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Talkin' Shop: The Basics

Eric, CIO of Standpoint, gives a brief overview of some of the factors that he considered when designing an all-weather strategy. He also discusses the importance of making money while the economy is growing, but also having the ability to protect assets during hostile periods. Taxes and fees are also an important consideration when designing a strategy.

Key Takeways

  • Minimizing the impact of fees, taxes, and turnover are high on the priority list of exceptional asset managers.
  • A 60/40 portfolio may perform poorly during a period of stagflation.
  • An all-weather approach has historically performed very well during periods of stagflation.

Transcript

Eric Crittenden: We eat our own cooking, these are our best ideas. We enforce discipline this way. We're totally unconstrained and flexible, go anywhere, global, different asset classes and whatnot, we care about taxes, we care about fees, turnover. We're just trying to be really good asset managers, and generate a good compounded return with a reasonable amount of risk over a long period of time by simply never being unprepared for crazy market environments.

I'll include the 1970s in that. Stock and bond portfolio is good, it's actually really good except during a period like the 1970s. I think you deserve to know that we have no intention of having a negative real rate of return for 14 years just because there's stagflation. Right? We feel it's our job to be prepared for an environment like that and to generate a reasonable net of fees real returns during a period like that.

Now, you're asking what's the catch? The catch is in a runaway bull market where the S&P 500 has a Sharpe ratio of three. Yes, we're probably going to underperform. Maybe not, but I would expect to, and if that's going to destroy your business, then so be it, but what you get is somebody who's actually going to prepare for the nightmare scenarios, which 60/40 portfolios it's just not prepared. With bonds where they're at right now, it's especially not prepared.

If you want to make that bet, I don't blame you. You know, your life will actually be a lot easier politically and socially, but if that bet keeps you up at night, and you want well-intended people that actually are evidence-based and research-based, that are unconstrained and they care about you and your results and the taxes and the fees that you have to pay and they eat their own cooking, we're your guys.

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