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Cullen Roche

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

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“Like this, but I think the nice thing about it is that you can build a framework by which you can then apply time horizons to certain assets and compartmentalize them in a certain way where, yes, stocks are for the long run. Stocks are that 18-year instrument or whatever, but that doesn't mean that you should just buy and hold a portfolio of stocks because the problem there then is that you don't have short-term liquidity. You know, you find out in a year like this year that, hey, the stock market goes down 25%. You don't have liquidity inside of that part of your portfolio. The problem that a lot of people find themselves in in years like this is that they didn't plan for that in the future. And so before the bear market, they came in way overweight the stock market, for instance, and then they find themselves, if they need some liquidity, well, then you have to make the worst behavioral mistake you can, which is being a forced seller of stocks into”
2022-10-23 · We Study Billionaires · TIP486: Macro Investing w/ Cullen Roche · IDENTIFIED FROM THE TRANSCRIPT
“New set of bonds every year. And you don't care what's going on with interest rates, really. You're just systematically rolling this portfolio. But the beauty of it is that you always have a short-term bucket in there where you know the principal inside of that thing is very, very certain. And so to meet cash flow needs, the beauty of that is that you've created this systematic process by which even though you have much higher risk in the 10-year portion, you have much more certainty in the one-year instrument. And so what I did with this paper that's called All Duration Investing is I actually calculated the duration of all assets. I literally calculated the duration of things like gold and commodities and REITs and the stock market as an 18-year type of bond-like instrument inside of my model. And the nice thing about approaching this, this is all, I'm obviously doing a lot of guesswork inside of building a model.”
2022-10-23 · We Study Billionaires · TIP486: Macro Investing w/ Cullen Roche · IDENTIFIED FROM THE TRANSCRIPT
“We're not approaching the world of asset allocation from optimizing return per unit of risk in a sort of standard modern portfolio theory approach. We're approaching it more from the perspective of having money when needed and having money in certain time horizons so that you have greater certainty about your asset allocation and your future ability to meet certain liabilities. So I actually I've always loved like bond ladders and the beauty of a bond ladder is that if you have $100,000, well, what you do if you need a bond allocation is you take, let's say, 10% of all of that allocation and so you would take $10,000 and basically you bucketed it out from one to 10 year maturities in the bond portfolio. Every year you're going to have bonds that are maturing. You're just systematically rolling them over into”
2022-10-23 · We Study Billionaires · TIP486: Macro Investing w/ Cullen Roche · IDENTIFIED FROM THE TRANSCRIPT
“The other things you want in life. And so you have to, I think, not just approach this from this idea of buy and hold or stocks for the long run because a lot of people, frankly, we just can't afford to only own stocks for the long run because we have all of these short-term time horizons where, hey, it makes sense actually to own buckets of cash and even buckets of like, say, intermediate bonds or instruments that are more short-term. And it's interesting. I actually, my big focus, I would argue in the last year.”
2022-10-23 · We Study Billionaires · TIP486: Macro Investing w/ Cullen Roche · IDENTIFIED FROM THE TRANSCRIPT
“Anymore because of the crazy market that we're living in. But you plan your life across these very specific temporal horizons. And you have monthly liabilities or weekly liabilities that you have to meet, whether it's your credit card or your rent or your mortgage. And then you want to buy a car maybe in the next two years. You want to buy a house in the next five years. You're going to get married in 10 years. You're going to have kids after that and the kids are going to be grading with these huge college tuition bills in 18 years. And then you've got retirement that is way down the line. And then like you were alluding to, you have unknown health problems. And obviously healthcare is inordinately expensive now. And a lot of people can't predict, well, you know, what if you break a hip at 60 and it completely transforms your ability to afford all of”
2022-10-23 · We Study Billionaires · TIP486: Macro Investing w/ Cullen Roche · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, I mean, this is the problem of life. This is the problem of financial planning and finance, really, is time. And I think it's been frustrating for me over the course of my career that a lot of investment analysis focuses on how to generate the best type of return and the best risk adjusted type of return, but we don't really talk that much about generating the best risk adjuster return across time. And time is the biggest problem we're all confronting because we're obviously not only limited by time across our lives, but our lives occur in, like you were saying, these different time horizons. You're going to retire in 30 years or you're going to buy a house at some point in the next five years. Nobody can afford to buy a house.”
2022-10-23 · We Study Billionaires · TIP486: Macro Investing w/ Cullen Roche · IDENTIFIED FROM THE TRANSCRIPT
“The tendency that a lot of people have to think of all of this in this very sort of sexy, get rich, quick sort of mentality, which is what I think that's the mistake that a lot of people make when they approach the concept of investing and they're watching these financial TV shows that sort of sell the same concept of get rich quick and hey, you're going to buy the next Solana before it soars or you're going to buy the next Microsoft when it is at one penny and goes to a thousand dollars. And so I think even though it's a very technical understanding, I think it's a useful framework to really internalize so that you can approach this from, I think, a more practical foundation.”
2022-10-23 · We Study Billionaires · TIP486: Macro Investing w/ Cullen Roche · IDENTIFIED FROM THE TRANSCRIPT
“High risk, potentially high return endeavor, whereas most of us, we shouldn't be treating our savings like it is this concept of investing because I think it has this connotation of being a very high risk, high reward type of endeavor, which it certainly can be that. But I think for most of us, it would be wise to step back and say, well, I really am reallocating my savings and that is a much more prudent and practical process where I should hold some cash in a bank account to be able to meet my monthly liabilities. I should hold some money maybe in a high yield savings account in case I need to buy a new car in the next few years, but I'm uncertain of when I'm doing that. I should diversify my assets for retirement because I maybe don't know when I'm going to retire, but I know it's going to generally be in this sort of a time horizon. And so I think when you approach it from that, you get away from.”
2022-10-23 · We Study Billionaires · TIP486: Macro Investing w/ Cullen Roche · IDENTIFIED FROM THE TRANSCRIPT
“About the technicalities of the jargon. But to me, I actually think it's a really useful way of framing all of this because to a large degree, what we are quite literally doing when we buy and sell stocks is we are reallocating our savings. And this is literally, we earn an income and then we choose how we're going to reallocate that savings from that income into cash or stocks or bonds or these other instruments. And so from the retail investor's perspective, I think a lot of people have this tendency to think of investing from an economic perspective. It's sexy. It's very high risk. Go out and build a factory, start a company. Man, that is a very, very high risk endeavor. I mean, over the course of a 10-year period, 90% of corporations will fail. And so investment spending is a very, very”
2022-10-23 · We Study Billionaires · TIP486: Macro Investing w/ Cullen Roche · IDENTIFIED FROM THE TRANSCRIPT
“Meaning that when a firm invests well in itself, you know, when Apple builds all of these great innovations over time, well, that actually accrues to the value of savings because those investments have a return on investment that people find more valuable. It has real tangible economic value. And that's reflected in secondary markets as a revaluation of savings because Apple's stock price will change. But your actual actions of buying and selling the stocks for the most part really, I wouldn't say it has no impact, but to a large degree, it doesn't have much of an impact on the actual underlying operations of the firm. And so from a proper economic perspective, what we're all really doing is we're reallocating our savings. And the reason some people might hear that and say, oh, well, who cares? Like Cullen's just being a nerd.”
2022-10-23 · We Study Billionaires · TIP486: Macro Investing w/ Cullen Roche · IDENTIFIED FROM THE TRANSCRIPT
“Done by corporations. So when a corporation goes out and builds a factory, for instance, they are spending some of their money for future production. They are hoping to generate an asset that generates a return on investment in the future. And it's interesting from the perspective of your average retail investor, when we do what we call investing, well, what we're actually doing is we're technically just reallocating our savings. We are not building factories or in a lot of cases what you do on a secondary market when you're buying stocks and bonds has almost no impact on the actual corporate operations. And so you're really from a technical economics perspective, you're reallocating your savings when you do that. And what the firm does when they spend for investment, well, that can impact the value of the savings.”
2022-10-23 · We Study Billionaires · TIP486: Macro Investing w/ Cullen Roche · IDENTIFIED FROM THE TRANSCRIPT
“Whereas a new Keynesian economist would argue that gold is absolutely not money, that money is defined by, let's say, like the M2 money supplier or something like that. And then you can get into varying debates there where it's like, well, macroeconomists actually have different definitions of money where it's actually like it could be MZ or M1 or M2 or M3. And you start getting into this situation where it's like, well, wait, what the heck is money in the first place? We don't even have a clear definition of this thing. It's kind of an essential part of the whole puzzle here. And it was really interesting when I first started deep diving into this precise definition of the word investing. It is an explicit contradiction with the way that financial people typically use the word because in macro econ, the word investing means to spend for future production. And that's usually”
2022-10-23 · We Study Billionaires · TIP486: Macro Investing w/ Cullen Roche · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, so I always loved the, when I first came across from a macroeconomic, I mean, my background is really in college and a lot of my work coming out of college was really involved in just studying macroeconomics. And so very high level stuff. And macro econ to some degree is this sort of pseudoscience. And it's interesting when you compare it to the financial world, there is in the financial side of everything, there is a lot of jargon. There is a lot of terminology that is just sort of used, I think, more as a sales pitch than anything else. But this is also true in macroeconomics. For instance, the word money in macro doesn't really have very specific meanings. In fact, to certain schools of economics, it has a different meaning. I mean, like an Austrian economist would argue that gold is money.”
2022-10-23 · We Study Billionaires · TIP486: Macro Investing w/ Cullen Roche · IDENTIFIED FROM THE TRANSCRIPT
“To some degree. You could be playing against a horrible chess player, but if you're not interpreting their future moves, well, you could find yourself in a pretty rocky situation. So you've got to be able to think a few moves ahead to interpret, well, how is all this stuff going to work? And that's what makes investing such a tricky thing.”
2022-10-23 · We Study Billionaires · TIP486: Macro Investing w/ Cullen Roche · IDENTIFIED FROM THE TRANSCRIPT
“Had this strange psychological effect where there were frankly just a lot of people who were sitting around at home because of COVID with not a whole lot to do. And they did a lot of crazy stuff. You know, they bought a lot of these sort of scammy crypto coins or they ran up GameStop and AMC. And so that's the interesting thing is that I like to build these understandings from sort of a first principles perspective where you can understand the economic machine and the financial system as a sort of machine. But then there's this second order effect where you also have to also be a psychologist and learn some of the Kahneman and Taverski techniques where you're starting to think in sort of a second level thinking process where you almost have to, you can't just get the economics right. You also have to get the response mechanism right where it's like playing”
2022-10-23 · We Study Billionaires · TIP486: Macro Investing w/ Cullen Roche · IDENTIFIED FROM THE TRANSCRIPT
“Easing. Let's just say investors perceive that flow from the Fed to have impacted something. Well, you could have what is essentially an irrational effect that is just purely psychological. And I think this is one of the things that makes not just investing so hard, but it makes economics really hard because you have this social effect to it where economics is not really a hard science. It's not biological in the same sense that, you know, you can look at things, you can perform tests in chemistry and biology that you can't really perform in investing because you can get these irrational responses. And I think the last two or three years are just a great, great study in this where you can argue that in a lot of ways, there was no reason for a lot of the things to be going on that were happening in the last couple of years.”
2022-10-23 · We Study Billionaires · TIP486: Macro Investing w/ Cullen Roche · IDENTIFIED FROM THE TRANSCRIPT
“Through events that impact the system in a very machine-like manner. And the really tricky thing, though, with investing and the economy in general is that you have the problem of, well, there are brains involved in all of this. And so the brain has an impact on everything. There's emotions that impact all of this. The emotions impact all of this in a very, really unintelligible way. It's very, very hard to decipher how people will respond to certain things. So like you could have a really sound understanding of the flow effects of something like quantitative easing. But if somebody responds to that policy in an emotional way that maybe results in, say, them going out and buying like a bunch of high yield bonds, even though let's say let's argue that there is no practical reason for junk bonds or high yield bonds to have any different value after quantity.”
2022-10-23 · We Study Billionaires · TIP486: Macro Investing w/ Cullen Roche · IDENTIFIED FROM THE TRANSCRIPT
“Used earlier with the rivers when the Fed pumps water into the river for some reason, that flows through to lakes and it impacts not just the flow through the river, but it impacts the quantity of water that ends up in the lakes. And you can think of balance sheets as being the same sort of thing where income statements reflect the rivers and balance sheets are reflected by the lakes. And to understand how all of this is going to impact the balance sheets in the long run, you need to understand how the flows work. And so the human body is very similar in the sense that when we put certain things inside of our body that has a certain impact that flows through everything, it impacts all of the different organs and comes to rest to some degree in certain places and can result in weather or not muscle development occurs or whether cardiac arrest occurs or whatever it might be. But there are these very specific flows.”
2022-10-23 · We Study Billionaires · TIP486: Macro Investing w/ Cullen Roche · IDENTIFIED FROM THE TRANSCRIPT
“Well, in a lot of ways, Ray Dahlio had this great video. Was like 30 minutes. It was basically, I can't remember what the title of it. I think it was How the Economic Machine Works in 30 Minutes. And he went through really the way that the economic machine is a lot like any sort of machine that we might build. And the global economy really operate like a very interconnected system to a large degree. And there are things that when you, there are certain inputs that you can input into that system that will then output certain results, you know, like I try to focus on when I explain things like how, for instance, quantitative easing works. I like to explain it like this a systematic process where when the Federal Reserve is doing something specific, well, there is a flow through effect through balance sheets. And when you understand the balance sheets and the flows through that system, you can then understand kind of going back to the same sort of metaphor that we use.”
2022-10-23 · We Study Billionaires · TIP486: Macro Investing w/ Cullen Roche · IDENTIFIED FROM THE TRANSCRIPT
“Or anything like that, but I think that in today's world, I think that I like to think of stock picking as sort of someone who, if you're trying to pick the best swimmer who is swimming with the tide, well, you could certainly try to find like the Michael Phelps who is swimming in the river. Your goal. But to me, it's equally important to understand the dynamics of the river. The river is really the thing that is Is determining to a larger degree how fast all of these people will actually be swimming in the water. have to understand both but I think As a foundational starting point, I think it's incredibly useful to understand the macro dynamics so that you can at least get a big picture, a top-down view before then you start to then try to understand. What are the best individual securities in certain markets?”
2022-10-23 · We Study Billionaires · TIP486: Macro Investing w/ Cullen Roche · IDENTIFIED FROM THE TRANSCRIPT
“Real truth to these rumors there, but the reality is that the Federal Reserve could end up having to be involved in this because the banks in Europe are now very interconnected with the banks in the United States. And that could create an international payment processing problem where the policymakers in the United States, through almost no choice of their own, have to become involved. And all of this stuff is just the result of the interconnectedness of the global macroeconomy now where Global Technology have made us much more interconnected. Certainly don't want to give the impression that people should not. Individual security analysis.”
2022-10-23 · We Study Billionaires · TIP486: Macro Investing w/ Cullen Roche · IDENTIFIED FROM THE TRANSCRIPT
“How valuable it was relative to all the other stores in Omaha, whereas today, if you see a store in Omaha that makes candy, well, you have to identify whether that store can compete with stores in New York and Hong Kong and London. And so the world has become this very, very small place, in large part because of technology and just Innovations that have made intercontinental trade and international trade just huge thing where the world is now so interconnected that macro has become much more important and i think that The main place where we see this is in government policy. Government policy has become much more involved in everything, in part because of all of the same trends. For instance, there are rumors today about over the weekend that Deutsche Bank and Credit Suites are starting to have some financial problems. There's”
2022-10-23 · We Study Billionaires · TIP486: Macro Investing w/ Cullen Roche · IDENTIFIED FROM THE TRANSCRIPT
“Different factors and more macro based, I think, perspectives like I would argue that the typical passive investor these days is really a macro investing approach. You're just taking sort of an approach where you buy Lots of stuff rather than trying to pick. The needle in the haystack I think a big part of why that evolution has occurred is because the world is just very, very different than it was in the days of Buffett, not only just in terms of The way information is processed and transferred so much more quickly and efficiently in the markets. The world has become a much smaller place these days where back in the days where Buffett Was picking stocks, I think you could argue that the economy, and especially economies like the United States, they were much more localized. You could look at a candy store in Omaha. And”
2022-10-23 · We Study Billionaires · TIP486: Macro Investing w/ Cullen Roche · IDENTIFIED FROM THE TRANSCRIPT
“The previous ones before Berkshire Hathaway. So he has a lot of people don't know this, but he wrote an annual letter for Buffett LP for, I don't know, 10 or 15 years. And some of those letters are way more interesting than the actual ones that we read from that are on like the listed Berkshire website. But you can find all these online. There's so much knowledge and understanding inside of all of these letters. And that's part of why his annual shareholder meeting is so popular, because you get these nuggets of wisdom that you can find one paragraph in these things that is just mind-blowingly intelligent and will sort of build on or transform the way you view the world. But I think that, you know, one of the things that is really interesting about looking through Buffett's career Transition of value investing into”
2022-10-23 · We Study Billionaires · TIP486: Macro Investing w/ Cullen Roche · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, so it's interesting. My evolution as an investor, I would say, it certainly started with Graham and Dodd and value investing in Warren Buffett, really. I mean, reading Buffett's annual letters, in my opinion, is probably one of the most valuable things you could do. And go back and find, I've actually archived these on my website, Pragmatic Capitalism, go back and read the archived ones of his”
2022-10-23 · We Study Billionaires · TIP486: Macro Investing w/ Cullen Roche · IDENTIFIED FROM THE TRANSCRIPT