Jason Buck: Investing Russian Roulette - An Ergodicity Masterclass

if I offer you a million bucks to play Russian roulette once, you shouldn't do it, but you're probably, you might think about taking it. But if I gave you a million dollars, but you got to do all six of the same, like in succession, you're not going to take that shot. So that's the difference between, that means it's non-ergodic when your individual path dependency is different from the ensemble average.

We can go, we can go Bitcoin if you want.

So it reminded me of like some of those. the collective events or real vision blacklist where you're in those intense conversations like 24/7, which is, it's really exciting, but really exhausting at the same time.

But in those rooms, somebody's like, excuse me, I happen to be an expert on that, and then they deep dive and just crush you. And so I always love being in those kinds of rooms.

Now, I know Philbrick's not on here. You guys aren't big, you know, American football fans. But basically in the eighties and nineties, uh, Herschel Walker was a great running back. And when Herschel Walker first came out, he went, he was drafted by the Dallas Cowboys. And, you know, over his lifetime achievements, you know, he's got hall of fame numbers. He put like up over, I think like 8, 000 rushing yards, close to like 5, 000 receiving yards.

And this was a time when, running backs didn't do really do receiving. So he was really this multi tool player that people thought was a true game changer. I think he had about 61 touchdowns ish. So, you know, he plays for Dallas for like three years is absolutely crushing it. And the Minnesota Vikings think, we need to get Herschel Walker. This one player is going to change the fate of our organization. And now we're going to win some Super Bowls.

So in the trade for Herschel Walker, the Dallas Cowboys received, if I recall correctly, eight draft picks and five players for one player in Herschel Walker. And it was like three first round draft picks, like three second round draft picks. It was pretty insane. So Minnesota Vikings get Herschel Walker. turns out the kind of top ticked him, you know, unfortunately for him. And after three years, they traded him on, I believe to the Eagles and then they traded him on the Giants.

So it was kind of like, kind of, you know, he put up those great numbers the first year and then, and kind of like languished a little bit after that. And they call it the great train robbery because of the amount of players that Dallas got, but more importantly, they went out right in that next draft and they got people, players like Emmitt Smith. And they were able to, this is 1990, basically the trade was 89.

And then the early to mid nineties, the Dallas Cowboys used those trades to build a team that won three Super Bowls in the early to mid nineties. So that's why it's called the great trade robbery. Cause it was the most lopsided trade in history, basically one player for eight and, and Dallas was able to win three Super Bowls while the Minnesota Vikings were not able to pull it off at all.

So it was just an example of, just, we started the beginning of this, you know, referencing being in these rooms at global macro events or entrepreneur events and everything. And you guys have seen it a million times. Everybody's like, what's your number one trade, you know, whether it's the zone conference, whatever everyone wants to know, what's your number one trade, what's your number one asset class, you know, show me how to make a fortune off of one trade.

And as I know, you guys don't think that way either. You know, we think, thinking teams or ensembles or portfolio construction, because it's more important. Like what if you're wrong? And it's more of the average. return across that team than any individual trade or individual strategy or individual player. But it's a, it's a mistake that we see time and time and time again. And, you know, we could use millions of different sports analogies.

Like I've been working with, on the idea of Tour de France, which may be more in your, either you guys cyclists, I know you're swimmers, not cyclists.

And during even that time, there's been two guys that won the Tour de France that didn't even hold the yellow jersey at all to the very last day. So once again, it's about your average time. And if you think about Tour de France, you have the. flats for time trials. You've got a little bit of hilly things for sprints. You've got the mountains of the climbers and there's different jerseys, whether it's polka dot green jersey, white jersey for people that can win those stages.

Because as a overall winner, you have to be well rounded, right? You have to not lag too far behind on those sprints, not lag too far behind on those mountains. Make sure your team can really put up great numbers in that time trial. So you have the ability to, once again, it's your average ensemble through time. You know, it's that multiplicative process that we always talk about day by day. How can you do multiply by the next day, multiply by the next day.

and that what ends up with your Tour de France winner, and you don't have to be really outstanding at any one particular side. And then it's fractal in nature too, because you have a team with you. All these domestiques are the ones that are trying to, you know, maybe, Yeah, you can, you can ride behind them to get a little bit of a windbreak, to kind of rest during those tough times, pull you ahead. They can chase that Peloton down for you.

There's a lot of things that are going in that fractal nature of everything we talk about with ensemble approaches to investing. you know, it just takes time and that multiplicative effect to really win that championship. And we view the same thing, you know, when it comes to investing, it's offense plus defense wins, investing championships for

And if you are a typical investor and you're looking at these, these cyclists and deciding whether to invest quote unquote, in them at any given time, you might be calling the best cyclist. If you see them underperform on the third, piece of that tour, right? So this is what we see all the time. You see the idea of an ensemble makes sense. Then you put the ensemble and you get each individual item, each individual name. They have a poor period. You call the worst performing.

You get more money the best performing and it just creates a lopsided distribution. And it's a problem. and yeah, I think your sport analogies, both of them, you know, bring light, try to say the same thing in different ways that, the real goal here is to minimize the team's distribution of outcomes and maximize the chances of success. So I love that, um, that cycling analogy

Together, they are much, much bigger than any of them would be if they were to, be a diaspora that all went to join other teams, right? Together, they are something much larger than the sum of the individuals. And I don't know the Tour de France nearly as well, but I imagine that entire team is what wins the championship. It's not the guy who passes the, end line first, right? And similar with, Dennis Rodman, clearly a very, niche player had a very specific role that he played on the team.

He got rebounds and he kicked it back out to provide new scoring opportunities for the other members of the team. He didn't score much on his own. he didn't have a lot of, you know, he's a pretty good defenseman in general, but didn't have a lot of great offensive, qualities. but without him, they would have had far fewer opportunities for the other members of the team to score.

And, you know, if you look at your portfolio in the same way, you can't really in any way, determine the value of any of the constituents of the portfolio outside of the context of the portfolio as a whole, right? I think that's very, very challenging for many people to recognize and it makes the decision making hard because now you're making decisions in a multidimensional context, not in the context of, is this manager good or bad? Okay.

Because it's really, you want to know what's going on underneath the hood and it's so non correlated to S& P 500. So you straddle that. You talk a lot about diversity of strategies, diversity of managers, but you have a lot of one, one and done solutions. how do you, how do you think about that problem with investors?

And similarly, like soccer, like, Liverpool got great because they, they got Alisson as a goalkeeper and then Virgil van Dijk as their sweeper. And now they could go all out high octane offense and then they start winning championships. Cause it's that, that combination, but, a lot of people have read Dalio and that 16 uncorrelated return streams. but as we've always talked about a million times, especially, it's not just uncorrelated.

If you can get negatively correlated return streams, that's incredibly accretive to the portfolio over time. Now, individually, if you look at that snapshot and that negative line item risk of, say, tail risk hedging protection, it looks like a terrible negative line item.

You know, we've talked about how do you get over that, hurdle in many different ways and whether that's, you know, zigzag, zog, like we've talked about, you guys talked about skis and bikes was, you know, I always bring up your guys's great example from back in the day. you know, it's, how do you put those together? So the way, you know, like you said, I think about it is, if anybody wants to see our line items, we're full open Komodo. I like to show all that stuff.

But more importantly, you have to get investors buy in. And so you have to meet them where they're at. And so part of that is we started at a very high level, just offense and defense. So we describe offensive assets as everything that people know. That's like long GDP from stocks, bonds, private equity, VC, real estate. All of those things are offensive assets in our mind.

We then like to pair those with defensive assets, like long volatility, tail risk, commodity trend following, gold, maybe even cryptocurrency. We can argue about that later. Other people can argue about that. Um, but the idea is like, you need to pair offense plus defense. So that's the way we started about, and then other ways of thinking offense, defense, if you want to get more sophisticated is implicit short volatility trades versus long volatility trades or breakout versus mean reversion.

And it's about pairing those kinds of things together and how the, The portfolio compound through time. So we'd like to put together tons and tons of lineups to get that uncorrelated issue and that negative correlation, but it really basically boils down to offense plus defense, And that's what we kind of paired together in our cockroach portfolio.

And then like you're saying, Rodrigo, we allow people to pick, you know, if they just want the defensive assets that fine, if they just want the long volatility, that's fine. If they just want the commodity trend, that's fine. But then within that, our Mandelbrot and fractals, we'd like to Then use ensemble approaches to even those different asset classes. So we're just trying to get that broad diversification because we don't believe we have a crystal ball that can predict the future.

So I think it's a combination of both it's, you know, to get the emotional buy in and we've talked about this many times when you're dealing with clients. If you can't get that elevator pitch emotional buy in, to offense plus defense, then all your line item risk doesn't matter. And so you are right.

I think if you could package it up into a, a one product fits all or total portfolio solution, I think people do a lot better just seeing that total portfolio solution and their, their, let's call it their monthly returns on that. Then they would see in the line items. Cause like you said, then they're going to nitpick those. I know Rodrigo, you're intimately familiar with there was a, famous tail risk manager that they developed a product in Canada that added tail risk.

And during the good times, people had hated seeing those negative line items on there. And I think it closed down after like three or four years. So it wasn't even, didn't even get a chance to live through the first like black swan event. so it's really about.

I hate to be, it sounds pedantic to say it's a, form of babysitter tax, but by combining those things into a total portfolio solution and just getting your clients to hold those, it's much better to figure out a way for them to hold those defensive assets so they will be protected. And those things can kind of jump out of the curtain when they need them most, either during, a liquidity cascade, TM to Corey Hoffstein on that.

Or, you know, like inflationary environments where you need those commodity trend followers or some sort of, fiat, default diaspora valuation where you need those gold or potentially cryptocurrencies. So it's about combining those in a way that people need the most. But then if people do want a deep dive, we're more than happy to show them all the line items.

Like, if you can't do that because you're in a pooled fund, yeah. Look all, look through the window all you want. I am not, I am not selling that fund manager that is down three years in a row.

10, 000 hedge funds out there and even more, ETFs and mutual funds. If you don't like, our particular brand of putting those together, there's plenty of other options for you. So it's like, you can get any color, model T Ford, as long as it's black kind of thing. And that's the way we do the cockroach run. Sorry, Adam, go ahead. Save me from myself.

And there is some benefit because usually if you've done it properly, you've got Something that you can point to or that they can point to that is working, so there's going to be some equities in the portfolio, equities are rallying, you can kind of say, well, I mean, you own some equities, right? You're not all entirely equities.

So at this point in time, you're, you're dragging a little bit relative to some arbitrary benchmark, but there's something there, the line item there that's, it's delivering this excitement that you're hoping for. And then there's these other line items that are not shining right now. But that we expect to shine under different market conditions. And so they can, you know, they've got something to root for, even while they're enjoying the slow and steady rise of of the diversified portfolio.

So it's really about. Educating clients, making sure you find the right clients. And I think that's the more interesting piece to what we all do is trying to find your tribe, right? And I, I spent a lot of my time trying to fire clients as they come in, because if they're hot money and they're looking for the hottest thing, they're just not the right clients for us. We just have, Very different time horizon and perspectives, and that's fine.

I'm happy to pass them along that some may be a good fit for them. But a lot of times, you know, most of the time we're not a good fit. So, it behooves us to spend our time on the clients that have been searching for what we do, have tried to build themselves, are looking for a solution like what we have. and that understand that broad diversification means, if you're benchmarking to 60, 40. which is an arbitrary benchmark, you know, you can be above or below that given any month, quarter, year.

And then like you're alluding to Adam, as, as we all know too well, it's great that like, especially this year, you know, each month is different. Like, one month, stocks are up and you're like cheering and then you rebalance at the beginning of the month and then bonds are up, stocks are down, you know, commodity trends going up and down, you know, and you're getting this broad diversification. And then even more granular than that, you know, we, we use global stocks and global bonds.

And quite frankly, it's been a pretty shitty 10 year run for like, for global diversification. But we just feel that's the right thing to do long term.

So when most definitely there's going to be, you're going to have your, non equity bond exposures be completely non correlated and always making money. But there is no, even at any given day, any given month, you can see a possibility if you have eight different pistons of seven out of eight of them being down, Or if you just think of the major components of a risk parity portfolio or the all terrain portfolio, which includes trend following that we've written about.

You know, you have 2022 where you see, let's say equity bonds, two pistons down trend and commodities, two pistons up making a zero return. And that being a great year for a cockroach type portfolio, right? Like you didn't lose 25%. And then the next year, the two that went down, went up. And the other two that went up, went down. And you're, ish, like flat ish. You're offsetting each other. This can happen for a prolonged period of time in an all terrain portfolio.

Um, but I just think it's, I wonder whether the nomenclature, like cockroach better than all terrain or all weather, because it feels like cockroaches is about not dying and all terrain is about winning all the time. And I think that's where the disappointment comes. have you found, in the last couple of years has been one of those periods where half the pistons have been down and the other half have been up. have you had difficult conversations about the resilience of a strategy like this?

Like it just hasn't seen the blow up yet. So that gives me at least some confidence in, in what we do. by the way, I realized I didn't, really define ergodic and non-ergodic quite clearly. The easiest way we think about it that's very visceral is, if you think about Russian roulette, Would you rather be one of six people playing Russian roulette or would you rather play Russian roulette six times in a row, That's the difference between an ensemble and an individual path.

And so, you know, that's why we think about most of our life. The more interesting things in our life are non ergodics. So that's the way we try to think about, you know, hedging out some of that risk and trying to have those tighter bands of Expected value and probabilities multiplied together, over the longer term through broad diversification, like we were saying with backtests, you can have a better, hope for that.

But yes, I think in, to answer your question, people have questions all the time, like people question why we held bonds for a long time, you know? And like we said, maybe, you know, one day the bonds will come back, maybe they won't, we just don't know when, people, hate having long volatility and tail risk until they really, really need it.

Then they love having it, you know, I'm sure when, when stocks, you know, eventually tank off, people are going to hate owning stocks, and then commodity trend comes and goes out of fashion, so these are the kind of life we all, we chose to live is, uh, we like to beat our heads against the wall with this broad diversification, but, I think more importantly for all of us, it's not, there's no way for us to even think or live any other way, right?

That's the way we think about the future because I don't have a crystal ball. I can't predict the future. If I could, you know, then I would be able to pick what, tell you what asset class is going to do great over the next six months, but I don't think anybody possibly can. And so that's why the other client, primarily clients we work with are a lot of entrepreneurs, 25 to 45 that sold their business, had their first liquidity event.

And like, I always try to tell them is like, you had to take enormously concentrated risk and you had to get enormously lucky to make that kind of wealth. Now to keep it, you're going to need broad, broad, broad diversification to preserve and keep that wealth. And for a lot of people, that's very difficult 180 to make. So going back to your thing about explaining what we do or trying to get it across to clients, I think it's more important to get this simple things right.

Make it very simple about broad diversification preserves wealth, about offense plus defense preserves wealth. Those sorts of things. If you can't get that, it doesn't matter about the line items. It really doesn't.

Very wealthy single family office and discussing this concept of you don't want to lose it. Now his view was, Oh no, I have enough to live off of no matter what. Like I don't need hundreds of millions of dollars. So with what I have left, I should go balls to the wall. What do you guys think about, how do you respond to that? and I, I, what, if you're actually giving proper advice to somebody who's got 200 million and that person lives off of $500,000 a year. What's the better advice there?

Is it to keep it or

It really matters, you know, what your, what your nut is, what are your living expenses, all those sorts of things. So I can't really say what somebody else should do, but what I do think is interesting that nobody brings up is going back to these naming conventions. I like, we use cockroach. You guys use all terrain, Ray Dalio used all weather. By the way, you crushed it with the return stacking. I think you got to work on the all terrain.

So by the way, nobody, everybody told me not to call it cockroach. Everybody's like, don't do that. Nobody's, everybody's going to hate that name. And I'm like, will you remember it? Cause we know how many people have these terrible names, like three letter acronyms that we can't remember any of them. But it's just about, like you said, survive anything. You'll remember it. Those sorts of things. But getting back to, what you can live off of.

Oh, when Harry Brown came up with his permanent portfolio, which I think all of us are doing a somewhat derivation of, cause Harry Brown kind of came up with a four quadrant model

And then he's like, I know you're a human being, so you're going to want to take flyers on, you know, specificity or like things that you think will, are going to take off an individual bets. And so that's your variable portfolio is like 10 to 20%. Of like your fund money, but you can't replenish it from your permanent portfolio. But I think that was a really interesting thing that never gets brought up.

People bring up Harry Brown's permanent portfolio, but they didn't bring up the variable portfolio where he really took into account human psychology and our ability to want to bet, to want to tell our neighbors about our wins. Now conveniently we forget to tell them about our losses, but that's how we like to, live in every day in the, in the real world. Sorry, Adam, your, take should, can they take

It's not about having a safety net for future generations. It's not about, wanting to give it away to, causes you believe in. It is the action is the juice, right? So it's going to really depend from person to person, what they want to do with that wealth.

We're talking about people who are still investing in equities that on average will have a volatility of 15, 20%. If you're doing privates, maybe in reality, your volatility is 20-25 percent that you're still better off with a well diversified portfolio. If you have access to cheap leverage to get you to that same level of risk, right? If the sharp ratio of an equity portfolio going back to the, 100 years is 25 to 30 basis points, right?

So if you're taking 20 units of risk, you're going to get six units of return, according, if that math is correct, right? If I can put together a portfolio that gives you 60, units, 60 sharp points, then you're going to get the same return for half the volatility. Why wouldn't you take that bet every day? If you can indeed get access to enough leverage to get you there. And I think you can be most people at that level will be able to can, and nobody's walking them through that.

I just don't think it exists. It's, it's, there's just no, there's no reason not to do that. If

And at the end of the Conversation when it's time to, you know, okay, great. how should we move forward on this? Well, you know, I'll get back to you because the reality is there's a number of different objectives that they're trying to meet. One of them is, well, I don't want to look silly and do something that's different than my friends because this might not work out or what my friends are doing might work out way better than anybody anticipates. Now I'm way behind.

I want stuff to be able to talk about with my friends at, at dinner parties. I personally really like, um, Stock picking. I got really excited about new fundamental trends and love the excitement of being part of that. Like there's just all these different dimensions of objectives for participating in markets. I'm going to go out and say probably a minority fraction of those motivations have anything to do with wealth maximization or utility maximization.

You know, most of them are driven by the limbic system. They're often very status oriented. And, you know, while stuff makes sense to the, prefrontal cortex, all the rest of their brain is, is. Totally asleep as you're going through all this and getting the nods, you know?

Like, so if everybody else is like doing 64, like Adam said, and all their neighbors are trying to, whatever they're doing, or, you You know, chasing these different real estate deals, whatever, they want to be like their neighbors, right? They, they like to keep up with the Joneses or be similar to have, or like you said, to have something to talk about. Not a lot of people are necessarily, just as disagreeable as Adam and I are, right?

Like they like to agree with their friends and neighbors and have, have fun conversations and, not say, excuse me, excuse me. I have a, you know, be that turd in the punch bowl at all the parties. So I think, I think that's a big part of it. I think the other thing is if.

You know, somebody's got that kind of money, like we said, that concentration risk, if they can sock away, even it's only 10 million dollars into something that's much safer, whether that's T bills or some sort of permanent portfolio style product, then they can take that risk. Like, so for a lot of things wrong with Elon Musk, one of the things I do appreciate is that he's still going for it. Like I can understand some people like it's great.

A lot of people make a bunch of money and then they get ultra conservative and they get ultra scared of losing it. And that's why I think even more so, like when we were growing up, people were just living truth profligate, right? Like, especially the wall street was known as greed is good, all that stuff. It's interesting to me that, What is it? Bill Perkins book, Die With Zero is becoming more popular.

As people in our industry and people in all the industries are just hoarding money because everybody's so afraid of losing it. You almost have a different problem these days. And then quite frankly, like you said, what would you do if somebody made 200 million? The whole point is the three of us here talking don't have 200 million. This is why we're on a podcast talking. This is why we have products to sell. We're trying to get there.

So I, you know, somebody with 200 million is not going to listen to you. For the most part. Unless, like Adam said, they went up 200 million, they lost 200 million, now they built back up another 100 or 200 million, they got the scar tissue, then now they go, yeah, maybe I should be a little more circumspect about it. But if it's their first go around, it's not really likely.

To the world, there's something about all weather or cockroach or whatever, which is retrenching, right? It's, it's a defensive attitude to the world. And I, obviously I personally espouse that, people should take a meaningful chunk of their wealth and, commit it to that kind of strategy, because. You do want to truncate that really awful negative potential downside of bankruptcy with, no optionality on getting out of it or your family, your family's destitute.

You've got all these future liabilities for your children, etc. Right? Like there's, there's a certain amount you want to protect, but once you've reached a point where you can protect that, I definitely get the idea of wanting to project your will on the world to create positive, some outcomes. And to use your wealth for good in that way.

It's great to talk about the future and the perversity of the worlds we live in whenever we're at these events or speaking on stage, et cetera, at any of these global macro events, it's, everybody's telling me about the future. Tell me what they know, you know, throw that out there. And then I'm just standing there going, I don't know. I don't, I really don't know. I don't, I don't have a crystal ball. And like, that's not sexy.

Like you're saying, it's not like you can call it self actualization. You can call it make a dent in the universe. It's just not sexy. Right. There's just like, nobody likes the person that just says, I don't know. Our entire society and culture is built on knowing things. And in school, you raise your hand and get called on. You're supposed to know things. You can't tell the teacher, I don't know. It's indoctrinated from a young age. And we've had the perspective, I don't know.

And that's a very hard thing to live with because it's just, it's not cool.

You know, they were one of the early people at NVIDIA or Meta or Google or Microsoft, or, you know, any number of a thousand other companies that have, that have done well, have generated wealth for more than just the founder over the years, they've got, they're sitting on a concentrated position that came out of that and, they want to continue to bet on it, or they don't want to maybe face the tax consequences of disposition, or there's a number of reasons why. Somebody might maintain that.

Maybe they're not allowed to sell it for a term, but they're not aware of the fact that they can, pledge some of the value of that large concentrated position to collateralize an allocation to other positions that may offset. Some of the volatility or risk of catastrophic loss on that catastrophic,

You can have that, maintain that bet, and then just, You know, deposit those at, interactive brokers or something and have somebody run a managed futures mandate on top of that, just use those stocks to collateralize that strategy or any other kind of strategy, like a tail hedging strategy or what have you, for example, maybe your, AI bets are going to pay off, but the U S economy is going to go through a major, recession or, liquidity crunch.

And your, bet on AI is right, but the US, but, but the global economy implodes. And so there's just things that you can do to diversify while maintaining most of the actualization of that concentrated bet that you really want to make.

They have no idea, Like, so they're doubling down on their risk or their exposure to Amazon by buying Amazon stock. And I personally believe, and this has been the hardest thing to maybe get any sort of following with, or get any sort of foothold is that entrepreneurs, business owners should actually not hold any offensive assets. They should only hold defensive assets because if you're buying, you know, stocks, bonds, private equity, private credit.

VC, real estate, you're just doubling down on your long GDP exposure. you're doubling down and hopefully volatility doesn't hit the markets. You're just doubling down that, that credit and liquidity is awash in the future. And so you're really just really double or triple or quadrupling your exposure to that sort of environment. And that's where you get hurt the most. so we always think about what we do as like an entrepreneurial. hedge, but that's, really hard for people to gain traction on.

But going back to then Adam's point that I think the two interesting things for us to talk about in that vein that I'm curious about how you guys work around is one, our mutual buddy, Corey Hofstein was on my friend, Bill Brewster's podcast the other day, and he was talking about the capital efficiency, which Adam was just kind of referring to. But what I think that's missing a lot of times people hear, you know, Through return stacking, you're adding leverage.

But what they don't realize is there's not that deterministic payment schedule that you get in leverage in anything else, right? Like if I buy a house or commercial property, every month that's called the 15th, that debt service payment's due. Every month on the 15th, right? And if I don't have the cash flow that times perfectly with that 15th, I might miss a payment and now I'm in default.

If you're trading futures and options and you're getting that, financing cost, which is like roughly about the three month T bill rate, it's baked into the term structure. And you can go long or short depending on that term structure. And I don't think it's talked about enough that that is a huge difference. in using capital efficiency or leverage. If you don't have a deterministic payment schedule on like the 15th of the month, that's where you can truly get into trouble with leverage.

And I'm just wondering if you, if you guys have thought about different ways of talking about that. And then we get into the second one as well.

I just think like the hardest conversations to have are with people who have gotten very wealthy with real estate portfolios, They literally are like impossible to shake free of their belief that real estate is the way, right? And like leveraged real estate especially is. Is really the way, for the most part, Rodrigo and I don't even bother. Oh, you got wealthy in real estate. Gotcha. I don't really have anything to say for you at all.

the entrepreneur has a similar bias, For reasons that we've sort of touched on, but the entrepreneur wants to invest in other entrepreneurs. Like if they've gotten wealthy, I don't want to diversify. I want to bet on other entrepreneurs. I understand what it's like to be an entrepreneur. I believe that, I understand entrepreneurship. I can identify other people who are likely to be successful entrepreneurs. Why would I do this, diversify into this thing when I've got this gift?

So those two types of individuals, I feel like they're never going to get. What we're trying to say and nothing we can say to them will overcome their lived experience.

Like to your point about Adam, about commercial real estate, that's, what I have a background in and at best, commercial real estate is unbelievable tax helpful in America. You know, let's, let's You know, X, the rest of the world. Unbelievable tax alpha that I don't think people truly understand or fully take advantage of. And that's more important than anything else, is the tax alpha of being a real estate professional.

And then in the best case scenario, you build a 1031 golden cage around yourself. So you're constantly rolling properties and refinancing properties to never have a tax consequence. And then next thing you know, you've built up this, 100 million cage around yourself. Where, yeah, you could tap the liquidity through refinancing and everything, but now you still have those deterministic payments like we were talking about.

And can you service those over time, especially if something bad happens and people don't realize how much of real estate is just floating rate debt, right? Like you can't really get more than five to 10 year terms and it's usually floating rate debt. So it makes it incredibly difficult, especially to service the cap rates where they are.

And then Adam, you asked me to talk about, so actually somebody just asked me at this event in Austin was interesting, they were, they asked me if I was over levered in real estate. And I was like, So I was a commercial real estate developer in Charleston, South Carolina, going into 2007, 2008, the great financial crisis and end up blowing up for lack of a better term. but then the question about, was I over levered? I said yes and no, in a way, obviously real estate requires leverage, right?

Like you, you don't, Put 30 percent down in cash, the bank finances the rest, but it's not necessarily the leverage that kills you. It's the time horizons and the granularity of those investments. So if I'm building out real estate developments that take two, three, four, five years to come to fruition, I need the environment to stay low volatility.

If low volatility or rates pick up over that time horizon and people can't close on, let's say, I'm flipping condo units or whatever, then I get crushed and I can't make my payments. So it's not necessarily the leverage that's the issue in real estate. It's those deterministic payment schedules and giving the global macro environment and a liquidity crunch. Can you roll over that debt? Can you refinance that debt? Or can you make your payments on time?

So that gets back to what I was saying about what's beautiful about managed futures or options. Is you don't have to necessarily worry about that payment schedule. It's baked into the term structure of the instruments that you're trading.

And I would have put up a treasury futures contract, a roll, kind of stitched together roll yield just to compare what you'd find is a big gap between one and the other. I think oftentimes when I say, listen, I'm buying a 10 year treasury futures contract. Okay, great. So we're going to get 10 year treasury returns. No, no, no. You're going to get 10 year treasury returns minus the cost of borrow. And what you trade is the excess returns.

And as a long short futures manager, you know, you have the benefit of being able to trade that line long or short. If it's, there seems to be some sort of expectation of continued cost of borrow and treasuries are going down more aggressively, then you can play that by going short that thing. Right?

So when we talk about overlays and we talk about the benefits of future strategies, you know, the reason that when we talk between us, between one CTA shop and another, we always talk excess returns. We don't talk about total returns. So what does that mean? If, you've had 4 percent annualized excess returns, that's what you're stacking. That's, that's already taken into account to borrow. So when people ask me, like, are you sure you're gonna be able to outperform the cost of borrow long term?

I'm like, well, every. CTA manager that you know that survived has had to overcome that cost of borrow. It does a good job at doing that. So you're really just stacking that little juice on top regardless of what the borrow is. And you've seen the benefits of that in periods where rates were really, really high. You've seen CTAs provide positive outcomes above the rate of cash and you've seen them do it when rates of borrow were low, right? So, that's a nuanced.

Part of the discussion that few people really truly understand at this point.

But what I think is fascinating that I always think about if you want to replicate, you know, and we'll, I want to get more into tax consequences of like a real estate really is a tax alpha, as I explained to you, so you have to fully understand the tax alpha you're getting in real estate. But what's interesting with your guys products, like if you're a return stacking stocks and bonds, and let's say I want to build a 50, 50 portfolio stocks and bonds, right.

I can get much more capital efficiency out of your guys products and I can allocate. Let's say I'm sitting, we'll make the math simple, even though good luck finding houses for these prices, but let's just say I have a million dollars, right? And I want a million dollar portfolio of stocks and bonds. Well, I can put up 500, 000 into products similar to what you guys run. And then I'm sitting on 500, 000 in cash.

And for that leverage to get my notional value of that million dollars of 50, 50 stocks and bonds, like we said, I'm borrowing now at the three month T bill rate. Now people are used to going to their brokerage, like Schwab and borrowing. And right now that's what, 10, 12%. It's pretty insane. The best one is interactive brokers are passed through SOFR at size, but. You know, you're getting closer there. So I can borrow then at the T bill rate, and then I can use that 500, 000 cash leftover.

I can go buy my house cash if I could find a house for 500, 000. Let's just make that assumption. And then more importantly, I can then pay myself back like a loan. I can now be my own bank and provide my own mortgage. Pay myself back plus interest.

None of these are taxable consequences, and it's a way to use that capital efficiency to be my own bank and not be giving that VIG to the bank where over time I may be paying double or triple the actual value of my house by financing that mortgage through a bank.

Okay. Which is, I got to do paperwork with that bank and then that's on how it's done at that level.

At that level, what you do is you say, I'm going to go to a futures con, I need to borrow, treasuries, five year treasuries, 10 year treasuries, I'm going to go to the futures market because if I, if there's a futures contract that is charging me more than the cheapest bank will charge me, there's an arbitrage there, there is somebody that's going to be willing to take out that loan and then, you know, Place the, the shorting position on the futures contract.

And then that futures contract goes in line with market, the margin of the market. So when we think about derivatives contracts, the reason they're so valuable is that you are getting the same rate. The same rate of borrow as you, as an institution would. Let me say that again. You now with, with products out there in the U S and Canada that have these derivatives inside these, these stacking inside, you can now get the same borrow as an institution gets.

I mean, that alone is mind blowing, right? And yes, there are portfolio construction use cases for that. But like you said, Jason, there's also a very interesting use case of, hey, I have a million dollar portfolio. I want to stay in the market and I want a mortgage and I want a house. how do I get exposure to real estate in a city that I like and also get exposure to markets and do it cheaply? Well, the cheapest way to do it is if you can get a futures contract type of borrow,

The way I think about it, what we do as an entrepreneurial hedge, if I want to maintain my notional at, let's say a million dollars, but I have a, I have a creative entrepreneurial idea, but as we all know, business is very risky and it's most likely to fail. But if I carve off 10 percent of that, what we call portable alpha or capital efficiency, and I put a hundred thousand dollars in this business, but I'm maintaining my portfolio value of that million dollars.

Let's say I blow through all that 100, 000 on that, on that business. I thought would succeed. Well, it's not going to hopefully take me too long to make up for that because I'm trudging along at that notional value of that 1 million.

And that's why I think about what we do much more as like an entrepreneurial hedge, because I know how difficult entrepreneurism is, or like buying properties, et cetera, like all these things are inherently difficult and you inherently can't see the black swans in the future, or you can't see where your risk lies. So how do I, how do I reduce that risk? How do I hedge away a lot of that risk?

And I think there's much more interesting things with the products we all create to hedge a lot of entrepreneurial risk. And then maybe, especially if you're raising capital from friends, family, outside sources, having a bunch of better fiduciary responsibility, you may need to raise more capital to maybe hedge that risk. Like we used to, it's very similar to, um, they're starting to come back, thankfully, like zero coupon bonds, right?

Principle protected strategies where at least you got returned that principle and you could use the the delta between what you needed to post for that 10 year, you know, zero coupon bond now and use that for more risky investments.

So it's about those things like I think it's a little bit better maybe than than principle protection because You know, you can hopefully make a return over time, given that 10 year time horizon that you may outpace that zero coupon bond and maybe not miss out on the inflationary prints. But I think it's a very interesting way of looking at either housing or entrepreneurship to use the ideas from return stacking or capital efficiency that we're talking about.

But the other thing that we've been hinting at is taxes. And I'm curious the way you guys think about it for, let's say for. US based investor that's a taxable investor and they're not put in like a self directed IRA or any 401k, anything like that is how do you think about with like a return stack product, especially when you're adding those managed futures in there? Because I think generally everybody loves the mantra of low fee, no taxes, right?

And ETFs, but we all know as soon as you put commodities in there, you know, you have the 1256 contracts, they have a preferential tax treatment, but they're going to be taxed, right? And so. That's another hurdle for you guys explaining the complexity of what you do. So how do you think about, do you think you have to produce, excess returns over a 60 40 benchmark with the managed futures to be able to compensate them for the tax consequences?

Or how do you think about the Delta, the tax consequences when you're talking to investors?

So you, you have to pay the tax on the long term capital gain. The concept of futures on top of an s and p 500, or the futures on top of anything. If you're stacking whatever it is, and you're using futures to do it, is the S&P 500, let's say, makes you 10%, but you've used margin on that S&P in order to have another type of return In the future space, managed futures are tax as 60 40, meaning 60% of it goes to long-term capital gains, 40% goes to short-term capital gains.

To be honest, I want to take that back. Forget about how it's taxed, right? Forget about how it's taxed. Let's say it's taxed at 80%. The fact that you stacked it on top of the S& P 500 is that you are going to get something above that 10 percent if that strategy had a positive rate of return, right? So you get your 10 percent from S& P. You're going to get taxed on that. You may or may not get taxed on that. If you don't sell, if you do sell, you're going to get taxed on it.

And then whatever that future strategy made you. It's going to be above and beyond that. And if they take away 80 percent of that, it's still a positive outcome for you. So as long as you find a stack that stacking positively, taxes are less of an it, you're still better off doing it than just investing in the S and P by one is what I'm getting at.

Right now, if people do care about maximizing the returns on that and understanding what that means, if you're doing a full separately managed account, like Adam was alluding to something like, you know, somebody owns an Nvidia and then you stack the strategies on top, you're Well, the video is not going to be sold. You will be paying taxes on whatever future strategies you have, and that'll be 60 percent long term, 40 percent short term.

And then if you're doing it within a, public structure, so all the managed futures funds, any returns that come out of, financial assets like currencies, equities, and bonds will be 60, 40, but then the big, curve ball is how much. Of your returns this year came from commodities, which is traded on a Cayman blocker. that's going to be regular or ordinary income.

And so it's a little bit complicated to say to somebody, here's what you can expect every year from a 40 act fund, because it'll all depend on where the returns came from. And if we have a year like, the last couple of years where most of your assets are in T bills and you're getting 5 percent on that, then you're also paying tax on the T bills. So. You know, I think it becomes cleaner if you're a separately managed account, it's much more clean.

If you're a 40 act fund, you have to just kind of keep track and keep on communicating with investors about how it's going to look like every year.

In the last few decades, those big managers, focus more on the financials than on the commodity space to be able to raise more AUM, And as we know, 2010s was a tough time for trend following and that sort of thing. I mean, still, I think it did great. Like, especially if you can return stack it, you know, at that like 2 percent CAGR, I think that was SocGen trend in 2010s. Great, whatever. And we'll get back into that in a second.

But like the idea though, I wonder though, by running a replicator, it's not necessarily top down or bottom up replicator. My question is more like, if you limit the scope or the choice of the instruments, because you're trying to stuff it into this ETF wrapper, like how much does that concern you? But it does great for Replicating that stock gen trend because those big managers focused on the financials. So you can kind of reduce the financials. very similar.

I mean, Andrew Beer is not here to defend himself. So I won't talk about that necessarily. And I have zero problem with any of this stuff. I hope people load into commodity, you know, ETF managed futures. But like you miss out and we'll get to the, like the last few months, you can get some crazy trends and like these obscure soft contracts, right. That you're missing out on by reducing the universe that you allocate to try to replicate a sock gen trend index.

I'm not sure if that makes sense, but do you see what kind of where I'm going with there?

You make a point about larger managers needing to focus more on financials because, of liquidity and CFTC limits in commodities. And that's an absolutely valid point. And I think that's the big point, which is that If you're in the top 10 CTAs by market cap or by AUM, then the amount of excess juice you're able to extract from more peripheral CFTC limited or low liquidity markets. is relatively small anyway.

So while a small CTA manager may be able to put up gargantuan returns because a very illiquid market has a real, spiky, like remember orange juice a few months back had a, had a huge

Well, if OJ is going to run as an illiquid market, it's going to show up as really strong percent returns in those months that you're capturing those OJ returns, but it didn't really translate to much in terms of actual dollar, dollars that are accrued to the, to the fund or to the strategy, You've got your big CTA, you might trade 400 markets, but 80 percent of your returns in terms of the dollar returns are going to come from, The same kind of 40 markets, and most of those are going to be

financials. So you need to take steps, either heuristic steps as you're forming the portfolio to say, I, even though majority of my, my markets that are liquid, that have high capacity, are financials. I'm going to limit my allocation to those financials to ensure that I'm getting the same amount of risk or my target amount of risk from commodities, right? That is an active decision that may limit the amount of scale that the strategy will have, So it's just trade offs.

All the way down and, you can't scale a multi billion dollar trend replication strategy and also trade 80 markets in full size. Like it's just, it's impossible to do. And the fact is, because, you know, most advisors are more concerned with that I under or outperform this benchmark of big managers than they are with have I maximized the potential of trend strategies. Is. Then this kind of replication works really well.

If you actually want to maximize the performance of your CTA allocation, there are other ways to do that, We run other strategies that more formally have that objective, but that's not the objective that people are going for when they buy a relatively low fee stacking product that is primarily designed to replicate a benchmark.

But like you're saying, I think there's, it's interesting on like, the soft side, the year to date, like those cottons and Cocos are ripping, you know, you could also have been, you know, short your grains, but like, you know, what size can you get off and how much percentage of your returns are coming that, Like you said, I think it's perfect to say there's trade offs all the way down. I think that's really inherently what our business is.

It's every day just dealing with trade offs and trying to figure out which trade offs you can accept and which ones you can't, especially when you're trying to productize something for, for retail clients. I think what I was getting at that, I think you were alluding to that, I think is interesting that you'd maybe have a broader answer to is going back to where we started of like, people is always, what have you done for me lately? During the two thousands, you know, 60, 40 was like underwater.

Right. So you had the rise of managed futures, alternatives, everything during the two thousand. So everybody, right. But it's, it takes, it's like these slow moving cargo ships, but it takes like 10 years for people to get there. They, see a tent in the back 10 years. Oh my God, the alternatives are amazing. Then they rush into all these strategies. And then the 2010s, the alternatives do poorly after the money's flowed in. And during the 2010s, 60 40 comes roaring back.

So now we're here in the 2020s. Everybody's talking about 60 40. Nobody wants alternatives. Is that part of it? And then what I'm getting at is I, I haven't really double checked. And I'm curious off the top of your head without, you know, putting you on the spot. It's like during the 2010s and coming into now, like I said, those stock gen trend managers were primarily financials. When you really need those CTA most, do you really need those less liquid obscure markets?

Like in the 1970s when they, when they produced their returns, right? Like, so maybe we're looking at the hindsight bias of the last 20 years saying you're fine. We're replicating with the financials, but maybe when you need CTAs most for like a, if there is a commodity super cycle, then you need those smaller contracts that are less liquid.

But they just cannot possibly allocate materially to the tail of esoteric contracts. You know, the AHL alpha strategy has one of the best track records in the business, but it's a, secondary and tertiary market strategy. It doesn't even trade any of the more common liquid futures markets. And by design, It therefore cannot scale to hundreds and hundreds of millions of dollars, right? The trade offs are along a few different dimensions.

One of them is access, Like, you can run a much more complex, diverse, Managed future strategy within a mutual fund. And you can very easily return stack in a mutual fund, the same way as you can in an ETF, but getting shelf space as the mutual fund from, all of the major, wire houses or RIA platforms or whatever is a lot more complicated. And, you know, the zeitgeist right now is nobody, there's no dignity in buying mutual funds. Everyone wants to buy ETFs.

So, you know, you launch something ETF, there's things you can easily do in a mutual fund. You can't quite as easily do an ETF. There's trade offs. A lot more investors from around the world can buy an ETF than can buy a U. S. mutual fund. But you're slightly more limited in what you can do in an ETF than what you can do in a mutual fund. So, you know, access is a really big dimension. So, you know, just figure out what you're, who you're trying to serve.

What the objectives are, what the objectives of the end buyer of the product are, and then try to optimize. And different clients are going to find, optimal exposures through different means. Clients with really big positions in Google and Meta and, you know, whatever are going to want to have those on a posit at Goldman Sachs or Morgan Stanley or Interactive Brokers and run a future strategy on top of that, right? That is vastly more efficient.

You can get as much access to esoteric markets as you want within the limitations of whatever are offered on that, broker's platform. But if you're not in that position and you're a retail investor or you serve retail investors, you've got a more limited product list and you know, you, you make do with what you can.

And I'm just like, here's all the reasons why we can't, I wish I could, but I can't do it. And you know, write your congressman or whatever it is. Like there's, there's all these rules in our industry that make all these trade offs that we have to think about constantly, extremely difficult. And it was also made me think about Rodrigo, you're, Saying questions about, you know, selling rationally and explaining, you know, using historical representations.

I think it was Jason Zweig said something like, I can draw you a picture of the snake, but if I throw a snake in your lap, you're going to react differently. Like we've always heard it a million times. Like people are like, Oh, if the market's down 30 to 50%, I'm a buyer. And I'm like, really, have you lived through that before? Do you know how, like how you feel like the world's ending, everything's going to shit and like all that stuff.

I think it was, Philbrick, I think retweeted it, but my partner Taylor wrote an essay about like stocks for the long run. And it was interesting, even just trying to be, look at basic things. If you look at global stocks from the 1840s to now, in over 30 year time horizons. And if you look at the 25th percentile, it went from a 7 percent Kager down to a 2 percent Kager.

So then over a 30 year time rise, I mean, you have a one in four chance over a 30 year time rise and make a 2 percent CAGR on global stocks. And that was, that was the difference between starting with 500, 000 and retiring with like 910, 000 versus starting with 500, 000 and retiring with 3. 8 million. If you could get that 7 percent CAGR. And this is the idea we're talking about with non ergodicity, right? Those issues.

And even worse over that 30 year time rise, you had a one in eight chance of finishing underwater. Over a 30 year time horizon. One in eight. And if you go to 20 year time horizons, it was one in six of finishing underwater. But like I said, we can show all those things, but I don't know how you get people to believe those things. Like it's a very emotional versus rational perspective, but we try to

The problem is, as it stands today, you know, I'm just, by the way, if there are, advisors out there who are doing all terrain or stuff like that, and they really know it and they know their stuff, reach out to me because there's a ton of retail that comes to me and asks for help. And I only have a handful of people that they can talk to. Like very very small elite group of advisors that are willing to do that for smaller clients, right?

But and then after that you have to handhold and that's what you're paid for as an investor to make sure that they stick to it That's how you get closer to uh statistical time with your behavior, I think

A Pareto frontier between minimizing the risk that all your, your peers, your peer group are going to outrun you, and that, by doing something different, you may end up in the, I failed and I'm alone instead of the, I failed, but I'm, With all my friends who failed with me, quadrant, you know, like it is a difficult thing. You can know what's right from a wealth maximization or utility maximization standpoint.

And then still also recognize that we live in a social world with a community of friends around us that we'd like to spend time with. And, you know, everybody's sort of concerned with. Maybe not day to day preserving their exact social status, but, being one of the gang, being one of the, one of the group and, taste,

Everybody was talking about how well they were doing their Bitcoin portfolio. Yeah. I forgot about the Bitcoin guy, right? Like Bitcoin portfolio going through the wind. I'm like, you know what? I've been, I'm, you know, my portfolio is up like four or five percent. My all terrain portfolio is up. Mildly okay. I'm not complaining, but I'm not as happy as the rest of you. Everybody's ecstatic and there's something wonderful, but I'm like, good for you guys. Like actually, it's great.

Everybody's in a good mood. Everybody's doing great. I love these moments because you know, the wives are happy, the husband's happy, everybody, the kids are happy, they're taking extra trips. There's something to that social, like being part of that. And if you exclude yourself from that, it might be a little, a little shitty. but I kind of want to tell me your thoughts, Jason, but I do want to get into volatility a little bit before we

And then you could stack in those defensive strategies that hopefully jump out behind the curtain and they need them most. So you're giving them exactly, hopefully what they're looking for. And what Adam was saying is about finding the clients. Like I couldn't agree more. Like I believe in the clients, like you're sending out your bat signal or Adam, when you say like.

Pareto, utility maximizing, you know, and when you're doing these dance on here, it's because like, it's maybe one out of a thousand people that agree with us. And so that's all you're trying. That's what I'm saying. I'm trying to find is like the one out of a thousand focus on them, eliminate the other 999. They're just, they don't like the cut of our jib. And so it's just trying to find those people that agree with you.

And I think that, I don't know if we've talked behind the scenes before, but I think what is interesting when you're dealing with financial advisors is you might have a financial advisor that buys in, but now they need 50 of their clients to buy in. And I think that's much more difficult than people realize. And I like to kind of control that narrative with my clients, because I know exactly who the end client is.

And because if the advisor fully buys in, the clients don't necessarily, they see those negative line items, they start complaining, you know, then they're going to, they're going to make the calls to the advisor and the advisor is eventually going to cut you just even though they don't want to, but then you're getting that whole cloth. You're just getting cut off because they believed in you, but the clients didn't. So you have that secondary effect.

so I just think that's interesting, but what do you want to talk about at vol?

How do you describe that volatility element, especially in the face of, maybe we can talk a little bit about how those long volatility managers performed in 2022 versus expectations and then how you, how do you, um, articulate what to expect from them?

And that's how they originally got that term crisis alpha that they've kind of walked back from. The only time they have problems is when you have acute. Liquidity cascades, right? Like March, 2020. And I was really scared of that prior to March, 2020. And that's exactly what happened, right? They're on the long side of the trend. They're on the same trend of stocks and bonds. Everything correlations go to one, even your CTAs go down together in acute scenario like that.

That's why I believe in tail risk protection. So the combination of those two are very powerful. Like if you have a sharp liquidity event, whenever he's caught on the wrong side, you need some long volatility or tail risk protection. If you have a more protracted recession, like a 2008, 2022, Your CTAs are likely to do better. and that's why I think the combo is very powerful for the defensive side of the portfolio. And 2022 was interesting.

Like you said, as anybody really understood vol, like why did I pick one of the hardest industries to try to explain to people is always difficult. but the thing is with, volatility, there's so many different path dependencies, there's so many different ways of trading vol, even though we are philosophically aligned. The thing that we do that I think that's a bit different is we try to build institutional style portfolios. And what I mean by that.

Is maybe a lot of retail clients don't understand is that, you know, your large pensions, endowments, or multi strat fund funds, they look for individual hedge funds that do very, very niche strategies. And it may not be like an absolute return strategy. It may not be anything. It may be a very specific strategy.

And what they do is they aggregate those together into ensembles, and that's how they build their portfolio, which is very different from the way a retail client may assemble a portfolio. So that's what we try to do. So when we think about like the volatility space, like I said, there's a lot of different path dependencies. And so we have 14 managers in that vol space, and we kind of look at them across relative value, volatility, long, vague or long volatility, opportunistic trades.

Taylorist trades, and even short futures, like intraday trend following on short futures. Like those are the kind of spaces we look across. And even inside of those buckets, we use once again, that fractal ensemble as well, where we have different managers attacking it from different viewpoints. Now, the reason we do that, like I said, is the path dependency.

So in 2022, specifically, like you're asking Rodrigo, the interesting, just like CTAs have a large dispersion of returns, depending on what they're doing, volatility has a large dispersion of returns. So in 2022, the Delta between our top and our bottom manager was about 60%. We have a one manager up about 35 and another manager down 25. So that gives you an idea of the

on the other sides of The vol, like I'll call them opportunistic long vol trades. You might have managers that are looking to basically trend follow volatility, right? As implied volatility or vega expands, they're waiting for it to start expanding. When it reaches a breakout, they're jumping in and riding that up before it mean reverts. So, managers that were doing that style in 2022, we had a lot of false breakouts, right?

So they were, they were just like a, a CTA, a lot of small losses that start those death by a thousand paper cuts start to really add up into real serious losses. So that's where that problem was in 2022. Yeah. In 2022, though, you had this like medium to high vol kind of environment was still that echo of volatility from 2020. So managers that were trading more long gamma is a way of looking at long realized volatility.

So that's the difference between kind of gamma and vegas implied versus realized. And, I'll give a really simplistic example. If I'm long and at the money call, I'm long gamma and long vega. And the gamma is the acceleration of my Delta or my exposure. And my Vega is the long implied volatility, but then I calendar that. Right.

And six months out, I go short and at the money call, Which would be a short gamma, short Vega trade, but because gamma is highest at the money and you're offsetting it's theta, your time decay, if you position that, right, you're going to have a long gamma trade, short Vega trade.

So in a market like 2022, where you're having these like little movements in, in volatility and you constantly restriking and you have that long gamma or gamma scalping position, and you're capturing real out those realized vol where realized vol a lot of times was popping higher than implied vol in 22, those managers did incredibly well. The other managers that did really well in 22

So if you were buying, deep, you know, money or like, let's call it seven to 10 year leaps. If you had an ISDA on cross asset volatility and also on rates fall, FX fall starts spiking, but S& P falls down, then you can make money on the, on the cross asset volatility. Now, the problem is if you have a portfolio like ours, and most of our clients are tied to S& P 500 vol, you can only kind of sprinkle that in around the frontier. Like you don't want

So this is why you have that ensemble of returns and that dispersion. And then the ones that were maybe doing the trend following on vol, they didn't even have any opportunities in 23. Cause I don't know if you guys remember 23 is very similar to, 17 or 19. We had two days. in the entire year where the market moved plus or minus 2%. We had two days of backwardation. Like it was only, I think it was in maybe like two days where vol went above 20.

Like it was the lowest vol environment in 23, similar to seven, uh, 17 and 19. So that makes it difficult for any vol strategy to aggregate those up. That makes it difficult. but like you're saying, if you're. If you're doing that cross asset vol, and then let's say You have a liquidity event, like March of 2020, everything crashes except for S& P vol spikes because it's the most liquid market in the world. You may be getting a trade off, right?

You're taking basis risk, as we know, like by, by not pinpointing your risk, you're taking that basis risk. So you have to be, once again, trade offs all the way down as Adam referred to. So those are the kinds of things that we look at is like, Trying to have a sprinkling and a diversification across all strategies. But like that kind of dispersion across the ball space is similar to the commodity trend space is, is why I firmly believe on, on broad

So in a March 2020, 2020 sell off, they make money, right. But yes, then the rest of our portfolio, the opportunistic long ball trades, tail risk trades, et cetera. They are really trying to make money in a March, 2020 scenario. But like, if, that doesn't materialize and people are fighting the last battle, it can be difficult. So you're also trying to find managers that aren't really attenuating all of their strategies to March, 2020, because the future battle is not going to look like the

Then we think about paths of moneyness, overlaying, overlapping those paths of money is from at the money, down the money, the deep out of the money, all those sorts of things, are interesting. And then so far in the last six months ish, relative value volatility, uh, managers are starting to pick back up a little bit and then tail risk is as cheap as like it's ever been. It's one of those things again, where you're seeing 2017, 2019 levels of buying that tail risk protection.

Now, the hard part is this, like we were talking about, 2010s for commodities versus 2000s is like everybody's still burned from the last three years of buying tail risk protection. So now they're getting out of that market, which makes it incredibly cheap now. So this is the thing about just surviving and keeping those line items in the portfolio for when you need them most is really hard to do. over longer term periods.