YouSaid · the spoken record

Dr. Ben Hunt

lines on the record: 74
first: 2018-01-23
most recent: 2018-01-23
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

“What's going to make markets tick either overall or in his sector or what have you? It's kind of the great man theory of investment, which I would argue has really dominated so much of our structure, the business structure of how this industry has come along. What we've tried to do at Salin, I think, is very different. And instead of thinking of that pyramidal structure to think instead of a hub and spoke, almost a wheel model, where at the hub, not at the top of a pyramid, but there in the hub is someone like me who's actually managed money for a living, who knows intimately how hard it is to manage other people's money. But there not to give you the answer with a capital T and a capital A, but to be a coach, really.”
2018-01-23 · Invest Like the Best · Dr. Ben Hunt - The Three-Body Portfolio - [Invest Like the Best, EP.73] · IDENTIFIED FROM THE TRANSCRIPT · source
“This goofy world. I love this question because what we've tried to do in the firm Is an extension of what I just described about being profoundly agnostic about the world. And what do I mean by that? What I mean is that I would say the typical structure of whether it's an asset manager or a hedge fund tends to be pretty hierarchical, pretty pyramidal, let's say, where at the top you've got the chief investment officer or the head of the firm, the portfolio manager, the guy who has the view and the answer who has in the back of his head an algorithm.”
2018-01-23 · Invest Like the Best · Dr. Ben Hunt - The Three-Body Portfolio - [Invest Like the Best, EP.73] · IDENTIFIED FROM THE TRANSCRIPT · source
“Two levered or too weighted to any one thing that gets tagged at any one moment in time. Anyway, that was a long-winded answer to the fact that I know exactly where you're coming from and I used to share that view. But then getting immersed in it and finding, well, how actually dynamic these portfolios are, it really brought me around, particularly when combined with just the fact that since March of 2009, so many of our algorithms, our foundational views on how one should invest. Haven't worked. And I think that taking this perspective of profound agnosticism, it does lend oneself, at least for the beta component of your portfolio, to thinking in terms of a risk-balanced or risk parity is maybe an extreme version of that, but a risk-balanced approach.”
2018-01-23 · Invest Like the Best · Dr. Ben Hunt - The Three-Body Portfolio - [Invest Like the Best, EP.73] · IDENTIFIED FROM THE TRANSCRIPT · source
“Is what kind of turned me around, at least, to see that, well, actually, still for harvesting beta, these do an incredibly good job. I'll take one more point at this. Your need to lever up that one bucket is accentuated if all you're doing is stocks and bonds. So to the degree that you are looking at things like commodities, that you are looking at credit, that you're looking at like say four buckets, to the degree that you're also, again, subdividing each of those buckets into different geographies and factors and classes. All of that really helps in terms of getting”
2018-01-23 · Invest Like the Best · Dr. Ben Hunt - The Three-Body Portfolio - [Invest Like the Best, EP.73] · IDENTIFIED FROM THE TRANSCRIPT · source
“Your portfolio is going to take a significant hit, and it does. But, and this is the critical thing, there is the adjustment mechanism. These are dynamic portfolios, meaning that Don't do it on a daily basis, but they do adjust You were telling me that we were taking static allocations to stocks, bonds, commodities, and credit, and that we're saying, okay, here's our allocation, here's our static, you know, we're going to have to lever up bonds to get the curve of all we need in this. And by God, that's our allocation for the year or what have you. Yeah, that'd be a mess. But these barges, they move and they can move quickly enough and carry enough weight so that If we take anything other than a monthly time horizon or the like, they really do adjust themselves quite well. And so the dynamic nature of these strategies”
2018-01-23 · Invest Like the Best · Dr. Ben Hunt - The Three-Body Portfolio - [Invest Like the Best, EP.73] · IDENTIFIED FROM THE TRANSCRIPT · source
“First, these risk allocations are, I'll call them barge-like as opposed to motorboat-like, meaning that the other criticism you typically hear is that, oh, well, these will be, if there's a down market, that the selling pressure from these funds as they seek to rebalance, well, that will just accentuate the crash down. And it just makes the cyclical movements that much more accentuated. That would be true if they were rebalancing and making these big shifts intraday or on a daily basis. They're not. These are typically, like I say, barges that change these risk allocations to these large asset classes pretty slowly. But then that gets to that point that I had earlier, which was that, well, Gosh, if you're allocated to bonds in a levered sort of way and you get something like the taper tantrum and those bond prices really go down, well,”
2018-01-23 · Invest Like the Best · Dr. Ben Hunt - The Three-Body Portfolio - [Invest Like the Best, EP.73] · IDENTIFIED FROM THE TRANSCRIPT · source
“Which is what really got hurt in the taper tantrum. You can think of equities as another bucket. You can think of corporate credit as a third and commodities as a fourth. Now then importantly within each of those buckets, you also want to have that agnostic view in terms of geography. So in equities, you're looking at a developed markets, emerging markets, you want to have diversification within there or markets that aren't strongly correlated to each other. So it's turtles all the way down. You're divving in, you're getting smaller buckets within each of those buckets. But your main point is that is the standard, I'll say, critique. And it's exactly the place where I started approaching this. What I didn't appreciate until I got immersed in the managers who actually implement these sort of strategies, two things.”
2018-01-23 · Invest Like the Best · Dr. Ben Hunt - The Three-Body Portfolio - [Invest Like the Best, EP.73] · IDENTIFIED FROM THE TRANSCRIPT · source
“You know, before I joined Salient, that was exactly my view. And one of the first episodes theory pieces I ever wrote was frankly a critique of risk parity strategies. It was right when the taper tantrum was occurring, which was a bad month, it was a bad time for risk parity strategies because think about it, bonds tend to have a much lower volatility than stocks. So if you're trying to have an equal bucket of risk, you're going to have to lever up that bond bucket to get the same level of risk that you would historically have seen in your stock bucket or your commodity bucket or your credit bucket, your corporate credit bucket, which is, I like to think of those as being the four buckets, right? So we can think of rates or government bonds as being that one bucket.”
2018-01-23 · Invest Like the Best · Dr. Ben Hunt - The Three-Body Portfolio - [Invest Like the Best, EP.73] · IDENTIFIED FROM THE TRANSCRIPT · source
“My answer is yes, I want all of them and I want to have a profoundly agnostic view of how I should weight them. To me, I think that for an investor or an allocator who's looking to take what the world gives you, which is what we're looking for with beta. You want to take what the world gets you, and you want to take it as a cost-effective way as you can. I think that these risk balancing strategies of which risparity is a kind of specific form of that. I think that is how one copes with and adapts with the three-body problem, the fact that in this environment our old moorings don't seem to have a lot of purchase and may never again”
2018-01-23 · Invest Like the Best · Dr. Ben Hunt - The Three-Body Portfolio - [Invest Like the Best, EP.73] · IDENTIFIED FROM THE TRANSCRIPT · source
“This again, what I call a profoundly agnostic approach of I don't know what asset classes are going to work. I don't know what geographies are going to work because I don't trust the algorithms that I've had in my head about what factors work and what factors don't work. Instead, I'm going to take exposure to all of them, at least so long as they are truly diversified, that they're not just correlated one-to-one with each other. independently active factors, whether that's a traditional investment factors or whether it's a geography or whether it's asset class.”
2018-01-23 · Invest Like the Best · Dr. Ben Hunt - The Three-Body Portfolio - [Invest Like the Best, EP.73] · IDENTIFIED FROM THE TRANSCRIPT · source
“That's exactly right. And I think that is the correct way to do it. I think that's the intellectually honest thing to do, that your stripes, your DNA as an investor aren't Which actually I think lends itself to a more systematic approach, this notion of profound agnosticism, which I think really finds its home in terms of how do you operationalize that with what goes under the name of risk parity. But more broadly speaking is the notion of having a risk or volatility budget for the assets you take and having it programmed into your investment strategy that you're going to adjust your portfolio. You're going to adapt to your portfolio, not on your views of what algorithms you've got in the back of your head about what should work, but really mechanistically based on, well, what does work, that as risk goes up in this asset class or that, you reduce your exposure, as risk goes down, you're going to increase your exposure so that you're taking”
2018-01-23 · Invest Like the Best · Dr. Ben Hunt - The Three-Body Portfolio - [Invest Like the Best, EP.73] · IDENTIFIED FROM THE TRANSCRIPT · source
“You know, but I want to push back a little bit on that a little bit because, yes, all investors, all professional investors should be able to adapt to changing circumstances. But what I also think is so critically important is that as a professional investor, you have to know yourself. You have to know what makes you tick. I'll mix a lot of metaphors here. An investor can't change his or her stripes. I think it's almost always a mistake to do that. And so instead of adapting what I think you've seen in so many cases, is investors who do know themselves. They say, you know, it's not working.”
2018-01-23 · Invest Like the Best · Dr. Ben Hunt - The Three-Body Portfolio - [Invest Like the Best, EP.73] · IDENTIFIED FROM THE TRANSCRIPT · source
“You see it in the protein, not just in the US, but globally. Secular growth becomes incredibly rare. And so that's what becomes rewarded by the market. That's what I think explains that growth value dynamic. And again, it's all predicated on this notion that this huge gravitational force of $20 trillion worth of propping up of markets, of buying financial assets, it don't care about any of this stuff. And so it has real world impacts of reducing risk taking and putting a premium on secular growth. And it has a real world impact, well, a financial world impact of value sucking wind for a long time now.”
2018-01-23 · Invest Like the Best · Dr. Ben Hunt - The Three-Body Portfolio - [Invest Like the Best, EP.73] · IDENTIFIED FROM THE TRANSCRIPT · source
“It reduces risk taking in the real economy. And this is exactly what we've seen with the mystery of productivity flatlining and declining is exactly what we've seen with the mystery of companies not spending money on growth CapEx, on plant and equipment and wages to grow their efforts. Why would you take that risk, your IBM? Why would you take the risk of actually taking the risky action of investing in new plant and equipment, a new idea, a new business line when you can deliver earnings growth, when you can deliver return for your shareholders through purchasing revenue, stock buybacks, and increased dividends through financial mechanics rather than real world risk-taking? So in that sort of world, and you see it in our GDP number,”
2018-01-23 · Invest Like the Best · Dr. Ben Hunt - The Three-Body Portfolio - [Invest Like the Best, EP.73] · IDENTIFIED FROM THE TRANSCRIPT · source
“Here's exactly what I think. What I think is that secular growth in a world where central banks are lifting all boats, secular growth is the rarest thing in the world. And so that commands a premium. Why does growth command a premium overvalue? Because growth has been so rare in this world. Because the other side of the coin of central banks, monetary policy, forcing greater risk in the markets is to reduce risk taking in the real economy.”
2018-01-23 · Invest Like the Best · Dr. Ben Hunt - The Three-Body Portfolio - [Invest Like the Best, EP.73] · IDENTIFIED FROM THE TRANSCRIPT · source
“Your point about the price you pay always matters. We're going to reduce the yield. We're going to push down your expected return on what you pay for those U.S. Treasuries to force you to get into a riskier asset. Maybe it's mortgage-backed securities. And for those people who are in mortgage-backed securities, we're going to force you into high yield. And if you're in high yield, we're going to force you to go farther out that risk curve and get into equities. And if you're in equities and you're doing safe stuff, we're going to try to force you into doing riskier stuff. It's pushing every investor farther out on that risk curve than they would otherwise prefer to be. Again, that's not conspiracy. That's not hidden. That is the overt, that is the written purpose of large-scale asset purchases.”
2018-01-23 · Invest Like the Best · Dr. Ben Hunt - The Three-Body Portfolio - [Invest Like the Best, EP.73] · IDENTIFIED FROM THE TRANSCRIPT · source
“Because the gravitational pull of central bank purchases has no impact on value and had no impact on quality. In fact, if it has any sort of gravitational impact, it's got an inverse impact. Why? Because the purpose of these large-scale asset prices is not to reward good companies or value-oriented investors or companies with intrinsic value. The entire purpose of large-scale asset purchases, and this isn't conspiracy theory stuff, this is what Bernanke and Yellen say, right? This is the canon, the large-scale asset purchases are there to force all investors to go farther out on the risk-reward curve than they would otherwise prefer to be. So if you are a U.S. Treasury investor, that's your thing, we're going to To push up the price”
2018-01-23 · Invest Like the Best · Dr. Ben Hunt - The Three-Body Portfolio - [Invest Like the Best, EP.73] · IDENTIFIED FROM THE TRANSCRIPT · source
“Right, right, r Think that's all of ours, it's probably the most pervasive fundamental view of investment, I think, that all of us have.”
2018-01-23 · Invest Like the Best · Dr. Ben Hunt - The Three-Body Portfolio - [Invest Like the Best, EP.73] · IDENTIFIED FROM THE TRANSCRIPT · source
“This isn't going to go away. You can't unring that bell. It's not like they're going to say, oops, sorry, let's sell everything. And, oh, gosh, we're never going to do that again. No, this is a new gravitational body in our world of investment for better or for worse and to wax and to wane forever and ever. Amen. And so what that means is that I think we have to question all of our fundamental views about investing. The big question is, well, where does that end up? Is there a fundamental view of investment? And I come up with something that, again, it's kind of really hard to wrap your head around. Profound doubt that any of our algorithms, any of our fundamental views are true with a capital T and other than, I'll say kind of exceptional local circumstances.”
2018-01-23 · Invest Like the Best · Dr. Ben Hunt - The Three-Body Portfolio - [Invest Like the Best, EP.73] · IDENTIFIED FROM THE TRANSCRIPT · source
“Buying $20 trillion worth of stuff out of thin air. That's what Jim Grant likes to call about the Swiss National Bank, you know, out of the thin alpine air. It's a great phrase. What does that mean for our traditional algorithms and views of what makes a stock work? And what the three-body problem tells us is that it changes it forever, and it changes it in a way that I know you'd like to say that oh, things will go back to normal where quality matters or value matters under these conditions, where our algorithms work again. But the fact, the scientific fact is that ain't so, or it might not be so, and we need to understand, well, what does that mean for all of our fundamental views of investing if, in fact, the existence of central banks by”
2018-01-23 · Invest Like the Best · Dr. Ben Hunt - The Three-Body Portfolio - [Invest Like the Best, EP.73] · IDENTIFIED FROM THE TRANSCRIPT · source
“That the starting conditions you can really end up anywhere. It's not governed by a two-body problem where you've got something orbiting around something else. They keep messing each other up three bodies in space such that there is no formula to ever predict this. And so what's really hard about that for humans is to think, well, Wait a second. Actually, three body or multi body problems are kind of the rule in space, not the exception. What if that's true for some of our human systems also, like investing? What does it mean that a new star appeared with massive gravity in the form of central banks?”
2018-01-23 · Invest Like the Best · Dr. Ben Hunt - The Three-Body Portfolio - [Invest Like the Best, EP.73] · IDENTIFIED FROM THE TRANSCRIPT · source
“Exactly where they are, you know how fast they're moving, and you know how they act on each other. And what Poincar ⁇ proved was that, and this is crazy talk, there is no algorithm. There is no algorithm. There is no formula that you can plug in all those starting conditions and turn the crank and say ten minutes later or ten years later, here's where all those objects will be. It does not exist. And that's such a hard thing to wrap one's head around. And you can, if you see pictures of it, you can kind of imagine it. But what it's really saying is that these are, we can use the term like a chaotic system or the like, which is kind of right, maybe not quite right, but for our purposes right enough. So the three-body problem is simply that when you've got these three entities, there is no formula because it”
2018-01-23 · Invest Like the Best · Dr. Ben Hunt - The Three-Body Portfolio - [Invest Like the Best, EP.73] · IDENTIFIED FROM THE TRANSCRIPT · source
“Investor or a momentum guy or a quant or a whatever you are in the back of your head, you've got a collection of algorithms for how you make sense of the investing world And what Huangwei was trying to wrestle with was one of these classic problems of geometry. He was a geometry nut. And it's related to physics and the three-body problem really takes a problem from physics, which is to imagine you've got you're in outer space and you've got three planets or stars or what have you, three massive bodies. You know exactly how they interact with each other. Gravity. And you know the laws of gravity. And that's all that acts there. There's no drag from atmosphere. It's just a pure calculation of here's where these different three objects are, you know, exactly how gravity works. Now the question is, what's the formula? What's the algorithm to say where those three bodies will be 10 minutes from now or an hour from now? And again, you know everything about these three bodies.”
2018-01-23 · Invest Like the Best · Dr. Ben Hunt - The Three-Body Portfolio - [Invest Like the Best, EP.73] · IDENTIFIED FROM THE TRANSCRIPT · source
“An old problem in physics, and it refers to Henri Poincar ⁇, who was one of the geniuses of mathematics of the last millennium. And in the 1800s, He was trying to figure out is this well, back up a second. What he's interested in, this is going to be your connection to bees and actually I think to humans and investing and to your original question of what's your fundamental idea about investing. He was wrestling with this question of algorithms, which is a formula, which is a process that you can apply over and over again where you put in your values and you turn the crank of the algorithm and it gives you an answer. What I will tell you is that whether it's human beings and the way we construct our societies and our markets, whether it's bees and the way they construct their hives and the way that they search for honey or search for pollen and make nectar and make honey, they're all dominated by these algorithms, which are just our simple formulas for making sense of the world. And in my experience that whether you're a value investor or a growth,”
2018-01-23 · Invest Like the Best · Dr. Ben Hunt - The Three-Body Portfolio - [Invest Like the Best, EP.73] · IDENTIFIED FROM THE TRANSCRIPT · source