YouSaid · the spoken record

Wes Gray

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75
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2017-07-25
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2017-07-25
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  1. “Always post about how many you could have this 10 year underperformance happens all the time. Almost Captain Register style. Like be nice by being mean. Explain why this sucks so bad, why this is so terrible, why you shouldn't do this, and why this is inevitably terrible idea. And if you still come through my traps and all my hazexes and you're still willing to be stand at this door, now you at least got a small chance of being successful, but a small chance is better than zero. And I haven't figured it out, but I think of all of us could figure this out in a small scale because we get too good at it, we end up screwing up our own trade. And then we got to go be like everyone else. But in the short run here, if we could do that, we'd probably have a huge win on our hands.”

    2017-07-25 · Invest Like the Best · Wes Gray - Compound Your Face Off - [Invest Like the Best, EP.47] · IDENTIFIED FROM THE TRANSCRIPT · source

  2. “I think a lot of Marines that went through that platoon train with that guy are alive today because he actually kicked our ass so hard that it was actually ironically like a really kind thing because he wasn't trying to be your friend he was trying to what we learned after fact basically make you really good at your job and I just thought that was really nice of the guy to be honest for kicking my ass which is kind of a weird nice thing”

    2017-07-25 · Invest Like the Best · Wes Gray - Compound Your Face Off - [Invest Like the Best, EP.47] · IDENTIFIED FROM THE TRANSCRIPT · source

  3. “Was there for a reason, but he was totally insane as far as his warrior monk just we're going to dement you. It's almost like you guys are like Vikings. Like that was his mentality, but we're all still kind of like living the 21st century. But his harshness, which at the time, because I was a total buyer on that, I personally was into it and I hated it at the same time. And the reason I say it was the kindest thing is because I really felt he made us so freaking hard and so intense that like when you actually did the real thing, you never had to even breach in the system one. I was always in system two, even in combat zones, like IED, whatever, dude. We're just doing SOPs. And I say it's the kindest thing because I just feel like that's a good reason why not just me.”

    2017-07-25 · Invest Like the Best · Wes Gray - Compound Your Face Off - [Invest Like the Best, EP.47] · IDENTIFIED FROM THE TRANSCRIPT · source

  4. “I would be remiss if I didn't mention the standards. My mom and my parents, obviously they did good there, but that's cheesy because everyone says that even though it's true, you know, my wife for dealing with me and having my three kids, so those are all the standards. But I'm going to have to do another military one. But again, it's going to sound weird. And unfortunately, again, it's going to go back to IOC infantry officer course. But we had this guy there. I'll never forget him, Captain Redinger. And he was the captain in charge of running IOC. And at the time, this is kind of serious because people are getting pulled out of IOC to go in country combat. So it was like pretty hardcore time. And this guy was like the hardest, meanest, biggest asshole like on the planet. You're like, like, just a straight up not, I want to call it Hazex. Everything in the end, I realized after the fact.”

    2017-07-25 · Invest Like the Best · Wes Gray - Compound Your Face Off - [Invest Like the Best, EP.47] · IDENTIFIED FROM THE TRANSCRIPT · source

  5. “But in BL finally have that done was like my happiest, best moment of my life in the Marine Corps. So it's kind of a weird one, but it's just in my mind. Now, as far as investing, well, I'll tell you that one too has nothing to do with quant. It has to do when part of my freaking capital loss I still got to write on my books is, you know, I used to be totally crazy, like put like Buffett style 50% in some penny stock where I thought I had some sort of inside edge or something. And I'm not going to even name the names because it's so embarrassing. So it was this penny stock. I own like 4.99, so I didn't have to file on it. But that doesn't mean I was rich. It means it was like... Yeah, it's just, I don't do it anymore. Only computers.”

    2017-07-25 · Invest Like the Best · Wes Gray - Compound Your Face Off - [Invest Like the Best, EP.47] · IDENTIFIED FROM THE TRANSCRIPT · source

  6. “Okay, so in military, I mean, this is because I still remember this. It sounds kind of cheesy, but the MSH officer course, which is like basically a Hazex, I got put in charge of the platoon commander. We had to do an exercise at Bridgeport, and it was literally, I didn't sleep for five days straight. And we did this, what do they call it, administrative march out of there? And I literally couldn't, I was, I never not slept for like four or five days straight and never ate. And I remember getting on that seven ton at the end of that and thinking, I just think God for water, like just being alive and not having to deal with that bullshit anymore. And I'll just never forget that this is like the best day of my life. Can I just sit down and close my eyes and like have some water? And I just remember that versus combat things, like training, that one little training episode.”

    2017-07-25 · Invest Like the Best · Wes Gray - Compound Your Face Off - [Invest Like the Best, EP.47] · IDENTIFIED FROM THE TRANSCRIPT · source

  7. “Yeah, exactly. We'll all figure it out that 60 40 was stupid over the next 30 years and 30 years from now, but we'll see what they cook up next.”

    2017-07-25 · Invest Like the Best · Wes Gray - Compound Your Face Off - [Invest Like the Best, EP.47] · IDENTIFIED FROM THE TRANSCRIPT · source

  8. “Yeah, be affordable and know what you're buying. You got to make one other point to give a shout out to the actual investors resolve guys. They make a good point about, okay, the stock selection thing is one element, but when everyone's buying these passive Vanguard funds, the theory of all this is the global market portfolio. And ASAL active ass allocation decisions a lot of times have way bigger portfolio effects than whether I pick best buyer or whatever. And people can buy S&P, but that is so divergent from the passive global market portfolio. So you are taking an insanely active bet through what looked feels passive in what you're being told is, oh, all the smart guys are competing away, but not really, because you're not the global market portfolio. You actually have massive epically huge active bets in that portfolio. They're really cheap, but they're super active. And they don't even know about it.”

    2017-07-25 · Invest Like the Best · Wes Gray - Compound Your Face Off - [Invest Like the Best, EP.47] · IDENTIFIED FROM THE TRANSCRIPT · source

  9. “The world where that's ever ended well. And I honestly don't know how it's going to end, but I know it's not going to end well. And again, I'm not smart enough to figure out. I don't think anybody is, but we don't know where the bubble is going to pop out. But you just, again, you can't have some people perceiving something that works all the time, that has zero cost and comes in infinite supply where that's just all we're going to do because that's the best thing and tell me that that sort of mentality is a mentality that leads to good macroequilibrium outcomes. It doesn't. That's not to say passive's not bad. All the theories are not correct, but they always hinge on assumption that this is permanently deployed capital that essentially took all that stock off the market. So now it's just me and you like dicking around over the active scraps.”

    2017-07-25 · Invest Like the Best · Wes Gray - Compound Your Face Off - [Invest Like the Best, EP.47] · IDENTIFIED FROM THE TRANSCRIPT · source

  10. “Your permanent allocation, let all these fancy smart guys compete with each other. That's not how it's couched. Look at this study of active managers, passive beats 95% of them, and most of the frame that I've heard is you'd use passive to beat the active guys. It's not you use passive as a portfolio tool to capture the average very efficiently. It's you use passive to beat these active guys. So it's being couched again as a performance chasing vehicle and the best way to invest because it gives you the best returns or whatever the thing is. But I just think that if you have tons of money chasing what seems to be always winning with infinite supply and if you don't do it you're an idiot and we're going to stop paying attention to anything else. I don't know of any macroequilibrium in the history of”

    2017-07-25 · Invest Like the Best · Wes Gray - Compound Your Face Off - [Invest Like the Best, EP.47] · IDENTIFIED FROM THE TRANSCRIPT · source

  11. “So here's what I'd say. So, everyone knows the whole sharp math, right? So to the extent that money goes into the market portfolio and essentially takes that supply out because it doesn't trade it and it's permanent, all these arguments go through. The minute you have people investing in passive stuff and then actively day trading it, all that math is totally out the window. If you could tell me with the straight face that this whole movement to passive is this is permanent capital that's going to hold this trade for 50 years and this really isn't essentially another short-term performance chasing thing. I'd say you're probably crazy. Because if you look at a lot of the way this is couched, passive investing, the way it should be couched is don't buy the bullshit, get low cost beta that's tax efficient.”

    2017-07-25 · Invest Like the Best · Wes Gray - Compound Your Face Off - [Invest Like the Best, EP.47] · IDENTIFIED FROM THE TRANSCRIPT · source

  12. “And I know who the idiot is. I can be like, oh wow, now's my opportunity because I see that smart guy who I'll never be his constraints. I can find some edge in that middle ground, which is things where he can't exploit because of some structural problem. And to your point, the more hands are in the pot, i.e. the more careers that get involved, the more principal agent conflicts that are created. And we're no longer in a game of after fee after tax compounding our faces off for 20 years. We've got other incentives.”

    2017-07-25 · Invest Like the Best · Wes Gray - Compound Your Face Off - [Invest Like the Best, EP.47] · IDENTIFIED FROM THE TRANSCRIPT · source

  13. “And there's, yeah, as you know, there's a lot of Pat actually, our CCO had a great analogy on the poker game. Whereas if you go to a poker table, you know, Buffett's always like, hey, if you don't know who the Patsy is, well, it's screwed because you're the Patsy. But that's not enough. You also got to know who the best poker players are. Because if you go in, you're like, all right, that's the idiot over there. We're going to exploit him. But you don't recognize there's someone 50 times smarter. You're also going to lose to him and you're still a loser. And so the issue is you got to go on these games. You got to go, okay, who's the Patsy? Roger that. Who's the biggest brand in the world? Roger that. I have no edge at this game. However, that biggest brain over there has 50 people that have given him money and they've put saddled him with like 50 constraints.”

    2017-07-25 · Invest Like the Best · Wes Gray - Compound Your Face Off - [Invest Like the Best, EP.47] · IDENTIFIED FROM THE TRANSCRIPT · source

  14. “The intermediary world's heart because of the Schaeffer Vishnu problem. Whereas we've always been direct consumer because you can go to a rich guy who owns that capital and he's like, well, yeah, I get. I don't have a principal agent problem because I am the principal and agent, man. I'm not good. This is my money. I want to compound. I'm not worried about my career here.”

    2017-07-25 · Invest Like the Best · Wes Gray - Compound Your Face Off - [Invest Like the Best, EP.47] · IDENTIFIED FROM THE TRANSCRIPT · source

  15. “It's a segment, but there is a segment of advisors out there, like we're talking about the DFA advisors who are super hyper focused on process, you know, client education, and they've, you know, they were in the small value trade. Talk about a hair raiser, and they did it. So there's a segment of advisors out there who work on behalf of clients where they've figured out a mojo and a symbiotic relationship there where the intermediary is really smart, but their clients through that intermediary and that relationship they've built over the years are able to basically be sustainable capital, you think. And we're building fintech tools to help them be successful.”

    2017-07-25 · Invest Like the Best · Wes Gray - Compound Your Face Off - [Invest Like the Best, EP.47] · IDENTIFIED FROM THE TRANSCRIPT · source

  16. “Not going to complain. We're going to be like double thumbs up. This is the right person. And then also structurally able to play the game. Because if you're an intermediary that totally gets us, but you have clients that totally don't get it, you also break the chain, which is what we were talking about beforehand as we're starting to get more and more intermediary channel.”

    2017-07-25 · Invest Like the Best · Wes Gray - Compound Your Face Off - [Invest Like the Best, EP.47] · IDENTIFIED FROM THE TRANSCRIPT · source

  17. “Owner mentality, public CEOs or public ownership, just inevitably you get in the quarterly mentality. And it's just the world. If you talk to private business owners, they're always thinking 10, 20 years. It's just their culture. They're cheap bastards because they usually started this company. They understand do more with less, understand what's the value proposition before I buy it, what's the process. They're just very methodical on wanting control, wanting to understand and want to be cognizant of like the fees and who they're dealing with. So we just attract people like that, which means we're not in a hot money game. We're in like the two, three years of figuring all this out, how you guys work and but that's fine. We don't want hot money because it'll come in and be out the next day. Like we want people to understand what they're doing, why we're doing it. And if you want to ask 500 questions, we're”

    2017-07-25 · Invest Like the Best · Wes Gray - Compound Your Face Off - [Invest Like the Best, EP.47] · IDENTIFIED FROM THE TRANSCRIPT · source

  18. “There are common traits, at least for the folks we deal with. So we have this acronym called Educated, which stands for a bunch of stuff. But basically, the best way to think about it is engineer types that are very like process driven don't trust anybody like these Wall Street clowns. I'm smarter than them because I went to electrical engineering where they were like marketing guys chasing the girls. I know I can figure out what they're figuring out. I want to understand this process. And yeah, I understand I can't actually do it in the end because I don't want to, but I want to understand what's going on and why this works. What is this system? Those type of people are perfect because they actually care about the process and they want to know the weeds and one of our core beliefs is in transparency so we're willing to facilitate. So we just need people like that. We also like business owner types because if you think about like the private versus public”

    2017-07-25 · Invest Like the Best · Wes Gray - Compound Your Face Off - [Invest Like the Best, EP.47] · IDENTIFIED FROM THE TRANSCRIPT · source

  19. “Because you've got to understand what we're trying to help you with. And if you don't, just we can't really talk to you. It's not going to work long term. Like, go get marketed to. And we're marketing, but we're trying to solve the cypher vision problem, basically. And that was our best attempt at it.”

    2017-07-25 · Invest Like the Best · Wes Gray - Compound Your Face Off - [Invest Like the Best, EP.47] · IDENTIFIED FROM THE TRANSCRIPT · source

  20. “Or whatever, we're going to win. And so we just want to get people to be better long duration factor investors, which is why that's our mission, and that's why we're super segmented, we're super focused, and we don't have armies of sales guys, because we almost need the inbound.”

    2017-07-25 · Invest Like the Best · Wes Gray - Compound Your Face Off - [Invest Like the Best, EP.47] · IDENTIFIED FROM THE TRANSCRIPT · source

  21. “The reason it gets so damn rich is not because they're that smart. It's because they're stuck in this low basis asset and forced to hold it for like 20 years when other people are going in and out. So the great thing about taxable investors is to the extent that you can get a deferral mechanism in place where you create like this tax liability for them to be able to move out of a basically make a bad decision you could also and kind of what we've structured is to mechanically get people in a position where one they got to come in with all guns blazing I am in I am homeless for 20 years but then also build structures where even if at a certain point five years from now they're like God this is stupid I got to pay the taxes to get out of it I got to stick to it if we can mechanically just keep you being successful either through education or structure”

    2017-07-25 · Invest Like the Best · Wes Gray - Compound Your Face Off - [Invest Like the Best, EP.47] · IDENTIFIED FROM THE TRANSCRIPT · source

  22. “So that's why we have that mission. Because the only way we're going to exploit that long-term edge is not us being smart. It's us finding capital, getting them mentally prepared and telling how crappy this idea is going to be in the short run so they have the ability to stick to it. That's stage one. The other thing is we have a segment on individuals who are taxable. So one of the things, if you look at real estate investors and why the hell are they so rich all the time is because a lot of times my small little anecdote view on them is they hate taxes more than they like making money which makes them incredible investors because they never want to transact so if you get a real estate investor and the real estate goes up down or they're filling out of pain if they didn't have that tax burden you'd see way more transactions but good real estate”

    2017-07-25 · Invest Like the Best · Wes Gray - Compound Your Face Off - [Invest Like the Best, EP.47] · IDENTIFIED FROM THE TRANSCRIPT · source

  23. “And no one ever went. So instead of focusing so much on trying to be the smartest guy to figure out how to do value or momentum, whatever the hell it is, let's stop competing on that. Let's focus on the investor education and putting or building or creating or identifying the long duration capital that we can then pair with the long duration strategy, which is why again, our mission is not we're going to be smart and everyone build.”

    2017-07-25 · Invest Like the Best · Wes Gray - Compound Your Face Off - [Invest Like the Best, EP.47] · IDENTIFIED FROM THE TRANSCRIPT · source

  24. “I could just do that and collect fees for a while until it blows up. So I'll just run 200 funds and I'll just always have turnover, do spaghetti against the wall. So that'd be like the BlackRock model. We'll do 200 funds a year. Inevitably, some are going to work. We'll market those track records. We'll blow the other ones out and you just do that model. The other model is you say, okay, if this is the problem, if I'm not going to be a Caltech 500 IQ PhD doing HFT or information acquisition edge, we're just trying to win in that game, which I don't want to play. I want to do an investing game. What I noticed is there's a structural problem where everyone knows about what works, but the problem is it's a long duration trade and it always gets coupled with short duration capital, which always leads to a lose-lose situation. The manager wins for a while, then he has bad performance, he gets fired, the clients hate him.”

    2017-07-25 · Invest Like the Best · Wes Gray - Compound Your Face Off - [Invest Like the Best, EP.47] · IDENTIFIED FROM THE TRANSCRIPT · source

  25. “So there's this famous paper Cypher Viciony 97. It's called Limps Arbitrage. And you probably know LSV, those two of the names in there went off to create this $100 billion monster. And that paper, in my opinion, is the theory of how the asset management market works. And what does it basically say? It says delegated asset management creates a problem because there's a situation where there's really smart people that manage money and come up with whiz bang cool ideas that are going to work over the long haul. But what happens is they couple those strategies with capital that doesn't understand that. And inevitably, when they say, wow, in 10 years from now, this strategy is going to be amazing. But oh, by the way, in the short run, it could be the stupidest idea on the planet. Well, ex-Annie, all these really smart people are like, well,”

    2017-07-25 · Invest Like the Best · Wes Gray - Compound Your Face Off - [Invest Like the Best, EP.47] · IDENTIFIED FROM THE TRANSCRIPT · source

  26. “That's what I want. So, whoever does that is who I'd give all my money to, and if they could help me build tax deferral even better in it. I just don't know, yeah, I don't know. I mean, I like what you guys do. Whoever would fit that, if you can just give me a transparent, super focused, well-established like an AQR thing, but if they concentrate it way down and they can figure out how to get tax for like use them too I like those guys it's tough man”

    2017-07-25 · Invest Like the Best · Wes Gray - Compound Your Face Off - [Invest Like the Best, EP.47] · IDENTIFIED FROM THE TRANSCRIPT · source

  27. “I mean, honestly, this sounds totally pathetic, but I actually do like what you guys do and like your dad said. The only you guys tax problem would cause me some angst there. But, I mean, I don't even know who else does super concentrated, highly disciplined, transparent quant.”

    2017-07-25 · Invest Like the Best · Wes Gray - Compound Your Face Off - [Invest Like the Best, EP.47] · IDENTIFIED FROM THE TRANSCRIPT · source

  28. “Leverage your economic moat to do a standard oil monopoly play, well, guess what's going to happen? Everyone's going to be like, oh, wait a second. Like, I'll just go back to Walmart, man. It's right down the road, and it's a lot cheaper than you guys. So it's like a phantom economic mode. It's there in theory, but then the same question is, can you exploit the moat you built? And maybe they're so good and then get so many magnitudes better that even if they keep their cost structure, they can somehow create like massive P&L on it. But I'm just I'm not really sure. And that's without even considering that I imagine, well, government already has. Remember they used to have like the no state tax thing. They had to manage that. All these firms, if you get too big and too successful, you end up having to fight non-market forces.”

    2017-07-25 · Invest Like the Best · Wes Gray - Compound Your Face Off - [Invest Like the Best, EP.47] · IDENTIFIED FROM THE TRANSCRIPT · source

  29. “And here's what's interesting. Yeah. So the government will screw that up or in those sort of models, and this is like, so Google's a firm I probably most respect. I actually really like those guys. Like what they do, their culture of do no evil. I think they're amazing. But the problem is when you become a brand that's known for doing that, and like Amazon's a good example. So my business model is I'm going to get insane, massive scale, basically burning money till the cats come home. And then I guess investors just assume at some point they're going to magically have all this economic moat because people don't want to leave. And I guess they'll get to raise prices a little bit or something. But here's the problem. They don't understand that demand curve is highly elastic because the minute they're no longer the low-cost producer and their prime is pretty cool. But guess what? Everyone else is starting to get that too now. The minute they say, oh, crap, now we own the market.”

    2017-07-25 · Invest Like the Best · Wes Gray - Compound Your Face Off - [Invest Like the Best, EP.47] · IDENTIFIED FROM THE TRANSCRIPT · source

  30. “Yeah, I don't really think about it. Yeah, so here's what I'd say. I don't think they're really screwing anything up in the market, but I'll tell you what I think about Vanguard, and the same argument would be applied to an Amazon. If you get too good and too powerful, it's not the market that screws things up. It's the government. What do you think happens when a senator knows that a one-stop shop owns 20% of all of corporate America? And I don't have to go haggle with everyone now. I just go talk over here. Things get corrupted. It just like Amazon. That's why I love the Amazon trade. Everyone just assumes Amazon's going to take over the world because they are and they should. But here's the problem. When they take over the world, do you think government's going to put less regulation on them or more regulation? And what do you think happens when bureaucrats start interfering with marketplaces?”

    2017-07-25 · Invest Like the Best · Wes Gray - Compound Your Face Off - [Invest Like the Best, EP.47] · IDENTIFIED FROM THE TRANSCRIPT · source

  31. “To Vanguard. I think they're going to have a mean reversion at some point. I love the idea and the concept, tax-ficient, cheap investing, but there is no firm that still exists 100 years ago. And if you get too damn big and too damn powerful, governments get involved, other people get involved, cultures change, and you just can't keep something going on forever, in my opinion. I do love Vanguard.”

    2017-07-25 · Invest Like the Best · Wes Gray - Compound Your Face Off - [Invest Like the Best, EP.47] · IDENTIFIED FROM THE TRANSCRIPT · source

  32. “So, what we used to do, which I'll probably do because I need to contain my own system one issues, is because it's way more exciting to do like prop strategies and cool guys stuff is right now we're in the investment realm. We're trying to build systems to allow you to compound after tax what we think is the best way we can do that. But then there's this whole fun game of like the fun research where you're trying to be smarter than the next 200 IQ guy. And we've done that in the past. But the issue is those things take a ton of resources, ton of brain damage, and they're really cool and really exciting because you're trading them all day, but it's just not our business focus. So if I ever got rich enough, right, I just didn't really care, I would do that more just for the fun of it, knowing full well, I'd been better off just buying my ETFs probably, but it's just a lot more fun to do the action pack things. And so I'll probably create like a little unit down the road.”

    2017-07-25 · Invest Like the Best · Wes Gray - Compound Your Face Off - [Invest Like the Best, EP.47] · IDENTIFIED FROM THE TRANSCRIPT · source

  33. “Because you got to look like we're doing something here. But the reality, that's just more like the marketing part of the business. And I totally understand it. But I don't think they're actually adding value anymore because we've already, like, that's why Warren Buffett has like him and he reads his like 10Ks in his underwear in Omaha. He doesn't need 500 staff and he does perfectly fine. I mean, and we see family officers all the time where they have a staff of like two because that's all you really need to get the job done. And yeah, so I don't, we're always doing research. I love it, passionate about it, but the cold honest truth is I'm not sure it adds much more value to what we already got. But I just do it because I intellectually like it, frankly.”

    2017-07-25 · Invest Like the Best · Wes Gray - Compound Your Face Off - [Invest Like the Best, EP.47] · IDENTIFIED FROM THE TRANSCRIPT · source

  34. “Back and ask the incentives of the marketplace, usually sales guys well, why are you keeping all this new crap onto this model? And it's because there's a thing called complexity and it sells, right? So people quickly move from being an evidence-based investor to a story-based investor. And you've probably seen it, all our friends or my friends like all run these things, but you'll go to like a big shop and they got like 90 PhDs over there. And their model hasn't changed in 50 years and you got to say, well, why do you got these 90 PhDs over there? And on the outside view, they'll be like, oh, yeah, they're always doing research, find new ideas and make our model awesome. And then you like them a few beers. They're like, dude, when the consultants come here, we can't just tell them we're doing this model, man. We got to like tell them we're doing something. And so we got to point to these 90 PhDs over here, you know, with all their Chicago PhDs.”

    2017-07-25 · Invest Like the Best · Wes Gray - Compound Your Face Off - [Invest Like the Best, EP.47] · IDENTIFIED FROM THE TRANSCRIPT · source

  35. “Always test stuff all the time. But the problem is the bar to entry is so much higher now because we always have to, you know, kind of consider, again, this is more art and science of the chance of overfitting, over optimization, data mining, where anytime you already have kind of the baseline idea, buy them cheap. Am I going to argue that our model is better than your model? Prov, they're all about the same. Buy cheap. Who cares? Just have discipline. You probably win. We think ours is better than your stuff. And that's great. I think honestly the stuff that comes out on the new models is marketing because every time we look at every idea, re-engineer, you know, test it, and we say, hey, does this add value at the margin of what we already have? And unfortunately, and you guys probably know it too, inevitably it doesn't. So then you got to sit.”

    2017-07-25 · Invest Like the Best · Wes Gray - Compound Your Face Off - [Invest Like the Best, EP.47] · IDENTIFIED FROM THE TRANSCRIPT · source

  36. “Yes, so every morning, all I do, like I know you read like tons of books, which is awesome. I just read, unfortunately, because I'm just finance geek, I just read source journal literature, it's kind of like my books. So I don't practice the monger menthol model thing. Like my mental model is finance crap all day every day just because I like it personally. I love reading research, love and desire like no other to find new ideas and hope that they change my mind. That's I'm passionate about that and that's excites me anytime I get something new and I'm always reading because I always want to hunt for that new Easter egg, but that said, you know, having been doing this for a while now, like there hasn't been ever since we've kind of like summed up everything we knew about value and everything we knew about momentum.”

    2017-07-25 · Invest Like the Best · Wes Gray - Compound Your Face Off - [Invest Like the Best, EP.47] · IDENTIFIED FROM THE TRANSCRIPT · source

  37. “Are framing and pitching themselves right now to think that that's creating more patient factor capital. I mean, that's the way I look at it.”

    2017-07-25 · Invest Like the Best · Wes Gray - Compound Your Face Off - [Invest Like the Best, EP.47] · IDENTIFIED FROM THE TRANSCRIPT · source

  38. “Because there's not enough time for me to be alive to make enough out of sample to convince me otherwise. But what would change me is, again, going back to the dynamic of the market and understanding what creates these things in the first place, usually delegated asset management, principal agent problems, and then just look for basically little mini warren buffets starting to pop up that stick to these factors. There's ETF strategists. What do they do? Factor time mechanically. It's not permanent capital. They're literally going to be blowing out of value because now they're going to low vault or do it. That's the exact kind of capital that actually permanent capital exploits in the value premium. And you just see more of that, not less of that. So I mean, I think it would be insane to think, at least based on a short-term forecast that no one's psychology of the marketplace and how institutional.”

    2017-07-25 · Invest Like the Best · Wes Gray - Compound Your Face Off - [Invest Like the Best, EP.47] · IDENTIFIED FROM THE TRANSCRIPT · source

  39. “It's going to actually create availability bias and force decision making, which is the decision making you don't want, which is short-term minded. And so I think we're entering a world where ironically all the information access, more data, more technology that quote unquote helps people make better investment decisions is end up going to make people just make more decisions, which We all know if there's a chance that a decision maker has a flaw of making a decision because we're all humans. There's a lot of system one in there. The more times you take that bet, the higher probability you're going to screw it up. So the art of it is I'm not changing my mind, buy them cheap, buy them strong, hold them long is going to be in my ethos till the day I die. There may be new things like trend or other things I'll explore interesting, but those core concepts ain't changing.”

    2017-07-25 · Invest Like the Best · Wes Gray - Compound Your Face Off - [Invest Like the Best, EP.47] · IDENTIFIED FROM THE TRANSCRIPT · source

  40. “Of insanely patient, disciplined capital that's not exposed a principal agent issues with like recycling, short-term chasing, DFA type money where we put billions upon hundreds of billions of dollars of super hardcore factor premium exploitation capital to play on something, you will arbitrage the thing away. Period. But I just don't see that. What do I see? I see more intermediation, more stupidity, more data access, more transparency, which you would think would make better decision makers at the margin. But what do you think happens when someone has the Robin Hood app on their phone when they can click a button and buy or sell something? Also, when they have all the data in the world at their fingertips, this is not going to make people more rational, patient capital, 20 or hold investors.”

    2017-07-25 · Invest Like the Best · Wes Gray - Compound Your Face Off - [Invest Like the Best, EP.47] · IDENTIFIED FROM THE TRANSCRIPT · source

  41. “So I would say the biggest one, and this is again the art and the science of it, because as yourself, you probably know, when you look and you're trying to be scientific-minded, we're going to have the scientific, or we're going to use the scientific method here where we have competing hypotheses. We're going to look at all this data, look at a sample, in sample, different time periods, different markets, and we've done that for hundreds of years now on value, momentum. I'm in. So now if I'm a Bayesian updater, we need so much time to go out of sample for me to change my prior at this point. I'm basically not changing. I can't even live long enough time for me to change that core ethos on the science. But then it gets back to the art. And the way I look at it is it's still in the end. It's all about supply demand. And just going back to this DFA example, the art of this is if you see massive amounts”

    2017-07-25 · Invest Like the Best · Wes Gray - Compound Your Face Off - [Invest Like the Best, EP.47] · IDENTIFIED FROM THE TRANSCRIPT · source

  42. “Pure. Great. But if you want to try to maximize your value premium exploitation, you obviously are going to eat the risk component of it. But if we can add a little bit of mispricing sizzle in there, why wouldn't we do that as opposed to the book to market version?”

    2017-07-25 · Invest Like the Best · Wes Gray - Compound Your Face Off - [Invest Like the Best, EP.47] · IDENTIFIED FROM THE TRANSCRIPT · source

  43. “That risk premium slash mispricing premium well erode because it's not leaving. It's not timing, factor timing, just like if we did your guy's stuff, shareholder yield, blow out of the water. But guess what? If you grew to $500 billion and you arbitraged away your shareholder yield factor, you over that time period have done an incredible service to your investors because they've gained that whole benefit of arbitrage net mispricing because they presumably were the permanent capital initially and they were like the one billionth dollar not the 500 billionth dollar which at the margin is now just buying risk premium pure so i i just think it's probably been arbed out not to mention that you know there's mechanical reasons you guys talk about with how book the market works with share repurchases all these other things so it's not a bad factor it's going to capture just what dfa tells their people are going to capture a risk premium”

    2017-07-25 · Invest Like the Best · Wes Gray - Compound Your Face Off - [Invest Like the Best, EP.47] · IDENTIFIED FROM THE TRANSCRIPT · source

  44. “I mean, before we get into the weeds, though, because you guys have like tons of great research on the mechanical reasons why, I'll give you the simplest reason why. There's this little shop called DFA that has now, I don't know, $600 billion of hardcore capital that won't sell book-to-market stocks unless you put fifty guns to their head. So anytime you get a factor, you know, there is the thing, you know, the market does matter, supply and demand does matter. So if you have a factor that is the sole focus of a firm that is actually created insanely disciplined investors and done a great thing for their investors and essentially arbitrage their factor away, it happens. So in same thing, if someone took our favor, which is enterprise multiple and you said, hey, we're going to get a bunch of, we're going to get 500 million dollars of brainwashed capital that's permanent that will never leave.”

    2017-07-25 · Invest Like the Best · Wes Gray - Compound Your Face Off - [Invest Like the Best, EP.47] · IDENTIFIED FROM THE TRANSCRIPT · source

  45. “So, what that means is when you look across all the robustness studies, all the asset classes, all the time periods, this idea of momentum, buying relative strength is more compelling from just a straight up empirical base standpoint than value ever thought of being, especially when you control for like the risk and kind of how it fits in a broader portfolio. And I don't think anyone denies that, even Faum and French in the dissected anomalies paper, they say, this is the premier anomaly. Like we can actually look at book to market, which, you know, classic value factor, and of course they pick that one because it sucks, but you could kind of make all kinds of story why it's risk-based, blah, blah, blah. But they say momentum. And oh, by the way, our prior is we got to make the world efficient March IPOS here. We even can't explain this. This is absurd. And so I think the evidence is there.”

    2017-07-25 · Invest Like the Best · Wes Gray - Compound Your Face Off - [Invest Like the Best, EP.47] · IDENTIFIED FROM THE TRANSCRIPT · source

  46. “Okay, so the evidence would say momentum, but because I'm a human and because I was raised on Ben Graham, I value just intuitive for me. So when I incorporate the system one risk, that when that guns to my head and momentum stops working, I'm just going to give up on it. Value is something that you could put 50 guns to my head. I will never even if it goes negative 99% return I'll still be holding my value stocks. Whereas momentum something where I know it's compelling. I know all the rationale for it, blah, blah, blah. But it just, it's not as intuitive. It just doesn't sit with my system one as well. I would be more inclined to blow that trait out when I'm in worse pain and value. So I'd stick with value because behaviorally I could ride that to zero.”

    2017-07-25 · Invest Like the Best · Wes Gray - Compound Your Face Off - [Invest Like the Best, EP.47] · IDENTIFIED FROM THE TRANSCRIPT · source

  47. “Science of it, we're just trying to get it as focused, as absolutely humanly possible, where the results back forty versus fifty-five versus 23.2 positions, no, but 30 to 50 seems like a good ballpark to maximize active risk without getting stupid about it by holding like a five-stock value factor portfolio. We feel like we can get the versification we need but still deliver the high octane kind of pure blue method that we're trying to deliver out there. And then people can chop that up and add their baby powder on their own terms. But we're going to personally smoke our own blue meth because we like it. It's kind of how I'd say I think about portfolio construction.”

    2017-07-25 · Invest Like the Best · Wes Gray - Compound Your Face Off - [Invest Like the Best, EP.47] · IDENTIFIED FROM THE TRANSCRIPT · source

  48. “Yeah, sure. So we all have to operate in some constraints for like Fordiac and what have you, but in general, we kind of look at it as you always have that trade-off between expect a return and volatility or some measure of volatility. And we all know the chart. How many positions do you really need to hold to get the benefit of versification, especially if you consider that these investors are probably going to hold other things? We just feel that if you're going to try to bottom ticket and give people as much active risk exposure as possible without being insane or running afoul of these different rules we have to operate within the regulated space, we think like kind of that 30 to 50 seems reasonable. And could you do 100? Sure. That's not bad. That's at the margin better than 500 where you got sector neutral everything and you're not really buying the factor. So I think it's more of the art and the”

    2017-07-25 · Invest Like the Best · Wes Gray - Compound Your Face Off - [Invest Like the Best, EP.47] · IDENTIFIED FROM THE TRANSCRIPT · source

  49. “And as you're all in with your entire life's net worth, you're going to be probably overexposing yourself at the margin to like the best buy bet. And you can obviously hedge against that and maybe put some sensible rules in there, which I also agree with, like let's not do 100%. You know, we have like 25% rules or whatever. So you don't want to go like totally insane. But the thing that kills me is when people are like It's almost like getting too scientific where like every sector is going to have the exact exposure and we're going to have these 10 longs, these 10 shorts, we're going to rip out every factor element of it and that that's what I just call like over engineering and it seems like the benefit versus brain damage is just it's not a good quotient there so in general if you can go simple and robust with reasonable constraints is good. So I think we would agree actually.”

    2017-07-25 · Invest Like the Best · Wes Gray - Compound Your Face Off - [Invest Like the Best, EP.47] · IDENTIFIED FROM THE TRANSCRIPT · source

  50. “So here's the problem I'm leaving out some context here because the only way we're always when we think about like value for example it's always in the broader context that we know we're going to do this in a global value and momentum portfolio so when I want to go get my value risk I'm going to go get the most whoop it on crazy highest expectation thing I can get. And obviously it's going to have a lot of vault and quote unquote risk risk that may be associated with sector bets, what have you. However, if those 40 stocks are part of a 200 stock portfolio, especially pulled with momentum, where a lot of times it's doing kind of like the convex bet that's opposite of the best buy pain trade, I think as a global portfolio there, which is really the in-state equity book, it's not that big a deal. But to the extent that you were just buying our little value exposure,”

    2017-07-25 · Invest Like the Best · Wes Gray - Compound Your Face Off - [Invest Like the Best, EP.47] · IDENTIFIED FROM THE TRANSCRIPT · source