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The Alternatives Mason: Building Alts Knowledge Brick by Brick | Episode 34 | Strategic Wealth Creation: Insights into Alternative Investments with Austin Root
18 Plays4 days ago
In this episode of The Alternative Mason, host Brittany Mason sits down with Austin Root to unpack the opportunities and misconceptions around alternative investments. Austin shares lessons from his career—from early entrepreneurship and roles at major firms to running North Oak Capital and explains how liquidity, diversification, and goal-oriented strategies shape better portfolios today. Whether you’re focused on wealth accumulation, preservation, or income generation, this conversation offers practical frameworks for incorporating alternatives and lowering portfolio correlations.
Key takeaways:
- Be strategic about liquidity: accepting some illiquidity can unlock higher returns and unique opportunities.
- Build goal-oriented portfolios: define whether you’re trying to get wealthy, stay wealthy, or generate income—then tailor allocations accordingly.
- Diversify beyond 60/40: use lower-correlation assets (alternatives, gold, specialized exchanges) to improve resilience and reduce systemic risk.
- Trust and resilience matter: align incentives, maintain operational rigor, and choose strong partners to protect capital through market cycles.
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Transcript
00:00:00
Speaker
If we think about this, all else equal, if you had two investments and they promised the same returns over time, and one was freely liquid, you could buy eye in and out of it anytime you wanted, and one was illiquid, which would people take? They would choose the liquid one, yeah right?
00:00:19
Speaker
And so the market has solved for that such that if you're willing to be illiquid for part of your portfolio, then you can generate higher returns long-term if it's done properly.
00:00:34
Speaker
And so said differently, if your portfolio is completely 100% liquid, you have not optimized your portfolio for the returns.
00:00:51
Speaker
Hello everyone, I'm Brittany Mason, your host of The Alternative Mason, and we're back with another episode today. I'm really excited to share with you our guest is Austin Root. He is Chief Investment Officer at Stansberry Asset Management, our new platform partner. And with experience across hedge funds, private credit, and public markets, Austin and I will dive into today's market environment.
00:01:15
Speaker
with the role of income-producing alternatives in building durable wealth and how leadership shapes investment outcomes. I'm really excited to learn more about your story, Austin. Thank you so much for taking the time to talk with us today.
00:01:30
Speaker
Thank you, Brittany. It's an absolute pleasure to be here. And i like the way you frame that. i All of those topics, I'm excited about talking about. Very exciting. I always like to start things off with trying to understand what makes you tick and what was your earliest money memory that you can think of.
00:01:50
Speaker
Yeah, gosh, maybe that's the least exciting part I was gonna talk about. I know all those other ways that ink to generate wealth, but but no, i'll indulge I'll indulge you. I had, it it started early, early on. I had a lawn mowing business with a friend And maybe different than some folks though, that lawn mowing business funded my interest in sports cards.
00:02:19
Speaker
So I would buy sports cards and then go to conferences and then try and buy and sell them and try to make. I loved sports cards, but I really thought saw them as an investment. So mow lawns, buy sports cards, and then try to sell them to someone else at the same conference. So you were always a bit of an entrepreneur, even at a young age.
00:02:39
Speaker
I really was. Yeah, it was, it was fun. and I definitely, i didn't grow up with a ton of capital, but I grew up in a neighborhood in Ohio that other people had lots of capital. And so i kind of was like, gosh, it would be nice if I could afford this or that. And so probably started out from a needs base, but then also what I ended up is really enjoying thinking through how we were going to make money as a lawn mowing business that we also used in the snow as a snow shoveling and plowing business.
00:03:15
Speaker
And yeah, just started thinking about businesses in general and gosh, that was where I really got excited was, okay, I found something that I like, that I'm good at, and that is intellectually stimulating for me, which is trying to figure out how businesses work.
00:03:34
Speaker
I love it. And so what attracted to you entrepreneurship? Yeah, I'd say probably entrepreneurship.
00:03:43
Speaker
yeah i'd say probably The start of it was a friend that needed help mowing lawns. And what I think I added in order, and beyond just horsepower was, okay, if we actually invest in this thing and we get double wide lawn mowers,
00:04:04
Speaker
we And we so we went in and bought a trailer so we could have two lawnmowers. Then we could get more lawns done more quickly, charge more money. Then we also invested in getting a snowplow.
00:04:17
Speaker
We were using his truck, and i kind of but I ran the numbers for him back when you did I had a little computer. This was before Microsoft Excel, but you could put it all out. And it just, it was cool. I said, okay, we, if we invest in this business, we can get a nice return on our investment as long as we get more people and more launch. And so that's how it started. And that really, that ability to grow your own business really appealed to me.
00:04:45
Speaker
I love that. How old were you when that, when you were doing that? So it was in high school. It started out in freshman year where we had his dad drive us around.
00:04:59
Speaker
But then once we were able to drive, we really hit it in junior and senior year pretty hard. That's amazing. I love it. I think entrepreneurship, starting at young is is so important. And I love meeting young entrepreneurs.
00:05:15
Speaker
I always get so excited when Shark Tank has the kids on and I see them pitching to the sharks. Oh, it's fantastic. And this was, yeah, that that is worlds beyond what I was doing at the time. i did probably make as much money buying and selling the sports cards and actually comic books too, if I'm being completely honest.
00:05:38
Speaker
Wolverine, if you can remember that, he appeared in an Incredible Hulk in one issue. And I knew that was a it gonna be a good thing. And so I bought those issues and sold them for a lot more a couple of years later. But yeah, the kids on Shark Tank, that that venue is incredible.
00:05:55
Speaker
And things like that, getting people excited about building businesses. In my career, The most, the wealthiest folks, and I know your career is also varied and includes entrepreneurship and lots of different things. yeah It strikes me that the success rate is lower than other jobs, but when you're successful, gosh, it is incredibly financially rewarding way to go to be an entrepreneur. So if I think about all the wealthy folks I've come across, and we manage capital on behalf of wealthy folks as well,
00:06:28
Speaker
Probably more of them are entrepreneurs, then followed by business executives and then also investors too, right? Absolutely. So I see that you started your career at Blackstone Group.
00:06:43
Speaker
Yeah. I see. And so that was your first that was your first big... career move That was my first real job out of college. yep I was in the investment bank back then. So Blackstone is a huge organization now. Back then, there were four groups.
00:07:02
Speaker
There was investment bank, two different group parts of that. One was on the restructuring, one was in M&A deals. There was private equity and there was real estate. And there was three analysts and all in each of those classes.
00:07:15
Speaker
So the 12 of us came in and on day one, Steve Schwarzman, founder and CEO came in and said, and I'll never forget it. He said, listen, I've looked at your transcripts and some of you have done very well, but some of you have B pluses and A minuses.
00:07:31
Speaker
And let me just tell you, this is not an A minus shop. So you better improve your output if you want to stick around. And so that was, I was eyeopening. It was not a welcome.
00:07:42
Speaker
Let's go enjoy stuff. It's no, we're going to, we're going to kick some butt and you need to kick butt to continue growing with us. So it was great. I mean, it was a couple of my first year rookie class folks were put off by that. I thought it it was, it took me aback, but it was, I thought it was fantastic.
00:08:01
Speaker
I love it. Yeah. I mean, it takes some real grit, I think, to push through, especially with an institution so large. I know it wasn't as large back then, but before we dig in deeper to Blackstone Group, could you explain the difference between BlackRock and Blackstone Group? I know they get confused all the time and not to be annoying, but I know so many of our listeners, I don't want them to be confused on the two.
00:08:26
Speaker
Yeah, actually that's right. It is a great point. Blackstone is an alternative investment manager started by Steve Schwarzman and and Pete Peterson back in the day. They were investment bankers.
00:08:39
Speaker
Most of their business is an alternative investing. So private equity, private real estate, private credit are the big pieces. They do do some alternative investments in hedge funds and other things and some venture capital.
00:08:52
Speaker
But here's the funny story. so And so BlackRock, is totally separate business now, mostly investing in public market investments, mostly to individual investors, but also institutional investors in public stocks and bonds.
00:09:09
Speaker
The funny thing for me is not only are they encroaching in each other's realms now where BlackRock is doing some alternative investing,
00:09:20
Speaker
And Blackstone is not just catering to institutional investors, but also is been doing some retail investors. But many people don't know they actually started. So Blackstone helped start BlackRock.
00:09:34
Speaker
I did not know that. Yeah. And in fact, in the late 90s, when I worked there, On one of the floors, part of the floor was BlackRock. And BlackRock at the time was just kind of this other asset, other entity.
00:09:50
Speaker
But as it started to grow, it moved away. But the offices that Blackstone still has at 345 Park Avenue, BlackRock, a big chunk of BlackRock started right there.
00:10:01
Speaker
I did not know that. I did not know that. Wow. Fun fact. Yeah. And there's definitely some sibling rivalry there. But if you ask Steve Schwarzman about BlackRock, he will tell you that he started BlackRock. And that's not...
00:10:18
Speaker
what you could There's interpretations of that here or there. But yeah, so it is a great point. They're two different businesses, mega businesses. yeah BlackRock is trillions and trillions of more than 10 trillion of assets under management. But Blackstone is approaching 2 trillion of assets under management.
00:10:37
Speaker
And all just most of that within the alternative investment universe. I love it. We love alternative investments here at Bonrien. Yeah. Yeah, we do as well. We do as well. I know we're going to get into it.
00:10:50
Speaker
i will tell you that was when i started at Blackstone, I did not necessarily think that. I was in the investment banking group, but focused more on helping companies either avoid or emerge from bankruptcy.
00:11:06
Speaker
And it was the late nineties. And so the funny thing was we started seeing some, actually some internet companies going bankrupt without any assets. So it was almost, we almost got an early look at what was going to happen to this.com bubble. Some people think we're in an AI bubble now. yeah yeah There are some parallels there, but yeah,
00:11:28
Speaker
The assignments that were most interesting for me personally were when we were helping not necessarily the company, but the private equity owners of a company that was actually struggling a little bit.
00:11:41
Speaker
So we actually advised Bain Capital in a deal When they were helping, they made a large investment in date bearing, which is a medical diagnostics company since anyway, they paid themselves one too many special dividends. But the, the strategic thought and the business owner mentality of some of these alternative investors was really interesting to me. You have to, I think have more courage in your convictions when you're going to own something for longer. If you just found something in the public markets and it's very liquid.
00:12:15
Speaker
If you're wrong, you can get out very quickly. If you're in, for but the most part, in alternatives, you have less liquidity. So in my eyes, that means your conviction has to be higher, but it also means your returns can be higher.
00:12:31
Speaker
Yeah, i I'm fascinated with your early days at Blackstone, and I'm really curious to know How did working for this institutional, in this institutional environment, shape your tolerance for uncertainty when it comes to risk?
00:12:48
Speaker
Yeah, i I think it's funny. I started, like I said, I started helping companies that were in a poor position, actually at a time that the market was going up and it felt like, yeah the NASDAQ was ripping and all these technology companies were seemingly doing well.
00:13:08
Speaker
What it helped me realize is that there's that it's mission critical to be well-run with your business, that but that capital is precious.
00:13:19
Speaker
And if you have enough capital And you're running your business. You can make those, you can take some investment risks and they should pay off for you, but you don't want to get into a situation where either of those things are a struggle where you're mismanaging important assets. So in my investing management is mission critical to what we do.
00:13:43
Speaker
or you run out of capital because people, you can't make economic decisions sometimes when you're short on capital. And in fact, some of the things that we're interested in when we can provide strategic capital to folks, but when when we can be that,
00:14:01
Speaker
that source of very valuable capital, we can actually extract more value. It's a win-win because it helps them. But honestly, you it's better to not be on the other side and need capital in a very... So to answer your question succinctly, it definitely helped me appreciate that you can take bigger swings and take more risk, investment risk, and have a higher risk tolerance.
00:14:28
Speaker
If you've checked the boxes on having a good business that's well run and that's adequately capitalized. I saw that you co-founded and ran North Oak Capital.
00:14:38
Speaker
So what did running your own fund teach you that working inside large institutions couldn't?
00:14:47
Speaker
That's a great question because there's probably the the thing that comes to mind right away is an all hands on deck mentality. When you're an entrepreneur or running a smaller organization, we were lean, things had to get done.
00:15:03
Speaker
and it's just, it's, it's very helpful to just check egos at the door. Everyone on our team was that way. I had a co-founder and a partner with me and Just go get it done and done as most efficiently as possible. I think is the first part. It pays to have, even when you're a smaller organization though, it pays to have great partners. And so we did have strategic investment from Tiger Management, which there was a time therere there, they're not as big now, but it there was a time that Tiger Management was the largest hedge fund in the world.
00:15:38
Speaker
And Julian and Tiger decided at some point strategically decided to seed other hedge funds rather than growing their own.
00:15:48
Speaker
And so we were fortunate to be one of those investment managers that they backed and that that having a partner like that was was fantastic. We had A lot of things that we would have done wrong or not as well had we not had ah a great advisor like Tiger Management and Julian.
00:16:08
Speaker
They did not get as involved in the actual investments they that they hired or they you backed teams that they thought could do that part right.
00:16:19
Speaker
But there were best practices in running a business and lessons learned about how to structure certain investment products. That was very helpful. Also in the marketing standpoint, I don't think we were great marketers. and We were almost embarrassed to be talking about how great, how how solid our story was, but they were very helpful in thinking through those things.
00:16:41
Speaker
I've read that North Oak generated positive returns for every investor. So what principle drove that consistency? That was that was a mantra. So we got started 2009. And so I had worked for another hedge fund. I've worked for SAC Capital before that and had seen the importance at with Steve Cohen, owner of the Mets now. He's renamed his firm Point72, but...
00:17:12
Speaker
Steve first focused on his superpower was understanding what mattered most to an investment story almost right away. But if he had a second superpower, it was the same mantra that you hear Buffett or someone else say, which is don't lose money. And he was willing to so make some big bets, but it was super important not to have it drawdowns, particularly for his investors and frankly himself.
00:17:40
Speaker
And so we that That mantra was was ingrained in me early on. And then on top of that, we saw in the Great Recession, the stock markets and many different risk assets crater.
00:17:56
Speaker
And for folks that were not protecting their capital and trying to, and focused also on preserving capital and lowering drawdowns, it was actually crushing not only to their investors, but to their business.
00:18:10
Speaker
So we started in 2009, even as markets were going up, with a focus not just on total returns, but on returns relative to the risk we were taking.
00:18:23
Speaker
And so, yes, we, in every year of North Oaks existence and for every investor, we made strong returns. And yes, part of that was given the time period, markets were going up, but there were some shaky periods in there. i don't know if you remember when the US s debt was first downgraded in 2011, there was a European debt crisis.
00:18:46
Speaker
Broadly speaking, markets were down in 2011. I think the S&P was just barely up, but NASDAQ was down. We, you know, we so produce strong returns through that with this discipline of making sure our returns relative to our risk were very strong. And frankly, that belief drives what we're doing at Stansberry Asset Management as well. I don't want to jump right to Sam, but that was important. No, great lead way. And that was actually going to be next. I'm very curious about your role with Sam and how that came about and what you're doing over there.
00:19:25
Speaker
So it is also, it is somewhat entrepreneurial. I mean, I think we like to say, and I'm not the first person to say it, but it's important for us. We've built the firm to be large enough to know each of our clients, to to serve each of our clients well, but we're still...
00:19:43
Speaker
entrepreneurial and small enough to know our clients well. Some of those same things that you were asking about from North Oak carry over where it's an all hands on deck.
00:19:55
Speaker
Let's get things done in any which way we can. But we have, since I've been there, we've nearly tripled assets. We're more than 1.3 billion in assets under management and plugging away and serving mostly families and individual investors, although we do have institutional investors as well.
00:20:13
Speaker
But it's been great. I'm chief investment officer. I'm responsible for managing our different strategies. I think one thing that's super important for us is that our strategies are goal oriented. So we believe that every investor has some combination of three three goals. Get wealthy or wealthier, stay wealthy, or generate current income. live some or You could say live wealthy, live off yeah their wealth by generating income. And so-
00:20:44
Speaker
All of our products are structured or set up with one of these goals as a priority. We do have also balanced, what if you want to balance all those goals. And then there are also, importantly, we don't have just three strategies. We actually have 10 strategies because the level of risk or risk tolerance is also a factor.
00:21:05
Speaker
If you're less tolerant to risk and willing to accept lower returns that are inherent with taking less risk, then we have a different strategy than if you're someone that says, okay, I can take a little volatility in search of better total returns. So how would you say that moving into a CIO role has changed the way that you think about portfolio construction?
00:21:36
Speaker
Yeah, I'd say it's a it's great it's a great question. And that that would probably be the biggest difference was as a As the portfolio manager of a hedge fund, we really had one co-mangled strategy. This was like when you go to In-N-Out Burger, if you don't like burgers, that's gonna be a hard place for you to enjoy going.
00:21:58
Speaker
We had one one flavor, one flavor of ice cream at North Oak Capital. It was our long short, we're trying to generate strong risk adjusted returns through up markets and down.
00:22:12
Speaker
We actually have a product like that, but it's one of 10. And on on top of that, we also offer alternative curated and invested alternatives investments.
00:22:23
Speaker
So the first piece of this was making, so Sam is not, if North Oak was focused on how I thought it was best to invest, Sam is focused on how it's best for our clients to invest.
00:22:38
Speaker
And we have, you know, every Each one of our clients has a a set or mix of those strategies that's completely tailored to them. And I think that's the most important thing, appreciating that I might be earlier in my investment time horizon, where I think I have...
00:23:00
Speaker
knock on wood, Brittany, 50 years of of investing time. And maybe some of our clients have a shorter amount and, and or they may be in their 80s, but they don't need the capital now. So they're thinking about it for legacy. So they would be invested differently than someone that was utilizing that capital during their life.
00:23:19
Speaker
So that's that was probably the biggest focus is that we want to make sure that our clients that the investments are best suited for them and one of the one of the first things i did when joining as the chief investment officer was actually not promoting what we did but actually enhancing and promoting what our wealth managers do and before i got there they were actually called customer service representatives that's there if there's so much more than that and yeah We've hired some incredibly talented folks that are certified financial planners and are true wealth managers. Brittany, I think that the investment world has bifurcated in a way that's not always best for clients. So think about a lot of investment. So there's the Black Rocks that you mentioned before or the T-Row prices that focus on how
00:24:13
Speaker
your funds are invested. So they put together mutual funds or ETFs, and they focus solely on investing. And then there are number of great financial planning wealth organizations like Morgan Stanley or Edward Jones that are very good, for example, in figuring out what your wealth plan should be, putting up a financial plan for you, but don't always have direct impact on how the capital is invested.
00:24:41
Speaker
They farm that out to the T-Rose or the Black Rocks of the world. And so it's a novel approach. It's a back to the future approach for us. which is to take great investment management and then marry it with great wealth management. And our clients have both of us. They have us for, they can talk to me about their investments.
00:25:02
Speaker
And then they talk about with their dedicated wealth manager about how exactly that they want to be allocated, including Brittany across alternatives. That's fantastic. What are you some of your favorite alternatives and what do you think we should be paying attention to right now? I mean, the markets have just been, yeah, all over the place. Yeah. I would say we we've had clients for years ask us, should I be invested in alternatives? And if so, what parts of the market?
00:25:35
Speaker
And my answer probably three years ago was dip is a little different than is now not quite as different as maybe you might think. But if we go back to kind of 2022 2023, interest rates are going
00:25:49
Speaker
interest rates are going up yeah Banks have pulled back. Let's say think about 2023 interest rates are up. Banks have pulled back in lending.
00:25:59
Speaker
The IPO window is closed and, but asset prices are still pretty high. And so in that environment, a lot of those things are negative for venture capital. You'd rather interest rates be low the IPO window.
00:26:15
Speaker
be open, valuations be low, for private equity, you'd rather, all those things, plus having banks lending a lot to you. But private credit, actually, if I'm not a borrower, but a lender, that was really exciting to us where we're saying, okay, yeah we had We can generate really strong returns by being higher up the capital structure, meaning that we get paid back before the equity investors, but we can still generate equity-like returns. And so that was by far the most interesting part for me.
00:26:53
Speaker
I think I still really like private credit. We also like income producing real estate and particularly focused on residential real estate. So those would be the two areas. And I guess maybe to to talk about that a little bit, we have over the last 20 years, almost every year and very consistently had more household formation than we've had new home construction.
00:27:19
Speaker
And so keep having, and by the way, with interest rates a little higher and home prices going up, There's an affordability issue, but there's a huge demand for housing, huge demand for housing. oh We're not necessarily predicting that home prices go up a lot.
00:27:38
Speaker
We don't think that home prices and apartment multifamily home prices go down much. So if we can be in the market of helping to finance that area where we have this big supply demand gap and generate strong returns, we're excited to do that. So we have found some spots and niche ways to be a ah lender, a preferred equity investor, and even an equity investor in this area where we're excited again to generate equity like or more returns at a lot lower risk.
00:28:15
Speaker
the How would you say liquidity and patience become strategic tools rather than constraints? That's a great question. I think that if you're talking about alternative investing and you're doing it right, you have to be okay with accepting lower liquidity.
00:28:35
Speaker
Because if we think about this, all else equal, if you had two investments and want and one, They promised the same returns over time, and one was freely liquid.
00:28:51
Speaker
You could buy eye in and out of it anytime you wanted, and one was illiquid. Which would people take? They would choose the liquid one, yeah right? And so the market has solved for that such that if you're willing to be illiquid for part of your portfolio, then you can generate higher returns long term if it's done properly.
00:29:14
Speaker
And so said differently, if your portfolio is completely 100% liquid, you have not optimized your portfolio for the returns. You can generate more returns, higher risk adjusted returns if you're willing for part of your portfolio to be illiquid. And so in our eyes,
00:29:35
Speaker
If you're willing to commit to something, then you can generate higher returns in illiquid assets. And so that's how it can be a a great strategic tool.
00:29:46
Speaker
And it's one that we use for our clients. We may get to this in a little more detail later, but we also like that many alternative assets are lower correlation.
00:29:58
Speaker
than in liquid assets than to the overall market. So that helps us too. as we spread As we spread out and broaden our investment base, we can actually lower volatility by having less correlation with things with one another.
00:30:14
Speaker
I say one caution though, we are big proponents in making sure that our clients and anyone that's looking at alternative investments, make sure that they're diversified across those the way they would be in their public investing.
00:30:30
Speaker
okay And it's actually doubly more important or even more than double important in illiquid alternative assets because The difference between the really good the returns of the really good managers in the private markets or alternatives and the really bad managers is much, much greater than it is in the public markets. yeah So you if you look at the average returns of private credit, which...
00:30:56
Speaker
you know, should be low double digits if you're doing it the right way. There are some managers that we like and are allocated to that we expect and have over time generated 20 plus returns.
00:31:07
Speaker
And there are other ones that are negative returns. So what that means is not only does diversification is super important in alternatives, but manager selection is super important. And so we have made sure our clients are diversified across really world-class managers that are hyper-focused on generating strong returns and not just the ones that are focused on gathering assets.
00:31:35
Speaker
So important. Remember that. Stay diversified even in alternatives. And yeah. yeah And it can be hard, Brittany, as you know, some of these alternatives managers want you to have to make a large investment job. And so then it's harder for investors to be as diversified, but it's important. You can, we have offerings for our clients where we help them get diversified at lower levels of investment, but there are other ways to do that. And so it is, yeah, super important.
00:32:06
Speaker
Okay, so Austin, what does the perfect portfolio actually look like? Everybody's saying the sixty forty is dead. So how do you how would you balance a perfect portfolio?
00:32:18
Speaker
Lay it out for us Yeah. So I'd say the first thing is it'd have to be goal-oriented, but we've already kind of gone into that. But let's assume your goal is long-term capital appreciation safely, done safely.
00:32:32
Speaker
i think too many folks don't put Don't take enough risk. That'd be probably the first thing that you might be surprised in in me saying. But we really encourage our clients that to own productive assets. So we're in this world where we may never get rid of inflation.
00:32:53
Speaker
The government is overspending relative to their revenues. And in that environment, when you owe a lot of money and you're overspending, If the but value of your dollar goes down, then actually what you owe yesterday is less taxing going in the future.
00:33:09
Speaker
So I don't expect that to change. But what that means is we as investors need to own those productive assets that can generate higher returns over the long run. In other words, there was an old boxer that said the best defense is a great offense. So in order to defend our capital, we need to own those great productive assets. So at the core of our portfolio, what does that mean? It means owning assets.
00:33:36
Speaker
You world-class businesses, those businesses and those investments that you expect to be bigger, more profitable a decade from now than they are today. And importantly, letting that courier portfolio compound over the long term.
00:33:51
Speaker
So we're big believers in long-term compounding. there're There are get-rich-quick schemes, Brittany, but we are subscribers to the get-rich-slow or get-rich-medium. that's the first piece.
00:34:04
Speaker
Own productive assets that generate high rates of return at the four-year portfolio. and allow them to compound, own them for a very long period of time. Second piece is we believe investing is seasonal. So the great challenge and what that means is that you can that not every investment has to be owned all the time.
00:34:25
Speaker
There are warm seasons for certain investments and there are cold seasons. If you think back to 2022, the great downfall of the 60-40 portfolio was that when as stocks came down, that's when that you're the 60% of your portfolio.
00:34:42
Speaker
The other 40 is supposed to support you, right? The bonds were supposed to protect you, except they didn't. They're highly correlated. And that was a wit that was a cold season for bonds.
00:34:56
Speaker
We like to say that if you have a strong view that either interest rates going up or default rates are going up. That's not a good time to own bonds because you think about bonds have a fixed coupon. And so if the world is expecting 2% interest and your your bond pays 2% interest, but then the world wants 5%, your 2% bonds are not worth as much. In fact, they're worth less because everyone wants 5% now.
00:35:23
Speaker
So that's what happened in 2022. Bonds went down in value at the same time and stocks. We as a firm didn't own a single bond for our investors going into 2022 across any of our strategies. Now, i have there are going to be RIAs that say they can't believe that that's true.
00:35:41
Speaker
That's true. we It was a time to be nimble and tactical. So that's my second piece is... So number one, own productive assets at the core of your portfolio.
00:35:54
Speaker
But because investing is seasonal, allow yourself to be nimble and tactical around the perimeter your portfolio. So it's okay to hold some cash or do other things.
00:36:06
Speaker
Then the final piece is we want to lower our correlations. We talked about that. So what that means, the way to do that is to own investments that don't move in tandem with one another.
00:36:19
Speaker
We've been big believers in gold. And so our strategy, we we actually have a gold focused strategy among one of our 10. And of course that's done well recently. We are not advocates of gold being the core of your portfolio, but if If inflation is going up and people are, and central banks are not buying as many of our bonds or as many of our dollars and instead are owning gold, that's a great diversifier. It's a chaos hedge and it's it doesn't move in tandem with the rest of the market. So that's a nice area. We have other areas. i don't know if we want to get into, but you want to find other ways to lower your correlation. I'll give it another example. We love financial exchange businesses. So there's a company called Intercontinental Exchange.
00:37:10
Speaker
That's an example of a way to lower your correlation. It owns the New York stock exchange. It owns a lot of futures. It's a it's exchanges are regulated monopolies. And here's the funny thing when the world gets scary. So recently we saw a volatility spike yeah and stocks come down and gold price and other things come down.
00:37:31
Speaker
Well, actually ah an exchange business is more valuable in that time because volumes go up. So they're actually more profitable and. If you could think about that, then their correlation is inverse of the rest of the market. So that's an example of a type of thing that we like.
00:37:49
Speaker
The final one is is right up, right down your wheelhouse in terms of lowering your correlation. And it's by broadening your base. I wonder if anyone on your podcast has talked about this, but it's a surprising, if you think about all the companies in the U.S. that have a hundred million dollars of revenues or more,
00:38:08
Speaker
I'll just ask you, what would you guess the percentage of those companies in the US are public publicly traded?
00:38:17
Speaker
Yeah, I wouldn't even know. Wouldn't even know what to throw out there. I mean, I just, we have such a good publicly traded market that you might say half or 80%. I was going to say more than half. Yeah.
00:38:29
Speaker
Yeah. It turns out that only 13% of the companies in U S with a hundred million dollars of revenues are public. Now a high, a much higher percentage of the huge ones.
00:38:41
Speaker
But the point is that. If you're only invested in liquid public markets, you have not broadened your investment base. There's this great opportunity to invest in other businesses and private markets that will lower your correlation because it's not just about what those mag seven companies are doing, for example. So that would be my portfolio, my perfect portfolio and in a nutshell.
00:39:08
Speaker
Nice. Well, how do you build trust when capital is locked up for so long? Yeah, it's a great question. I think you do it over time. i think that probably there are there is a
00:39:26
Speaker
slower curve for many alternative investment managers before they become a larger fund. And so once you've done it a couple of times, then more and more investors will feel comfortable with you.
00:39:39
Speaker
What we've done tried to build that trust by doing what we say we're going to do, focusing more on providing solutions than trying to raise a bunch of money.
00:39:53
Speaker
And then this is important. And I think any in any alternative investment manager, or frankly, are in any investment manager ought to have skin in the game. So we're I am invested right alongside our other investors in our fund, paying the same fees as other folks. So we have real skin in the game for the investment decisions that we make.
00:40:17
Speaker
And then, i yeah, I'd say the final piece then is It's important to have good third-party partners. So we had we deliver our financials when we say we're going to.
00:40:31
Speaker
We have folks auditing things where your assets or custody is important. So we pick good custodians and that all provides people some nice trust.
00:40:44
Speaker
if you If you remember back to some of the great issues that folks have had with hedge funds or ah or other schemes that didn't go well.
00:40:56
Speaker
Part of the issue is they didn't have strong third-party administrators or auditors making sure that everything was where it should have been. Bertie Madoff kind of didn't really use any of the big-named funds, even though he reportedly was investing billions of dollars. So that's another way to to have people have more trust is have third parties verify what you're talking about.
00:41:21
Speaker
What do you think doesn't get talked about publicly when people romanticize hedge fund investing?
00:41:29
Speaker
I think that hedge funds probably get lumped into one basket more than any other asset class when they really shouldn't be. There's probably...
00:41:43
Speaker
There's a Baskin Robbins, 32 different flavors of different hedge funds. And if you are a market neutral hedge fund, that means that you have as many bets that things will go up as you do bets that things will go down.
00:41:58
Speaker
And so you're really just trying to generate a really steady return. And that's such a different. type of hedge fund and return profile than one that's focused on tech investing and really trying to to find the next ba greatest technological advantage.
00:42:17
Speaker
And that's completely different than some macro hedge fund that is really trading what currencies and what might be happening at the macroeconomic level. those are Those three different things are all lumped in together as hedge funds, and they really are completely different animals when it comes down to it.
00:42:35
Speaker
Have you ever had to make an alternative choice, an alternative life path, your biggest setback that you've had in life, perhaps that sent you on an alternative path?
00:42:47
Speaker
What was your greatest lesson through that? I feel really fortunate. i don't think I would change any. I'm i'm really excited about what we're doing now. i don't think I would change it. But if you objectively asked me, did I do some things that maybe weren't They could have gone differently. I'd say my very first decision to go in the investment banking role at Blackstone instead of the real estate role was probably not a profit or net worth maximizing decision because Blackstone then became later, as it grew, the largest real estate owner on the planet. So that would have been nice to be
00:43:30
Speaker
earlier on in that. And then our hedge fund delivered fantastic returns. And really, we ended that for personal reasons.
00:43:42
Speaker
My wife and I were having baby number three. i did not i wanted to move the fund to Maryland so we could have more of a lifestyle. And my partner was single, living in New York. And Frankly, we thought we could split it off. I could sell down it to a minority stake and he could keep running that. And I would i joined DF Dent, which was an investment manager in Baltimore as a partner and portfolio manager there.
00:44:08
Speaker
And in hindsight, a lot of the investments that we were in, so we ended up doing that, but our investors didn't want to keep the fun running without me there. and so I think in hindsight, it probably would have been better. That was a setback if you in in in one way shape or form, but it always brought me to where i am today. And I'm so excited for us to take the lessons learned and the best practices that I found over time and apply them
00:44:40
Speaker
for individual investors, largely. So we're really excited to do that. And we also have institutional investors that help. Again, we can help curate a set of alternative investments that maybe they don't have access to or, yeah. So it's all set up to get here. That's been, it's been pretty good.
00:45:00
Speaker
How about you, Brittany? You've done so many different things. You've been an entrepreneur, yeah an actress. You did your research on me. Yeah. You've you've been in the mortgage business. You've been an investor. So what what do you think? there Are there things that you would have wanted to do differently? Well, of course, I think everyone for me, though, my my alternative path is very clear because, yeah, clearly you did your homework on me, too. I had a very different career before coming over into financial services and started and i started in real estate as a mortgage loan officer and then came over into alts. But before this, I was in production. I had a production company. I was living in Ireland and I was expanding to the US. I had just acquired Miss Indiana USA and I used to own Miss Universe Ireland. I built that brand from the ground up in Ireland. But that was my life literally since I was, yeah, a teenage girl when I started modeling and then, yeah, evolved into the
00:46:03
Speaker
back end of it and producing, but I loved it. It felt like a dream job, but like many other people during the pandemic, my entire life was just flipped upside down. And there's a lot of, i actually, i have a lot of projects coming out in the spring and some things this year. So I'm really looking forward to that, but it set me flip my life up upside down and I lost my business. I lost everything, lost my home. um i lost everything that i had built. And honestly,
00:46:34
Speaker
It really came down ultimately that I made some bad business choices going into business with, yeah, a couple of people yeah and not so good people. and But learned a lot. And that's the thing, though. my My mentality, and I've adopted this philosophy ever since is never a victim and always an alchemist. So I will take any setback, any obstacle, and I'm going to figure out a way to to make that work for me, to make it work in my favor. So because of what I went through, I decided that in there that I will never allow anyone to take advantage of me financially ever again. And so I decided that I was going to go either into law or finance and going back to law school. I love the idea of going to law school, but it takes quite a lot of time. So i things worked out for me more financially. finance faster. And thankfully, Rocket Mortgage actually covered my education to become a loan officer and everything. So that was my start. And so I would say that was really my alternative path. Because before that, I mean, my whole life was like planned out. And I was just on the same path for so long. But as hard as that was for me, and
00:47:59
Speaker
the loss and the grief and the betrayal and just losing everything that I had. It just, it really, it really made me realize the kind of grit I do have and that the limitations that we each have is, is really what we place on ourselves. And yeah, i just because I didn't go the academic route, I really thought that I wasn't smart enough or I wasn't capable. of I wasn't capable of being in this industry. And I just thought entertainment was like that.
00:48:29
Speaker
That's what I was meant to do. But the greatest blessing. And I really hope that everyone, anyone listening can take that with them. Never a victim or an alchemist. So I think that's incredibly, yeah, the re resilience is fantastic.
00:48:43
Speaker
The other thing that you mentioned, if we bring it back, is the importance of investing with and partnering with people you trust and are good managers. And that we do that every day with our investing. Two things. So for on the alternative side, we don't just do investment due diligence. We do operational due diligence, making sure That what's going on and that, that costs us a little more, but we found. But in the long run, it'll cost you less. I can tell you that you have but it'll cost you less.
00:49:14
Speaker
You're a hundred percent right. So it's worth doing. And then on the public market side, but this is true for the alternatives also, you know, we want to partner with folks that have skin in the game that so managers,
00:49:28
Speaker
And this is true for public companies too, that the more that it impacts their decisions and that their invest incentives are aligned with ours, the better the outcomes. And then also we've just learned that investment decisions that managers and leaders of companies can make are so impactful on the underlying returns of a business You wouldn't, it's it's it's just, it's such a huge thing. I'll give one example of that.
00:49:53
Speaker
Roughly 20 years ago, two media companies made investments in assets, large media companies. AT&T bought DirecTV for roughly $80 billion. dollars They had to write down more than 90% of that investment.
00:50:09
Speaker
Terrible investment. Roughly the same time, not quite roughly, Google bought this little thing for $2 billion dollars called YouTube. Now, people might be watching this video on YouTube.
00:50:20
Speaker
YouTube is worth a trillion dollars maybe on its own by now. So capital allocation decisions and having the right managers that have skin in the game is super mission critical to investing. And so, yeah, so just to bring it back, we want folks resilient and we want folks that we trust and that are great managers.
00:50:39
Speaker
and make good capital decisions. It is so crucial. Gosh, we're running out of time, but I have so much more I could talk to you about. Real quick, before we wrap things up, I would love to hear just a tidbit about how you do your due diligence on those people. who you surround yourself with is is so crucial to your success and your happiness and peace in life. And so, yeah, when your investments and your money is tied up in it, how do you do those due diligence on the social and personal aspect? Because I find that yeah it's hard.
00:51:11
Speaker
Yeah. Yeah. So on the investment side, we do focus on trying to understand their model. And while we're asking questions, I definitely to ask their background questions, how they got into this, why did they decide to do it this way or that way?
00:51:28
Speaker
i always love to ask managers for whom we already have trust in what other what other businesses, what other managers that they like. So on the public market side, that's Okay, it may not be in your business. What other businesses do you think are really well run and run by good managers?
00:51:47
Speaker
On the alt side, tell you one really interesting source of edge on good managers are talking the investor relations people because they are considering they're only as good as the managers they work for.
00:52:02
Speaker
And if they know of other good investment managers, it's really interesting to talk about that. So that, and then... It's a little boring to get into our actual investment process, but it's lengthy. And we go into the data room, we read all the documents, we ask follow-up questions.
00:52:21
Speaker
My biggest thing is let's go through lots of examples of when investments went wrong. And we can talk through those line by line. How'd you do it? What'd you think about? Because really we're focused on loss subversion as well. Then the operational due diligence piece We do some fact finding in terms of getting to know the people, other investors who have worked with them. We'll do some background calls on those things. We also employ folks that are just super sleuths on that. So they go through the documents with a fine tooth comb. We're utilizing AI to look at this stuff, at least as a first pass.
00:53:00
Speaker
and say, okay, this is non-standard. What does this make? Why they decided to structure something this way? Why is your chief compliance officer the same person as your chief investment officer? Is there conflict there?
00:53:14
Speaker
Show me how cash management works. Why is there only one person responsible for cash management? Those types of things that we just want to make sure are done the right way and that we check all the boxes.
00:53:28
Speaker
I love it. Very good. how about just one last thing? If you have anything you would love to leave our listeners with, perhaps maybe you have a favorite book or a favorite podcast or anything that you'd love to share something that you can leave our listeners with.
00:53:47
Speaker
Yeah, so we've talked a little bit about this, and I think it's fitting based on our conversations. There's a book called The Outsiders. It's not the one that was made into a movie.
00:53:58
Speaker
It's written by a guy named, I think it's Richard Thorndike. What's that? I was going to say, it's not Gladwell, is it? No. only have like half of my what about books here.
00:54:13
Speaker
Yeah, Thorndike. And it actually, so it back when Jack Welch, it was written probably 10 or 15 years ago, back when Jack Welch was the CEO of GE for many years and GE stocked it so well, the premise was,
00:54:30
Speaker
Are there other CEOs that did better that were actually could generate stronger returns relative to their benchmarks or their in their industries over long periods of time.
00:54:43
Speaker
And it turns out he found a group of CEOs that were better, actually better than Jack Welch had stronger returns for their investors. And they all happened to be little bit of outsiders. So non-traditional kind of maybe, yeah, I'm not sure any of them had their own company in the fashion world like you. But it was interesting. They had a non-traditional path.
00:55:05
Speaker
What they shared in common though was they were incredible capital allocators. So if you think about a CEO's role or a leader's role, ah you set the vision for a company, you figure out how to improve your operations. Those things are super important. They're steep jobs for the vision.
00:55:25
Speaker
Operations, maybe you think of someone like Jeff Bezos at Amazon. But capital allocation decisions end up being super important, like the example of of acquiring YouTube at an attractive price.
00:55:36
Speaker
And so it goes through and details some really fascinating stories, including Warren Buffett being one of these people. That's probably one of my favorites. a quick read, and it's one of my favorite investment books.
00:55:48
Speaker
I love it. Thank you. Where can our listeners find you if they want to learn more? Yeah, easy to find us on StansberryAM.com. That's the website.
00:55:59
Speaker
so that's S-T-A-N-S-B-E-R-R-Y-A-M.com for asset management. And right there at the top, you can schedule a call with us. We offer, and we'll offer your listeners a complimentary financial review of kind of what their...
00:56:18
Speaker
to is help assess how they're doing if alternatives and investments make sense for them. And we also have lots of white papers and things that we've written there, including the four steps you need to do before investing a single dollar in the market.
00:56:32
Speaker
Fantastic. Thank you so much, Austin. You've been Just a wealth of knowledge today. And I really appreciate you taking the time to speak with us. Thank you so much, everyone who's listened today. You can also follow along on all of our social media. You can find us on LinkedIn, Boundary and Capital, as well as Instagram and Twitter and all of the things. And so thank you again, Austin and everyone listening. We will see you next time on The Alternative Mason. Thanks a lot.
00:57:04
Speaker
The opinions expressed in this program are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or any specific security. It is only intended to provide education about the financial industry.
00:57:19
Speaker
To determine which investments may be appropriate for you, consult your financial advisor prior to investing. Any past performance discussed during this program is no guarantee of future results. Any indices referenced for comparisons are unmanaged and cannot be invested into directly.
00:57:34
Speaker
As always, please remember investing involves risk and possible loss of capital. Please seek advice from a licensed professional.