YouSaid · the spoken record

Cullen Roche

lines on the record: 75
first: 2022-10-23
most recent: 2022-10-23
sittings or episodes: 1
sources: podcast

Every line below is reproduced as it was said and linked to the record it came from. Nothing here is summarised or generated. Directory · Search · Corrections

“I love it. I love talking to you guys. Your audience is awesome. I always get great feedback from everybody. So thanks for listening. I hope you learned a bunch. And yeah, I look forward to doing it again for sure.”
2022-10-23 · We Study Billionaires · TIP486: Macro Investing w/ Cullen Roche · IDENTIFIED FROM THE TRANSCRIPT
“Arguably do some topics that just an injustice because I could you could write a thousand page book about certain aspects of you know that I wrote write about for 10 pages in here but I started doing these videos three minute money videos on YouTube they're just little snippets of generally little lessons or recently because of all the turmoil I've been talking a lot about the macroeconomy but still starting from a first principles perspective where my goal is really to understand the system for how it works and then you can apply these behavioral elements where you're trying to navigate that system, but do so in hopefully a pragmatic approach.”
2022-10-23 · We Study Billionaires · TIP486: Macro Investing w/ Cullen Roche · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, so like Stig said, Pragmatic capitalism is the book. I just released a second edition. So it's been a while since I published the first edition, but updated it with sections on, I would argue that I've evolved more and more into a behavioral investor. I think that trying to control for investor behavior is actually probably one of the most important things we can try to do. So there's updated sections with what I refer to as discipline-based investing and trying to be having more discipline over your investment processes. But yeah, I write the blog that I'm probably best known for is Pragmatic Capitalism, which is pragcap.com P-R-A-G-C-A-P.com. I've started doing little video series where I'm trying to do a lot of the similar stuff where, you know, this is a 250-page book that jams. I tried to jam probably way more content into it than I ever could have.”
2022-10-23 · We Study Billionaires · TIP486: Macro Investing w/ Cullen Roche · IDENTIFIED FROM THE TRANSCRIPT
“At that, people just don't ever really talk about. And we can, like I said, you can have lots of debates about whether, like, I think quantitative easing is a bad policy. I don't think they should have ever done it. I think that the way that we control discretionary interest rates with like, you know, basically a group of people meeting and putting their fingers in the air and saying, hey, you know, this is where interest rate should be. I think that's kind of a silly way I would think there are systematic ways where we could implement this that would you know, take a lot of the guesswork, a lot of the human element out of it. So there are, I think, fair criticisms of things that they do. But as a financial stability entity in terms of just monitoring and regulating the payment system, they do a pretty darn good job and they don't probably get enough credit for that because it's just not something that people, I think, actually know a lot about because we just sort of take for granted.”
2022-10-23 · We Study Billionaires · TIP486: Macro Investing w/ Cullen Roche · IDENTIFIED FROM THE TRANSCRIPT
“They're going to make it through this. And so we're going to act as the third party intermediary. And that's what they did in 2008. And it actually worked really, really well. You could argue that I've been really, really critical of their interest rate policy in the last year because there are legitimate controversial things that they do. But for the most part, this central clearing process works really, I mean, beautifully to a large degree. So if we didn't have central banks, you would probably still need some sort of third party intermediary because financial panics turn into financial depressions in large part because the financial system starts getting mucked up. And that's a huge problem. And actually one that central banks are very good at resolving. So, you know, in terms of their third mandate, that really is it. It's to sustain financial stability. And that's a big part of the thing that the Fed is actually really, really good.”
2022-10-23 · We Study Billionaires · TIP486: Macro Investing w/ Cullen Roche · IDENTIFIED FROM THE TRANSCRIPT
“We don't trust your balance sheet. We know you have a whole bunch of railroad loans out that are melting and we're going to wait about three months before we decide to do business with you. And as the economy became this more nationalized economy, much more interconnected, that became a huge, huge problem because then you could have Citibank wouldn't settle any payments with Bank of America and then all of a sudden Cullen can't settle a payment with Stig because we just happen to both use these two banks that won't work together and like, you know, Stig and Cullen might have no problems. Economically, we might be running the most successful businesses ever. But we can't settle a payment between each other just because the banks are bad at their job all of a sudden. And what the Fed basically comes in and does is they operate as this third party intermediary where they come in and say, look, okay, guys, you can relax because we actually have seen Bank of America's balance sheet and we know that it's fine.”
2022-10-23 · We Study Billionaires · TIP486: Macro Investing w/ Cullen Roche · IDENTIFIED FROM THE TRANSCRIPT
“And the reason we actually have the Fed to a large degree is because in 1906 and 1907 and many panics before that, we had private clearinghouses where instead of Bank of America and Citibank clearing a payment through the inner bank market through the central bank, they would clear the payment between themselves.”
2022-10-23 · We Study Billionaires · TIP486: Macro Investing w/ Cullen Roche · IDENTIFIED FROM THE TRANSCRIPT
“That's a good question. Well, we didn't always have the Fed. The banking system before we had the Fed was basically, I like to describe the Fed as essential clearinghouse. They really, the big thing that they do is they just clear payments in the interbank market. That is their, you know, they get a lot of press for doing things like quantitative easing and changing interest rates, but their day-to-day function really is this interbank clearing process and they clear trillions of dollars of payments and they For the most part, this system works really well. It works really smoothly and they don't get they don't really get any credit for that or there isn't a lot of talk about it because it just generally, I mean, the vast majority of the time, it's not a problem. And when it does become a problem, like it did kind of back in 2008, they're actually very good at smoothing the functioning of the payment system so that it doesn't become a big problem. And before we had central banks, before we had the Fed, for instance,”
2022-10-23 · We Study Billionaires · TIP486: Macro Investing w/ Cullen Roche · IDENTIFIED FROM THE TRANSCRIPT
“Maybe a little bit too tight here. There are maybe a little more worried about inflation than they should be, which is why this is the reason why the yield curve tends to be a pretty good predictor of recessions is because that's the market signal that it's sending.”
2022-10-23 · We Study Billionaires · TIP486: Macro Investing w/ Cullen Roche · IDENTIFIED FROM THE TRANSCRIPT
“Exactly this price, and they're able to do that because they're the reserve monopolist in that second tier interbank payment system. So it's very sort of controversial because to some degree, like a lot of the theory argues that it's actually good to get market signals from letting the long bond float because the market then is sending a signal. Like when the yield curve flattens, for instance, in an environment like this, like I would argue that what the long end is essentially saying is they're saying, well, we actually expect long-term inflation to be much lower than what the Federal Reserve expects right now. And so with the 10-year yield lower than the two-year today, the marketplace is basically saying we are not as worried about inflation as the Federal Reserve is over the course of the next 10 years. And that generally is consistent with a market signal that is saying, hey, the Fed”
2022-10-23 · We Study Billionaires · TIP486: Macro Investing w/ Cullen Roche · IDENTIFIED FROM THE TRANSCRIPT
“The Fed on what the overnight rate is because they just quite literally cannot. Whereas the Fed lets the long end float and banks will try to front run and change long-term rates because they know that the monopolist isn't actually setting that rate. But if the Fed came out and said, for instance, the 10-year Treasury bond is worth 3%. The 10-year Treasury bond would immediately or within days go to 3% because the marketplace would know that there's no way they can arbitrage that out because the Fed is going to come in and the Fed's going to set the price and they're going to pay interest on that instrument in a way where they're able to very precisely control it. So that's essentially what yield curve control is, is it's the central bank coming out and explicitly saying this part of the yield curve is now.”
2022-10-23 · We Study Billionaires · TIP486: Macro Investing w/ Cullen Roche · IDENTIFIED FROM THE TRANSCRIPT
“The way in, and he could basically control exactly where the dog is by grabbing the collar, basically, and eliminating the leash. Right now in the system we have, the most central banks, they don't target the price of long rates. They let long rates just sort of float. And this is part of the argument why I always say that quantitative easing isn't as effective as a lot of people tend to think because what they're doing is they're controlling the quantity of bonds, they're not controlling the price of bonds. Whereas at the short end, there's a huge difference because at the short end, they specifically control the price. They explicitly determine what the overnight price is. And the Fed or any central bank is such a big, powerful money-issuing entity that it is a monopolist, essentially. And banks don't try to fight.”
2022-10-23 · We Study Billionaires · TIP486: Macro Investing w/ Cullen Roche · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, it's an interesting question. I mean, so kind of backing up the way to think of this is that the Fed and the way that they control interest rates is a lot like, imagine the analogy of somebody walking a dog on a leash. And at the handle, the man holding the leash has absolute control and they determine exactly where that leash is held, whereas the longer end is kind of like the 30-year bond. And they let the dog wander from side to side and it can kind of gyrate based on really what it's trying to do is to a larger degree, it's trying to predict where the man is going to walk to some degree. So there's this weird sort of feedback relationship where the man has a certain amount of control over where the dog is going but doesn't have absolute control over it through the leash. And so interest rates function very much the same way in the current system where theoretically the man could take that leash and he could pull it all.”
2022-10-23 · We Study Billionaires · TIP486: Macro Investing w/ Cullen Roche · IDENTIFIED FROM THE TRANSCRIPT
“The equivalent of like a retail bank, yeah, that would completely transform the system because politically it would not only change central banks from being somewhat independent, but into specifically really very politicized money issuing entities, but it would diminish the power of modern private banks significantly.”
2022-10-23 · We Study Billionaires · TIP486: Macro Investing w/ Cullen Roche · IDENTIFIED FROM THE TRANSCRIPT
“It's highly theoretical, but I think it would, in a sense, it would start to really, really transform the way that the modern monetary system is structured. Because right now, most of the money creation on average is controlled by private entities that basically really compete for depositors. They compete to make loans that result in the creation of deposits. And that's a very sort of market-based function, whereas a lot of what the government does when they create financial assets is it's obviously much more politicized. And you could argue that it's not nearly as market-based, not that the modern banking system is perfect by any means. It's certainly not. You could argue that there are big, big problems in the way that we have these private competitive banks to some degree. But in general, yeah, wrapping all of this into the government and having the government basically become”
2022-10-23 · We Study Billionaires · TIP486: Macro Investing w/ Cullen Roche · IDENTIFIED FROM THE TRANSCRIPT
“The banking system. And it would be very interesting from a theoretical perspective whether central banks started to issue digital currencies because in a sense, if you let the banks, the central banks run what is essentially retail type banking systems where they're actually making loans to the private sector, you could argue then that”
2022-10-23 · We Study Billionaires · TIP486: Macro Investing w/ Cullen Roche · IDENTIFIED FROM THE TRANSCRIPT
“When the government runs huge, huge deficits, what they're really doing is they're giving a bond generally to a rich person and they're taking that money and then they're spending it into the hands of somebody who isn't as rich, who has a higher marginal propensity to spend. And so they've created an asset that is essentially like a savings account given it to the rich person, taken the rich person's money, and then given the money to the poorer person. And in every sense of the word, I would argue that is money printing in the sense of like the sort of traditional way we think of it. Whereas when a central bank creates reserves, they're not necessarily really printing money because the money that they're printing isn't really in the private sector. It's not going to a depositor and then being spent at Walmart or some big box retailer or something like that. But from the perspective of controlling the money supply, it really is controlled primarily through”
2022-10-23 · We Study Billionaires · TIP486: Macro Investing w/ Cullen Roche · IDENTIFIED FROM THE TRANSCRIPT
“Where we exchange deposits. But when if I were to pay Stig and Stig banked at a different bank than I do, well, the two banks would go to the inner bank market to settle the payment. And that's the bank controlled by the central bank. But so it's kind of this behind the scenes sort of banking system. And the old theory is that if the central bank gives banks more money in the inner bank market, in the secondary market, that then they can create more money in the primary market. And that's just not really how it works. The primary function of loan creation is demand for loans and the bank's ability to actually, you know, find credit worthy borrowers to issue those new deposits. The government doesn't have no control over money, obviously. I mean, they can create financial assets that are very money-like. I mean, government bonds, I always argue, are very money like. They're not technically, you know, like deposits.”
2022-10-23 · We Study Billionaires · TIP486: Macro Investing w/ Cullen Roche · IDENTIFIED FROM THE TRANSCRIPT
“It's an interesting concept because, you know, just to kind of give a really high-level overview so people do understand what we really have in most modern monetary systems is sort of a two-tier system where the banks are really the dominant money issuers. We call money that banks make credit, but really from a practical perspective, loans create deposits and deposits for all practical purposes or money. And they're even in most countries, they're government-backed. I mean, FDIC insured here in the United States, for instance. Deposits are, in terms of their comparison to like a dollar bill, they're identical, essentially. And so what you have is this two-tier system where theoretically a lot of people think of this from the perspective of the government, where the government runs in the central bank specifically runs the interbank market, where this is where the banking system basically for banks. And so the rest of us all use the primary banking system, which is”
2022-10-23 · We Study Billionaires · TIP486: Macro Investing w/ Cullen Roche · IDENTIFIED FROM THE TRANSCRIPT
“Is down zero. And so it's been this beautiful part of your portfolio because it's helping you sleep better at night and it's helping you manage your liquidity needs if you have them. So that piece that you hated suddenly becomes the piece of the portfolio that you love. And that's just the ebb and flow of life. I mean, what is the old saying? Variety is the spice of life. And that's the same thing is true in portfolio management where if you own all the same stuff that all does the same basic performance over time, well, yeah, that might be great in the super long run. And that is the basis of the argument for stocks for the long run, but you can find yourself in these short-term periods where, man, when you're in trouble, you are going to find yourself in big, big behavioral trouble because when all those things are correlated one-to-one, they're correlated negatively in a really, really bad way.”
2022-10-23 · We Study Billionaires · TIP486: Macro Investing w/ Cullen Roche · IDENTIFIED FROM THE TRANSCRIPT
“I need to tap some cash. I'm going to have to take a big, big principal hit in this instrument. Whereas if you own the diversified portfolio, you own a bunch of stuff that years past, you probably would have hated all of it. You would have hated the bonds. You would have hated the commodities. You would have hated the gold. But now you find yourself on average over longer periods of time in a portfolio that's actually performing more stable where you have optionality not from only from a behavioral perspective, but from a cash management perspective where you can now better manage your finances because you've created a diversified portfolio of things that, yeah, cash has been trashed for 10 years because it's been earning 0%. But cash is been one of the absolute best things to own this year, even though in real terms it's down whatever seven, eight percent cash on a nominal basis is.”
2022-10-23 · We Study Billionaires · TIP486: Macro Investing w/ Cullen Roche · IDENTIFIED FROM THE TRANSCRIPT
“Where it's down 25%, well, you know, owning bonds or gold, nothing's really worked that well. But the investor that owns gold or commodities or even bonds in this environment, well, what they've done is they've buffered the negative 25% return in the stock market because even though bonds are down 11% or whatever, and I think gold is down 10%, commodities are up. What you've done there by building this sort of very diversified portfolio through owning uncorrelated asset classes is you have buffered the instrument in that portfolio that is really the most volatile, the one that especially is going to cause you a lot of behavioral length. Because if you only owned the stock market component there, you're down 25% and you're looking at your portfolio and you're saying, oh no, if I lose my job or”
2022-10-23 · We Study Billionaires · TIP486: Macro Investing w/ Cullen Roche · IDENTIFIED FROM THE TRANSCRIPT
“In order to build a portfolio in the long run that does well on a, and creates a more stable type of return, you have to build in things knowing that parts of that portfolio are going to do badly over time. But on average, over longer periods of time, when you blend that value position with the growth position, you don't get into the timing the market thing. You just kind of know that, well, there's going to be periods where the value stuff does badly, the growth stuff does, you know, badly at times. And, but if I own all of it on average, it will all on average generate a pretty decent return.”
2022-10-23 · We Study Billionaires · TIP486: Macro Investing w/ Cullen Roche · IDENTIFIED FROM THE TRANSCRIPT
“Instance, in the long run, owning a value portfolio, for instance, in the last 10 years has been a horrible relative performer inside of a total stock market portfolio relative to growth. Now we're seeing the tide kind of change there where value in the last year, year and a half has absolutely smoked growth. And so that's part of the beauty of diversification is that there's a lot of people that in the last 10 years could have looked at the value port of their portfolio and said, hey, you know, this Vanguard value funder, whatever it is that you own, this thing hasn't done very well. And I hated it. It goes down every day and it's driving me crazy and the growth stuff keeps going up. And you can get into these debates about momentum versus something more diversified and balanced. But to me, I think that.”
2022-10-23 · We Study Billionaires · TIP486: Macro Investing w/ Cullen Roche · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, well, I think that's the thing that a lot of us are seeking is that portfolio that just only goes up. You want to own all the instruments that are just only going from the bottom left to the bottom right all the time. And I think that one of the, you know, not only is that obviously just an incredibly difficult endeavor to achieve, but one of the purposes of diversification and generating better risk adjusted returns or smoother styles of returns over time is that you have to know that in order for diversification to work, you have to have instruments that are uncorrelated. You have to have instruments that, well, let's say the stock market is booming, maybe your bond portfolio isn't doing that well. And you have to build a portfolio where you do end up kind of hating a portion of your portfolio. I mean, just looking at a stock market, a global stock market portfolio for”
2022-10-23 · We Study Billionaires · TIP486: Macro Investing w/ Cullen Roche · IDENTIFIED FROM THE TRANSCRIPT
“Of bonds as being a real return protecting type of instrument. It's one of the reasons I'm not a big fan of tips and inflation protecting its securities and fixed income markets in general is because bonds to me their principal protection instruments. They are instruments that over very specific time horizons will provide a certain amount of principal stability. They are not in your portfolio to generate real returns. Your Treasury bill that you can buy today at 4%, there is no chance that thing is going to beat the rate of inflation, but that's not the goal of the instrument. The goal of that instrument is to give you 4% nominal certainty because you know that if you just leave that money sitting in the bank, you're going to get zero percent. And so from a value proposition perspective, a relative basis on a nominal return basis, that instrument is a no-brainer to own, assuming you have a six-month time horizon for that.”
2022-10-23 · We Study Billionaires · TIP486: Macro Investing w/ Cullen Roche · IDENTIFIED FROM THE TRANSCRIPT
“I think you have to build very systematic fixed income portfolios that are applied to people's time horizons, where bonds for me typically are instruments that you really, you should use them inside of like a five-year time horizon where you're not exposing yourself to just crazy amounts of interest rate risk like you would if you owned a 30 year treasury bond. The dynamics of that instrument are just, they are completely, completely different than owning something like a six-month treasury bill or a five-year treasury note where you can structure that thing across a very specific time horizon within your financial plan where you actually know from a nominal perspective a lot of the mathematical outcomes that are likely there. And that, you know, not to get on a whole other tangent. But for me, I write about this in the book very specifically that I really do not think people should think.”
2022-10-23 · We Study Billionaires · TIP486: Macro Investing w/ Cullen Roche · IDENTIFIED FROM THE TRANSCRIPT
“That's actually you. You could argue that bonds were a far worse value proposition two or three years ago, certainly. But today, I actually think the math has completely transforming. I would argue that bonds are a much, much far superior value today than they were because interest rates have risen and the likelihood that interest rates are going to continue to rise at the rate that they've been rising, in my opinion, is lower, which actually makes bonds even more attractive going forward. But again, it depends on your personal situation. Bonds shouldn't be owned by everybody. And not everybody has a need for these short-term type of instruments that are going to provide certainty over very specific time horizons. And so bonds or bonds have to be very personalized and customized to people in the same way that like when I was talking about the bonds.”
2022-10-23 · We Study Billionaires · TIP486: Macro Investing w/ Cullen Roche · IDENTIFIED FROM THE TRANSCRIPT
“Sense that when interest rates rise, the prices fall, their future returns become better. And the stock market functions tends to function in a very similar way, where when the stock market falls in value, it actually tends to become a higher return generating instrument in the future. And the bond market is very, very similar. And so weirdly, we're in this environment now where, yes, if interest rates continue to soar, then you will continue to incur principal losses, but your math now is vastly improved because now you're able to buy bonds that are yielding 5%, 6%. So your starting point is much better protected in this world than it was in the 0% market. So to me, there's been a lot of commentary about, oh, bonds are dead, bonds are useless in a portfolio. And I always tell people, well,”
2022-10-23 · We Study Billionaires · TIP486: Macro Investing w/ Cullen Roche · IDENTIFIED FROM THE TRANSCRIPT
“Have to basically continue to skyrocket even more because they have to generate a negative nominal return now, they have to offset 8%. And so your five-year bond that, let's just say it has a five-year duration, which is its interest rate sensitivity. When that thing goes up 1%, you lose 5%. If you're earning a coupon of 5% in that bond, well, you lose basically all of your coupon in the annual year that the interest rates rise because it completely offsets your 5% rate. But if that bond, let's say you buy it and it's starting at 10% rate, well, that bond has to lose the equivalent of two years basically worth of principle to actually offset the interest payment. And so in a weird way, bonds operate a lot like stocks in the”
2022-10-23 · We Study Billionaires · TIP486: Macro Investing w/ Cullen Roche · IDENTIFIED FROM THE TRANSCRIPT
“To do. And so that's one of the things that makes bond investing very hard. But it's interesting coming off of zero because the world I wrote about this a lot back when interest rates were down at zero, that when interest rates are at zero, your interest rate risk is just, it is completely different than when interest rates are starting at four. Because bonds are obviously, they're protected by the income that they generate. And so, you know, I write about this a lot with the period of the 1970s. A lot of the people that write about that period think that bonds were a terrible investment because interest rates went up so much. But the interesting thing about bonds is that the more interest rates go up, well, the higher income you're actually generating from the new bonds that you're rolling into. And so in a certain weird way, when you're buying a bond that generates 8% and inflation is at 8%, well, from a nominal perspective, interest.”
2022-10-23 · We Study Billionaires · TIP486: Macro Investing w/ Cullen Roche · IDENTIFIED FROM THE TRANSCRIPT
“Of a five or six or seven year period, when you let that bond mature, it will mature at par and it will have just clipped the coupon at whatever you purchased it at. And so going back to kind of that idea of like segmenting things in certain time horizons, well, if you were buying, like right now, Treasury bills right now, you can buy six and 12 month Treasury bills right now for 4%, which is a world that hasn't existed for 10 to 15 years. But the kicker there is that with a six-month bill, you're going to get a one-time coupon. And so you've got to understand that, hey, this instrument isn't going to do anything for six months, but then you're going to recoup your full 4% coupon or 2% because it's an annualized rate, but it's going to mature at par. But you've got to be patient enough to let the instrument do what it's designed.”
2022-10-23 · We Study Billionaires · TIP486: Macro Investing w/ Cullen Roche · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, well, God, this is an interesting time to be talking about bonds, obviously, because they're going through their worst run in arguably history. Bonds are, they're a different beast than the stock market because buying something like, say, U.S. government bonds or investment-grade bonds for the most part, you really, you can mathematically quantify what your returns are going to be over specific time periods. And I think this is another thing that's important with owning bonds is that I think that you have to understand that specific concept of time inside of the instruments where it's very easy, for instance, in a period like right now to look at a five-year bond and say, well, that five-year bond is down 15% this year because interest rates have gone from zero to 3%. And I know this is hard for a lot of people to be patient with, but over the course.”
2022-10-23 · We Study Billionaires · TIP486: Macro Investing w/ Cullen Roche · IDENTIFIED FROM THE TRANSCRIPT
“Totally. Yeah. And the cost aspect is a huge one that you bring up where it just is not expensive now to own international equities. And so another, it's one of those things that you can control and you can control the level of home bias without having to pay crazy fees that we know detract from total returns in the long run.”
2022-10-23 · We Study Billionaires · TIP486: Macro Investing w/ Cullen Roche · IDENTIFIED FROM THE TRANSCRIPT
“Diversification has a huge benefit, and this is statistically supported, too, that especially when you look at the booms and busts of the markets over time, we go through these big ebb and flow cycles where international stocks, for instance, they kick the pants off of US stocks in the 2000s. Then we've been through this long 15, 20-year cycle where the US has kicked the pants off of everything international. But hey, that could be changing right now as we speak and to some degree looks like it is starting to transform. And so to me, from a diversification perspective, I think it not only is supported by the empirical evidence, but it's supported by the historical evidence.”
2022-10-23 · We Study Billionaires · TIP486: Macro Investing w/ Cullen Roche · IDENTIFIED FROM THE TRANSCRIPT
“Bought Japanese stocks in that period. And so to me, I think that's the real benefit of owning diversifying internationally is that you've got to get away from home bias because you just never know what's going to happen. I mean, I don't personally think that like the United States is going to lose reserve currency status anytime soon or that the United States corporations are going to start to lose lots of market share. But hey, I have no idea what's going to happen in the future. And I think that's part of the one of the big lessons from being a good investor is that you have to humble yourself to these unknowns and you have to recognize that there is a certain arrogance in being American and only owning the S&P 500 because you are just implicitly saying”
2022-10-23 · We Study Billionaires · TIP486: Macro Investing w/ Cullen Roche · IDENTIFIED FROM THE TRANSCRIPT
“And sure, yes, you're getting some international diversification because of international revenues, but with the sort of change in globalization to some degree, you could argue that a lot of these international firms might be forced into becoming much more domestic types of firms. And so you can make an argument there that you're actually losing some of your international diversification. Who knows what's going to happen with all these global conflicts? I mean, we could all end up being Japanese to some degree where we're more, we'd all become much more isolationist and actually Japan's an incredible example of home bias where if you were only invested in Japan in 1990, well, you suffered through one heck of a big stock market trauma because you didn't own a lot of international stuff. And if you had been a Japanese investor in the 1990s who owned an international stock portfolio, you performed vastly, vastly better than the person who just lived in Tokyo and only”
2022-10-23 · We Study Billionaires · TIP486: Macro Investing w/ Cullen Roche · IDENTIFIED FROM THE TRANSCRIPT
“International listenership here, and I'm based in the United States. So I have a lot of biases because I'm a very patriotic American and blah, blah, blah about all that. But I still, I look at the United States and I know the history of world reserve currencies. And I know the history of world superpowers. And I know that over the course of economic history, the reserve currencies come and they go. The world superpowers, they ebb and they flow. And in 50 years, who knows where the United States is going to be? Who knows whether it will be Europe again or China or India or whatever country it might be that is the next big thing. And so from a perspective of allocating assets these days, to me, it just seems like such a no-brainer to diversify internationally because what if you're the person who's only invested in the S&P 500?”
2022-10-23 · We Study Billionaires · TIP486: Macro Investing w/ Cullen Roche · IDENTIFIED FROM THE TRANSCRIPT
“In the long run, if you were that person, what you missed out on was literally one of the greatest economic booms in all of human history, because in the year 1800, there was this little tiny country on the other side of the ocean that was in the process of building an economic monster. And that's what the United States eventually became, was the United States became the biggest most productive, innovative country and economy in the world over the course of the next 200 years. And so if you had this home bias, well, you not only were invested back in what was known as the world's reserve currency back then, but you, if you only invested in the home bias there, you missed out on all of these other economic booms internationally. And so look, I'm a very, I know we have a”
2022-10-23 · We Study Billionaires · TIP486: Macro Investing w/ Cullen Roche · IDENTIFIED FROM THE TRANSCRIPT
“Always like to use an example of imagine you were living in London in the year 1800 and you were somebody that was kind of involved in finance and the financial world was really starting to develop in most of northern Europe around that period and really turning into something you know more like what it is today where people were actually forming companies and then selling parts of those companies to the public in Northern Europe or London in the year 1800 well would you have ever thought of investing internationally and you know who knows maybe you own something like shares in the Dutch East India company or something which you could technically argue was like an international company to some degree but you wouldn't really have thought of ever investing outside of probably like the UK if you were in that environment and”
2022-10-23 · We Study Billionaires · TIP486: Macro Investing w/ Cullen Roche · IDENTIFIED FROM THE TRANSCRIPT
“After you back out all of these sort of uncontrollable aspects of it and actually the more active you are, the less control you have because you're incurring higher taxes and fees along the way. Well, it doesn't make sense to actually spend a lot of my human capital doing some an endeavor like that because the much more probable high return on investment is building skills that other people will find valuable where then I can generate a higher income that becomes a in a sense you almost when you build a lot of human capital you build your own sort of bond you become this high income generating type of instrument where now the return on investment that you're generating is controlled not by a function of what other people are doing but really by what you're doing”
2022-10-23 · We Study Billionaires · TIP486: Macro Investing w/ Cullen Roche · IDENTIFIED FROM THE TRANSCRIPT
“Can control, you have a direct control over the amount of knowledge that you build over something. I mean, you obviously can't just go out and become LeBron James if you want to become a professional basketball player, but you can find something that you're good at and you can make real investments in those skills in a way that has a return on investment for you personally. Whereas the stock market and buying homes and things like that, there tend to be so many variables involved in that that you can't control. And I think that when you start to put these things in the proper perspective where you realize, well, mathematically after taxes and fees and all this other stuff, well, these instruments don't do quite as well as I think a lot of the financial media would like us to think, then you can put these things in the proper perspective where you start to say, well, okay, it actually makes very little sense for me to sit around and day trade stocks because”
2022-10-23 · We Study Billionaires · TIP486: Macro Investing w/ Cullen Roche · IDENTIFIED FROM THE TRANSCRIPT
“Actually, control so much of the outcome. And that's the, I think, the big thing with the stock market is that, well, when you actually put that four to five percent figure into perspective, I think it's part of why passive investing in indexing has become so popular in the last sort of 10 to 15 years, because there are specific things about stock market asset allocation that we can directly control. And those tend to be taxes and fees. You can't control what the market is going to do in any given year, but you can control taxes, fees. And I focus on behavior a lot because behavior is obviously something you can control when you become disciplined about it. And so, you know, I think it's really important to look at those things that you can control for. And working from this perspective of human capital, building your own skills and investing in yourself, well, those are things you”
2022-10-23 · We Study Billionaires · TIP486: Macro Investing w/ Cullen Roche · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, it's interesting. You know, Buffett actually talks about this in a lot of his old letters about how you should assume that the aggregate stock market after inflation is probably only going to do like four to five percent, which is, I mean, amazingly, that's like half of the number that you commonly hear referred to in the financial media. And because there is this 10% number that a lot of people have in their mind of that's what just what the stock market does on average. But when you, again, when you go in and you back out all of the taxes and fees involved in this, well, you find that the stock market really is not really the place where you generate very, very high returns. And this again is like, it's one of the reasons why I focus so much on human capital in the book and investing in yourself. And I literally, I wrote a whole section in the book about how investing in yourself is the absolute best investment you can make because that's the thing where you can act.”
2022-10-23 · We Study Billionaires · TIP486: Macro Investing w/ Cullen Roche · IDENTIFIED FROM THE TRANSCRIPT
“To understand that on average, the likelihood of your home making you rich in an investment sense is a very, very different endeavor than, say, starting a corporation, which that has the potential, or even I like to talk in the book a lot about human capital, building skills, investing in yourself in a way that has a very, very high return on investment. To me, those are the things that have the very, very best investments, whereas a lot of the traditional stuff we think of buying and selling on secondary markets, they tend to not be as good of an investment or not even properly termed investment the way that I think a lot of people frame them.”
2022-10-23 · We Study Billionaires · TIP486: Macro Investing w/ Cullen Roche · IDENTIFIED FROM THE TRANSCRIPT
“30 years later, I sold it for $600,000. And so I made this fabulous return on investment. And you forget the fact that, well, yeah, but you paid a boatload in taxes over that period of time. And you went to Home Depot a billion times to repair stuff that was falling apart. And so when you actually go in and, you know, and then adjust for inflation during all of this and what you find out is that real estate historically has only generated about a 1, maybe 2% real real return. And so, you know, there are certainly periods where, you know, you could time the market well. Like if you bought real estate back in 2012 or let's say like right before the COVID boom, well, you did really, really well. But if you're somebody who bought it in 2006, like your story could be completely different. And so it's not that you can't make money in real estate. It's that I think you have”
2022-10-23 · We Study Billionaires · TIP486: Macro Investing w/ Cullen Roche · IDENTIFIED FROM THE TRANSCRIPT
“What I call real, real returns in the book, which is basically that you're after tax, after fee, after inflation return, what you find is that real estate for your average homeowner is actually not that great of an investment because they don't actually quantify all of the real, real after return that they incur over time. And so most people don't think of, you know, all the time they spent pulling weeds and hey, the water heater broke 10 times while I lived in the house or whatever it is, you know. There are all of these real costs involved in owning a home that people tend not to actually quantify when they sell their home. And that tends to be the way that most people think of their return on investment in a real estate purchase is that they say, oh, well, I bought my house for $200,000. And then, you know,”
2022-10-23 · We Study Billionaires · TIP486: Macro Investing w/ Cullen Roche · IDENTIFIED FROM THE TRANSCRIPT
“I know. I get a ton of hate mail from mortgage brokers and real estate people when I say that because real estate obviously has made, I mean, arguably more people wealthy in this country than any other asset. And what I'm being specific with there is that I'm not saying that a house can't be an income generating type of instrument.”
2022-10-23 · We Study Billionaires · TIP486: Macro Investing w/ Cullen Roche · IDENTIFIED FROM THE TRANSCRIPT
“A long term instrument into a short term instrument by day trading because by definition you can't turn a you can't turn a 10-year bond into a one-year bond. That 10-year bond is it's always going to function like a 10-year bond.”
2022-10-23 · We Study Billionaires · TIP486: Macro Investing w/ Cullen Roche · IDENTIFIED FROM THE TRANSCRIPT
“A downturn because you just need the liquidity. And so for me, there is no, you know, the biggest biases, I think, in investing is being too short-term and being too long term. And you can get caught in this trap of, you know, if you're a day trader, well, you're just highly biased by the short term in a lot of ways. If you're only a stocks for the long run type of thinker, well, you're biased in the long term and you're you haven't prepared yourself for the reality that, yeah, we live in the long term, but really life happens in the short term. And you have to plan your financial asset allocation in a way that it matches all of these different time horizons. So there is no one-stop shop sort of answer to this, whether it's stocks for the long run or thinking more short term and trying to turn”
2022-10-23 · We Study Billionaires · TIP486: Macro Investing w/ Cullen Roche · IDENTIFIED FROM THE TRANSCRIPT