifier, right? The thing you buy,

to be the diversifier to your core asset, if they're moving together, it's not a diversifier. So cash is the only true diversifier. And I'll add on to that the option piece. You need to be buying it before your model signals to get out. By the time your model signaling to get out, volatility is probably spiked. Now it's expensive and it's more likely to revert. So you need to be buying it before the model.

Listen, I mean, to put on top of the timing is difficult. Yeah, honestly, I think volatility, and I'm by no means of all experts, so the VAL guys will come after me for this. But from, you know, the way we view the world, volatility spikes are more of a coincident indicator. Vol's spiking with the market, right? It's not often that the VIX is ripping as the S&P is grinding higher, right? And you're like, whoa, what's going on with the VIX?

Let's hedge, right? To me, in the way we think about, you know, the VIX and VAL, and quite honestly, it's one of the things that I'd like to do a lot more work on as we build out our team. honestly, it's a better, for our work, it's a better mean reversion signal. Right. Yeah. Like how much more panic can there be in the market?

Right. There's a certain level of, as a matter of fact, it's one of the systems that we use. We look at the VIX and we look at where, you know, above a certain level and above a certain moving average. To us, there's a high probability that the market has probably gone down too far too fast and has likely set for a rebound. Love it. And then I'll finish with your main program has what's, what's, The bull? The bull bear.

What's the full name? The strategy is called Bullbear. Potomac Bullbear. I thought it was. So all of our strategies are combinations of our four funds. And so we have the four funds, 440 Act Mutual Funds, where we do all of the trading and investing. And then we have our strategies. And the strategies hold the four funds in different weights.

So would you prefer or do you recommend people go into the strategies versus direct into the funds? I don't make that recommendation. Okay. Right. I think ultimately you to do what's best for you. you have to do what's best for your for your client right so that's that's not a call I make but saying the main one has a beta of like 0.5 correct so the bull bear strategy the potomac bull bear strategy that's a historic beta yeah right that's if you go back through its entire life and look at what

the beta has been it's about a 0.5 what's important to understand is we are fully tactical right again i said what that means we can will and do take the portfolios to cash so when we're investing our beta is not 0.5. It's some number higher than that. And when we're in cash, our beta is zero, right? And this gets back to education. I'll connect that dot in a second. Over the life cycle, time we're invested,

time we're in cash blends out to about a 0.5 beta. But if we're invested, let's say we're invested and we run that strategy at about a 1.5 beta when fully invested. If we're invested and the market goes down 10%, we're going to take that ride at about a 1-5 beta, right? And this is where the education, the content,

the people who take the time to understand what we do and how we do it. The people who follow us and understand what we do and how we do it know that. Somebody who doesn't take the time to fully understand what we do and how we do it, we'll see the market down 10. Five-star fund. I'm putting money in it. Yeah. They'll see us down 10.

And we'll see the market down 10 rather and us down more. What are you doing it? I thought you were 0.5 beta. that's a blended number over time. Well, I was going to give you props for it. Because to me, that's the power of the timing, right? It is. 100%.

I can have more exposure to the market, but over a full cycle, be a 0.5 beta. Exactly. So that's like, to me, you know, I'll argue options or manage futures again. Like, if you add that, you can take on more equity risk, right? Like, once you have a proper diversifier, in your case, I'd say your diversifier is your timing. Right? So once I know I have a diversifier that works, I can take on more equity risk. At the right time.

At the right time and actually end up less risky over time. Over time. Yeah. So our ability to go to cash and the amount of time that we spend in cash over cycles allows us to take advantage of the times where our model says now is a good time to be invested. Right. And you can, it's intelligent risk taking as opposed to, you like you see. We all know how the math works, right? Just look at, look at, you know, one, two, three beta ETFs, right?

the sequence of return risk matters. Yeah. So you have attempted to, or were you before you started here, like I'm going to take this, or I guess it was you and Mniche together, but right of like, I'm going to go put this into the hedge fund world and have 5x leverage and really knock it out of the part. We never know. I came from the institutional sell side where a lot of my clients were hedge funds. So I'm always intrigued by hedge funds. Yeah.

But, you know, we'll see where it takes you. And then my life. is all U.S. equity focus now. Is there? U.S. listed. U.S. Exchange listed is the focus.

We can have exposure to global markets through U.S. listed ETFs, right? There's a Latin American ETF that's listed here, right? There's China ETFs that are listed here, right?

Ifa value, EFA growth. But not trading products that are trading in other countries at this point. But that's my brain goes to why not time? everything. Why not put this on Europe? Put this on Asia. So when I arrived here,

this on real estate. So when I arrived here in 2021, I'm employee number six. The growth that we've seen, it's been a great ride, is allowing us to add resources, and IE bandwidth. It's so tactical, anything, right? Let's test it. Let's build it. Up until about a year and a half ago, the investment team was Myanmar. But we would also, you know, also wearing a lot of hats. Like I said, I've been plea number six. And the firm's been around since 1987, but I'm in plea number six. So as we've added people, those are projects that I would love to look at. Why not?

So if we can get the data, code it properly, we can test anything, sure. And, you know, again, we believe in tactical. So, yeah, why not tactical? Why not look at it, at least explore it? And so I have a whiteboard in my office with a lot of ideas that would be interesting as tactical models. Yeah. as the futures pot here. So you've added futures in the last year.

Yes. And that's been great. That's been to paraphrase. Yeah, it's been great. A great relationship through you guys at RCM. Listen, it's just a more efficient way to get the exposures we want when we want it. Getting back to cash as a diversifier, cash is also now throwing off a yield. So if I can get the exposure that I want,

want through a combination of futures and ETFs, but put up less money up front because of the futures, that's money that sits earning a yield is additive, right, to the fund overall. That's number one, all by getting the exact same exposures as if we were using 100% ETFs. So nothing changes from the strategy perspective. Nothing changes from the exposure that we're getting perspective. We're just doing it in a more cash efficient way, right? right, which and earning the extra, earning the extra yield on the money that stays in the money market. That's number one.

Number two, and this is not a problem for S&P products, but down the line, you know, as we grow, you start to look at liquidity and the futures are deep and liquid, especially the index futures that we're looking at. But you do get to a point where it's fun, right, where you go to a place in order and your trader comes back to you and says, hey, you're going to move this 2%. And I'm not saying we move the S&P. Oh, and like. But some of the more, some of the ETS that we trade. So you have to be more, then again, that's where kind of like my trading background comes in.

And the relationships that we have, you come back and say, right, let's be more thoughtful about how we execute this. But we want to think about liquidity, right? At the end of the day, it's hard, it's hard to get an edge, right? So if you can get an edge through extra yield by me more efficient about how you get your exposures, why wouldn't you take that? Right. So that's, you know, that's how we're looking at it. It's been fun. It's been a learning curve.

I did the deep dive. And every day I was, you know, through talking to you guys and talking to some people who I trust, I was like, this is. Were you, did you have any biases being a NYSC floor guy versus those Chicago Yahoo's? Floor guys are floor guys. Yeah. In my opinion, I feel like you can always spot each other.

You always find each other, right? They're the people who I resonate the most with a lot of times. I've heard in their little gravelly voice. Yeah, right? You can, the gravely voice and then, like, I, people laugh. My wife gets upset because she thinks I'm not paying attention. The gravely voice and literally bionic hearing. Yeah.

Like open. I can hear, I can hear three conversations going on over there right now and still talk to you. And like, I'll hear something. And my wife is like, you never pay attention. I'm like, no, I'm paying attention to all that at the same time. And I think that, like, that's trained. I'm not trying to be rude or anything. Like, I literally can hear it over here.

Right. You have to be placing this order and. realizing that that desk was about to taking that call. But yeah, no floor people. Floor people are my people. So no animosity to you Chicago guys. As a matter of fact, my favorite painting on earth hangs in Bobby's office. I'll steal it for you.

Please. Do you ever lament that we're like, where's that next wave of all those guys, right? The Chicago floors are basically gone. So to me, like, where's that next wave of talent of the people, the lived experience of trading on the floor? Where's that going to come from? Yeah, it's gone. Yeah, probably.

Right. And I go back to the NYSC a lot. I still have a few friends who were there. And, you know, it's, it's not what it was. And I get, I'm accepting of it, right? Because as much as it's fun, like open outcry trading, right? In one of the largest economies or if not the largest economy in the world, it's kind of tough sell. Yeah.

Like the prices of bonds are being set because guys are standing around a pit screaming at each other or, you know, the price of at the time when I was on the NYSE, GE was the largest. company in the in the u.s like the price of gee is being set because a group of people are standing around screaming at each other archaic right i get why it went the way it went i think you know trading evolves like everyone else right i've said this on the potment for i was a young clerk going to the board of trade at 545 in the morning hung over to do these out trades that i know i'm like looking for a 10a in 30 year bonds it's like could be a couple million dollar yeah right and i'm just some yahoo straight out of college, like trying to match this up. Yeah, I think floor people definitely have a personality

that is developed there, definitely thick skin. The things that were said to me on a daily basis would get somebody fired in a day in most places. Did you get dip spit spilled on you? No. Happened to me twice. The guy would have it inside his coat. Yeah.

That's unbelievable, actually. You're like, come on, man. I'm working here. No, I think that, but listen, there's always, there's always going to be, there's always going to be talented for people. Talent, right? People who are interested in markets,

people who are interested in learning. It's just coming from a different direction now. To me, to me it like fuels that old school stuff will do better because the new talent won't have known that and they'll kind of just computerize. Well, I think it speaks to, like too quick.

Yeah, I think it speaks to what I was talking about earlier, right? Like some of the best indicators and some of the best systems. in my opinions come out of concepts from the 50, 60, 70s that some of these other people might even think about

but then let's meld the two, right? Yeah. Let's take this concept that, you know, a lot of people would just rule of thumb, right? Like old market lore. Like, all right, cool.

Get the data, code, it tested. Does it actually work? Did it ever work? Right. Selling May and go away is something that everybody knows. Right.

And if you just say, oh, yo, sell in May and go away. It's this old market concept. It's the best six months or six months of the year. The market's actually fine in, you know, that May through October stretch. It doesn't go down on average. It just doesn't go up as much, right? So you don't know that if you test it, right?

Some guy comes up to you and, you know, when you're a summer intern in 1994 and it's sell in May and go away. And you're just like, wow, that guy. He's on the YAC. You must know what he's talking about. Right. Right. Market goes down in May.

How silly. They're like, timing doesn't work. But also sell in May and go away. Right. Yeah, sometimes. That's timing on a major. Yeah, exactly right. Exactly right.

And that gets to the point, right? Timing is, there's so many definitions for timing and tactical. That's a lump them all in one bucket, I don't think is fair. It's time for my terrible joke. Why can't investment managers tell good jokes? Bad timing. It's good. I like it, actually.

Let's finish your wine guy. Give me your, you got a hot wine take. A buddy of mine lives in Napa, and his hot wine is Napa, cabs are terrible. I don't know if this is a hot take. I'll take. Give me a take. All right. I'm going to give you, all right.

We're going to go down this rabbit hole. All right. The majority of winemakers in California are making their wine for one person. Robert Parker. Most influential wine critic in the country who has a palate, excuse me, that goes towards big Napa cat. Yeah. But if you want to sell wine, you need Parker to give you a 95 score or higher. So now, in particular, Cali, so my outtake is the majority of California, Pinoir, including

the Russian River Valley, is garbage because they're making it for Robert Parker. I've dropped off two or three lists over the past few years because I'm getting these wines and it's a Pina noir and it looks like a cab has 15% alcohol. I'm like, I could have this with a steak. So, and it's the parkerization of wine, and it's killing, it's killing the U.S. wine industry, in my opinion. That's, what's the school there, Cal Fullerton, maybe? UC Davis?

UC Davis, right? But they're teaching all that, too. So I think they're going in, they're changing all these vineyards just to produce those big calves. But like a Pina noir. Tearing out Old Vine, like doing all this stuff that I think. Pinot Noir is not a cab, right? Pinoir should not be almost as black as this mug, right, and 15% alcohol. But Robert Parker doesn't like a 12.5% red that you can see through.

So where do you go instead? Oregon for Pinos, obviously France, Burgundy. I've been on a massive Brunello kick lately. I love it. I'm not a wine guy. So I wish I could participate in this conversation. That's all I've got that the, uh, that Napa cat, but that's interesting. That's two. Now I have two.

I don't think you need to be a wine guy, though. I, I personally come from the more like, like European view of it as part of the meal and just drink what you like. Look, if you like big, inky, jet black wines, like get it. But if you're a little more into it like I am and you see a 15% pino. But do you get a little quantity with it? Like, hey, this is, this is a great value. I've seen this and I've tracked this over the years. I mean, I guess to the extent that a lot of the big label wines, I think, are overpriced, so I won't buy them. My hot take, then, I guess my second hot take is I think K. Miss is crap. Nice. Double hot take.

Two buck chuck. That's what you like. That guy was a... If it pairs well with what you're eating, go for it. He was a trader at, like, at Schwab or something. He was, like, on a desk, yeah. That's awesome. Drink what you like, have what you like, right?

Like, don't listen to me. Coors light. If it pairs well with what you're eating and you like it, go for it. Done. All right, Dan, it's been fine. Thanks so much. Thank you. We'll put where everyone can find you guys in the show notes.

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