Resolve Riffs Investment Podcast

Today we interview Lars Kestner, a Managing Director at a European investment bank. Over his 20+ year career on Wall Street, he has led teams that have managed derivative risk across a vast range of market environments. He is the author of Quantitative Trading Strategies, a cutting edge text on systematic trading. Lars designed and employed his first systematic trading system to trade 30yr bond futures before entering college.

We discuss two papers that Lars released on his website, satquant.com, in the last few weeks. His paper “Preferred Portfolios” describes a novel framework for assembling strategies with wildly different characteristics into a coherent and resilient portfolio. We discuss how to sort strategies into Boosters, Defenders, Diversifiers and Selectors based on a novel quantitative method. We then go on to examine the theoretical limits of diversification, and the importance of aligning strategy composition with investor psychology and goals to minimize the potential for abandonment.

We also discuss a brand-new paper called “Replicating CTA Positioning: An improved method”, which proposes a method to peer into current CTA portfolio positioning. This is of value because CTA trend-followers are often the marginal buyer in markets at certain points. The ability to identify concentrated risk positioning and/or potential turning points may offer investors a unique edge.

Lars is clearly passionate about using quantitative methods to maximize investment results in the real world and he offers a variety of valuable nuggets for the perceptive listener. Please enjoy my conversation with Lars Kestner.

This is “ReSolve’s Riffs” – live on Youtube every Friday afternoon to debate the most relevant investment topics of the day.

Despite the common understanding – and ubiquitous disclaimers – that past performance is not indicative of future returns, it is well documented that performance chasing can be almost considered a fundamental law of capital allocation among institutional and retail investors alike. It is also an open secret in the industry that well-connected managers are much more likely to receive institutional allocations than obscure ones.

To discuss and shed some light on a recent whitepaper that explores these topics, we invited our good friend Brian Portnoy to bring his vast experience as a hedge fund analyst and allocator to bear. Throughout the conversation we cover:

• How to determine whether a manager has skill
• The evolution of alpha through time
• Many ways of defining alpha
• The role played by familiarity bias
• Principal-agent problem in capital allocation

It was a far reaching discussion with many layers, and once again much improved by the many questions and comments we received throughout the live stream. Keep ‘em coming!

Thank you for watching and listening. See you next week.

Dan Egan is the Directory of Behavior Science and Investing at the online advisor, Betterment. In launching this rather unique career, Dan levered a Masters degree in Decision Science at the London School of Economics into a role as Behavioral Finance Specialist at Barclays Wealth in London before moving on to Betterment. With 15 years operating at the cross-section between human behavior and markets he is one of the world’s foremost experts in this field.

To kick off the discussion I wanted to know: What do investors really want? Not what they say they want, or what economists say they should want, but what their day-to-day behaviour says about what they actually want in practice. And moreover, how can advisors avoid disappointing them?

We also spent a while discussing the idea of nudging. I wondered about the type of nudges that Dan’s research suggests might be helpful and how he thinks about navigating the fine line between nudging and manipulation.

Lastly we discussed how Dan’s understanding of human behavior factors into Betterment’s portfolio construction and lessons learned along the way.

Dan is a data junkie and his unique perch has allowed him to gather critical insights into how humans interact with markets. I came away with some practical insights applicable to almost every facet of our investment business. Please enjoy my conversation with Dan Egan.

This is “ReSolve’s Riffs” – live on Youtube every Friday afternoon to debate the most relevant investment topics of the day.

To help us make sense of this market we invited Chris Schindler back to discuss:

• Why the next 10 years are likely to be very challenging and different from the past 10 years
• Why investors should set very low return expectations for virtually every major asset-class
• The power of recency bias and lottery-ticket (wishful) thinking
• The role of commodities and how to use them effectively in a portfolio
• Portfolio construction as a source of both risk and possible alpha
• The dangers of mispricing risk of private investments and assumed negative correlations

We also discussed how Risk Parity is a) disastrously mis-specified by most investors and b) held to a much higher standard than almost any other investment approach, even though it is still the most coherent starting point for a global diversified portfolio.

Thank you for watching and participating with your questions. See you next week.

This is “ReSolve’s Riffs” – live on Youtube every Friday afternoon to debate current and most relevant themes in the world of investing.

Among hot and contentious topics in investing, cryptocurrencies certainly rank top of the list – including their designation as a form of currency. From a techno-libertarian experiment, Bitcoin, its peers and particularly the blockchain technology that underpins them, have morphed into a global phenomenon that promises to revolutionize finance itself. Our conversation with our guests Tyrone Voss Jr (401 / Altruist / Human Advisor Podcast) and Shaun Cumby (CIO at 3iQ) included:

• How cryptocurrencies can be thought of within the context of a portfolio
• Digital Gold vs Long-dated call options on a store of value
• The generational factor between believers and detractors
• Cold vs hot storage
• Stable coins and crypto’s money market

This was a true learning experience for us, enhanced not only by our guests’ knowledge of the space but also the many questions we received. Special thanks to Shaun and Tyrone for joining us, and to everyone that tuned in and participated in the discussion.

See you next time.

With the popularity of sports betting personalities entering the investing world we thought it would be timely to bring an expert sports handicapper to discuss the similarities and differences between these highly probabilistic domains.

Our guest for this conversation is Steve Merril of ProSportsInfo.com. Steve has been a professional sports handicapper and betting analyst for over 24 years and can be seen and heard every week on numerous radio and TV shows across the United States.

We discussed the history of sports betting going back to its early days in, of all places, Chicago!  It seems all things handicapped, whether futures markets or sports books, originate in Chi-Town.

Other topics include the three keys to winning long term in sports betting, the sharps versus the squares, steaming the line and the differences in discrete events in the world of sports versus the continuous distributions in financial markets.

If you are a fan of books like Bringing Down the House: The Inside Story of Six MIT Students Who Took Vegas for Millions or Fortune's Formula: The Untold Story of the Scientific Betting System That Beat the Casinos and Wall Street, you’ll definitely find this conversation fascinating. Enjoy!

Today’s guest produces the Breakingthemarket blog, which exploded onto the scene in spring of last year, spewing shrapnel at traditional beliefs about investment objectives and portfolio construction. Borrowing key concepts from Ed Thorpe and the Ergodicity Economics community, Matt  - who would like to remain anonymous for now – builds portfolios that focus on maximizing geometric returns by combining uncorrelated investments with frequent rebalancing and appropriate exposure informed by the Kelly criteria.

We dig into how Matt’s background in mechanical engineering informed his approach to the problem, why he thinks most investors are upside-down in their investment approach, and why his strategy of Geometric Rebalancing may be a compelling strategy for all markets. We dig deep into portfolio concepts like how he estimates returns and other portfolio inputs, the relative importance of errors in means and covariances, and how to manage portfolio exposures over time. We also discuss the principles of ergodicity economics and some broader implications for policy and the wealth distribution.

I’d been looking forward to this for months and it did not disappoint.

This week we interview Andrew Miller, CIO of Miller Financial Management. Andrew’s passion is at the intersection of investment management and financial planning, and he has extremely novel perspectives on both domains.

We trace Andrew’s background in structured credit and alternatives and map this experience to his current framework for thinking about diversification and sources of risk and return. We also discuss how Andrew’s views on diversification have evolved over time and how he thinks about factor strategies and alternative premia, including how he applied trend-following principles to factor exposures.

Andrew spends a lot of time on engineering optimal asset location strategies and shared some compelling facts about how some fairly simple steps can improve expected returns by almost 1% per year.

 It’s rare to find someone with deep theoretical and fundamental understanding of nuanced investment topics who has found very practical ways to deliver the potential value of these strategies to clients on the ground. There’s something here for everyone!

This is “ReSolve’s Riffs” – live on Youtube every Friday afternoon to debate the most relevant investment topics of the day.

Most pension plans and other institutional investors with long-term liabilities are faced with an enormous mismatch between the return assumptions in their actuarial models and the combination of sky-high equity valuations and rock-bottom bond yields. Some have chosen to address their funding gaps by adding leverage to their portfolios. Topics of this include:

• Different types of leverage – Implicit vs explicit, recourse vs non-recourse
• Hidden leverage in private investments
• Volatility targeting – pro-cyclical vs counter-cyclical
• Leverages towards concentrated vs diversified investments and market fragility

The conversation was greatly enhanced by a series of questions from our friend Mike Green (Logica Capital) – who we hope will join us in the coming weeks. Special thanks to Mike and others that have participated with their questions.

Keep them coming and see you next Friday.

This is “ReSolve’s Riffs” – live on Youtube every Friday afternoon to debate the most relevant investment topics of the day.

The recent pandemic-led selloff has once again highlighted the importance of having ballast in portfolios to deal with extreme equity volatility – and ultimately protect investors from disastrous outcomes. This week we discussed:

• Whether bonds can continue to provide protection given rock-bottom yields
• If gold will outshine other safe-haven assets in the current environment
• The tradeoffs between sovereigns and the shiny metal
• The current economic environment and the possibility of a paradigm shift

The team also explored how both bonds and gold should fit into a risk parity framework where investors do not necessarily have to make a choice but can rather benefit from owning either one – or both – at the right time.

Thanks for watching and see you next week.