Mostly Voices [0:00]

A foolish consistency is the hobgoblin of little minds, adored by little statesmen and philosophers and divines. If a man does not keep pace with his companions, perhaps it is because he hears a different drummer. A different drummer.

Mostly Mary [0:19]

And now, coming to you from dead center on your dial, welcome to Risk Parity Radio, where we explore alternatives and asset allocations for the do-it-yourself investor. Broadcasting to you now from the comfort of his easy chair, here is your host, Frank Vasquez.

Mostly Uncle Frank [0:37]

Thank you, Mary, and welcome to Risk Parity Radio. If you are new here and wonder what we are talking about, you may wish to go back and listen to some of the foundational episodes for this program.

Mostly Voices [0:52]

Yeah, baby, yeah!

Mostly Uncle Frank [0:56]

And the basic foundational episodes are episodes 1, 3, 5, 7, and 9. Some of our listeners, including Karen and Chris, have identified additional episodes that you may consider foundational. And those are episodes 12, 14, 16, 19, 21, 56, 82, and 184. And you probably should check those out too because we have the finest podcast audience available.

Mostly Voices [1:28]

Top drawer, really top drawer.

Mostly Uncle Frank [1:31]

Along with a host named after a hot dog.

Mostly Voices [1:35]

Lighten up, Francis.

Mostly Uncle Frank [1:38]

But now onward, episode 283. Today on Risk Parity Radio, we're just gonna do what we do best here. What you just said is one of the most insanely idiotic things I have ever heard. Given my bad voice, and so without further ado, here I go once again with the email. And, first off, we have an email from Mark.

Mostly Voices [2:08]

All hail the commander of his majesty's Roman legions, the brave and noble Marcus Vindictus.

Mostly Mary [2:17]

And Mark writes, Hello, Frank and Mary. I came across a fantastic podcast episode that made me think of Frank multiple times while listening to it. The podcast about the disagreeable personality trait. My observation is that Frank would likely rate very high on the disagreeable.

Mostly Voices [2:39]

My observation. Mary Mary, why a bargain? is that Frank would likely rate... Mary, Mary, I need your hug.

Mostly Mary [3:02]

My observation is that Frank would likely rate very high in the Disagreeability Index that is described in the episode. As you listen to the episode, you will realize that it is actually a compliment, and more generally, that increasing your rating on the Disagreeability Index is likely a critical factor for success. successful investing. Ignore the confusing title of the episode. The 12 rules for life construct is simply a literary device that Gladwell uses throughout the episode. I hope you enjoy it as much as I did both times that I listened to it. Mark.

Mostly Voices [3:36]

I've spoken my piece and counted to three. She counted to three. She counted to three.

Mostly Uncle Frank [3:43]

All right. I guess we're having fun with off topic today. which I don't mind. The podcast that Mark is referring to is the Revisionist History podcast, which is Malcolm Gladwell's podcast, and it was season three, episode seven was the particular episode. I will link to it in the show notes. I'll actually link to the YouTube version because it's easier to access. But anyway, this topic came up when he was talking to or about Cliff Asness of AQR Capital, which is somebody that we talk about here and who I do admire for his thoroughness and his white papers. They were also saying that he's employed more PhDs there than MIT and that shows. As for my personality traits, that gets to a fun test to take and I went back and took it again because I hadn't. This is called the Big Five Personality Test. and it is supposedly one of the most accurate and tested kind of tests. I will link to it in the show notes so you can take a version of it. And it looks at five characteristics, which are usually designated by the acronym OCEAN, if you prefer. O stands for openness, C stands for conscientiousness, E stands for extraversion, A stands for agreeableness, and N stands for neuroticism.

Mostly Voices [5:12]

Secondary latent personality displacement. Oh great one, yes sir.

Mostly Uncle Frank [5:19]

And each is measured on a scale from zero to 100, with more being 100 and less being zero. Anyway, I actually am not that low on agreeableness. I'm moderately high on that as well as being moderately high on openness, conscientiousness, and extraversion. I'm low on neuroticism.

Mostly Voices [5:43]

I am a scientist, not a philosopher.

Mostly Uncle Frank [5:46]

I think the reason I may come across as being low on the agreeableness scale is that I've spent decades now with very disagreeable people otherwise known as practicing lawyers.

Mostly Voices [5:59]

It's like I took the wrong week to quit drinking.

Mostly Uncle Frank [6:03]

And I would have to say that one of the things that burned me out a bit on the legal profession was being around disagreeable people. people all the time when I'm not that disagreeable. But it also contributes a lot to my presentation style, which is more lawyerly than most people in that I think if you're going to talk about a topic in some kind of authoritative way or persuasive way, you need to take a position and then back it up with as many objective facts that you have.

Mostly Voices [6:34]

You have more chance of reanimating this scalpel than you have of mending a broken nervous system.

Mostly Uncle Frank [6:38]

So in a certain sense, there's kind of an on/off switch going on here, in which case I'm laid back most of the time about most things, but when it comes to some kind of intellectual curiosity about something, if we're going to go down a rabbit hole, I really want to explore it in detail and be able to articulate whether choice A is better than choice B and Y, and then be able to back it up with adequate citations and other information.

Mostly Voices [7:06]

so, Mr. Crand, you could positively identify the defendants for a moment of two seconds looking through this dirty window, this crud covered screen, these trees with all these leaves on them, and I don't know how many bushes. It was like five. Uh-. Don't forget this one and this one. Seven bushes. Seven bushes. So, what do you think? Is it possible you just saw two guys in a green convertible and not necessarily these two particular guys? I suppose. I'm finished with this guy. And it's more of an intellectual exercise than anything else.

Mostly Uncle Frank [7:59]

Although I have to say, being relatively high on conscientiousness probably also contributes to that because conscientious people are always looking for the right answer. Of course, I live with somebody that probably gets a perfect score in that category. Ms.

Mostly Voices [8:14]

Vito, please answer the question. Does the defense's case hold water? No. The defense is wrong. What is she saying? Are you sure? I'm positive. How could you be so sure?

Mostly Uncle Frank [8:37]

Because there is no way that these tire marks were made by a '64 Buick Skylark. These marks were made by a 1963 Pontiac Tempest. And as far as investing is concerned, I would guess that conscientiousness would be the most important factor and then openness out of these five. Because what you really need to be able to do is absorb new information as you find it and integrate it into whatever else you are working with to begin with. Extraversion and agreeableness are probably neither here nor there with respect to this issue. I would think being low on neuroticism also helps in investing. And that neurotic people do not make good investors, at least not the ones that I know. What are you talking about?

Mostly Voices [9:27]

How can you sit there and look me in the eye and tell me that you're not worried? Don't you have any sense? Don't you have a brain? Are you so completely senile you don't even know what you're talking about? They are the ones who are much better off with simple annuities and bond ladders that offer Security and maximum predictability.

Mostly Uncle Frank [9:48]

I suppose it would be interesting to poll the audience as to what most people are or how they rate on this big five test. My guess is that most of you are high on conscientiousness, probably low on extroversion, meaning you're introverted, medium to high on openness, anywhere on the map on agreeableness and low on neuroticism.

Mostly Voices [10:13]

I'm not afraid to die. I never think about it. You don't? Well, I think about it a lot. I think about it at my age. Imagine how much I'll be thinking about it at your age. All I do is just keep thinking about it till it drives me insane. But I'll leave you the link and you can check it out for yourselves. I'm grateful for every moment I have. Grateful? How can you be grateful when you're so close to the end? When you know that Annie Second Place Boom! Bam! Oh, it can all be over!

Mostly Uncle Frank [10:48]

Second off. Second off, we have an email from Wesley.

Mostly Voices [10:53]

Phone boy, polish my horse's saddle. I want to see my face shining in it by morning. As you wish. And Wesley writes, Hope all is well, Frank and Mary.

Mostly Mary [11:08]

I'm planning on incorporating a managed futures fund in my portfolio when I transition to retirement down the road, which will be a variation of the Golden Butterfly, something like 25% total market, 25% small cap value, 20% long duration treasuries, 10% short duration treasuries, 10% gold, and 10% managed futures. I listened to Paul Kim talk about this simplify ETFs on the Animal Spirits podcast and was intrigued about the approach to their managed futures ETF, CTA. If I heard him correctly, it sounds like they exclude equities in their strategy to further diversify away from a typical 60/40 portfolio, whereas others, such as DBMF, use equity futures in their strategies. I know CTA is relatively new, but wanted to get your thoughts on it as a potential diversifier in a risk parity portfolio given that particular approach of excluding equity futures. Also, any comments you have on my portfolio allocation above would be much appreciated. Thanks for taking the time to respond to my questions.

Mostly Voices [12:19]

Your discussions on DIY investing are by far my favorite and I hope you never retire from doing this, Wes. Have you ever heard of Plato, Aristotle, Socrates? Yes. Morons.

Mostly Uncle Frank [12:35]

Really? Well, let's talk about this portfolio you've constructed. 25% total market, 25% Small cap value, 20% long treasuries, 10% short treasuries, 10% gold, and 10% managed futures. I think that sounds like a strong portfolio that's going to perform something like the Golden Ratio sample portfolio, I would guess. Something between that and the Golden Butterfly. Although your portfolio does have 50% equities in it, which is more than the Golden Butterfly. a slightly more aggressive version than a Golden Butterfly portfolio. And I think the addition of the Managed Futures is probably going to help it overall. I did go ahead and plop it into Portfolio Visualizer with a Arrow Managed Futures Mutual Fund for the Managed Futures portion of it since it tests at least back to 2010. And it performed nicely in that time. the most notable thing is that it only had a 12.2% maximum drawdown and was only down about 8. 8% in 2022. So you'd probably sleep pretty well at night holding that. Snooze and dream.

Mostly Voices [13:45]

Dream and snooze. The pleasures are unlimited.

Mostly Uncle Frank [13:49]

Now, as for this new fun CTA. Yeah, I'm aware of it and I'm really interested to see how it will perform over time. I think it compares best with the ETF KMLM because they both seem to be similarly structured with similar amounts of risk in them, whereas DBMF actually takes less risk because it's following that SOC gen index. But I will tell you that in today's world, whenever I hear people talking about investing in it, ETF for managed futures. I hear some people say, Should I invested DBMF or CTA or KMLM? Because they're kind of the three best lower cost alternatives today. And a lot of people say, well, why don't you just put some money in all three of them? I think the last time I listened to Meb Faber, that's what he was talking about. I'll see if I can find that podcast. It was also with him and the guys from the Animal Spirits podcast. and they were talking a lot about this topic in addition to a number of other things. So I'm probably just going to let CTA run a bit for the next two or three years and see how it performs and see how it compares with these other ones. I do hold both KMLM and DBMF in some of our personal portfolios. I am also guessing that there will be other ETFs like these. since they've become so popular recently, and DBMF has attracted a lot of capital, particularly from RIAs.

Mostly Voices [15:33]

And as for me ever retiring from doing this, well, as long as I'm enjoying it, I don't think I will, and I don't think I'd like another job. Just gonna pace myself. I'd say in a given week, I probably only do about 15 minutes of real, actual Work.

Mostly Uncle Frank [15:46]

And take breaks when I need them. It's not that I'm lazy.

Mostly Voices [15:50]

It's that I just don't care.

Mostly Uncle Frank [15:54]

It does provide a lot of motivation when I get interesting emails like the one you sent me. And all the generosity to the Father McKenna Center that many of you have shown. And my kids still listen to it too. Although they're kind of grumpy. There hasn't been more SpongeBob recently.

Mostly Voices [16:12]

Donate to the Children's Fund. Why? What have children ever done for me?

Mostly Uncle Frank [16:17]

But anyway, thank you for your email.

Mostly Voices [16:28]

Last off.

Mostly Uncle Frank [16:32]

Last off, we have an email from Tom and Tom writes, Hi, Frank.

Mostly Mary [16:40]

The topic about the US losing its prevailing position in the world's economy comes up a lot nowadays. Let's just assume for a minute that it's actually happening. Assuming it already happened with England in the past, could you comment about their stock market and what happened with a British investor who kept investing domestically only? Would that have worked? Thanks, Tom.

Mostly Uncle Frank [17:03]

Well, I guess this really is frolic and detour day.

Mostly Voices [17:07]

You are talking about the nonsensical ravings of a lunatic mind.

Mostly Uncle Frank [17:12]

I took this question and I decided to throw it into the AI bots to see what they had to say. ChatGPT could not answer the question at all.

Mostly Voices [17:23]

Forget about it. Basically gave me a response.

Mostly Uncle Frank [17:26]

I'm not programmed to answer that. I'm not sure why. When I put it in Bard, Bard did give me a reasonable answer to it, except there were things that were obviously wrong. For example, it said that the South Sea bubble in the British stock market occurred in 1820, when we know that it occurred in 1720. It did apologize when I corrected it on that point. Surely you can't be serious.

Mostly Voices [17:53]

I am serious. And don't call me Shirley.

Mostly Uncle Frank [17:57]

But anyway, the best data sets I was able to find in this actually came from the Federal Reserve, the St. Louis Fed, Fred. And since they don't seem to have anything better to do there, one of their analysts sat down and did construct a data series of the British or London stock market going back to 1800. And they presented it in three graphs. I think that third graph is the best one to look at because it tries to account for currency fluctuations and other things. But anyway, what you can see from it is that the outperformance of the British stock market occurred during the British century, which is from the end of the Napoleonic era, Wellington's victory at Waterloo in 1815, all the way to World War I. when the wheels came off. And if you know anything about British economic history, you do know that that period experienced a whole lot of booms and busts, a lot of them in railroad industries, particularly in the first half of the 19th century, culminating with a gigantic one in the 1840s that our friend Charles Mackay, who wrote Popular Delusions and Madness of Crowds, got caught up in in the madness of that crowd. But as the United States became more important as an economy, you can also see some of those events affecting this stock market. One of those was the worldwide panic in 1873. And then there was the panic in 1907, which was actually precipitated by the earthquake in San Francisco. And that's an interesting history because the San Francisco built towards the end of the 19th century looked like a very European capital. And there really wasn't earthquake insurance much per se then, but there was fire insurance, and most insurance for large companies, buildings, etc. was written in London. And so after the Great Earthquake and then the Great Fire, they literally loaded gold on ships to pay the claims of the insurance that came over from Great Britain to the United States at that time. But then World War I really took care of completing the destruction, since it destroyed the empires of Russia, Austria-Hungary, the Ottoman Empire, and the German Empire, and left both France and Great Britain in a diminished economic state. If you want to read a book about the fallout from that, read a book called the Lords of Finance, which is about central banking in the 1920s leading up to the Great Depression, and how trying to manage the overhang of all the debts that were run up during World War I contributed greatly to the economic woes that came after that. So I suppose if you're looking for some kind of analogy, you need to have a few things to happen before the US would lose its dominance. First, you have to have Probably a hundred years or close to it. We're 20 years from that. Then you also need to have other rising powers, because at the time of the turn of that century, Germany and the United States were overtaking Britain in terms of technology. So you'd want to see another power overtake the United States in terms of technological innovations. And then you need some kind of war or other cataclysmic event. But that was still a very long process. It reminds me, I think we're gonna go see Oppenheimer tonight. I actually read the book that movie was based on several years ago when it came out. And one of the things I found the most interesting as somebody who had attended Caltech was that when Oppenheimer was studying physics in the 1920s, there really wasn't anywhere in the United States for him to go study theoretical physics. at a high level, and so he went to England. And so that whole transition really wasn't completed until World War II. So I think we probably have a few good decades left in the US if you're counting or you're trying to crystal ball that out. Crystal ball can help you. It can guide you. The other reference I think you should check out would be Ray Dalio's Principles book, in particular the historical part where he goes through all of the different factors that lead from one society or country to be dominant and then lose its dominance. And technology is definitely one of those factors. So the ultimate answer to your question is... Yes! And that was true up until around World War I. So hopefully that helps you with your construction of your crystal ball.

Mostly Voices [23:00]

Place it over a candle and it's through the candle that you will see the images into the crystal.

Mostly Uncle Frank [23:07]

And thank you for your email. But now I see our signal is beginning to fade. If you have comments or questions for me, please send them to frank@riskparityradio.com That email is frank@riskparityradio.com, or you can go to the website www.riskparityradio.com and put your message into the contact form and I'll get it that way. If you haven't had a chance to do it, please go to your favorite podcast provider and like, subscribe, give me some stars, a review. That would be great. Mmkay? Thank you once again for tuning in. This is Frank Vasquez with Risk Parity Radio. Signing off.

Mostly Mary [24:05]

The Risk Parity Radio show is hosted by Frank Vasquez. The content provided is for entertainment and informational purposes only and does not constitute financial, investment, tax or legal advice. Please consult with your own advisors before taking any actions based on any information you have heard here, making sure to take into account your own personal circumstances.