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Ashvin Chhabra

lines on the record: 83
first: 2022-07-04
most recent: 2022-07-04
sittings or episodes: 1
sources: podcast

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“Of like this day of shock. And then he says, but I like you. You're really smart. I'll give you the job. And I was just like, how do I react to this? This is like unexpected”
2022-07-04 · Capital Allocators · Ashvin Chhabra – The Aspirational Investor (Capital Allocators, EP.260) · IDENTIFIED FROM THE TRANSCRIPT · source
“And I am thinking this has gone really well. This is a good interview because I really enjoyed it. I just bonded with Jim and Marty Lieberwitz, just a wonderful person, brilliant in his own right. I think this is going really well. It's gone well. At the end of our Jim looks at me and he says, clearly you know nothing about this job.”
2022-07-04 · Capital Allocators · Ashvin Chhabra – The Aspirational Investor (Capital Allocators, EP.260) · IDENTIFIED FROM THE TRANSCRIPT · source
“The next who would take it over, and of course Jim, Jim who had been at the institute, I think, as a mathematician briefly, a long time early in his career, became chair of the investment committee. So finally I did get an interview with Jim and we spent an hour and Marty Lieberwood was there. So it was Marty Lieberwitz and Jim interviewing me. I had this view that I was a managing director at Merrill. I had chaired the asset allocation committee. It was a pretty interesting, serious person, a PhD in physics, had my paper beyond Markowitz, which is well thought of. And besides, they weren't paying. So, you know, I was sort of interesting interview. And Jim spent an hour asking me very precise questions about how I do due diligence on a hedge fund. This is not what I'd done, but I sort of gave him sort of my broad answers based on my vast experience. At the end of the interview, he looks at me and he says,”
2022-07-04 · Capital Allocators · Ashvin Chhabra – The Aspirational Investor (Capital Allocators, EP.260) · IDENTIFIED FROM THE TRANSCRIPT · source
“Institute for those who don't know, the institute is a few hundred acres next to Princeton University, completely independent, 30 faculty members for life, and then a couple of hundred visitors each year. 30 faculty members can do whatever they want for life. That's why you had Einstein there, you had Kurt Girdle, John von Neumann, you have Ed Witten today, you have a whole bunch of very distinguished people really pushing the edges of the frontier and brilliant people. So prior to Jim was a man called Leon Levy, who was the chair of the investment committee. Brilliant investor ran the portfolio himself pretty much, probably took risks that today under an institutional setting you could not take, worked out well. And I think the feeling always was that it was not a huge portfolio. And with all of these billionaires, if something went wrong, they'd fix it. So Leon unfortunately died suddenly and they looked at”
2022-07-04 · Capital Allocators · Ashvin Chhabra – The Aspirational Investor (Capital Allocators, EP.260) · IDENTIFIED FROM THE TRANSCRIPT · source
“And some day mentioned to me that the Institute for Advanced Study in Princeton, and I lived in Princeton, which is like ten minutes away, was looking for a CIO that they'd never had a CIO. And the chair of the investment committee was a famous guy called Jim Simons. And I'm a physicist by training. The institute is where Albert Einstein and Kurt Girdle were faculty members, John von Neumann. I mean, this is a place that was like you had me at Hello. So I went and I said, Let me go find out. So that was the genesis of the transition.”
2022-07-04 · Capital Allocators · Ashvin Chhabra – The Aspirational Investor (Capital Allocators, EP.260) · IDENTIFIED FROM THE TRANSCRIPT · source
“So, I wouldn't say that I wasn't only in the high network side, I was in the retail side of Merrill. So we saw all kinds of clients. It was 2006. And I didn't like the markets at all. The framework was quite popular. I was traveling all over the world. Merrill was under new leadership. And my kids were five years away from college. And I did the calculation that in five years, probably they just fired me because I was getting tired of the markets and the job. And my kids would be gone in college and no one would be talking to me. I thought it would be great if I just hung out with my kids for five years rather than do these crazy commutes.”
2022-07-04 · Capital Allocators · Ashvin Chhabra – The Aspirational Investor (Capital Allocators, EP.260) · IDENTIFIED FROM THE TRANSCRIPT · source
“And I said, yes, I work for a firm. I got to get some answers by the end of the year. The best I could do. But it stood up over time, so I'm grateful for that”
2022-07-04 · Capital Allocators · Ashvin Chhabra – The Aspirational Investor (Capital Allocators, EP.260) · IDENTIFIED FROM THE TRANSCRIPT · source
“And if you need it instantly, you need it in the form of cash and bonds. But if you need it over time, then the market is your insurance because it compounds at a very healthy rate and you're giving up market return. So just the idea of rebalancing sizing. There were other interesting cases. I think that were more human where you had a husband and wife that had different risk profiles. And now you can look at each bucket and the beauty about this is each investment not only has its bucket, but that bucket tells you what its purpose is. So you size it accordingly, the risk return is correct. So it was a simple framework and I think one of the very early supporters of this was Markowitz himself and he mentioned to me he said I've been trying to solve this problem for decades, this utility functions are very hard to solve based on large deviations. You just wrote down some heuristic answers.”
2022-07-04 · Capital Allocators · Ashvin Chhabra – The Aspirational Investor (Capital Allocators, EP.260) · IDENTIFIED FROM THE TRANSCRIPT · source
“Really is a tremendous span of examples you can give. But let's start with high net worth individuals because being in that seat, that's sort of the first one that you're paying attention to at some level. So take a business owner. They've been very successful and 95% of their portfolio in the past Didn't even exist under the Marquis framework. So they would work with a financial advisor and the financial advisor would say, you need to take some of the profits that the business is generating and give them to me. And the business owner would look at the look.”
2022-07-04 · Capital Allocators · Ashvin Chhabra – The Aspirational Investor (Capital Allocators, EP.260) · IDENTIFIED FROM THE TRANSCRIPT · source
“Of obvious in retrospect. The idea that everybody needs a put an index, a call, is actually the essence of investing. It's also a way of then connecting between things that I want that are certain and things that I'm willing to have some flexibility on and how do I connect them with a market that is very uncertain but is also my best bet for extracting return.”
2022-07-04 · Capital Allocators · Ashvin Chhabra – The Aspirational Investor (Capital Allocators, EP.260) · IDENTIFIED FROM THE TRANSCRIPT · source
“So as I said, the early work really, the genesis was the work we did at JPMorgan, but then I had moved to Merrill and I had the thundering herd to work with. And that was a great experience. And I wrote Beyond Markowitz there. And we began to apply it. There was great resonance because in many ways, there was a disconnect between modern portfolio theory and how people really invested. And this is well known. Even Markowitz doesn't invest as per Markowitz. And nobody really does mean variance optimization. Otherwise, you put all your money in emerging markets. You put constraints. But this was the first time, this was a framework where people of all different styles of investing could look at it and say, yeah, I already do that. I do that sort of in my head, or I've never quite formalized it. So I knew that I was on to something good because I always think the good ideas are sort of”
2022-07-04 · Capital Allocators · Ashvin Chhabra – The Aspirational Investor (Capital Allocators, EP.260) · IDENTIFIED FROM THE TRANSCRIPT · source
“So I wrote this as the paper Beyond Markowitz, which I'm happy to say has really got legs. And as you know, the publishers put it together with Keynes and Fisher Black as one of the seminal papers of the industry. And so in that sense, it's a full circle. I will say in the simplest sense, you can think of it the three buckets as a put and index and a call. The put protects you against a variety of risks. The index exposes you to the market. The calls is a call option on your skill set or what you want to do in life.”
2022-07-04 · Capital Allocators · Ashvin Chhabra – The Aspirational Investor (Capital Allocators, EP.260) · IDENTIFIED FROM THE TRANSCRIPT · source
“More capital, and you need to find more human capital, you need to find more financial capital, and you need leverage. And the best kind of leverage is non-recourse leverage. And you do that over and over, your business gets bigger and bigger. And guess what? At some point, it's 95% of your portfolio. And you are wealthy. The little joke I always had when I met very wealthy people when they had 95% of their portfolio. And of course, we were asking them to diversify was I'm really glad I never met you 10 years ago.”
2022-07-04 · Capital Allocators · Ashvin Chhabra – The Aspirational Investor (Capital Allocators, EP.260) · IDENTIFIED FROM THE TRANSCRIPT · source
“You need a safety bucket. Well, modern portfolio theory has that. It's called cash, but I generalized it and I said think of all kinds of risks that you may have to an individual or an institution. What you need to hedge against it. So that was my safety bucket. And then what was totally missing from modern portfolio theory was what I ended up calling the aspirational bucket. And what is that? That is the engine of wealth creation. That is where all of wealth gets created. And so I analyze the Forbes 400. I try to figure out how wealth gets created. And it was really what I had learned in my interaction with these internet millionaires in 1999-2000. You take human capital, something you're good at, something you're passionate about, you work on it every day, you get better and better. You want to expand that because that's your differentiator. You need to find”
2022-07-04 · Capital Allocators · Ashvin Chhabra – The Aspirational Investor (Capital Allocators, EP.260) · IDENTIFIED FROM THE TRANSCRIPT · source
“And modern portfolio theory does this part of the way. If you think of the essence of modern portfolio theory, there's a riskless asset, that's cash. There's a risky asset, which is our market portfolio. The real question about modern portfolio theory is how much in cash, how much in the risky asset, theoretically there's a utility function, and you can go from there. Now, confession never took a course in finance, never took a course in economics. I'm looking at it from first principles from somebody who's done chaos theory, nonlinear dynamics, saying there's something missing here. So I ended up actually devising my own framework, and it's not my own framework. I built upon Markowitz. I felt that there was a third piece that was missing, so there are really three parts. There's the middle that we recognize, which is the market, and that's Markowitz. There's the left tail, where the market's going to hell.”
2022-07-04 · Capital Allocators · Ashvin Chhabra – The Aspirational Investor (Capital Allocators, EP.260) · IDENTIFIED FROM THE TRANSCRIPT · source
“And technically, it's that the Hearst exponent is not 0.5. So you're not talking about stable distributions, you're talking about these massive fluctuations. So he had pointed out that you should think about the fluctuation of markets the way you think about the fluctuations of rivers. You get floods and you can build a dam, but every 10 or 15 or 20 years, you're going to get this massive flood. Kutna, I think, reviewed Mandelbrot's paper at that point and said, Mandelbrot, if you are correct, then all of our models are wrong and we're going to have to throw them in the trash can. Well, of course, as history would have it, nobody threw their models in the trash can. They just pretended the markets are stable. So I had been deeply influenced by the idea that markets are completely unstable, especially during a human lifetime, and that one must prepare for those events. And so you think about how can you prepare for those events.”
2022-07-04 · Capital Allocators · Ashvin Chhabra – The Aspirational Investor (Capital Allocators, EP.260) · IDENTIFIED FROM THE TRANSCRIPT · source
“Huge variations. Now, I also mention that done my PhD in chaos theory, and one of the people I'd interacted very closely with was Benoit Mandelbrot, who had written a very famous paper on the price of cotton, on the structure of cotton prices.”
2022-07-04 · Capital Allocators · Ashvin Chhabra – The Aspirational Investor (Capital Allocators, EP.260) · IDENTIFIED FROM THE TRANSCRIPT · source
“Actually, quite a complex question. So, let me first express the problem as it is. The problem is that individuals and institutions have certain goals, and some of those goals are essential that are non-negotiable. And then some are aspirational that you'd like to do. Now, when you think of the markowitz structure of the markets, it almost implies that there's a very definite and stable structure of markets. You expect to returns. You've expected volatility, you've expected correlations, and then you're transformed into an optimization problem. That's a well-posed problem, you know how to solve it. It completely misses the point that markets are this crazy beast that are totally uncertain because they are really a product of social activity. And over long periods of time, any social activity has”
2022-07-04 · Capital Allocators · Ashvin Chhabra – The Aspirational Investor (Capital Allocators, EP.260) · IDENTIFIED FROM THE TRANSCRIPT · source
“Trying to pull a couple of threads you mentioned. You mentioned setting under Fisher Black. You mentioned Mark Witz and Fisher Frontier type analysis and then goals-based investing. The latter of two don't really fit together. I know you wrote this very well regarded paper called Beyond Markowitz, which distilled this goals-based framework. Why don't you talk through a Either that paper just generally taking the goals based approach, like, how did you articulate how you're going to deliver that goals-based approach?”
2022-07-04 · Capital Allocators · Ashvin Chhabra – The Aspirational Investor (Capital Allocators, EP.260) · IDENTIFIED FROM THE TRANSCRIPT · source
“What is this money for? What is your goal? From there came the genesis of goal-spaced investing, which is really now quite popular, and I think most people now, when you go in, you've list your goals. So I think that that was one piece that was transformational. The other interesting thing was I'd done my masters in Monte Carlo, as I mentioned to you. And I thought, well, the probability of reaching your goals, well, Monte Carlo is how you do this. You do thousands of simulations and you see which simulations agree. And we had these long debates with counterparties who said you cannot introduce the word Monte Carlo in the world of investing. People are going to think this is gambling. So take this a piece of history of 1999-2000 and of course I don't think people anticipated how quickly all of this would change”
2022-07-04 · Capital Allocators · Ashvin Chhabra – The Aspirational Investor (Capital Allocators, EP.260) · IDENTIFIED FROM THE TRANSCRIPT · source
“Happen. And in those days it was very straightforward, especially at the retail level. You had equities, you had bonds, you had cash, you had a rate of return that was expected of equities, a rate of return that was expected of bonds. You did a retirement analysis. And if you weren't making it to retirement, you basically increased the amount of equity. So you could get a higher rate of return. And I looked at this and I said, how would a computer interact with a person? I said, well, first question you ask is, what is the purpose of money?”
2022-07-04 · Capital Allocators · Ashvin Chhabra – The Aspirational Investor (Capital Allocators, EP.260) · IDENTIFIED FROM THE TRANSCRIPT · source
“Yes, in fact, when I look back in my career, that was an amazing year. We had a fair amount of money that had been granted to us, so we actually set up a shop next to MIT because the feeling was that you couldn't create something as large and as transformative within the company. You almost had to go outside the company and create a completely different atmosphere to attract the best talent and move as quickly as possible. I believe their only fear at that point was that Goldman Sachs was ahead of them and Goldman Sachs was either going to launch first or they were going to launch first. So if you look at the landscape, it's almost funny when you think about what was motivating. It was interesting because when I look back at my philosophy and at least some of my contributions to the field of investing, a lot of them came that year. The first thing that I did was I looked at the computer and I said, how should a computer provide advice? So how should this human computer interface?”
2022-07-04 · Capital Allocators · Ashvin Chhabra – The Aspirational Investor (Capital Allocators, EP.260) · IDENTIFIED FROM THE TRANSCRIPT · source
“So they created what they call the crack team to do this. And so I got involved in building one of the first robot advisors in the world, Morgan Online. And that was very exciting.”
2022-07-04 · Capital Allocators · Ashvin Chhabra – The Aspirational Investor (Capital Allocators, EP.260) · IDENTIFIED FROM THE TRANSCRIPT · source
“and providing tremendous valuations to the new entrants. So JP Morgan went in and said What is it that we can do to reinvent ourselves? And they looked at that in each division and the private bank came back and said, we can provide financial advice in a scalable way using machines and the internet. Today people call it roboadweiser, but that's not a great name for it because it's really not a question of roboadvisor. It's a question of can people plus machines plus some form of AI or rules create a scalable, cost-efficient way of providing differentiated service all over the world. So this is 99, 2000. And so again, JP Morgan was a very special place when they had a new initiative. They didn't hire people from outside. They said we already have the best people inside.”
2022-07-04 · Capital Allocators · Ashvin Chhabra – The Aspirational Investor (Capital Allocators, EP.260) · IDENTIFIED FROM THE TRANSCRIPT · source
“Eventually, I ended up at JPMorgan in the asset management division. And around 99, there was something very interesting going on in the world. And it was the early stages of the internet. This was causing seismic changes in the entire industry. And I believe, if I have my facts right, that the market value of Schwab exceeded the market value of J.P. Morgan. And Morgan, in some sense, was in an existential crisis, especially the private bank, because this was the old JPMorgan private bank. You came to JPMorgan. They didn't come to you and they had a few great offices for very wealthy people. And now suddenly all of these internet millionaires were being minted by the day. You had to find a way to service them, and the market was discounting traditional banks.”
2022-07-04 · Capital Allocators · Ashvin Chhabra – The Aspirational Investor (Capital Allocators, EP.260) · IDENTIFIED FROM THE TRANSCRIPT · source
“I think it's a growing experience. I think people who are very, very deep in academia may not have a grasp on the real world or how it works. And within three months, actually of being what we'd call a quant, they were very good to me. They said, you want to be a trader eventually. Quants are supporting traders. We could give you a trading book in like a small trading book and you can start taking some risk. It was quite an honor because I was very green. And I looked at the whole situation and I said, no, I don't want to do that. And they said, why? I said, because the traders have a free option on the firm capital. And so you're just going to induce me to take a lot of risk. And if it works out well, I'll make a lot of money. If it blows up, there was something wrong with that whole structure. And so I just stayed away from it. And so eventually I moved away from the trading floors because I didn't have the risk return.”
2022-07-04 · Capital Allocators · Ashvin Chhabra – The Aspirational Investor (Capital Allocators, EP.260) · IDENTIFIED FROM THE TRANSCRIPT · source
“I interviewed from, I think, nine to one. They said, where else have you interviewed? I said, nope, it's my first job, first job interview. And they said, okay. And then they called the recruiter and they said, ask him to stand by the phone at five. And by five, I had a very nice job on, well, not on Wall Street, but in Chicago. So I basically went back and I said, could you give me a visiting position at Chicago in case this thing doesn't work out? I'm going to try finance for a year. And I walked into the fixed income derivatives trading floor.”
2022-07-04 · Capital Allocators · Ashvin Chhabra – The Aspirational Investor (Capital Allocators, EP.260) · IDENTIFIED FROM THE TRANSCRIPT · source
“Physics is a tough field. You're always doubting yourself. So Fisher Black had done some interesting work. He had solved the heat diffusion equation. It was sort of a trivial piece of math almost from a physics point of view. And so I think every physicist thought they could make a fundamental contribution in finance thereafter. So I read this book. It was by John Hull on Black Shoals and options, derivatives. It was the standard book at that point. I bought a suit from Macy's and I went and interviewed at first Chicago.”
2022-07-04 · Capital Allocators · Ashvin Chhabra – The Aspirational Investor (Capital Allocators, EP.260) · IDENTIFIED FROM THE TRANSCRIPT · source
“Best college. So, in some sense, just got me into the best college, St. Stevens, and I did physics there and I captained the chess team. Happy to note we won the intercollegiate championship. Just as a note. But I did physics at Stevens in Delhi and then I got a scholarship. And I went and did graduate work first at the University of Georgia in Athens, where I got lucky and I worked with a very distinguished person, David Landau, who was a pioneer in Monte Carlo simulations. And so I did my master's thesis with him. And then I did my PhD at Yale in chaos theory, where I got to work with some more distinguished people, Benoit Mandelbrat, who really was the father of fractals, K.R. Srinavarsan, who's one of the major figures in turbulence. So, what brought you to leaving physics your childhood dream?”
2022-07-04 · Capital Allocators · Ashvin Chhabra – The Aspirational Investor (Capital Allocators, EP.260) · IDENTIFIED FROM THE TRANSCRIPT · source
“But I guess now you would say that one was differently abled in learning. I just had a really hard time. I'd sit in the class and get spewed masses of information. You're supposed to memorize them and then regurgitate them in three hours. And it was a disaster. The one thing I was pretty good at was playing chess. My father introduced me to chess and he and I would play every weekend for fun. And that sort of made it clear that at least I had some brains. When I graduated from school, I entered Junior Championships and tied for the first four. And that actually got me into”
2022-07-04 · Capital Allocators · Ashvin Chhabra – The Aspirational Investor (Capital Allocators, EP.260) · IDENTIFIED FROM THE TRANSCRIPT · source
“And obviously, Einstein was written. I remember reading as About how Einstein was working on relativity and he sort of imagined himself sitting on a light wave in how the world would look that way. To just sitting on the earth. And for some reason it burned something in my brain. And I said, Interesting. There are two. Points of view in One, the way you see it. And one, if you're not a human, how would you see And in that sense, that duality has actually stuck to me. And you'd be amazed how useful it is in investing. So you start studying physics and why don't you take me through where that brought you?”
2022-07-04 · Capital Allocators · Ashvin Chhabra – The Aspirational Investor (Capital Allocators, EP.260) · IDENTIFIED FROM THE TRANSCRIPT · source
“And Bitcoin. Ashman is one of the most creative and independent thinkers in the community, and you'll soon hear why. Please enjoy this fascinating conversation with Ashfin Chabra. Thanks so much for joining me. It's a pleasure, Ted. Well, why don't we go back to the beginning, take me back to your upbringing and go from there. Okay, I think this. Had nothing to do with money or finance or investing. You come With their grandma or grandfather, I think for me it was exactly the opposite. I knew exactly what I wanted to do. That has become a So, how in the world do you know you want to become a physicist when you're a kid? No,”
2022-07-04 · Capital Allocators · Ashvin Chhabra – The Aspirational Investor (Capital Allocators, EP.260) · IDENTIFIED FROM THE TRANSCRIPT · source
“My guest on today's show is Ashvin Chabra, the president and chief investment officer of Euclidean Capital, the family office for Jim Simons of Renaissance Technologies. Ashman joined Euclidean in 2015 after spending time as CIO of the Institute for Advanced Study and CIO of Merrill Lynch Wealth Management. He's the author of The Aspirational Investor and is recognized as one of the founders of goals-based wealth management. Our conversation covers Ashman's upbringing and his path from physics to investing. We discuss his beyond Markowitz portfolio management framework, application of it to High Net Worth Individuals, Foundations, the Yale Endowment, Warren Buffett, and a single family office. Along the way, Ashman chairs the story of interviewing with Jim Simons, his critique of endowment management, manager selection, and perspectives on interest rate.”
2022-07-04 · Capital Allocators · Ashvin Chhabra – The Aspirational Investor (Capital Allocators, EP.260) · IDENTIFIED FROM THE TRANSCRIPT · source