We Study Billionaires - The Investor’s Podcast Network - TIP 123 : Part 2 Momentum Investing w/ Dr. Wesley Gray (Finance Podcast)

Starting point is 00:00:00 We study billionaires in this episode 123 of The Investors Podcast. Broadcasting from Bel Air, Maryland. This is the Investors Podcast. They'll read the books and summarize the lessons. They'll test the waters and tell you when it's cold. They'll give you actionable investing strategies. Your host, Preston Pish and Stig Broderson. All right.

Starting point is 00:00:30 How's everybody doing out there? This is Preston Pish, and I'm your host for The Investors Podcast. And as usual, I'm accompanied by my co-host, Stig Broderson, out in Seoul, South Korea. And we are back with the second part interview with Wesley Gray. And Dr. Gray comes to us with a wealth of information and experience. And he understands value investing, momentum investing. He's written four books. If you didn't catch our first part interview with Wes last week, which was episode

Starting point is 00:01:01 120, you really need to go back and start there before you would listen to this episode because you're going to be coming into the middle of a conversation and some of it's not going to make sense. And if you're a hardcore value investor like myself, you might come in a little biased and not really understand the full context of what it is that we're discussing. So I'd really challenge you to go back and listen to the previous episode before listening to this one. So, Wes, let's go ahead and pick up where we left off. And a stick has the first question. West, investors might be interested in momentum investing, but for various reasons, because due to perhaps the cost structure, they might not be inclined to own a large basket of stocks,

Starting point is 00:01:42 and they might also like the process of conducting research on the individual stock picks. So the thing I'm curious about is, does it make sense for the invest to spend time on individual momentum picks to improve returns? and if so, how would he or she look at the individual pick? Well, so if you're trying to develop a basket of momentum stocks to capture momentum exposure, there's no evidence whatsoever that I've ever seen where if you kind of like want to look at quality, let's say, like we see some high momentum names and we want to go in there and try to pick the highest quality based on some fundamental analysis. The cold, hard truth, as far as we see it and

Starting point is 00:02:26 what the data says is fundamental analysis does not matter when it comes to momentum. Like, it's momentum is what matters. So I think there would be absolutely no point of doing that. However, let's say that you want to baby step into using momentum as a value investor. If you don't want to just go to kind of, I guess, what the evidence-based way would suggest where you just have a pure momentum and a pure value, you may be a value investor doing your fundamental analysis. And then one of the things you might want to entertain is what's the relative price momentum on this thing? Because we know, even if you just do cheap stock investing, within that,

Starting point is 00:03:07 if you say we're cheap stock, but some cheap stocks have high momentum, some have low, those cheap stocks with high momentum would probably be a good place to look. So you could still use momentum in the context of a pure value investing framework. And arguably, it would at least give you better odds of at least searching in the right fishing pond. So, Wes, I'm kind of looking at this as, you know, a viable option to implement into my value investing based approach. And I guess my concern is how much of my equity exposure should be dedicated to value investing versus this momentum approach.

Starting point is 00:03:48 And when I say that, you know, some of my portfolio might be fixed income. Some of it might be commodity based. Some of it might be currency based. So let's just say, like right now, I think that a smaller equity exposure is better based on where the macro perspective is. And so let's just say that 40% of my portfolio is equities. How much of that 40% of my overall portfolio would you say would be appropriate to dedicate towards momentum versus just straight value?

Starting point is 00:04:18 Well, what I'll do is I'll just tell you what I do with my personal money. obviously everyone's got their own circumstance and you really got to be a believer because what I'm about to tell you is for the believers that get it and they just want to compound in expectation. So what I do is, you know, the baseline

Starting point is 00:04:37 is just 50-50, right? That's the brain dead version of doing it. And that's not a bad approach. However, we believe in kind of like you want to kind of make sure you're getting the same risk amount from each bucket. And the reality is that a dollar invested in value stocks doesn't generate the same amount of risk as a dollar invested in momentum stocks.

Starting point is 00:04:59 So if you have 50, 50, 50, like if you have 100 bucks, you put 50 in value, 50 in momentum, from a risk perspective, you're more exposed to momentum, right? Because it's just got more bang for its buck. So what we do is what they call like a risk parity or vol weighty approach. It's just a fancy term. But since you're just trying to balance the exposures, and it nets out typically to 60, 40 or sometimes 70, 30. So as is your mission at the other show. So that would mean you're going to be overexposed to value. We're typical around like 60% and then around 40% to momentum.

Starting point is 00:05:33 Just because momentum, you don't need as much allocation to get the volatility and risk from it. Now, I'm really curious. And I know that this really kind of relates to a specific point in time. So people that are listening to this three years from now are, you know, way into the future. This isn't necessarily going to apply. But a lot of the people listening to this right now would be very curious to hear your opinions on asset allocation and positioning based on the current market conditions. Because when we look at the current market, yes, interest rates are super low, which gives, I guess, people cause to believe that a higher price is justifiable.

Starting point is 00:06:10 So if you're looking at a P.E ratio across the S&P 500, it makes sense that it should be higher because interest rates are so low. But in that same breath, we're seeing CAPE ratios right now in the U.S. that are literally the highs that they've ever been except for 2000. So when you go across the last hundred years, we're seeing some really high prices in the U.S. equity market. So I'm really curious, what do you think is an appropriate positioning in stocks in, you know, here we are December 2016? So again, unfortunately, we're just all about evidence. I mean, what's kind of the, what's the data driven decision here? And so we don't really make calls and we just got reminded

Starting point is 00:06:54 of this. Because if you were to told people before Trump got elected that the stock market was going to go up 10% for small caps in November, they would have thought you're like the craziest person on the planet. Right. So being able to predict based on gut or whatever's going on, like I just can't figure it out, not really sure many can. Some folks are smart enough maybe they can do it. What we do, and it's going to sound ridiculous, but it's just what the evidence suggests is we are trend followers. It's kind of like momentum, but as we mentioned with stocks, stock momentum is about relative strength. So how much relative price appreciation you got to everyone else in the world? Trend following is basically looking at the same asset relative to itself.

Starting point is 00:07:38 And if something's in a positive trend, ride the wave. the minute that trend bust, de-risk and don't focus on valuations. Like, we've looked at so many ways of try to tactically allocate based on valuation metrics. And everyone knows the data. You know, if you buy one when the capes are crazy, the 10-year expected returns are horrific and the realized ones are. But when you try to tactically implement that in a portfolio, like to create a trading you can roll out of that to see if you can actually benefit you just that you can't the only one

Starting point is 00:08:18 that can is trend so if the thing is trending even if it's insane just own it the minute stops trending blow out and that's really important in like high valuation markets where it's just you got to follow the trend otherwise you're going to be sitting on cash for five years and miss out on a three x in equity markets you know it's funny that you say that because this is exactly what we see Stanley Drunken Miller do. I mean, you talk about a guy who can compound better than anybody on the planet. This is exactly what he's doing. You know, Trump came out.

Starting point is 00:08:50 He was a huge bear for all of 2015. I mean, he owned, I don't know how much gold. 25% of his portfolio was in gold going up to the election. The night that he found out that Trump had won, he sold his entire gold position and went long equities. And it was like, everyone's just like, has their hands in the air, like what in the world is this? And that's exactly what you just described. So I'm curious. So based on the trend that you're describing here, you guys are highly exposed

Starting point is 00:09:22 to equities then at this point. Not really. So I mean, I can tell you because literally we just did it today. But basically, U.S. equities long and strong, international, fully hedged, commodities. I think we're all in on those bonds, flat, no duration, bond exposure. Yeah, really the only thing you're long as U.S. equities based on trend. You're going to be kind of protected right now besides U.S. And Stig, I want to highlight something for the audience really fast before we go to the next part here. I think it's really important that people that are hearing that have to understand that Wes could change that positioning in a very short amount of time. Like he's saying that he's long equities right now, but that doesn't mean that he's going to hold that position in six months from now. It might be completely different. Correct, Wes?

Starting point is 00:10:07 Yeah, no, definitely. Yeah, you got it. And if you're going to do what essentially what we're talking about here is market timing. We only dabble in it with trend following. And it's one of those things where if you're going to do that, you need to have like the iron will of, you know, Navy SEAL discipline and stick with it. Otherwise, if you can't do that, just do some static Vanguard buy and hold or go buy some, you know, like you guys promote like value stocks and companies you like. and just don't think about it. Because getting into market timing, unless you kind of know what you're getting into, is really kind of a dangerous thing for most people. Wes, I'm curious about what you said about being long American equities, because if you look at, like,

Starting point is 00:10:52 in the overview of all the Cape Rates, America is definitely one of the more expensive markets. So is that because momentum investing doesn't work internationally or what does the evidence say? As far as I remember in the book, in most markets, momentum investing was actually a good strategy. So what's the reason for your current allocation in that case?

Starting point is 00:11:14 Yeah, yeah, sure. So there's, and this is something we try to clarify. So there's stock picking momentum, which is using that relative strength measure we talked about in the first episode. And that's where you take a thousand stocks, rank them on their last 12-month returns. And if they're in the top 100, those are good. If they're anything else, you don't want them, right? That's stock picking momentum.

Starting point is 00:11:39 So if we're going to own equity, we always want to have an allocation to that kind of exposure. Either you want to own the cheap stocks out there and you want to own the momentum stocks out there when you want to own equity. So right now, U.S. equity trend is strong. So we're going to own value and momentum securities. International equity stinks. So we're not going to own any equities, no matter if they have the best momentum in the world, because the trend in that broad asset class is just not worth the risk to buy into that kind of that equity risk over in a non-trend market.

Starting point is 00:12:15 That's essentially kind of there's two things. There's the stock selection momentum, which is about picking stocks. And then there's the window I actually want to own equities. And that decision, at least if you're in a market timing, and at least evidence-based market timing, usually revolves around some sort of trend system. Let's take a quick break and hear from today's sponsors. All right. I want you guys to imagine spending three days in Oslo at the height of the summer. You've got long days of daylight, incredible food, floating saunas on the Oslo Fjord, and every conversation you have is with people who are actually shaping the future. That's what the Oslo Freedom Forum is. From June 1st through the 3rd, 2026, the Oslo Freedom Forum is entering its 18th year, bringing together activists, technologists, journalists, investors, and builders from all over the world. many of them operating on the front lines of history.

Starting point is 00:13:07 This is where you hear firsthand stories from people using Bitcoin to survive currency collapse, using AI to expose human rights abuses, and building technology under censorship and authoritarian pressures. These aren't abstract ideas. These are tools real people are using right now. You'll be in the room with about 2,000 extraordinary individuals, dissidents, founders, philanthropists, policymakers, the kind of people you don't just listen to but end up having, dinner with. Over three days, you'll experience powerful mainstage talks, hands-on workshops on freedom tech, and financial sovereignty, immersive art installations, and conversations that

Starting point is 00:13:45 continue long after the sessions end. And it's all happening in Oslo in June. If this sounds like your kind of room, well, you're in luck because you can attend in person. Standard and patron passes are available at Oslof Freedomforum.com with patron passes offering deep access, private events, and small group time with the speakers. The Oslo Freedom Forum isn't just a conference. It's a place where ideas meet reality and where the future is being built by people living it. If you run a business, you've probably had the same thought lately.

Starting point is 00:14:17 How do we make AI useful in the real world? Because the upside is huge, but guessing your way into it is a risky move. With NetSuite by Oracle, you can put AI to work today. NetSuite is the number one AI Cloud ERP, trusted by over 43,000 businesses. It pulls your financials, inventory, commerce, HR, and CRM into one unified system. And that connected data is what makes your AI smarter. It can automate routine work, surface actionable insights, and help you cut costs while making fast AI-powered decisions with confidence.

Starting point is 00:14:52 And now with the Netsuite AI connector, you can use the AI of your choice to connect directly to your real business data. This isn't some add-on, it's AI built and into the system that runs your business. And whether your company does millions or even hundreds of millions, NetSuite helps you stay ahead. If your revenues are at least in the seven figures, get their free business guide, demystifying AI at netsuite.com slash study.

Starting point is 00:15:17 The guide is free to you at netsuite.com slash study. NetSuite.com slash study. When I started my own side business, it suddenly felt like I had to become 10 different people overnight wearing many different hats. Starting something from scratch can feel exciting, but also incredibly overwhelming and lonely. That's why having the right tools matters. For millions of businesses, that tool is Shopify. Shopify is the commerce platform behind millions of businesses around the world and 10% of all e-commerce in the U.S. from brands just getting started to household

Starting point is 00:15:53 names. It gives you everything you need in one place, from inventory to payments to analytics. So you're not juggling a bunch of different platforms. You can build a beautiful online store with hundreds of ready-to-use templates, and Shopify is packed with helpful AI tools that write product descriptions and even enhance your product photography. Plus, if you ever get stuck, they've got award-winning 24-7 customer support. Start your business today with the industry's best business partner, Shopify, and start hearing... Sign up for your $1 per month trial today at Shopify.com. slash WSB. Go to Shopify.com slash WSB.

Starting point is 00:16:35 That's Shopify. dot com slash WSB. All right. Back to the show. So, Wes, do you have any tools on your site that provide some of this information to people to show

Starting point is 00:16:48 where your positioning is going at certain points in time? Yeah, yeah. So we, on our tools on our website, we wrote another book, DIY Financial Advisor, which just as the title suggests, it's how to be your own

Starting point is 00:16:59 financial advisor. There you got right there. And so we have tools where we basically map that out every month for basically the system that we talk about in that book. But in addition of that, because we're kind of somewhat agnostic, we also post a lot of equity weights or asset allocation weights for a bunch of other whizbang models. People promote like risk parity and you know, all these other things. And it's all free. You got to sign off that you're, you know, financial professional so they don't get sued. But to the extent that you're comfortable doing that and you feel like you know what you're doing. Yeah, going there and you can go crazy. Yeah, and I just want to put it out there that we actually recorded two episodes with Wes

Starting point is 00:17:39 more than a year ago about momentum and value investing. So, Wes, this is your chance to give a hard sell. As hard of a sell as you can muster to that hardcore value investor. I mean, you could really give this to me because that's kind of the camp I fit into. But sell somebody on why they need to really consider momentum into their strategy, like really lay it on them thick. Got it, got it. Well, let me give you a thought experiment. And this is what myself, as a value investor,

Starting point is 00:18:15 got me really thinking about momentum investing. Because you got to, from value guys, you got to map it back to fundamentals, because that's how we're wired to think. Great. So let's say, and I think I have example, the book we can even talk about recently. Let's say you're out in the valley, you've got LinkedIn and you got Google. Okay, LinkedIn blows up 50%, Google keeps grinding for whatever

Starting point is 00:18:44 fundamental reason. Now, one would think that, you know, markets are efficient, you know, it's all about discount cash flows, price action doesn't matter. Well, let me tell you something. Your cost of capital when you have a turd stock that lost 50% of its equity value is way higher than a hot stock that everyone wants to own and every banker in the street wants to sell. Right. So right there, the pure price action itself can affect through what Soros calls like reflexity feedback loop, your actual fundamentals because your cost of capital relative to your competition, even though fundamentally nothing's changed except the fact your price blew up and the other guys didn't it, It actually fundamentally screws you.

Starting point is 00:19:29 Not only that, if you're the employees and you're a human, because all employees are humans, when they see a company that's blown out 50% of the equity and are thinking, ah, you know, a lot of this is an option value. I want to be here for a long time. And then across the street, they got the one where the stock price is going up four or five times. You know, they got like donuts for free everywhere. They're going to be able to attract way better human capital. Because a lot of human capital, they're not value investors. They're not thinking like, oh, like, well, why would I want to work at the overpriced company that's burning money on stupid stuff?

Starting point is 00:20:05 I want to go work with this boring one that just blew up and is like a total great value investment because they want to work at this place. So just price action can affect so many fundamental things without fundamentally anything changing. Cost to capital gets way cheaper just by having great price action. Human capital acquisition, the ability to maintain it is way cheaper when you have great price action, right? It's just a fact. And so price action itself can have nonlinear second derivative effects on fundamentals that go underappreciated by the market because it hasn't shown up yet. And that's something to think about there because now momentum, even if you push all the wacky, technical, analysis, things aside, when we start thinking like that, now we're thinking, wait a second,

Starting point is 00:20:59 maybe that price action is actually creating fundamental value that value investors never even consider because they're so buried in like the financial statements. Yeah. Right. But it's real fundamentals that might be fundamentally changing things. And we should account for that. And, you know, I think a lot of what momentum's mojo is about is that kind of stuff. Then the second one is, I mean, it's just straight up facts, man.

Starting point is 00:21:23 you know, there's a lot of theories about why value investing is in many respects maybe just risk in a hidden clothing because like distress risk, you're buying all kinds of weird tail risk things that, you know, you just don't know about. And, you know, a lot of people argue about this. I don't, I'm not a believer on that, but there are people that intellectually argue that pretty sufficiently. When it comes in momentum, even like Eugene Fama, the dude that invented efficient market hypothesis says this is insane. We cannot explain this, and there is no risk-based story that has any real credibility. So it's just, it's a fundamentally more empirically robust phenomenon than value. So it's just purely the data's there to support it. And that's all fine and Danny. Now, why does a value investor have most the gain from momentum? Because value investors are those that are the least likely to ever want to. to touch momentum. And a lot of momentum people are the least likely people that want to own some

Starting point is 00:22:28 boring, you know, stupid value stock. But now we've got a hidden diversification portfolio benefit where I'm my hardcore value guy, Roger that. But if I can couple something that has the equal level of octane, but it tends to yen when my value stuff is yinan and I can kind of, you know, help diversify that volatility and allow myself to sleep better at night, there's arguably some value in that. But there's only value in that to the extent, and it's the same reason value investors, the hardcore ones are successful, you got to believe, you got to understand, and you got to have iron will. I'm curious, Preston, are you convinced? And I'm saying this as I'm smiling. And it's really not to be rude or anything like that, but it's really, really hard

Starting point is 00:23:18 as a value investor, to think to include something like momentum investing in your portfolio that is purely based on price action. It just feels wrong in a way. But I think that the argument that you're putting out there, whereas I think they're really, really good. So I'm just thinking, Preston, let me just put it on you first. Were you convinced? To be honest with you, I am convinced a little bit here. The thing that it really gets at, though, is Wes's last point of this isn't something that you can just go. out as an individual person and kind of do the analysis on by looking at a couple different companies that have a lot of price action on them because you're going to have gaping holes

Starting point is 00:23:59 in the analysis. I think you really have to have some type of program. You have to have some type of source of data that's consolidating the swath of companies across, call it the U.S. market or wherever you're looking, and give you a good basket that you would then have to re-optimized. And this would require a lot of time. And for, you know, a lot of of people out there that maybe only have, call it 10K or 50K to invest, there's no way you're going to go about doing this approach because it's just too time intensive and resource intensive. But if you're a person with a high net worth, I think that this is something that is definitely worth considering if you have a very good execution of rebalancing a portfolio

Starting point is 00:24:40 and looking across the entire index of stocks. And the other thing to give a small pitch on momentum, even if you're just a hardcore value investor and implementing momentum in its purest form, it's not up to you and you don't want to go buy someone else's stuff or whatever, you know, Roger that all good. It still might be useful as a value investor as kind of like another indicator. I'm buying my cheap stocks, but maybe at the margin, you know, I give a little bit of extra benefit to those that have high momentum versus low momentum. Because we know from evidence-based standpoint, you're basically stacking the deck in your favor at the margin. And that's something that everyone could do with a lot less brain damage than running a pure

Starting point is 00:25:24 quantum momentum strategy. All right. So, Wes, last week we had you answer a question from our audience. And we want to do the same thing again this week as long as you're up for it. Sure, of course. All right. So this question comes from Eileen Phillips. And let's go ahead and fire away here.

Starting point is 00:25:42 Hi, Preston and Stig. My name is Eileen Phillips from Orange, California, and I'm a huge fan of all you young value investors. You're like my team. Thanks so much for your podcast. I really don't mind traffic. In fact, I'm often listening to you in the garage because I want to hear the end of your podcast. So I have two questions. First one, can you explain what shorting the S&P 500 does for a stock portfolio? Does it just balance huge drawdowns? Or why would that be something you might do? do in the current market. And my second question is, as a reading teacher who would like to inspire my students to read more, what single person or event most influenced you're becoming lifelong readers? Thanks again and love the podcast. Hey, Wes, before I throw it over to you, I want to quickly respond to that second part because that's one I'm really passionate about. Eileen, I want to tell you, for me, I was not a big reader whenever I was younger. And one of the things that inspired me to start reading a lot was I was highly interested in

Starting point is 00:26:48 investing. And when I started studying Buffett and Charlie Munger and some of these other people, the one thing that I saw that just kept coming up more and more was that these guys were obsessive when it came to reading and expanding their knowledge. They would constantly be talking about how all they did, their number one attribute is that they'd read, they'd read, they'd read. And then I kind of started turning my car into a learning laboratory where, you know, I started off, just like Wes, I started off in the military. And so I'd always have these half hour drives or 40 minute drives into work. And there was just one day where I was like, you know what, I'm going to just stop listening to music. I'm not going to listen to music anymore. I'm going to turn my car into a learning laboratory. I'm going to educate myself in my car. Anytime I get my car, I'm going to educate myself. And for me, that was a major turning point with reading in my life.

Starting point is 00:27:43 And now for much more than a decade, every single time I get in my car, I'm learning something new. So that has had such a profound impact on my life. I can't even describe how much of an impact that's out of my life. And that's my quick story on that. Now I'm going to throw it over to Wes so that he can answer your question. Yeah, I love that question. I think that's great. And so Eileen had two questions.

Starting point is 00:28:05 The first one was, I guess, what was the benefits or cost? of shorting the S&P 500. In general, barring one status as a professional who knows exactly how and what they're doing, I wouldn't recommend shorten anything just because it's a dangerous game. In general, when you short the S&P,

Starting point is 00:28:26 or let's go back, when you long the S&P, what do you get? Well, typically what you get over the last 100 years is you're going to get the risk-free rate, let's say 10 duration bond return plus 3 to 400 basis points, which is what they call the equity risk premium. So the premium for holding risk. You know, historically that's been,

Starting point is 00:28:48 you know, around 9%. Nowadays with, you know, 10 years, like 2 and a quarter plus 3 or 4, that's maybe 6% or something, right? So that's if you're long in the S&P. So when you short the S&P, you're eating that as now as a headwind. So the benefit, the benefit. So the benefit, of short an S&P is obviously if the market blows up, you gain, or if you have other long exposures in the rest of your portfolio and you want to hedge out kind of what they call the market risk or the market beta, you know, you can get rid of that risk. However, it comes at a huge cost. It comes at the fact that now you're essentially paying, you know, the risk-free plus three to 400 basis point equity risk premium. And that's now not a tailwind, but a wind in your

Starting point is 00:29:35 face. So I would avoid in general, just don't short equity markets. If anything, just sell down your stocks if you can't handle it. Let's take a quick break and hear from today's sponsors. No, it's not your imagination. Risk and regulation are ramping up and customers now expect proof of security just to do business. That's why VANTA is a game changer. VANTA automates your compliance process and brings compliance, risk, and customer trust together. on one AI-powered platform. So whether you're prepping for a SOC 2 or running an enterprise GRC program, VANTA keeps you secure and keeps your deals moving. Instead of chasing spreadsheets and screenshots, VANTA gives you continuous automation across more than 35 security and privacy

Starting point is 00:30:23 frameworks. Companies like Ramp and Ryder spend 82% less time on audits with Vantta. That's not just faster compliance, it's more time for growth. If I were running a startup or scaling a team today, this is exactly the type of platform I'd want in place. Get started at vanta.com slash billionaires. That's vanta.com slash billionaires. Ever wanted to explore the world of online trading, but haven't dared try? The futures market is more active now than ever before, and plus 500 futures is the perfect place to start. Plus 500 gives you access to a wide range of instruments, the S&P 500, NASDAQ, Bitcoin, gas, and much more. Explore equity indices, energy, metals, 4X, crypto, and beyond.

Starting point is 00:31:12 With a simple and intuitive platform, you can trade from anywhere, right from your phone. Deposit with a minimum of $100 and experience the fast, accessible futures trading you've been waiting for. See a trading opportunity, you'll be able to trade it in just two clicks once your account is open. Not sure if you're ready, not a problem. Plus 500 gives you an unlimited risk-free demo account with charts and analytic tools for you to practice on. With over 20 years of experience, Plus 500 is your gateway to the markets.

Starting point is 00:31:45 Visit Plus500.com to learn more. Trading in futures involves risk of loss and is not suitable for everyone. Not all applicants will qualify. Plus 500, it's trading with a plus. Billion dollar investors don't typically park their cash in high-yields. savings accounts. Instead, they often use one of the premier passive income strategies for institutional investors, private credit. Now, the same passive income strategy is available to investors of all sizes thanks to the Fundrise income fund, which has more than $600 million invested in a 7.97%

Starting point is 00:32:22 distribution rate. With traditional savings yields falling, it's no wonder private credit has grown to be a trillion dollar asset class in the last few years. Visit fundrise.com slash WSB to invest in the Fundrise Income Fund in just minutes. The fund's total return in 2025 was 8%, and the average annual total return since inception is 7.8%. Past performance does not guarantee future results, current distribution rate as of 1231, 2025. Carefully consider the investment material before investing, including objectives, risks, charges, and expenses. This and other information can be found in the income fund's perspective. at Fundrise.com slash income.

Starting point is 00:33:04 This is a paid advertisement. All right. Back to the show. Yeah, I would completely agree with you, Wes. I mean, it's not only a question about not shorting equities. It's probably a question about not shorting anything unless you really, really know what you're doing. And in that case, and if someone would be interested in an approach like that, I think that

Starting point is 00:33:25 for some types of investors that might be beneficial, say, shorting ESMP 500 and going long individual value stocks. That is an approach that one can definitely take up. It is definitely a risky strategy. It's more like a heads fund strategy and you might only want to do that for a part of your portfolio. But the reason why I bring this up and it's not necessarily something I recommend, but I just want to bring this up because what West talked about before in terms of beta and terms of how is that related to the market, that might be one way of if you think about it, you were taking away the stock market risk, because if the stock market should drop with, call it 20%, and your pick, or across the border of your picks might drop only 10%,

Starting point is 00:34:11 you will actually make a gain. So that is another way to be investing in the equities market. That's definitely by all measures, regardless of how you're going to measure it, is all value at the moment. Yeah, and that's actually a great point. And you're just, again, highlighting that if you do it, you just can require another level of sophistication. We actually have an old article. It's called creating a tax-efficient hedge fund.

Starting point is 00:34:37 And essentially what you mentioned in, their stake. If you believe in value, you don't want to deal with the equity risk, you know, a DIY hedge fund is, you know, go buy individual value. Security names, short out the S&P risk. So now you're basically spread betting between what you think your value stocks are going to do relative to what, the S&P is going to do, but you're not like exposed to if the market blows up 50%, you know, that's going to be painful. Now you're just exposed to how will your stocks do relative to, you know, S&P stock. So, and you're basically creating your own hedge fund.

Starting point is 00:35:11 But to the extent you don't even know what a hedge fund is or you don't know how a hedge fund works in a portfolio, you definitely shouldn't be creating a DIY hedge fund because it's just, you know, piling bad things on top of more bad things. but it can be a really powerful thing, but in general, it's just you probably want to avoid it unless you kind of know what you're doing or you're willing to invest some time

Starting point is 00:35:32 and education on it. And to the book question, well, I mean, heck, I think Preston did a really great job. And I think for me, like, I've always been a reader just naturally,

Starting point is 00:35:41 just always like to learn stuff. But going back to the military, you know, I think it's really got beaten in my head there. You know, I was a second lieutenant. You don't know anything. And you're about to go get shot at.

Starting point is 00:35:53 It would be nice to have, have some experience, well, it's hard to get experience getting shot at. And so that's why I just like reading because you can have the experience of a 100-year-old man as a 20-year-old because you just read a lot of books and you get experience through, you know, reading and understanding what other people have gone through. I want to add some more to that, too, Wes, because I completely agree with the points you're making there. A lot of the times I talk to people about the difference between reading books versus reading articles on the internet. And I am much more opinionated and biased, if you will, to reading books because I guess I look at it this way.

Starting point is 00:36:33 If somebody took the effort, because Wes can definitely attest to this, when you write a book, it is such a major undertaking and such a drag. That barrier to entry to write a book tells you that the person who wrote that subject, really is passionate and has just the depth of knowledge that the typical person doesn't have. They have an expertise in that specific thing that they wrote the book on. So you're gaining this insight from a person who's really an expert versus somebody who just wrote a couple paragraphs and posted it on Wikipedia. I feel like you're getting a whole different level of understanding and knowledge when you go to books instead of just articles.

Starting point is 00:37:15 If there's no reason to really go deep into something, then yeah, the articles will precise. but I think really focusing on books is so important. I can't stress it enough. And just I think a life lesson, which revolves around, well, you just mentioned there, revolves around investing, it revolves around pretty much everything. You got to do painful stuff to get gains. If it's easy and it feels good,

Starting point is 00:37:42 like reading some cheeseball article on Facebook, you're not gaining anything, right? So things that have any value, typically have to be painful and annoying because otherwise we wouldn't have any value. So, you know, value investing is great because it sucks. Women investing is great because it sucks. Reading books is great because it sucks. Yeah, so I disagree, man.

Starting point is 00:38:05 You got to just embrace the pain if you want to ever get better. And I can definitely say as a teacher as well, Eileen, it's going to be an easy sell for you to your students. Just do whatever you think really sucks. Hey, that's what we learned from Jesse Itzler, remember? That's true. Wes, I don't know if you heard this. We did an interview with the owner of the Atlanta Hawks, and he hired a Navy SEAL to live with him for 30 days.

Starting point is 00:38:32 I just think I saw that. David Goggins, right? Yeah, David, he was the Navy SEAL guy that moved in with Jesse and his family. I think I learned about that listening to your guy's podcast. Yeah, that guy's a beast. I was telling my partner, I was actually doing a burpee workout. and, you know, feeling sorry for myself. And then, you know, this guy has the world record for pull-ups in 24 hours.

Starting point is 00:38:55 Yeah. It is like 4,000 drops. Yeah. So, I mean, you know, it's crazy. Well, that was his motto. That was his motto in the book. It was one of his exact quotes in the book. He said, if it doesn't suck, we don't do it.

Starting point is 00:39:11 Yeah. I agree. Huge shot out to Jesse Itzler. And we can't promote his book. I'm telling you, you want to read a hilarious book that's going to give you just countless amounts of motivation and inspiration. You need to read this book. We'll put it in the show notes if anyone's listening to this bit. Wow, what a book.

Starting point is 00:39:30 I love that book. I can vouch for it. Everyone should listen to that podcast you guys did on it. That was epic. The rap song at the end where we wrapped to him was probably a little bit over the top. But, you know, we'll have it. Wow, what can you do, man? That's why you guys got a huge following.

Starting point is 00:39:45 You guys go above and beyond. do the tough things, you know, to make it matter. Yeah, the rap definitely suck. So I guess we followed his advice. Remember, I was like hiking around, train for some event, listen to that podcast. And now you're re-infigurating my memory, because now I was like, wait a sec, I've heard this story. I'm like, wait a sec, that's you guys. And now I do remember this rap thing you did because I remember like laughing out loud,

Starting point is 00:40:10 like in the midst of pain. They could, these guys are insane. This is a great podcast. My wife and kids heard it and they just looked at me and they're like, there's no way you were going to air that. And I was like, oh yeah, we're airing it. They just looked at me. You are not going to have anybody listening to your show after that.

Starting point is 00:40:29 All right, Eileen, fantastic question. I love that one. For submitting your question, we are going to give you a free subscription to our Intelligent Investor Video Based course that goes chapter by chapter, step by step, all through video. We're also going to give you the TIP Academy course, How to Invest in ETS, where we outline the process step by step. We just can't thank you enough for submitting your question.

Starting point is 00:40:53 So for anybody who's listening to this, if you want to get your question played on our show, go to Asktheinvestors.com. You can record your question there. And if it gets played on the show, you get a free subscription to our video-based learning website. All right. So, Wes, we cannot thank you enough for coming on. I know that people listening to this interview are they have to be blown away because you take things to a whole new level, and we were just so excited having you come back on the show.

Starting point is 00:41:18 There's a chance Wes might join us for the Omaha event, going to the Berkshire Hathaway shareholders meeting. He isn't able to commit to it 100%, but we're hoping we can convince him. So if you follow us on Twitter, Wes is on Twitter. We'll have his Twitter handle into our show notes. Please send him as many messages as possible and bug him and say, you better come to the Berkshire meeting so that we can have some more one-on-one conversations with you. in our audience. So, Wes, please give our audience a handoff to some of your products. The name of

Starting point is 00:41:48 his book is Quantitative Momentum. And he has a bunch of other books out there. But Wes, give people a handoff to some of your sites and where they can find you. Yeah, sure. So as far as books, we've got quantitative value, which probably be more amiable to a lot of the value investigators out there, DIY Financial Advisor, which is just like the title says, how to do this stuff yourself. And then Quantate Momentum is basically the book written for value investors on why momentum is interesting. You can reach us at, like I said, alpha architect.com,

Starting point is 00:42:19 and we're for-profit. We've got ETS out there that actually do, you know, deep value and deep momentum investing, run managed accounts and do a lot of other services. But our overriding mission is power investors for education, which is why I love what you guys do. And if I can make it to that meeting, I'll try to make it out there because I love to meet your audience.

Starting point is 00:42:40 And I think you guys are just doing a great thing for investors out there. All right, Wes, thank you so much and thanks for coming on the show. That was all that we have for this week's episode of The Investors Podcast. We'll see each other again next week. Thanks for listening to The Investors Podcast. To listen to more shows or access to the tools discussed on the show, be sure to visit www. www.com. Submit your questions or request a guest appearance to The Investors Podcast by going to www.com. If you're question is answered during the show, you will receive a free autographed copy of the Warren Buffett Accounting Book. This podcast is for entertainment purposes only. This material is copyrighted

Starting point is 00:43:22 by the TIP Network and must have written approval before a commercial application. Thank you.

We Study Billionaires - The Investor’s Podcast Network - TIP 123 : Part 2 Momentum Investing w/ Dr. Wesley Gray (Finance Podcast)

There aren't comments yet for this episode. Click on any sentence in the transcript to leave a comment.