Jason Buck is the co-founder and CIO of Mutiny Funds and maybe one of the most interesting people I know.

Jason made, and subsequently lost, a fortune in commercial real estate in the 2008 crash. This “ego destroying event” was the catalyst for him to completely rethink the idea of resiliency, both in business and investments.

Jason spent the better part of the 2010s developing the Cockroach portfolio, a modern take on Harry Brown’s permanent portfolio. A quarter stocks, a quarter bonds, a quarter CTA, and a quarter long volatility, Jason has designed the portfolio to provide all weather returns, with the possibility of serving as an entrepreneurial hedge.

We discuss the value of tail hedging, tail hedges versus long volatility trades, the limits of manager diversification, and managed futures/CTAs versus static commodity positions.

As a final note, this episode was recorded live at the Exchange ETF event in Miami.



Corey Hoffstein  00:00

Are we good? All right 321 Let’s jam. You’re waiting for that. You’re waiting for that intro, aren’t you buddy? I was jumped into it myself.

Corey Hoffstein  00:14

Hello and welcome everyone. I’m Corey Hoffstein. And this is flirting with models, the podcast that pulls back the curtain to discover the human factor behind the quantitative strategy.

Narrator  00:27

Corey Hoffstein Is the co founder and chief investment officer of new found research due to industry regulations, he will not discuss any of new found researches funds on this podcast all opinions expressed by podcast participants are solely their own opinion and do not reflect the opinion of new found research. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. Clients of newfound research may maintain positions in securities discussed in this podcast for more information is it think newfound.com.

Corey Hoffstein  00:58

Jason buck is the co founder and CIO of mutiny funds, and maybe one of the most interesting people I know, Jason made and subsequently lost a small fortune in commercial real estate in the 2008 crash. This ego destroying event as he puts it was the catalyst for him to completely rethink the idea of resiliency, both in business and investments. Jason spent the better part of the 2000 10s developing the cockroach portfolio, a modern take on Harry Brown’s permanent portfolio of quarter stocks, a quarter bonds, quarter CTA and a quarter long volatility. Jason has designed the portfolio to provide all weather returns with the possibility of serving as an entrepreneurial hedge. We discussed the value of tail hedging tail hedges versus long volatility trades, the limits of manager diversification and managed futures versus static commodity positions. As a final note, this episode was recorded live at the exchange ETF event in Miami. Enjoy

Corey Hoffstein  02:07

Jason Buck Welcome to the show. Longtime coming here. I feel like we’ve collaborated on just about everything. But this show. Sorry, I haven’t had you on earlier. This unacceptable. And hopefully my voice is going to hold up. It’s been a crazy few weeks here in Miami. Yeah, this is a special episode season opener as well as recording live at exchange ETF in Miami. You’ve been here for a week already. You have the rest of the week to go of events. So halfway through water and lemons for That’s right. All right. Look, you know me very well. I know you know how I’m going to start this. I’m a big believer that formative experiences are ultimately instructive in terms of how someone ends up investing in their life. And I usually get most of my guests to start the podcast with their background. Your background could be an entire episode itself. We went out for drinks last night you left. The person I was with said he really is the most interesting man alive. So I just want to give the audience a flavor of that. I don’t think we can get through the full Jason Buck backstory. But it’s sort of as my out of left field question to set the stage for this conversation. Tell me about your experience hustling rugs in Istanbul. Jumping right in.

Jason Buck  03:20

So when I was in university, I went to College of Charleston, I played soccer there. And in my spare time, I worked in a Mediterranean restaurant. And the owner of the Mediterranean restaurant was a guy from Istanbul, Turkey. And he used to tell me stories in the late 90s about what it was like growing up in Istanbul and being a street hustler. And I decided to take some time off from the soccer team and take some time off from school. And he suggested I would go to Istanbul and meet up with his friends. And now granted this is the late 90s. So like I signed up for a Hotmail address while I was there, like my poor parents have been dealing with me my whole life. But you know, I would call him like once a month for like a few minutes. Like they had no idea where their son was. And like, even when I arrived there, I didn’t even know who I was meeting or what these guys picked me up at the airport. They’re very kind to me. But basically the setup was if anybody’s ever been to Istanbul when you’re in soltana met the old historical district everyone on the street is like hello my friend come in have some tea. And they’re basically tried to sell you primarily Turkish rugs but kind of anything. And so it just happened to the guy worked for sold Turkish rugs. And me at the time being a blind Midwestern kid, of the other people coming off the cruise ship immediately trusted me and more than a the locals. And so I’m extremely introverted, as you kind of know, but don’t believe me, but it was really good for me to get out of my shell. And basically, I would hustle on the streets and we would sell Turkish rugs to American tourists after they spent a few hours having tea and then you would spend months shipping that carpet back to the US like they had no idea like the way we live now is like incomprehensible to me back then. Like it’s amazing to think about. But it’s not just Turkish rugs. It’s like they wonder a leather coat a bespoke leather coat. I knew a guy knew a Russian guy. If they wanted a great meal. I knew the best restaurants in town so I would take him to the restaurant. I’d circle the block I’d come back and the owner would

Jason Buck  05:00

Peel me off a few lira for bringing them to his restaurant. So it’s just a completely different way of living. And at one point, you know, had like a three bedroom house maids cooks everything, and it was like $300 a month. But you know, some days the power wouldn’t work. So it was definitely a unique experience.

Corey Hoffstein  05:14

It was like a full cultural arbitrage for you, you get to lean into the edge you had in a foreign country and make some money out of it. Yeah,

Jason Buck  05:21

we talked about often all life is either arbitrage or optionality, that’s we’re trying to do. I know

Corey Hoffstein  05:26

your favorite phrases, everything is an option. It’s absolutely your favorite thing to talk about. We’ll get into that, I’m sure. Look, today, you run mutiny funds, and your flagship strategy is the cockroach portfolio. I know a big catalyst for you for eventually launching. Mutiny itself, as well as this fund in particular was your entrepreneurial experience in 2008. So you called it to me in the past a, quote, ego destroying process, walk me through the experience.

Jason Buck  05:56

What’s interesting to me, too, is even you start with 2008. And for people that work in finance, that’s the GFC is 2008. But for those of us that were in real estate of commercial real estate actually started in 2007. So it’s always interesting to think about that two year period where you really saw the cracks in real estate initially. So I was a commercial real estate developer, and did Allah that King Street corridor in Charleston during the time. And what I found was interesting, as I started to see a little bit of cracks on the wall, like I would notice, you know, if I’m doing a building, and people put up their deposit to buy a condo, and I’m rehabbing and building out the condo, and then it seemed the loans they were getting at the time with some of like, the more nefarious lenders like the Washington me with a country wide and all that and also and see them start to get into denied their applications. I started to get worried. And what was interesting to me at the time, I you know, I was in my mid 20s, so I didn’t know better. So I went to some of the older developers in the area, got like six of them together over the age of 60. And I asked them, I was like, Look, I don’t have context, are you guys worried at all? And to a man, they said, this time is different. So what I unfortunately learned in hindsight, is that commercial real estate developers like President actually the most optimistic people in the world. And so these guys, you know, what do they care, they’re gonna declare bankruptcy, and then they’re gonna start over again, these guys have been through multiple cycles. And so it was really a painful experience for me in the sense that you start making money that younger, you start developing properties that young and everything and everybody starts treating you like you’re special. And unfortunately, you start to believe it. And then you realize that you are just a rising tide lifts all boats, and you’re just lucky. But then when they all comes collapsing down and down, you’re in your late 20s, and you got certain you’re used to a high quality lifestyle. Now you think you’re the lowest of the low and the world’s worst person. And part of that is like when you lose money for friends and family. It’s really catastrophic. You feel like you’re in the fetal position on the floor every day, it’s one thing to lose your own money, and you know what you’re getting into. But it’s about losing the family and friends money. And then to add insult to injury. This is how I started learning about options was I actually knew who the worst mortgage providers were for my business, and I started shorting them. But I started buying put options, but then I was buying short term deep out of the money, put options, so I actually managed to lose money, shorting the biggest housing bubble in American history. And that takes a special set of skills. But what you learn is you got to learn about options, Greeks, your second order derivatives, it’s not just about the Delta movement, you know, what’s your Vega, what’s your data? What’s your gamma, and that forces you to learn those things to it and incredibly painful process.

Corey Hoffstein  08:12

I’m glad you brought that up. Because I knew that about your background, it was a interesting foray into trading options, one of which I think probably many retail investors are probably learning over the last two years that you can be directionally right. And if you’re wrong on the value of the option, or the implied volatility priced in, it can be a bad trade. So something you learned early fortunately,

Jason Buck  08:35

well, we hope I learned it early, but actually didn’t. Luckily, my business partner is one of those people, they can learn from others mistakes, I apparently not only don’t learn from my own breath, they make multiple mistakes until I finally learned from them. And then 99, I was yellow trading tech stocks, and ran up like $2,000 into $100,000. I thought I was the richest man in the world. This was just the start of my career, I was going to be a billionaire by 30. And that all came crashing down obviously after 99. So apparently, I didn’t learn my lesson enough. You got to touch several stoves before I actually learned anything.

Corey Hoffstein  09:04

Well, so going back to your experience as a commercial real estate developer, you talked about sort of making those high highs and low lows, curious from your memory, what sort of the highest high was and where was the lowest low for you?

Jason Buck  09:21

You know, in business, you and I talked about business a lot. And there’s not really that high highs at business. It sounds like you’re just trying to hit singles every day, and then aggregate up enough singles that then it looks like you’re an overnight success until you hit that J curve. But it’s a lot of like incremental progress on the way that doesn’t look like progress. To me, like the highs were like some of the buildings I bought, and the way I transform those buildings is like, I suck at art. I can’t draw. I can’t paint. I can’t sculpt. But to me business entrepreneurship is an art form and commercial real estate. To me it was a really interesting one is that I can craft buildings and cityscapes that people will hopefully use for centuries, especially if you think about Charleston people have been using that city for centuries. And so the more Are pride or high as I got from that was creating beautiful buildings with beautiful spaces for people to interact with. And I took great pride in doing a lot of the interior design, those sorts of things. And then the lows like I said is like when everything you think you are gets pulled out from under you, I quit it to maybe like the first time both of us felt an earthquake in California. You know, as soon as the solid ground becomes a wave, it throws into large existential questions of what reality is. And so part of mine, that’s the ego destroying process, is I thought I was building a business and a long term thing turned out, I was taking on too much leverage. And I was just lucky, and I was riding the same wave everybody else was. And so it really makes you question your existence, who you are, what you’re good at? Are you going to recover from this? And I think for me, that was a multi year process.

Corey Hoffstein  10:42

I know you did some travel to South America sort of rethinking what you wanted to do. But ultimately, it culminated in this idea of a portfolio designed for an entrepreneurs balance sheet. And I’m want to spend a lot of this podcast talking about that portfolio. This is an investment podcast in theory, though, I’m sure as I said, we could go on for hours just with your many stories, connect the dots for me 2008 Business falls apart, how do you start getting this idea of what would a portfolio look like, if you were building it for resiliency as an entrepreneur,

Jason Buck  11:20

so part of it like I may not have been able to learn from mistakes, but I can learn from tremendous pain. And that pain was so large, I just figured there had to be a way to not experience that pain again. And part of that was like there has to be a way to hedge entrepreneurial risk. I knew no matter what I was always going to be an entrepreneur, whether I liked it or not, like that’s just in my personality. So to be better going forward, I have to figure out a way to hedge entrepreneurial risk. So this doesn’t happen to me again. And a lot of people say that’s not possible. And I like when things are impossible. It just makes me want to dive in headfirst. And so I started to go down this road of starting with options because I did so poorly and options in 2008 2009 is to teach myself all about options, trading all the Greeks figuring all that stuff out to figure out like what would it be like to hedge with options? Other things I started working on where the entire market spread between vix and E minis. And figuring out what is it like to have negatively correlated assets and rebalance? You know, I’m a big fan of Shannon’s demon. But you and I like to argue about, there’s no such thing as a rebalancing premium, but it’s maybe a diversification premium had tip to Corey Hoffstein. So just just kind of starting to start to put all of these ideas together. And then what would look like and then in conjunction, I was calling the guys that are saying alternatives out of Chicago, asking them a lot of questions about how do you build a broadly diversified portfolio in futures and options space, is there a capital efficiency there? What’s the vehicle I need as a commodity pool operation is a CTA operation. And sending put everything together kind of in conjunction and I was tracking and following all the other long volatility, terrorist managers learning everything I could about the space. But the idea was in general, is as my partner Taylor Pearson has described as we run the entrepreneurial put option. And the idea is, if I can hedge out some of your risk as an entrepreneur, and obviously you’re gonna take basis risk, but I would argue when liquidity cascades happen to them Corey Hoffstein Is that the liquidity is represented the s&p 501st is the most liquid market in the world. So in the 2008, like scenario, or March 2020, you’re gonna see some sharp liquidity cascades or crashes in the s&p 500. So if you’re buying some tail risk protection on the s&p 500, that complex cash position is then going to put an enormous amount of cash on your balance sheet to either buy up your competitors for pennies on the dollar, buy up some real estate or pennies on the dollar, or make payroll for an extended period of time. And that combination over time can help you dramatically out compete your competitors. So to me, it’s a superpower for entrepreneurs to de risk some of their book a little bit so they can be much more aggressive idiosyncratically as an entrepreneur. Now, to your point, though, there’s a difference between their idiosyncratic risk on an entrepreneur and then the market beta risk. But that’s about as close as we could possibly get, especially if you have these global liquidity events. And when the Quiddity dries up, it doesn’t matter how good you are, as an entrepreneur, credit dries up, you’re absolutely screwed.

Corey Hoffstein  13:59

So let’s back up 30,000 feet. Talk about the cockroach portfolio itself. What does sort of top down composition or asset allocation look

Jason Buck  14:10

like? I’ve always been a big fan of Harry Browns permanent portfolio, which he came up with in the early 70s. But the idea of broad portfolio diversification goes all the way back to the Talmud. But the idea from Harry Brown’s permanent portfolio is the four quadrant model that everything’s on the access of growth or inflation, right, whether during growth or recession, where inflation or deflation as you know, Ray Dalio copied that model and just created risk parity by leveraging up the bond side still kept in commodities. But that’s the kind of evolution of that idea. But when I think about Harry Brown’s permanent portfolio, it’s like, how do you build a portfolio if you don’t know what the future is, and that it’s big enough like losing all that hubris in my youth, hopefully, and being much more realistic, is I can’t predict the future. I don’t have a crystal ball. And I don’t believe anybody else does, either. So what do you do with your savings if you want to build a portfolio that way, and that’s why Harry Brown’s permanent portfolio appealed to me because it’s robust to kind of any macro environment. Now granted, they’re like Venn diagrams, they can crossover. So Harry Brown initially was equal weights to stocks, bonds, cash and gold. And that took care of your growth, your inflation or deflation in your recession. But I feel like if Harry Brown was alive today, he would use a much more interesting or advanced portfolio techniques. So we still use global stocks for our stock bucket for that growth. But in recessions, we believe that cash may not be good enough. So we use this convex cash position that we can get from long volatility and tail risk. And we’ll get into you know, using an ensemble of managers to manage the path dependencies of that position. But I think cash isn’t quite good enough for when you have those extreme liquidity cascades. As we come more financialized I think you need something that’s structurally negatively correlated, that has much more complexity to it than on the deflation or disinflationary side, we still use Global bonds or income, which is what you want those environments. And then to offset that risk, Harry Brown use gold for inflation. I don’t think that quite works like gold works over millennia. But in the intervening years, it doesn’t work. Well, I’ve also been studying gold for decades, you can maybe tell me what it is, I still don’t understand what gold is. But we use commodity trend advisors, and we use that ensemble approach to there as well, just because we believe they’re gonna have a higher beta to inflation. And that also helps offset the bond risk. So at a high level, if you think about it, I think they’re very linear instruments during risk on that are stocks and bonds. And then we use your very complex instruments during risk off for long volatility terrorists and commodity trend advisors. Put simply, we think about his offense plus defense wins investing championships, we think most portfolios are missing the defensive side. So that’s what we try to specialize in.

Corey Hoffstein  16:28

So if I were to, again, look at that 30,000 foot view, it would be roughly a quarter stocks, quarter bonds, quarter, CTA and a quarter convex cash, which we’ll get into, I guess, let’s dive into that. So you’ve replaced Harry Brown’s cash with long volatility and tail hedges. Let’s just start with how are you defining long volatility and tail hedging?

Jason Buck  16:52

It’s a great question because I don’t know sure anybody’s like perfectly defined it. If you talk to some options or derivatives managers, they would argue that long volatility long Vega, I wouldn’t necessarily argue that I think that we maybe should start with tail risk. And the idea with tail risk is like an insurance you would have on your house or anything else, is you’re basically buying deep out of the money puts, they’re structurally negatively correlated with like an attachment point if say negative 20%, right, that’s your deductible. As soon as the market drops there, you should have some convex returns, and that helps truncate your left tails and reduces the volatility tax your portfolio. The problem or issue not that they’re necessarily is one with tail risk is like you have a permanently just like the premiums, you pay for life insurance, car insurance, house insurance, every quarter, you have to write that check, then people don’t like that negative line item over an entire risk on period if it lasts a decade or more. So that’s kind of classical tariffs. I define long volatility is you move away from that deterministic rolling put position, you can trade much more opportunistically on both tails, both up and down. And the way we look at those managers is like they’re trying to time when you’re going to have a black swan event, even though it’s unpredictable. To think about forest fires, you can know you know what the wind speed is? How dry is the kindling on the ground? When was the last rain cycle is there power lines in the area, you start putting all those things together to create your algos, just to try to time these markets on both tails, and that’s to me is much more long volatility is, is tried to affect how you choose but then at the same time, you have to think about it we always think about this triangle of carry convexity uncertainty, and you get to choose one or two out of those. So you don’t get all three. And so if you think about the tail risk puts the rolling Taylor’s puts you have a lot of certainty, a lot of convexity but you have negative carry. Sometimes if you think a longer long volatility might improve the carry. But now you’ve reduced the certainty and you may keep some of the convexity it really just depends on the individual strategy.

Corey Hoffstein  18:38

So when Chris Cole wrote the dragon portfolio paper, his was fifth in stocks fifth and bonds fifth long ball fifth CTA or commodity trend and fifth gold if I’m not mistaken, one of the number one questions I received from people who read that paper. I don’t know why they were asking me why don’t they just ask Chris but they were asking me, What does it mean to be 25%? Long, Vol. Right? For someone who doesn’t understand options, they might interpret that as I’m going to take 25% of my money and spend that as the premium on the options. Someone a little more nuanced might say, Oh no, that doesn’t make sense. You’re not going to not in the premium. You want the notional coverage, which might make sense for more explicit tail hedges maybe less so with long vol where you’re maybe talking about units of Vega as your measure of exposure. So when you think about this portfolio again, quarter stocks, quarter bonds, quarter long ball tail hedging quarter CTA, what does that mean to be a quarter long ball? Like what’s the sizing?

Jason Buck  19:39

Of course you know how to ask the most difficult question there is a step back the way to think about in general, like if you maybe heard like March 6, Spitz Nagel or universal lab talk about their tail risk book, as a lot of times they’ll say this allows you be longer equity beta, so you’re 97% long equity beta, and then you raised 3%, check every year for that premium. But essentially what I would argue is that means you’re not 97% long equity beta 97% long ball or tail risk, like and so that book is really 9797. Philosophically, even though you’re only putting up 3% of premium, what I’m getting at that you’re hinting at, is the hard part is and when we started talking about futures options, derivatives is the convexity of those instruments. And it’s really hard to toggle what that convexity is. And so like you said, when we say 25%, it’s much more almost philosophical, or we could get into notional and nominal exposures. But like, you’re saying, you could start by maybe toggling it to your deltas, right? And having that attachment point, you could use Vega, you can use gamma, you can use all these things, but none of them are going to be a perfect proxy. Because you don’t know what the future event or its path dependencies look like. Are we coming from a low vol environment to a high ball environment where we come from a media ball environment? What is that? Is there an echo of volatility where event has happened in the last two years, you can never be certain to those path dependencies. So this is what makes long volatility and terrorists these sorts of things incredibly difficult. As I’ve joked with some of our friends, you can never go full quant, like you can’t plug this into a Sharpe ratio. It just doesn’t work that way. And everybody likes all the math and science portfolio construction. But this is where the art really comes in. And because there’s so many path dependencies to a sell off, this is why we believe in ensemble approaches to make sure we capture that meat of that move, if only happens once every five to 10 years. It’s one thing to be able to put this is what’s interesting about the flip side, when you’re using options is like right now, you could probably I mean, obviously with bonds, you know, your returns got to be stocks, everybody can give me an estimate the returns gonna be but they don’t know what they’re left tail is they don’t know what the draw downside is. But then you completely flip that when you’re talking about long volatility. We know exactly what our premium lead is. But we have no idea what the exponential return is going to be when the crisis happens. And more importantly, the trick is what you’re monetizing heuristics to make sure you monetize it properly. And that’s incredibly difficult.

Corey Hoffstein  21:46

We’ll talk a little bit about the ensemble approach you take, because I think one of the unique things about your fund is you really think through diversification from multiple levels in a way that I deeply appreciate. Because it’s not just asset allocation. It’s process diversification. It’s time diversification, that process diversification really rings true in that long ball tail hedging sleeve. Talk to me a little bit about the manager selection process and how you think about putting them all together.

Jason Buck  22:16

Yeah, for example, in her lung about seriously, we have 15 managers at that point. And the idea around that is we want to bring institutional quality portfolio construction down to accredited retail ambassadors, it’s kind of never been done before. So it’s a blue ocean for us that we were happy to tackle, because we’re worried about our friends and family and protecting their life savings. But part of that, that maybe people don’t appreciate on other sides of the book, whether they’re just value investors or whatever is on the institutional side of the space managers have very, very nice strategies, especially in volatility. This is why we allocate to 15 managers. And the way I think about constructing the book in general, is when you’re dealing with optionality long options or tail risk, is you primarily just want to be buying options. And that’s the bulk of our book, because you know, what your bleed is, you know, what your premium is going to be, you don’t know what your return is going to be. So the bulk of the book is just borrowing options. And we’re going managers that do that. But the way we think about that book is is the PASM moneyness. So we’re at the money, either money deep out of the money, or maybe extremely deep in the money, which I’ve never actually heard anybody say before. But that’s the way we think about covering the different paths of moneyness. there and we try to overlay and overlap them, we still tell our clients that anything less than a 20% drawdown is extremely expensive to cover. So we don’t cover that. So anything less than 10%. Just noise to us.

Corey Hoffstein  23:28

Just to clarify, it’s not 20% of the portfolio, it’s 20% of the s&p

Jason Buck  23:32

Yeah, thank you, the s&p drawdowns of negative 20%. If you’re trying to really hedge against that negative five or negative 10% drawdown that’s a P, it’s going to be really expensive, that premiums can be higher, we’re gonna have a lot of bleed there. So even though we have managers they’re doing at the money just slightly out of the money. It’s just about overlaying overlap in that Venn diagram to make sure we capture that pad the moneyness because once again, it’s it’s very easy to put options trades on that’s what I think a lot of DIY traders are learning, very easy to put these structures on. The question is, how do you monetize them? How do you roll them? Whether the second leg down or not? And so that’s part of the way we look at is the path of moneyness. And then what are the different monetization heuristics? And we’d like to diversify those as well. Because once again, we’re just trying to get a beta like return from this asset class, and make sure we capture the meat of that move. So within the vocal portfolio is just long optionality. Because then the question becomes, where does that get hurt behaviorally, people aren’t willing to hold like tail risk, as we saw with CalPERS, cutting into the last minute, and it’s understandable, they don’t like that line. And number two, they don’t think about the emergent portfolio effects of having tail risk or long volatility under book. So you know, that premium exists. So the way we try to manage that premium a little bit is we use volatility relative value traders. They’re doing a lot of pairs trades between the s&p and the VIX or vix calendars. And the idea there is any sort of pairs trades essentially mean reverting or short volatility or implicitly short volatility, but we try to use that to pay for the premium of the options. But we also look for vol relative value managers they’re like essentially like buying the wings or they can be long haul, if all really picks up, or they can shift pretty quickly. So that’s the ones we looked at in there. And then the third problem you have is like I referenced a second leg down, if March 2020 happens, and implied volatility dramatically expands to roll those options, the premiums going to be exorbitantly high. So what we also added as well called short term intraday trend following on the futures indices around the world. And the idea is there with those delta one instruments, you could just go directionally correct. And you’ll have to pay up for the implied volatility. So we’re using the options world they’re using futures world reasoning, because world to have a lot of differentiation across the book, and trying to cover as many path dependencies as we possibly can.

Corey Hoffstein  25:33

So something you said earlier is that tail hedging is really this balance of choices, this triangle between convexity, certainty and cost, right, and it’s a choose to the other gets set for you. As you’re talking about this ensemble trying to cover more path dependencies. It sounds to me like you’re increasing the certainty in many ways, which is going to have to either come at a cost of cost or convexity. So I guess my somewhat pointed question to you would be, how do you avoid the case where this ensemble really just ends up expensively hedging nothing.

Jason Buck  26:11

That’s a fair point. And I think that’s one of the questions that keeps me up at night. But in essence, as you add diversification, what you’re getting at is you’re reducing variance. So one could argue that you could start increasing the implicit leverage of that portfolio to make sure you capture it, like I said, keeps me up at night. But what doesn’t necessarily keep me up at night is if I think about, we limit the exposure to all relative value, and we limit the exposure to the intraday trend following, and we keep and enhance that exposure to the long volatility part of the book or the tail risk. So there’s so much convexity at that sort of the book we’re using like the others to hopefully help reduce that carry, drain and risk on cycle. And so there’s this beautiful trade off, in my mind, of the other parts of the book don’t affect the convexity of those put options, you still have those completely on the books. But the idea is, over time, we want our portfolio to be fairly uncorrelated during risk on and then we want correlations to converge to negative one and risk off. And we’ve seen this kind of happen across our managers before. That creates a beautiful diversification of factor when you’re rebalancing during risk on to help, like reduce those costs that they carry. But we still try to make sure the bulk of the book has that explosive optionality to it. And that should help overcome the other parts of the book and liquidity cascade. But there’s no proof of that. That’s what keeps me up at night. It’s the art to creating a portfolio like this. But it’s one of the things that constantly worry about. And then this goes back to your first question about, you know, notional or nominal exposures, you tend to Vega, you try to Delta, what are you doing is, you know, we overlay and overlap a lot of those exposures. So we don’t mind using some of the implicit leverage you can get, and create a much more maybe a little bit higher of a notional or nominal effect across the portfolio.

Corey Hoffstein  27:44

You talked a bit about the fact that a lot of liquidity ends up getting recycled into the s&p, so you liquidity gets hit in other areas of the market complex. And all that hedging pressure ends up back in the s&p. But do you ever utilize options on other asset classes are hedges on other asset classes, either taking the basis risk or as an explicit hedge to other areas of of your book or other areas of entrepreneurial risk?

Jason Buck  28:11

Yes, and yes. So the idea is during a risk on cycle, that exclusivity starts to build up an s&p 500, if we go from risk on risk off, as we saw going from 2019 to 2020. So you can capture a lot of that global liquidity, that’s when just really capturable the s&p 500. But after that, if you have a second or third leg down, everybody’s already after the flood is paying up for that premium insurance. So you actually need to use some cross asset volatility you want to be getting out into rates fall into FX fall into commodity ball, but at the same time, the vast majority of our clients, the bulk of their portfolios are tied to s&p 500. And going back to the way we think about philosophically as an entrepreneur, is your businesses implicitly tied to s&p 500 or Liquidity Markets. So I’ve never understood why entrepreneurs if they have any savings leftover, they can plug back in their business people put them in s&p 500. Now they’re levered long, s&p or levered long risk on or levered long credit. So the way we think about it is like you have to have more of that long volatility on the book to kind of offset a bit of those risks. So we have to then tie the bulk of the portfolio to the s&p 500. Because that’s where clients have exposure. And that’s also where we have exposure internally at the cockroach fund. But we do sprinkle in a lot of that cross asset ball, not a lot, but a little bit because like you said after March of 2020, that implied volatility makes it privily expensive to be on the s&p ball or as we saw in 2022, which we’ve completely expected. If you have a slow dripping drawdown and vol. I think at 22 I do is at 25.6, you can correct me if I’m wrong, that was the average. And what that really means is is expected moves to 1.6% a day up or down. So if the markets dripping down at like half a percent or 1%, that’s perfectly in line with any variance metrics. And so those are the other things you have to worry about is like what does that slow drip down look like as well. And so you’re trying to cover as many of those path dependencies as possible and that’s why You may need to take a little bit of basis risk outside of the s&p, but you don’t want it too much a part of the book, but also, you know, your are we talking listed exchanges OTC is the contracts like there’s a lot of different pieces and parts of the way you construct these books. And you have to look about your holistic risks across the book,

Corey Hoffstein  30:17

you mentioned a couple of times now the importance of monetization in the tail hedging process, given that you’re hiring managers to run these strategies for you, 15 sub advisors in this sleeve, how does that waterfall of cash flow ultimately work across the portfolio? How are you expecting them to monetize? What sort of instructions do you give them? And then what do you expect to do with the cash as it comes back to you.

Jason Buck  30:43

So we kind of reverse engineering, I just tried to really understand the niche that our managers fulfill and what their strategy entails, we don’t try to tell them how to trade. This is their expertise, this is what their team does. So we just tried to really understand what they do. And then like I said, we try to overlay and overlap these different monetization heuristics. Because it’s interesting, like classical tail risk, if you have that deep out of the money protection, we’ve mainly only seen three, some could argue up to five events in last 3040 years as most traders have been around. But just because somebody has monitored that, well, the last three to five times, that’s not statistically significant. You know, you can’t count on that. So we have some of those, you know, we overlay that part of the book, but when we have other managers that will monetize on an intra weekly basis is sometimes an intra daily basis. So once again, we’re using an ensemble poach to try and try out the monetization to make sure we capture a lot of that move. Now, we started with our long volatility fund, because we didn’t feel people had access to that sort of thing. But it was always in service to our overarching cockroach fund and that total portfolio solution. So what that does is that forces people implicitly to rebalance. So take as an example of March 2020, market sell off your long volatility books up down is up, your s&p is down April 1, nobody is looking to rebalancing put more money into equities, we have a forced rebalancing function on the first of the month, to force you to buy those equities at a lower nap point. This is what allows you to compound wealth much more effectively and efficiently over the long run is the force rebalancing period. That’s our only form of timing is that force rebalancing. And but then, throughout the month, or throughout the years, I don’t tell my managers how to trade I don’t try to force them out of cetaceans, I just try to understand the way they monetize. And then we try to recycle that cash throughout the rest of the book, and just rebalance across all the different asset classes.

Corey Hoffstein  32:22

Continuing along the asset allocation pie, you mentioned that you replace gold with an ensemble of CTAs. So let’s just start with the why. What do you think Harry Brown got? Maybe wrong. But if I could be so bold with using just gold? And why do you think an ensemble of CTAs is a better choice?

Jason Buck  32:41

Unfortunately, Harry’s not here for us to question him. But I think it was more of efficiency of portfolio construction in the early 70s. Like what do you have access to like, as you know, CTZ were around then. But I’m not sure if you could construct a portfolio with him. And he was maybe writing a book about the ways that the average person could build a permanent portfolio. So maybe that’s part of it. Like I said, the hard part about gold is like, it does have an inflation hedge over a century long or millennia long cycles. But in intervening years, it may not do well, like we saw in March of 2020. Everybody’s desperate for cash. So they throw the baby out with the bathwater, and gold gets sold off in March of 2020. And if that’s your hedge, that’s your edge. So that’s why I just think, if you think about everything I’m taking from ensemble approaches, and the way we look at markets is like trying to, I try to say we don’t optimize portfolios, we try to build the least shitty portfolio. And I think that gold is an example of that, where that’s one path dependency for inflation. Where if I work with CTA, commodity trading advisors, and we try to find ones that are still commodity heavy, and we can get in there if you want. But the idea is they can trade upwards of 80 commodity markets. So you have a lot more path dependencies to monetize in an inflationary environment than just a singular path dependency with gold. We also still hold in our college portfolio, we have what we call our Fiat hedge book. That’s a little bit of gold and a tiny bit of cryptocurrencies. And the idea is like, what if we have truly cataclysmic events, diasporas and markets shut down? You know, we have a little bit of physical gold and crypto in there. And that sort of thing. That’s also a way to rebalance as well.

Corey Hoffstein  34:05

There were a large number of papers published in the last year that identified that CTAs do seem to do just as well as many commodities during inflationary cycles. But I think there’s an important aspect to think about gold as an inflationary hedge is what it comes down to what’s the source of inflation, right? Is it monetary inflation? Is it economic supply and demand driven inflation and all those seem to play out in different asset classes in different ways that gives CTAs perhaps the flexibility to exploit them whether going long or short, certain currencies long or short, certain commodities long or short rates, but as a category, right, CTAs are notoriously broad. So it’s wonderful in concept that CTAs have all this flexibility. But when you look at the actual performance year to year, you can have a stellar year for the average CTA and just happen to choose the one who does incredibly poorly whether it’s because of certain signals or the time horizon, they trade or the asset classes or their portfolio construction methodology. So I’m curious as to what is your process for thinking through manager selection, given that problem,

Jason Buck  35:13

when you and I end up both talking to institutions that call us all the time to pick up brain? And my least favorite question they always ask is like, tell me who the best manager in ball is, or tell me who the best manager and CTA is. And to me, they’re asking the wrong question, do you think you can pick them a priority is just nonsensical. And then you know, a lot of people will show the dispersion across CTAs every year, it can be massive, and then whichever, who’s on the bottom of those league tables with maybe at the top the next year, and vice versa. And so it goes all the way back to me to like Market Wizards as a teenager, I’ve been fascinated with CTAs. But once again, it’s about the dispersion of returns. So the way we think about constructing an ensemble of CTAs is we look at their timing their look back and their trading time horizons, we go short, medium, long term, we kind of tranche them out that way. And that’s typically where you harness a lot of that dispersion. So short term managers probably did well in March 2020. Medium probably got whipsawed long term may not even benefit it at all, it just depends on what the timing of the rebalance is. And then vice versa in March of 2008, q3 going into q4, the short term managers maybe didn’t do well, long term managers did well, it just depends, like you’re saying like the speed of the sell off the move, how are asset classes moving? Are they trending? Are they mean reverting? It really depends. So we think about trudging them out. First of all, by short, medium long term look backs, we also try to still source managers that are trading at least 25 to 50% commodities, which is kind of getting rarer and rarer, because a lot of the firm’s of the business went for an AUM gathering exercise. And as soon as you start managing five 10 billion plus, they’re limiting the capacity constraints to the smaller markets and commodities. So we’re still trying to find a lot of those managers, but you don’t want to go 100% commodities, because if you have a little bit of FX and a little bit of the financials in there, it helps balance out the book a little bit. So we use short, medium, long term. And then within those, we try to find differentiated managers that maybe maybe they’re all targeting, maybe they’re not maybe they’re breakout, maybe they’re Moving Average crossover, maybe they have different monetization heuristics is once again is like, as we build that book as AUM grows, and I’ll be able to add more and more diversification there, once again, is just trying to harness that dispersion, and create much more of a beta signal from that return, we’re never gonna be the best, we’re never gonna be the worst. But we’ll have that you know, over time, which is the key to our portfolio always is over time, will always probably be in that highest quartile over time. That’s the idea, these shitty portfolio,

Corey Hoffstein  37:24

manage features and CTA has largely become synonymous with trend following. And that’s because trend following has been the primary signal within that category, going back to the 70s, but it is by no means the only signal that gets incorporated. There’s plenty of managers, particularly over the last decade who struggled with trend following that have looked to incorporate things like carry seasonality, mean reversion relative value, economic signals, right, you’re talking about some of them trading 50 Plus futures markets, there’s a absolute breadth of different types of signals that they can implement here trend following just being one of them. So far, you’ve only spoken about trend following How do you think about the incorporation of those other styles of strategy,

Jason Buck  38:13

there’s a lot of things that you and I always talk about like it when people try to take hedge funds, we’re like, that’s the same with attacking LLCs, it doesn’t matter. Same with CTA space, Everyone just assumes trend following, but there’s a lot of other cool stuff. And there’s there’s like ag spread trading, there’s carry trading on things outside of FX and just term structure carry a lot of interesting things. What you are hinting at too, is like a lot of the managers that were pure trend followers over the last few decades, have moved into a lot more like mean reverting strategies to help balance their book or help improve their carry, you know, when it’s not an opportune time for trend following. So once again, as a capital allocator, you have to know and understand your managers what they’re trading, what their strategies are, to make sure you may have these implicit short volatility or mean reverting trades in their book. But it’s like what percentage how much you had to really dig into that. But in general, we just like to have just trend following commodities primarily. And that’s the bulk of the book. But then if they have other interesting strategies, I might put them in other parts of the book, I might look at putting those in that bond portfolio for income, you know, if it’s an ag spread trade or some sort of carry trade, one could argue that the carry trades should be maybe in the stock part of the portfolio because like the correlations are very high, right? It’s like a super powered stock portfolio if you’re really just writing that roll yield. So it’s really about digging in to see what they do. And then thinking deeply about where do you put that in your overarching book, and what is the emergent portfolio effect and putting those into different sleeves.

Corey Hoffstein  39:31

Portfolio design always requires some heroic assumptions about correlations and volatilities or maybe finding out quantitative you want to get risk factor sensitivities of the different components of the portfolio. What assumptions are you ultimately making in your design?

Jason Buck  39:50

We try to have very simple robust assumptions as I started with, we think about offense plus defense. That’s how we split out our book fans here which for that are our short volatility. versus long volatility. Most people realize that like usually most people’s portfolio or 95, to 99%, implicitly short volatility, they have no defense in their book. But we try to simplify as like half our book is offense half our book as defense. That’s the way we try to view the world. But like you could start breaking those down into that short ball versus long more than I said, we’d look at it, the four quadrant model is one way to look at it as well. And then you just said about correlations. Now, some large hedge funds out shall remain nameless, say you could find 16 uncorrelated bets, I’m not so certain to that. I think they all you know, when push comes to shove, and no liquidity event happens, there’s probably only two correlation, there’s three like that’s what you’re really dealing with. So I think about almost all risk on asset classes, whether that’s stocks, bonds, PE, VC, real estate, all those things are risk on their correlations go to one, everybody’s heard that a million times. And then you could build in structurally negatively correlated asset classes with tail risk and long volatility. And then I would argue uncorrelated is your CTAs. Historically, now will that hold that future We don’t know. But as you know, with uncorrelated means that it can be correlated with your equities, you know, 50% of the time. So to us, that’s the correlation matrix we worry about like because at the end of the day, I actually don’t believe in volatility as a measure of risk. I don’t believe in correlations because I’m like, Oh, this is your correlation. Alright, tell me when the bookends are, and what kind of environment we’ll be in during that period. Everybody can have these false beliefs about correlations that make them take on inordinate amount of risk, and then they get absolutely smoke when we have a regime shift. So I don’t think you can have correlations, I don’t think you can count on volatility or variance and a Sharpe ratio for a measure of risk. To us. It’s about what’s my return divided by my max drawdown, and you never know what your max drawdown is, because your biggest ones always ahead of you. So what I’m really trying to point out is like, we’re all kind of flying blind a little bit. So you want to have really simple robust heuristics to in your portfolio construction methodology.

Corey Hoffstein  41:51

Whenever I talk to anyone about all weather investing, there’s always something in the back of my mind that says, Look, you can’t have a portfolio that eliminates all risk, or you can, but sort of the taking it to its logical conclusion, you just end up with a very expensive risk free rate, in theory. So where do you think the biggest risks of your design are, you know, what risk is an investor taking on with the portfolio in order to earn a return?

Jason Buck  42:22

Yeah, I think you and I talk about this all the time, it’s like, the more broadly diversified you are, the more you’re reducing that variance. And the more you’re reducing your return inevitably, but hopefully, you’re reducing the variance and drawdown. So if you want, you can use a little bit implicit leverage to create kind of whatever return profile you want. The other part where I tend to push back is what I brought up earlier is like, a lot of those risk on assets are very linear. And when you combine those with their dividends of assets that are convex, you kind of have this beautiful pairing, that’s not quick to say, because if you paired linear and linear, right, your netting effect should be zero. And as you would know, there’s no arbitrage condition, no free lunch. But I think there’s an interesting emergent portfolio phenomenon. When you combine linear and nonlinear assets and you rebalance frequently.

Corey Hoffstein  43:02

Talk about that leverage level a little because to your point, when you add a bunch of diversifying asset classes together, the ball drops way down, hopefully your Sharpe ratio goes up. But often when you start packaging it to make it interesting, you need to add some juice in finding the right leverage level can actually be a challenging process I one of my favorite exercises is you just take the s&p 500. And you run in a different leverage levels. And you plot the compound growth rate versus the leverage level. And you get this hump right at the peak is in theory, the leverage level that maximized your compound growth rate, before the peak, you weren’t taking on enough risk. After the peak, you took on too much risk. Most of us want to sit safely to the left of the peak. But you do that exercise over a call it 3040 year period. And it might say well, actually the s&p should be levered up 1.8 times, well, you can find a two year period that if you levered up the s&p 1.8 times, you basically be broke, right. So your long term leverage doesn’t necessarily match the short term. Curious how you think about identifying that leverage root level in a robust way.

Jason Buck  44:15

Man, I think you just pointed out how difficult it is. But part of what you’re saying with like Kelly, or optimize leverage, or half Kelly or whatever it is, is like you’re competing forces. When you’re thinking about leveraging up just s&p that’s one part of the problem. But if you start adding in negatively correlated assets are uncorrelated assets. Now you have an integrative complexity problem that’s even more difficult to model. And so like how do you figure out what the leverage is in that equation? It’s exceedingly difficult, and I understand why most people are unwilling or don’t know how to do it, because this is more getting into the art versus the science. The way we think about is if we ran an unlevered portfolio, I think it’s a great portfolio because to me, it’s like, if you can hold all the world’s asset classes and rebalance, I don’t care what anybody tells me CPI and the inflation rate is, to me that’s like the global inflation rate and then hopefully the rebalancing effect helps you hurdle, that inflation rate. But people being people, we lever it up a little bit to make it a little bit sexier, right. But at the same time, we’re able to do that very efficiently using futures and options instead of like, borrowing debt to do so. So we’d like to implicitly do that for our clients. So then they have more tools in their toolkit. So if I’ve levered it up to x, and our broad portfolio is at 2.2x, if you add in the Fiat hedges, is the idea then when clients we work with, you know, a lot of them grab private assets. And I think there’s this beautiful balance of liquid and illiquid asset classes. So instead of just giving us 100%, your cash on levered, if it’s levered up two times, you can give us 50% of your cash, and then still use 50% of your cash to go out and seek out all these private assets, like, you know, real estate with deterministic cash flows. And there’s a beautiful symbiosis between those two. Is that the right amount of leverage, is that the optimal one leverage? No, I’m not sure you and I’ve talked about the past, like, if we even went half the full Kelly, we probably be anywhere from the four to 8x leverage range, like how nervous does that make you because what you referenced the beginning is figuring out that perfect leverage, which is why bless my friends that love Kelly, like I don’t think it’s applicable to nonnarcotic systems like we’re dealing with, because you have a Kierkegaardian rear view problem, you’re only looking at this past dataset, to predict the future volatility, correlations and your leverage. And that makes me nervous, because you’re never gonna have a large enough data set, and it’s garbage in, garbage out. And this is, once again, going back to art versus the sciences. Sure, I could put in 100 years of data. But if the world’s changed, and I can see something that doesn’t exist in that data set, I might have to lower that leverage, as we saw Jim Simons do in the past.

Corey Hoffstein  46:36

I think we just witnessed the first time in history that fractional Kelly, organicity and Kierkegaardian were all used in the same sentence. So that was, that was impressive. I don’t want to let you totally off the hook here. Because there is the problem I have with the way you’ve designed things. Okay, please, which is that at the high level, any hedge fund of funds, or most hedge fund of funds have to deal with this basket of options problem, which is a cost problem, you are paying managers who are getting a carry. And what’s happening is that you can have a situation where you the net portfolio can be down the client can be underwater, but they’re still paying carry fees, performance fees to the underlying managers that are actually up. And this can be a hard drag to overcome over the long run. And I know it’s something you’ve thought long and hard about. And I’m certain if you could easily eliminate it. You would. I’m curious, again, how you think about that affects the returns of the portfolio, and how you think about having to design around that.

Jason Buck  47:38

And there’s so many things we think about that. And yeah, if we could figure out a ways to reduce fees, reduce all of these things we would and we’re always trying to stuff it in different vehicles. But there’s all sorts of regulatory problems when trying to put any of these things, especially in the act 40 funds. But at the same time, all I care about is what my net return is. And I’m a huge fan of my ratio, which is your return divided by your max drawdown over time. That’s telling that you can’t really cheat or a lot of other things. You can cheat pretty well. Part of that, though, is like what is my net return? It’s fascinating to me that the Lo Fi mantra will get people to put their money in s&p 500 index and just for just for argument’s sake, let’s say it’s an 8% return with a 50 to 60% max drawdown. They only talk about the nominal returns, they don’t talk about the max drawdown. So if you build a portfolio that’s maybe robust, and has these correlations that are pretty robust as well. But let’s just say arguably, you had like a 6% return with a 10% drawdown To me that’s a far superior portfolio, because I come from the absolute return world, and it’s like, what can you eat at the end of the day? Like, I don’t care about the relative value world if like, if I’m down 45%, but that’s a piece out 50. And I like and I tried to claim that 5% outperformance that’s pretty ridiculous. Because behaviorally, people are likely to sell on that low crystallize those losses, and then be so fearful, they don’t get back in you. And I’ve seen it time and time again, the behavioral or babysitter tax, of doing stupid things through the portfolio can absolutely destroy your compounding and your family’s savings. So by reducing that volatility tax, even after net of all fees, it’s a much better way to compound your wealth over time, because you never know when you’re gonna need it most. The other argument against us is that our comps will maybe pod traps, right. And so they use all these hedge fund managers that they bring him into a pod shop. They give him much more salaries with a little bit of bonus. So they’re saying that reducing that fee structure, I think they have a negative selection bias. Like to me, I’m looking for managers that still have that entrepreneurial itch, they want to eat what they kill. And so I think net net, after you get down to their returns versus our fees after returns, you’re probably going to end up in about the same spot.

Corey Hoffstein  49:34

Now, you originally designed this idea as an entrepreneurial hedge. We discussed that way at the beginning. So I want to circle back to it. How do you think that this portfolio should be used? What’s its best use case for investors?

Jason Buck  49:48

So there’s two ways to think about this. One is you know, I’ve tried to talk to many businesses or even Dows or anything about their, their internal balance sheet, right? Like why hold cash and you know, our buddy MAbs had all these conversations as well like even cash and how a 17% drawdown historically. So a robust portfolio de levered, would create an amazing cash balance on your system if you think about it, especially if you’re doing business globally. So that’s one way to think about it as like an internal balance sheet at any sort of corporation. The second one is, as I started the beginning, is I can’t believe entrepreneurs put their money into like stocks and bonds, now they’re just increasing their leverage to risk on scenarios, what they really need to be doing is hedging for risk off. So to me, if an entrepreneur has any savings leftover that they cannot put back in their business, that should go into purely defensive strategies? And well, like I said at the beginning, what that does is it allows you to take much more idiosyncratic risk and really push as hard as you can, on your entrepreneurial advantages. It’s still hedging your global liquidity cascade risk, you know, is there some basis risk there? Is it perfect? No. But it’s at least you have defensive strategies in your portfolio. And now you’re not just leveraged long on risk on strategies,

Corey Hoffstein  50:58

sort of push on that last piece. Does that mean to you, for example, taking cockroach and pulling out the equity component? Does everything else considered the defensive that for an entrepreneur, it’s almost as if their business is replacing the equity component?

Jason Buck  51:12

Here? Well, we think about is philosophically we try to put 99% of our clients in the cockroach portfolio, because it’s the one that can behaviorally hold over the long term. But we work with clients that they want to pull up the sleeves, so you can get just the long volatility terrorists leave, you can get just the CTA sleep, so you can build out your defensive side of that portfolio. So that yes, that’s the way I would replace it, I would actually replace both the stocks and bonds with my business. And that I would only want to be in defensive strategies like long volatility, terrorists, commodity trade, and maybe hold a little bit of physical gold, potentially a bit of a tiny bit of cryptocurrencies for any of those cataclysmic events. But if I’m a business owner, I want only negatively correlated defensive strategies to help offset my risk when shit hits the fan.

Corey Hoffstein  51:52

I can’t in this podcast without asking you. Two more questions. One, I think is just sort of a fun curiosity about the fund. You guys have actually gone so far as to think about purchasing physical gold and storing it around the country when it comes to sort of cataclysmic events. Walk me through the thinking there. Things like real estate, for example, potential things you’ve looked into, like, how do you think about making this truly Cataclysm proof for your clients?

Jason Buck  52:25

As predator naturally Longbow guys, we think about a lot of things, even outside of markets, because like, I think it’s easy to hedge your market risk. But what happens if like, markets don’t shut down? You know, historically, what happens award, I asked about those sorts of things. And that’s why we think about physical gold. If I’m honest, before the pandemic, we actually looked at global segregated physical gold storage, but we found during the pandemic, you couldn’t get to that gold or it couldn’t get sent to you. So I think now we’re more okay with a few different domestic locations on the east coast and in Texas, and trying to diversify that way. But the idea there is like we’ve seen historically during war periods, where markets have shut down for weeks or months at a time. So what happens here, you don’t need much stored physical gold for that to have quite an exponential return in those sorts of environments. So that’s why we have a tiny bit of cryptocurrencies as well, just because like I said, I don’t know what gold is. I still don’t know what cryptocurrencies are in Estonia for a decade. But if like the maxis, right, what’s the exponential return that idea get up to like one 2% of your portfolio? Is it going to be 50x in market shut down? I don’t know. But if they’re right, you know, that’s what we’re trying to hedge all these exogenous risks. The other thing that’s nice about real estate, especially we’re working on like cockroach two point No, where we can have like physical farmland, Timberland, all sorts of and ensemble exposure to real estate, because as we know, that’s the other huge asset class that most people don’t have exposure to. And it’s not mark to market every day. So that has an interesting component to it when you combine it with a mark to market liquid portfolio, and how does that balance kind of work over time, even with our managers, we try to really be and just elicit exchanges. So we don’t have counterparty risk. But like I said, What happens if elixirs exchange shuts down? You know, we haven’t quite seen that yet. So we worry about maybe we do want to manage with some OTC risk, and some is the contracts with counterparties. Not a lot, but like maybe that’s a little bit better than having it all on listed exchanges. And then you have to worry about that your bankers you have to worry about all these things outside of the markets, is I think, where your exposure really lies, and not necessarily within the financial markets that we trade.

Corey Hoffstein  54:18

If you’re at the point, you’re having to go get the physical gold, is there arguably not a more convex trade in storing guns or food?

Jason Buck  54:29

So we talked about this all the time is like, if you get to guns and butter time, I mean, is the gold really gonna matter? I don’t know. But historically, the guns and butter time have been these interval points. And then we kind of mean revert back to having financial markets. So what’s the value of gold after that mean reversion, right, like, you know, you’re at least sitting on something of value. Even if markets never reopened, allegedly, historically, 2000 years of history, you should have something of value, will it be a value moving forward? I don’t know either. But that’s that broad diversification where we can’t predict the future. We’re trying to just do our best with what we have.

Corey Hoffstein  55:01

Well, buddy, I think my biggest takeaway from this episode is that somewhere in Texas, you buried some gold and I’m gonna go find it. So this has been fantastic. Thank you so much for joining me. Thanks for having me.