Mostly Mary [0:01]

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, 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.

[0:50]

Yeah, baby, yeah.

Mostly Uncle Frank [0:52]

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. Whoa, and you probably should check those out too, because we have the finest podcast audience available.

Mostly Mary [1:26]

Top drawer, really top drawer.

Mostly Uncle Frank [1:31]

Along with a host named after a hot dog.

[1:34]

Lighten up Francis.

Mostly Uncle Frank [1:37]

But now onward, episode 378. Today, on Risk Parity Radio, we're going to attend to your emails, what we try to do best here. Surely you can't be serious. I am serious and don't call me Shirley, and so, without further ado, here I go once again with the email. And First off. First off, I have an email from James.

[2:05]

Well, I'm waiting for you, Jimmy boy.

Mostly Mary [2:08]

And James writes Hi Frank, curious what are your thoughts on using silver in addition to gold? Ie SLV ETF.

Mostly Uncle Frank [2:19]

Sounds like we better consult with Yukon Cornelius about this one. Silver consult with Yukon Cornelius about this one.

[2:25]

Silver.

Mostly Uncle Frank [2:26]

Well, yes, I have looked at this in the past, at least personally, going back to about, I don't know, 2011, through 2014. I did own some silver ETFs Gold and silver but what I learned over time is that there is a fundamental difference between the way silver and gold markets trade and what they represent that silver really functions like a commodity.

[2:59]

Not yet Almost 220, take a 209. Yeah, got him South on an April of 142.

Mostly Uncle Frank [3:11]

It has industrial uses, but it's generally not held in quantity, like gold is.

Mostly Uncle Frank [3:18]

Gold is held by central banks around the world and functions essentially like an alternative currency, and so, while there's some correlation between them, gold tends to function more differently and more different times. So adding silver to the mix with gold just seems to increase the volatility without really increasing diversification. I'd much rather use that allocation for something like managed futures, and a managed futures fund will hold something like silver oftentimes and pick it up on trends. Silver does trend longer and harder than gold when it's trending, but unfortunately, when it's not, it's really not. So where I come out on this is like, well, yeah, you could use it for something, but it's really kind of suboptimal and that space would be better taken up by either more gold or something else like a managed futures fund. But it is kind of funny. Going back to my childhood, silver was one of those things that was really hot back then. We're talking about the mid to late 1970s, when it went from a few dollars an ounce to nearly $50 an ounce because the Hunt brothers were trying to corner the silver market.

[4:44]

Oh see, I made Lewis a bet here. Lewis bet me that we couldn't both get rich and put you all in a poorhouse at the same time. He didn't think we could do it. I won, I lost One dollar. Thank you, Lewis.

Mostly Uncle Frank [5:00]

And at that time you would trade silver essentially by holding silver coins, which were the 90% silver coins that the US used to use prior to 1965, up through 1964. And they were generally priced as something times spot, so the price might be five times spot, so a quarter was worth $1.25. Five times spot, so a quarter was worth a dollar 25. And I remember a friend of mine and I, when we were about I don't know, maybe 10, 12, 13 years old, pulled some money and bought some silver coins my god, the dukes are going to corner the entire frozen orange juice market unless somebody stops them or beats

Mostly Uncle Frank [5:42]

them to it and it was fun while it lasted, but it certainly was a bubble in the end. That also was one of my formative experiences with bubbles, because I don't think silver has returned to those prices from about 1979 or 1980 in nominal terms even now, and certainly not in inflation-adjusted terms. So anyway, yes, you could use it for something. No, I would not expect it to improve your safe withdrawal rate, put it that way unless, of course, you have a crystal ball that tells you when it's about to explode again in price terms.

[6:18]

It's kind of looking at the aura around the ball, see the movement of energy around the outside of the ball.

Mostly Uncle Frank [6:25]

Hopefully that helps and is slightly enlightening, and thank you for your email. I know just the guy to call Yukon Cornelio.

[6:35]

I'm Yukon Cornelio, the greatest hitman of all, and I've got a special present for you. Compliments of one disgruntled elf and red-nosed reindeer. Were you talking to me? You talking to me?

Mostly Uncle Frank [6:57]

Second off. Second off. We have an email from my Contact Info.

[7:03]

Oh, I didn't know you were doing one.

Mostly Mary [7:05]

Oh sure, I think I've improved on your methods a bit too.

Mostly Uncle Frank [7:10]

And my Contact Info writes.

Mostly Mary [7:13]

Episode 367 was a great episode. Thank you, correct me if I am wrong. Options and option-based strategies can be replicated using a combination of T-bills and underlying securities. This is how options are priced, using either the black shoals or binomial models. Thus, by definition, all options and, more importantly, all option-based products are technically superfluous. Perhaps a good analogy is paying for water in a fancy bottle. Thank you, mary and Frank.

Mostly Uncle Frank [7:51]

Well, paying for water in a fancy bottle is probably an apt analogy, am I right? Or am I right, or am I right?

[7:59]

Am I right?

Mostly Uncle Frank [8:01]

Just to orient everybody, in episode 367, we were talking about some of these covered call funds and I had a little mini rant about them. What else is new? And what you've stated is really the case that many have observed that a covered call fund can typically be replaced by some allocation of the underlying investment, whether it's say, like the S&P 500, and an allocation to T-bills, in which case all you're really saying is you're just kind of wasting space in the portfolio, that why don't you just take a smaller allocation to the underlying and then do something else with what would be T-bill money or put it in T-bills if you really wanted them? These things are just grossly inefficient. I don't know if you've listened to it already, but in the show notes for episode 370, there is an interview of Eric Balchunas who writes extensively about funds and Wall Street and Vanguard and a bunch of other things, but it is a discussion of all of the new recent ETFs that have come out over the past few years the good, the bad, the ugly and he was talking about these kind of funds in particular and he said you take a fund like JEPI, which is the most popular new fund these days and is one of these covered call funds and you can model that essentially with 60% S&P 500 and the rest of it in T-bills, 40% in T-bills. So you really are just getting ripped off buying something like that. You think you're buying something interesting, but you're just buying packaging, essentially, along with the tax issues that come along with something that throws off income like that. So it really is a study in marketing and human psychology as to why something like that would become as popular as it has become, because there's really no there there, and you should always be suspicious of funds that are heavily marketed like that, because the reason they are heavily marketed is that they make a lot of money for their fund creators and that is their real reason for existing, which is probably true for more than half of the new ETFs that are created. So you do have to be selective.

Mostly Uncle Frank [10:30]

But I think that's the inherent problem with constructing a portfolio simply by this shopping cart method, where you go around and say, oh, this fund looks good. Oh, this one's popular. Oh, people like's popular. Oh, people like this one. And then you throw them in your portfolio cart and you just end up with a mess of stuff that's probably expensive and not that useful or could be replicated with something that is a lot cheaper. This is why you should always start with asset classes when you're constructing a portfolio. Figure out what those are going to be on a macro basis and then go around looking for funds that fill those particular roles or holes in what you're trying to do. Anyway, I wholeheartedly agree with you and I don't think we can repeat this often enough that these buy-write funds and other option strategies funds are generally pretty worthless.

[11:26]

You are correct, sir.

Mostly Uncle Frank [11:27]

Yes, and so thank you for your email.

[11:33]

Trogdor strikes again.

Mostly Uncle Frank [11:37]

Last off. Last off.

[11:40]

we have an email from Cy Gee Cy this is the real groovy apartment you got here.

Mostly Uncle Frank [11:53]

And Cy writes.

Mostly Mary [11:55]

Hi Frank, I recently listened to an interview with Andrew Tobias, who wrote the first personal finance book I ever read. He obviously doesn't have Hobgoblins, since he has released what 12 revisions of the only investment guide you'll ever need. Here's the link and my comment Tobias' book was the first place I learned about asset allocation. I'm listening to the audio book of the latest revision now, thanks to this interview and Amazon Prime. It's the same delightful, self-deprecating, wise guy style as the original. You delivered the best interview with Andrew that I've heard. Five stars for the book and interview.

Mostly Uncle Frank [12:35]

Well, I think I did also listen to that interview and also found it very entertaining. Andrew Tobias is somebody who's just been around forever and is interesting. Sort of in a way represents the evolution of DIY investing over the course of many decades and really shows you how best practices have evolved but that things that are really good ideas have eventually risen to the top. So if you go back to when he first started writing and this is like 1980s I believe that was an era that I like to call the Bronze Age of investing. It differs from the Stone Age, which is pre-1970, when Wall Street was all about calling people on the phone with hot stock tips and generating large commissions for trading. That did change and evolve from the 1970s through the 1990s and is kind of represented represented by the three now biggest brokerages Schwab, vanguard and Fidelity and Schwab cut its teeth back in the 1970s as the first big discount broker that offered reasonable commissions for trades. That was followed by Fidelity's big first era, which was all about managed mutual funds and Peter Lynch and the Contra Fund and the Magellan Fund and all of those, and that's when Tobias started writing and the ethos then was that managers could easily beat the market with a little work, and so everybody was running around trying to find the hot manager and that was the best practice at the time. It's interesting that Morningstar actually dates from that era and their whole big star and rating system was all about trying to find the funds with the hot managers. Now, one of the things hot managers were supposed to be able to do was to adjust asset allocations. Over time. It was recognized that different assets performed differently. We didn't have factor investing back then, but there certainly was investing on sectors in particular. There was individual stock picking and then, of course, that is really when the 60-40 portfolio was developed and started to be commonly used as a base portfolio between the 1970s and the 1990s.

Mostly Uncle Frank [15:02]

Now you fast forward to the early 2000s and now you're getting into what I call the Iron Age, and what was going on then was this conflict between indexing and Vanguard and their approach with the Fidelity's and managed funds and stock pickers of the world, or fund pickers as it became, and that war was eventually won by the indexers because, as we know now from many reports over decades now from Spiva and others, most managers just can't beat indexes. And which ones are the good ones from year to year tends to change, and it's such a rare skill that the people that can do it, like the Warren Buffetts of the world, aren't sitting around managing mutual funds. They are off with hedge funds or other institutional kind of organizations or their own firms Institutional kind of organizations or their own firms. So for the rest of us, indexing is the way to go, and I think Tobias moved from that fund picking idea to the indexing idea. He did evolve over time.

Mostly Uncle Frank [16:07]

Now the other developments since then, which really started probably around 2018 when the SEC changed the rules to allow more kinds of ETFs to be marketed. Now we're in kind of a golden age where you have available all these different asset classes and relatively inexpensive ETF forms. And now it's interesting most of the commercial work or what is being marketed these days is not so much people that are stock picking although there's still plenty of that going on but there's also a lot of asset allocation picking, where what is being sold is the idea that people can read macro allocation markets, determine what kind of things are going to perform best in those markets and then overweight towards whatever they think is going to perform best, and I think Andrew Tobias's work has shifted towards that direction. But what has been constant through this entire period is that people know that asset allocation is critical, at least since the 1970s. What has evolved and changed over time is what is the best way to implement that.

Mostly Uncle Frank [17:19]

I think where we are now as do-it-yourself investors is that generally, the best approach is to do what is called naive diversification, where you pick a portfolio of different asset classes that is designed to do whatever you want it to do In our case, have a high safe withdrawal rate. In somebody else's case might be just to do whatever you want it to do. In our case, have a high safe withdrawal rate. In somebody else's case, it might be just to grow if you're in the accumulation phase of your financial life, but that is done by picking asset allocations. What we do not try to do here is change our asset allocations based on macroeconomic factors or reading markets.

[17:55]

A crystal ball can help you, it can guide you.

Mostly Uncle Frank [17:59]

Which is mostly what goes on in financial media world these days, but really doesn't tend to work very well most of the time and does not seem to work better than a more naive buy set allocations, rebalance them periodically and otherwise leave them alone. But I don't think asset picking, whether it's individual stocks or asset classes or by other means, is ever going to go away, because people can't resist their crystal balls now.

[18:29]

The crystal ball has been used since ancient times. It's used for scrying, healing, healing and meditation.

Mostly Uncle Frank [18:38]

And somebody needs to be out there doing that act of trading.

[18:42]

You have a gambling problem.

Mostly Uncle Frank [18:44]

Just to keep the markets healthy and reflecting what is going on in the world. Anyway, it was a nice interview. I will link to it in the show notes. I probably got something out of it different than what most people might get out of it.

Mostly Mary [18:57]

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

Mostly Uncle Frank [19:03]

And thank you for your email, but now I see our signal is beginning to fade. Looks like we had a short episode. Probably should have printed out another email, but you know how it is. It's not that I'm lazy, it's that I just don't care. Anyway, if you have comments or questions for me, please send them to frank at riskparityradarcom. That email is frank at riskparityradarcom. Or you can go to the website wwwriskparityradarcom, put your message into the contact form and I'll get it all 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 follow, a review.

Mostly Mary [19:45]

That would be great Okay.

Mostly Uncle Frank [19:48]

Thank you once again for tuning in. This is Frank Vasquez with Risk Party Radio signing off.

Mostly Mary [20:28]

The name's Yukon Cornelius, the greatest prospector in the North. You Signing off Nothing 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.