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Episode #401: Clay Gardner, Titan – Funding Administration Companies for The On a regular basis Investor – Meb Faber Analysis



Episode #401: Clay Gardner, Titan – Funding Administration Companies for The On a regular basis Investor

 

Visitor: Clayton Gardner is the Co-Founder and Co-CEO of Titan, a retail funding administration platform aimed on the new technology of on a regular basis buyers.

Date Recorded: 3/8/2022     |     Run-Time: 47:50


Abstract: In at present’s episode, we kick it off with an outline of Titan and the corporations’ funding philosophy. Clay touches on a few of their completely different choices, which now contains crypto. We hear in regards to the firm’s content material technique, which assist each educate buyers and preserve them invested available in the market throughout unstable intervals. Then we hear what different asset lessons Clay is pondering of increasing to sooner or later.

As we wind down, we hear in regards to the agency’s fundraising historical past, which incorporates investments from a16z, Kevin Durant, and Will Smith.


Sponsor: For those who’re searching for the much less apparent and are curious in regards to the ever-changing world and the way it impacts investing, The Energetic Share podcast is for you. Hear thought-provoking conversations with thought leaders, firm executives, and William Blair Funding Administration’s personal analysts and portfolio managers as they share distinctive views on investing in a world that’s at all times evolving. Take heed to The Energetic Share on Apple PodcastsGoogle PodcastsStitcherSpotify or TuneIn or go to right here.


Feedback or strategies? All in favour of sponsoring an episode? Electronic mail us Suggestions@TheMebFaberShow.com

Hyperlinks from the Episode:

  • 0:40 – Sponsor: The Energetic Share Podcast
  • 1:14 – Intro
  • 1:54 – Welcome to our visitor, Clay Gardner
  • 2:30 – Overview of Titan
  • 9:57 – Titan’s funding philosophy
  • 17:21 – How their funding course of has advanced over time
  • 21:49 – Clay’s ideas on hedging
  • 27:39 – Clay’s ideas on the way forward for Titan
  • 30:42 – The profile of the typical Titan consumer
  • 40:32 – Fundraising from a16z, Will Smith and Kevin Durant
  • 41:30 – The Energy Legislation: Enterprise Capital and the Making of the New Future
  • 43:36 – Clay’s most memorable funding
  • 44:25 – Be taught extra about Clay: titan.com; Twitter

 

Transcript of Episode 401:

Welcome Message: Welcome to “The Meb Faber Present,” the place the main focus is on serving to you develop and protect your wealth. Be part of us as we talk about the craft of investing and uncover new and worthwhile concepts, all that can assist you develop wealthier and wiser. Higher investing begins right here.

Disclaimer: Meb Faber is the co-founder and chief funding officer at Cambria Funding Administration. As a consequence of business laws, he won’t talk about any of Cambria’s funds on this podcast. All opinions expressed by podcast individuals are solely their very own opinions and don’t mirror the opinion of Cambria Funding Administration or its associates. For extra info, go to cambriainvestments.com.

Sponsor Message: What does a two-time World Cup-winning coach, a significant league baseball workforce proprietor, Prime Chef, and a luxurious dressmaker have in widespread? They’ve all been featured on “The Energetic Share Podcast.” For those who’re searching for the much less apparent and are curious in regards to the ever-changing world and the way it impacts investing, “The Energetic Share Podcast” is for you. Hear thought-provoking conversations with thought leaders, firm executives. And William Blair Funding Administration’s personal analysts and portfolio managers as they share distinctive views on investing in a world that’s at all times evolving. Obtain “The Energetic Share Podcast” in iTunes, Spotify, Google, Stitcher, and Tunein.

Meb: What’s up, y’all? We bought a great present at present. Our visitor is Clay Gardner, co-founder, and co-CEO of Titan, a retail funding administration platform aimed on the new technology of on a regular basis buyers. In at present’s episode, we kick it off with an outline of Titan and the agency’s funding philosophy. Clay touches on a number of the completely different choices, which now embody crypto. We hear in regards to the firm’s content material technique will assist each educate buyers and preserve them invested available in the market throughout unstable intervals. Then we hear what different asset lessons Clay’s pondering of increasing into the long run. As we wind down, we hear in regards to the agency’s fundraising historical past, which incorporates investments from a16z, Kevin Durant, and Will Smith. Please take pleasure in this episode with Titan’s Clay Gardner.

Meb: Clay, welcome to the present.

Clay: Thanks for having me, Meb. Excited to be right here.

Meb: The place’s right here at present?

Clay: So I’m in New York Metropolis. We’re catching a bit of little bit of spring right here.

Meb: Man, I miss it. I must get to New York. Bryant Park, perhaps Could. It’s been a few years. What’s the vibe? It’s good.

Clay: Issues are good. Yeah, they’re beginning to get a bit of bit extra reopened. So a variety of the orifices that folk put up on account of COVID, there’s eating places have spilled over into the streets, all that great things. Individuals are simply on the lookout for a cause to get out and have the New York Metropolis spring-summer. So wanting ahead to that.

Meb: Nicely, I’ll be part of you right here in a number of months, we make our manner up there. It’s nice to have you ever at present, we’re going to speak about all types of stuff. However first Titan, inform us what Titan is earlier than we dive in.

Clay: Yeah, I’d like to, we wish to say we’re constructing the following Constancy. And what we imply by that’s an funding platform the place anybody can principally push a button and get invested with professional managers throughout over time. Just about any asset class, particularly centered on those who traditionally haven’t been accessible to retail buyers. So we launched in 2018. We began with the bread and butter Reno make investments, which is public equities. We finally expanded into crypto final summer season. So at present we now have 4 merchandise, we name them merchandise or methods.

In a pair minutes, you possibly can obtain the app, like a financial institution, and get invested throughout these 4 methods, that are managed in-house by our workforce. And then you definately’re basically using shotgun whereas your supervisor calls the pictures, buys, sells securities or crypto.

Meb: What’s the origin story behind the title by the best way?

Clay: I used to be sitting at my co-founder Joe’s desk in his house and it simply type of got here to me. I feel lots of people affiliate the phrase hedge funds and PE with the phrase titan. I feel it’s like one of many extra widespread in case you Google “hedge fund Wall Avenue Journal” or “hedge fund New York Instances”, it’s one of many extra generally cited phrases in these headlines is “hedge fund titan XYZ buys a $50 million mansion within the Hamptons.”

And so I feel Titan for us, one, I feel it indicators to we’re in battle, type of preventing towards the established order when it comes to legacy cash managers. But additionally Titan is type of this type of revered determine of authority and standing, whether or not its monetary standing or simply authority on the earth. And I feel it touches a nerve for lots of our buyers, who’re traditionally used to not with the ability to afford to get entry to the issues that “hedge fund titans” of yesteryear have entry to.

Meb: What do you suppose is essentially the most distinctive proposition for you guys? As a result of we’ve had type of the digital onboarding for people, whether or not it’s a Betterment or Vanguard or Wealthfront with the allocation aspect. We’ve had non-public investments over right here and areas attempting to type of democratize that. What do you guys see as type of the principle, I don’t know if muscle motion’s the suitable phrase, however what’s the large wedge or affect you guys are providing right here? Is it the precise choices themselves? Is it the supply? Is it all the above?

Clay: We’ve began with public equities as a result of the core wedge, the core drawback we’re fixing is folks know they need to be invested in shares. However a variety of them don’t have the time, data, or assets to do it themselves. They need greater than common. They need greater than they consider they might get in a low-cost index fund. However they don’t belief themselves to day commerce their financial savings in Tesla name choices on a Robinhood. And so the contrarian concept that Titan was born on was the concept that market is definitely not a distinct segment. It was seen as a distinct segment and nonetheless is by many, however we really consider it’s an enormous market. We predict it could possibly be the vast majority of at the least youthful generations.

For those who ship the suitable infrastructure, you construct the suitable tooling for them to understand this doesn’t have to be your dad or mum’s mutual fund, which is a five-letter ticker the place you’re taking a look at a 5-year, 10-year, 3-year efficiency chart and that’s the product expertise. You may be introduced alongside, as managers are going to work, going to bat doing analysis, figuring out securities, with non-public’s public’s crypto. And so our progress at present is at the least confirmed to us that it’s perhaps it’s a area of interest to many individuals, however it’s really fairly an enormous and fast-growing area of interest and really profitable one.

Meb: Inform us a bit of bit about your base first choices, in a world the place Vanguard is principally you should buy the market cap index for nothing, or near nothing. I assume you guys, like us, are usually not charging nothing. So what’s it you guys are providing? What are you doing and what’s type of the framework for a way you guys take into consideration these first few methods?

Clay: We’ve 4 merchandise at present, three of them are in public equities. We began with the standard “blue chip,” some firms which are family names, the FANG shares. We’re enormous followers of lots of these companies, and so they’re wildly worthwhile and we predict they deserve a slot on the roster of large-cap U.S. equities. There are additionally some under-the-radar names many individuals received’t have heard of or personal of their self-directed accounts. So we name that Flagship. Titan Flagship is the biggest technique on our platform. It’s been round for a bit of over 4 years now.

The technique was designed, Flagship, with the concept we will tease out indicators to establish nice high quality compounding companies, not overpay, and simply type of do nothing. Be sensible and tactical with actively managing that, however we’re not reinventing the wheel. It’s only a conventional Warren Buffett, Terry Smith-like framework for figuring out nice companies. In order that’s Flagship. And that’s what we advocate most of our shoppers put the vast majority of their Titan pockets share in at present, for a handful of various causes from a threat tolerance standpoint.

The second is we’ve type of moved down the market cap spectrum. So we launched a product centered on small-cap equities. The standard analog is just like the Russell 2000 Index, for instance. These are like very off-the-beaten-path, under-the-radar firms. Among the firms we’ve recognized have been acquired, some have been spin-offs, some have been activist or transformational M&A types of tales. So these are the place we now have an in-house analysis workforce that’s really tactically and actively managing these portfolios. However that is one particularly centered on not devalued, however like off the crushed path, extra esoteric securities, roughly 15 to 25 securities. It’s known as Alternatives, and it is vitally opportunistic in nature.

The third we launched was Titan Offshore. Sounds precisely what you suppose. It’s worldwide securities, primarily by with listing equities and ADRs. So we’re not investing in any new offshore markets instantly presently. Nevertheless it’s a good way for us, we predict, to present our shoppers publicity to worldwide markets the place…and I do know you’ve been an enormous proponent. I as effectively suppose that a variety of People have under-invested in developed and rising markets. August of final yr, particularly, has been rocky. And it’s been a decade interval of relative underperformance between developed rising markets within the U.S. However I feel in some unspecified time in the future that tide could flip, we wish to be certain our shoppers have publicity there in some type.

After which lastly, is Titan Crypto. That is actually thrilling. This was in no way one thing we meant to get into as quickly as we did. And I do know I’m going to sound like a boomer within the scheme of issues when folks…I used to be on Mt. Gox in 2013. I’ll admit, I used to be not that early, we weren’t that early. However candidly, on our roadmap, we weren’t planning on transferring into digital belongings this quickly. It was very a lot, it was by far essentially the most demanded retail product we’ve ever had.

Folks had been successfully yanking it out of our fingers. And so we employed an analyst, constructed a workforce round it. And the aim there’s basically blue-chip liquid cryptocurrencies, crypto-assets. So we personal Bitcoin, we personal ETH, we additionally personal different layer 1 blockchains, after which some extra esoteric cryptos. However the aim there’s we took what we consider is type of the S&P equal in crypto.

And to your earlier query, like what’s the aim from Titan? The aim is, one, monetary outcomes. So like over time, investor on our platform, we consider, for us to ship worth, ought to over a 3 to five-plus yr rolling foundation have gotten extra worth than they may do, both on their very own of their self-directed account, or a mean low-cost index fund.

And two, which we’ll in all probability dig into extra, they need to really feel considerably smarter and extra educated on how their capital is invested and why. For instance, the Russia Ukraine scenario which is occurring as we’re doing this interview, folks ought to know precisely how they’re positioned. What’s my Russia publicity? How does the U.S. ban on imported oil from Russia have an effect on? What cash ought to I be including on this volatility? Ought to I be dollar-cost averaging?

We’ve seen that really instilling confidence and explaining alongside the best way is definitely actually necessary to truly getting the monetary worth. Like, you must keep invested to truly reap the returns of the companies that your supervisor’s investing in. So I type of view them as synonymous. Lots of companies will use content material advertising or schooling as a type of progress lever IQS or product.

Meb: You guys been at this for what is that this 4 years-ish on the principle Flagship? Inform us a bit of extra. So is that this a technique? Like, what kind of turnover does this have? And are you guys…is that is simply Clay, waking up within the morning and saying, ‘You recognize what, I’m the PM and these are all my selections,’ you bought a workforce? After which how do you guys go about making the requires what goes in, what comes out? For most individuals, that’s a, correctly for an energetic technique, fairly concentrated portfolio so inform us the way you guys put this collectively.

Clay: It’s positively concentrated, 15 to twenty securities, typically talking, we conviction-weight them. So the default for any place measurement is 5% every or 100% divided by on common 20 positions, we’ll conviction-weight for a number of completely different causes. One is definite companies simply have a risk-reward prospect that we predict smaller measurement can justify the upside. So, for instance, as of this writing, we now have a small place in Coinbase in Flagship. For a handful of causes, we consider it’s each essentially low-cost and misunderstood. But additionally we consider if and once we’re proper, the upside of that safety, even at a 1% place, it deserves a slot within the portfolio. We’ve different securities like Microsoft or Apple, that are extra considerably higher-weight, nearer to mid to excessive single-digit proportion of the portfolio.

However stepping again, I’d say it’s very very like the Terry Smith or Buffett-like technique in that. It’s like three quite simple ideas, like discover nice companies that we consider have entrenched aggressive moats, aggressive benefits. That is the type of sleep at evening, get up in 10 years. If the markets closed for 10 years, we received’t bat a watch, feeling nice that we’d be capable of get up and wish to purchase this portfolio each single day. And let the enterprise compounding do our work for us. Simply be certain we don’t overpay.

After which your query on turnover, the world adjustments. And so I’d draw the road between us and the standard notion of like a Buffett, I really don’t consider in buy-and-hold, I consider, buy-and-hold, and I’m not going to say this time is completely different, 4 very harmful phrases, however this time, it type of is completely different. Take into consideration what we’re going by proper now, even since November, the overall rising price and progress drawdown we noticed after which adopted by this geopolitical disaster. There’s loads of buyers who purchased and held Microsoft within the early 2000s and it took them 15 years to get again to breakeven, regardless of it being an excellent enterprise.

Behind the hood, Meb, what occurs is we now have a workforce of roughly 60 analysts. A few of them frolicked at non-public fairness funds, household places of work, hedge funds, others at sell-side corporations for his or her analysis, or information analysts. And what we’re attempting to do internally is continually construct a backlog of companies which are on our purchasing listing at a sure value. So validate these are high quality companies, there’s one thing particular about what they’re doing that may’t be simply replicated.

These are in secularly rising industries or markets, some could also be extra cyclical, some could also be extra secular. However typically, these are industries for fixing a transparent drawback. There’s an enormous tam for them to penetrate. Administration groups with incentives align like, we perceive. They’re aligned with shareholders, they’ve a monitor file of delivering worth, after which a margin of security.

So we don’t wish to pay by the eyeballs for an excellent enterprise. As a result of if something, if the previous couple of months have taught us something, it’s like I mentioned, you possibly can pay 40 occasions gross sales for an excellent enterprise for a Snowflake or a Datadog, the market goes to punish you throughout sure environments. You’re going to pay up for that high quality, maybe an excessive amount of. And so ensuring we’re not attempting to leap over 20-foot hurdles from a valuation standpoint.

So when it comes to turnover, it usually I’d say traditionally, in intervals of decrease volatility, it’s been solely a few trades per quarter of these 20 shares, on common in Flagship. Solely a pair adjustments per quarter. I’d say the turnover has been increased of late as a result of we’ve simply seen much more alternative. Each to take chips off the desk late final yr, notably within the software program sector, the place I noticed a lot a number of enlargement, on account of QE, and unprecedented stimulus. And lots of people paying up presumably manner an excessive amount of for progress.

So it’s a mix of artwork and science is what I’d say. Because the PM and CIO, sure, I make the ultimate calls on selections. And I’ll oftentimes spitball concepts, companies I discover by my community of founders, firms which have IPO’d. So I’ll be a supply of concepts and serving to push again and satan’s advocacy and that type of wholesome threat administration debate internally. However I’ve an excellent workforce round me that does the arduous work that’s studying the case, the cues, that’s speaking to administration groups, chatting to specialists. So I’m standing on the shoulders of giants in some ways and lucky to have an excellent workforce right here.

Meb: So how does that workforce work? You guys do like a every day weekly obtain assembly the place folks had been pitching shares? As a result of a variety of hedge funds have completely different… I’m not attempting to check you on to a hedge fund however a variety of energetic funds have a unique course of. Generally it’s the lone wolf PM, generally it’s workforce, generally they do eight-month deep dive, generally it’s a committee. Like how do you guys go about really placing stuff in and pulling stuff out? Is there type of a framework, which you guys apply for it? As a result of I assume it’s composite that goes with one portfolio for the Flagship is all the identical shares for all the identical shoppers, proper?

Clay: That’s precisely how I give it some thought. Give it some thought type of like a mannequin portfolio. We’ve 50,000-plus shoppers, and every of those shoppers has his or her personal SMA or individually managed account. In order that they have a brokerage account. They will pop in, they will see the securities we maintain on the finish of each month. Clearly, they’re participating typically every day, weekly with the app the place they will see video updates from our workforce, tax updates, they will ask questions. There’s community-driven options so you possibly can pop in at present and see what questions have been requested by different buyers on our platform, upvote, and so forth. It’s a very cool method to keep knowledgeable and engaged.

However when it comes to our course of, we didn’t actually reinvent the wheel right here, having spent a while on the buy-side myself. I’ve seen what works, what doesn’t. I feel for our temperament and our funding mandate, we do a proper Funding Committee. So each resolution has to have a proper memo and mannequin. The memo has to doc all of the findings of what’s usually a two- to three-week analysis course of. I’m typically of the assumption of everybody must be macro conscious, and attempt to cross-pollinate and study and be increasing your circle of competence. We should always ideally have some semblance of like a compass for focus. And in order that’s what we do internally.

So we now have a devoted analyst who’s centered on client and media, a devoted analyst who’s centered on our investments in software program and semiconductors, one devoted to industrials, and so forth. That’s how they information their time. In order that they have a universe of companies they’re accustomed to. They’re continually attempting to broaden that, as a result of clearly, there’s new points, there’s firms IPLA, there’s M&A exercise. So continually attempting to construct out their purchasing lists after which it actually simply says, ‘Do you belong on the core? Do you belong within the beginning 5?’ so to talk.

So each analyst is continually re-underwriting and from their viewpoint, there’s this different title on my purchasing listing I’ve been doing work on. Is that this a better alternative value than the corporate we already personal? Is XYZ Software program Firm now a greater risk-reward after latest market volatility than this present software program title we personal? And if that’s the case, let me take that to the committee and pitch that change. And so it’s actually serving to we now have a chosen satan’s advocate, we’re not a yes-man, or yes-woman sort of agency. We would like wholesome debate, we wish to perceive the bear case, be capable of refute it higher than the neatest bear on the road. I feel that’s a very sensible remark that Charlie Munger made. You need to be capable of refute your individual bull case, higher than another bear, debate towards your self, and nonetheless come out feeling excited.

After which my function is admittedly to step in. After which from a threat supervisor standpoint, I’m being hyper-aware of like, what are our sector overweights or underweights versus the benchmark? What are components that we could also be inadvertently lengthy? Are we tremendous lengthy momentum, are we tremendous brief high quality, are we brief worth? After which, that’s the place I’ll type of take the analysts’ collective knowledge and suggestions and attempt to measurement issues appropriately. Strive to ensure we’re not too far tilted by hook or by crook. So it’s actually wholesome course of. And we’re clearly studying, we don’t faux to know all of the solutions. However to date, it’s labored out very well. And I feel it aligns incentives in a very sensible manner.

Meb: If I keep in mind in years again, I’ve been following you guys for some time, it’s good to see the expansion, kudos. And I keep in mind in some unspecified time in the future, the method, you guys talked about different elements of the portfolio, whether or not it’s hedging. We talked in regards to the screening course of, and 13F, type of diligence, and seeking to see what a few of these different fund managers are doing. How does this course of evolve? Has it been constant this entire time? Are you guys type of doing the identical stuff you’re at all times doing? Do these nonetheless play a task? After which how do you consider type of incorporating the assorted items of the puzzle over time too?

Clay: I just like the phrase or the quip that there’s no authentic concepts. And the rationale I carry that up, Meb, is as a result of within the early days once we had been a one-product firm, we had Flagship, like our blue-chip technique, I used to be the one analyst and PM. I’d one director of analysis who would assist me pull information and construct fashions and so forth. However we had been a very lean, agency. And so naturally, while you’re constrained from a useful resource standpoint, it’s useful to fish in a pond that you simply at the least no different sensible fishermen are heading for. And so 13Fs, as you talked about, for many who aren’t acquainted, 13Fs are simply quarterly filings that the majority hedge funds or RIAs above a sure threshold within the U.S. must file. And people present all their lengthy holdings, so that they don’t present any brief holdings or some esoteric securities derivatives aren’t proven.

However in case you’re a buy-and-hold investor and a long-term buy-and-hold investor, a 13F is a fairly good proxy for like what you personal quarter to quarter or yr to yr. And so we used these within the early days, similar to I did at my previous agency at Fairlawn and the fund I used to be at simply after Fairlawn, as a great looking floor for like what are some attention-grabbing concepts. So like, there are many sensible folks on the market, fund managers I like, investor letters I learn. And looking and serving to use that to tell what the purchasing listing must be, that’s in the end what helped us go from, okay, how will we begin with 10,000-plus international securities and slender it to a pool of perhaps 100, 200?

So we at the least know which rocks are value turning over. In order that knowledgeable a variety of our funding course of for Flagship to some extent for alternatives within the early days. As we clearly raised a bit of extra enterprise capital, we’ve actually bootstrapped our manner and began rising income, and bought worthwhile, can we construct up the workforce. So we went from simply myself and a colleague to now a workforce of eight funding analysts, employed a analysis analytics affiliate from AQR. We constructed out a knowledge science workforce internally. And so consequently, we’ve been capable of transcend simply 13Fs and be capable of fish in lots of, many various ponds and likewise entry a wider swath of knowledge.

On the similar time, we noticed COVID hit in early 2020. And I feel we realized that what’s a transparent, name it the associated fee aspect of the cost-benefit of utilizing a 13F technique. The fee is during times of exceptionally excessive volatility, even getting information on a 90-day delay, you’re lacking a significant image of what’s occurring beneath the floor of those managers. So for instance, in case you keep in mind, like, COVID actually occurred in March 2020. We didn’t actually begin to see the ramifications of how folks would react till April, Could. Folks repositioning from the bodily out-of-home firms to the work-from-home beneficiaries, the stay-at-home story shares, just like the Pelotons to the … and so forth, you didn’t actually seize that in Q1.

And so in case you had been relying strictly on 13Fs, which once more, are solely up to date as of quarter-end, you’d be taking a look at a completely completely different image. You’d successfully be wanting on the world as if COVID had not existed. And also you wouldn’t be capable of have a clearer, extra up to date image of the world till that summer season, after which you might argue a variety of the chance was capitalized on. So we heard from our shopper base loud and clear that they needed us to turn into extra energetic over time.

And so it was very a lot a mix of us with the ability to fish in additional ponds and be much less resource-constrained, and be extra true and tried high quality progress buyers, not simply being wed to 1 particular supply of concepts. But additionally in some ways shoppers had been like, ‘Guys, we wish you to be extra tactical. We would like you to have the ability to have a look at issues that perhaps different funds aren’t taking a look at, we wish to have the ability to take benefit intramonth, intraquarter, versus being a “slave” to the method’.

And so it was a mix of push and pull each client-led and internally-led. I feel we nonetheless bought to a very enjoyable place. And actually importantly, I feel a greater place for buyers long-term, which remains to be sticking to the technique of shopping for high quality compounding companies, aiming to carry them for a 3 to 5-year horizon. Usually not doing a lot except alternative value warrants it in our view. But additionally be capable of take part within the volatility and make the most of dislocations in a manner {that a} actually systematic or completely quantitative technique in any other case wouldn’t be capable of do.

Meb: So are you guys nonetheless excited about hedging as effectively? Or is that much less of a task than at prior occasions?

Clay: No, that’s a great name out. So all the pieces I’ve described to date, you’re spot on, is on the lengthy aspect. We’re not a protracted, brief agency. However you possibly can say we successfully supply customers brief publicity as a result of we do hedge. And so I feel we chatted about this during the last couple of years, Meb, at completely different cut-off dates, we don’t presently use leverage outright. So we don’t brief futures, we don’t purchase put choices. So we’re really not taking particular leverage or shorting securities outright. However I feel it’s necessary to present folks a method to cut back beta.

So let me take a latest instance, we really began hedging, we placed on inverse ETFs. So principally going alongside an inverse instrument that strikes each day reverse the market in a one to 1 manner on the finish of February 2020. That was, in hindsight, a fairly prescient resolution. Heading into a kind of, I feel it was a 30-plus per cent peak to trough drawdown on the S&P in only a month, we should mitigate the diploma of that drawdown considerably. I feel it was solely 70% or 80%, draw back seize that our shoppers had versus had they’d been totally invested within the index.

So a working example of getting an energetic analysis workforce be capable of monitor. We’re not macro buyers however we’re macro conscious. And once we get sure information factors from our community of oldsters who’ve simply been over in China for investor day, saying, ‘The world’s in regards to the shutdown’, that set off an alarm bell in our thoughts, and we mentioned, ‘Okay, we predict it could behoove us to placed on some universe CTF publicity to cut back market publicity, i.e., beta for shoppers’.

By the best way, we additionally simply did that in January, we placed on hedges, which weren’t on as early January, you placed on full hedges, in mid-January, for a handful of various causes. We noticed technically, just about any manner you have a look at it, you don’t have particular person inventory degree or on an index degree, whether or not it was the S&P, the Russell, the NASDAQ, issues weren’t wanting good. And I’m not a chartist. We’re not technicians by nature. However we do consider like charts in the end do mirror sentiment in markets. And a variety of occasions they are often telling you one thing that you could be be lacking.

And so a mix of technicals, and likewise some elementary information we’ve been monitoring led us to consider that, opposite to the everyday purchase and maintain index buyers, buyers in Titan ought to have their beta lowered, and they need to be ‘hedged’. So it’s one thing that we’re offering, it’s fairly distinctive within the total scheme of funding advisors. That is clearly par for the course in long-short hedge fund land like that is, most long-term buyers are outright shorting securities, and perhaps they’re shorting futures as effectively.

Leveling up, I feel it’s actually thrilling to have the ability to supply one thing like this to retail buyers, particularly not taking leverage. There’s something I feel we as a platform study from the GameStop, AMC period, is that there’s an actual value to shorting securities, it could possibly actually take your complete agency down, if not correctly managed. So this enables us to hedge for our shoppers with out taking the types of dangers that might jeopardize them in our enterprise long-term.

Meb: As you consider this macro, we’ve had a ton of macro crosscurrents previous few years, is there type of like a max hedge quantity you guys would contemplate, how do you consider that? As a result of shoppers, you bought 50,000 folks along with your mobile phone quantity now, Clay. And I’m joking, perhaps it’s simply the app, however that’s a variety of buyers when the world’s going loopy because it has been the previous couple of years. I imply, it’s type of at all times going loopy, after all, however notably loopy now, is there type of a framework the place you consider that? And the way set in stone is it excited about that type of image of hedging as a result of it may be a subject that’s sensitive for lots of people?

Clay: I agree. I feel in a dream world, we’d be 100% web lengthy 100% of the time. And I feel each manner you chop it, empirically talking, you need to be invested more often than not. Markets do go up and to the suitable. We will clearly debate, sure, the historic return the S&P has been, I don’t know, what, 6%, 7%. Is that top? Is that low? From a go-forward foundation do we predict it’s extra like 2% or 3% going ahead? We may debate precisely the place we shake out. However I feel GDP, productiveness progress, these types of issues take international economies up and to the suitable, and markets are inclined to comply with. So it is smart why you need to be totally invested more often than not.

To that diploma, we’ve set type of a framework in thoughts from just like the macro in a hedging standpoint, the place our web lengthy publicity, which is only a fancy manner of claiming like, for each $100 you may have invested, how a lot are literally outright being uncovered to market threat? It ought to typically be the vast majority of these $100. So for us, Meb, we ship out to 80% to 100% is type of the vary of web lengthy publicity. I’ll caveat that we’ve launched the idea of what we name strategic money as effectively.

So it’s actually necessary, I feel, for folks to understand that money is an funding resolution. It’s zero per cent yielding safety and I’m being a bit of bit hyperbolic, 0.004% of no matter your native banks paying you, for all intents and functions, it’s a zero per cent yielding safety, unfavourable in actual phrases now given the place inflation’s heading. It’s a alternative that you simply actively make. And we, as an energetic supervisor, have added that final couple of years to our toolkit, as a method to cut back market publicity as a result of money has zero beta.

So with that, as we speak at present, Meb, we’re at about 70% lengthy publicity. So for our aggressive shoppers, we now have a 5% hedge of these $100, about $5 are allotted to hedge. For average conservative shoppers, it’s nearer to 10% to twenty%. However we are also holding money, as a result of we fairly actually, in lots of the markets we’re taking a look at and lots of sectors, don’t see any alternatives the place you’re not overpaying for the standard of progress you’re getting. Otherwise you’re not going down-market and shopping for “Low cost” securities, however with all types of landmines from a aggressive dynamics from a secular progress standpoint.

So, in different phrases, there’s no straightforward solutions on this market, money can generally be the most effective various. It’s a supply of dry powder in order that if and once we clearly consider when the macro image improves, we may make the most of it. So over time, I feel we’ll shake out $2 of our $100 a shopper could have invested with Titan, relying on their threat profile. They’ll see someplace between $50 to $100 of that 100 be totally in danger available in the market. We are going to by no means be completely market-neutral, nor do I feel we must be. We’re not market timers.

Meb: So that you guys have been constructing this platform, 50,000 buyers, rising the AUM, look out within the horizon, what’s the long run seem like for you guys subsequent month, subsequent yr, subsequent couple years? Give us a peek behind the scenes, what can we sit up for for Titan and choices, neighborhood, all that great things?

Clay: It goes a lot additional past blue-chip equities, mid-cap equities, blue-chip crypto. Issues which are on our thoughts, Meb, non-public belongings, huge, in my thoughts, a contributor to the wealth divide but additionally simply clearly inaccessible to unaccredited retail buyers. Issues I’m pondering by from a non-public asset standpoint, enterprise. Placing apart the market to market nature of the enterprise, which I feel in and of itself if correctly understood, and gauged to somebody’s threat profile, buyers are human by nature, and seeing scary-looking charts each day doesn’t do any higher for his or her monetary well being. I want markets simply closed or a consumer couldn’t open their app, during times of volatility, they’d be higher off as a result of we’re all human.

That’s one among, I feel, the nice benefits that the enterprise neighborhood has is there’s positively volatility in non-public firms, you simply don’t see it every single day. Like I do know there are firms within the non-public markets being marked up being marked down each week, each month when it comes to their intrinsic worth, you simply don’t see it as an LP. Whereas I may joke and say that’s unfavourable, I really suppose it could be a constructive to retail buyers.

I feel getting publicity to an asset class of personal companies, their early-stage, late-stage enterprise progress companies with a correct sizing, once more, gauge to their threat profile, so this isn’t going to be applicable for everybody. However so long as they perceive the dangers round liquidity, you’re not going to have the ability to pull your cash out every single day, perhaps it’s month-to-month, quarterly, yearly, you perceive the charges, you perceive the chance profile, that’s one thing that retailers by no means had entry to.

One other large sector is non-public fairness. Actual property is one other one. I also can go deep down the crypto rabbit gap of all of the attention-grabbing issues I feel are occurring from like a staking and lending standpoint. So we now have a variety of work to do. It’s not going to be as straightforward as our first 4 merchandise. I’ll inform you that a lot. It’s not going to be as straightforward as rent a workforce from our community from buy-side, sell-side analysts, create the technique, create the analysis course of, and growth, flip a swap on. There’s much more infrastructure and tooling that must be constructed. B2B relationships have to be constructed to realize a number of the stuff I discussed.

Meb: Do you foresee these being like, are they going to be separate accounts, will they be funds? As a result of a few of these are quite a bit more durable to personal with 50,000 folks.

Clay: No, I completely agree.

Meb: How do you consider it or you could not know but? I imply it could be it’s now within the course of.

Clay: No. Lots of the arduous work we’re doing proper now is determining what I name fund operations, a variety of that like back-end stuff. Do we have to use SPVs? Do we have to use this attention-grabbing closed-end fund construction, like what are the nuts and bolts we have to do on the again finish to truly make it attainable for a retail unaccredited investor to spend money on SpaceX or Stripe? I consider it’s attainable, it was a very, actually arduous drawback. That is while you get into like custodial and clearing preparations, and all types of bushy stuff. It’s very, very regulatory intensive, however I feel large issues like this are value fixing. As a result of in case you resolve it, you’re speaking about trillions of {dollars} of capital that may swiftly be unlocked for retail and I feel it could typically be a significantly better world.

Meb: It’s going to be enjoyable to observe. What’s the profile for many of your buyers? Has it modified over time, as you’re onboarding a variety of digital native shoppers? I assume it skews youthful, however you might appropriate me. And the place are you discovering most of those pals, is it referrals? Is it by social channels, Tremendous Bowl adverts, what?

Clay: It’s humorous you talked about that. We did our first Related TV marketing campaign, it was at a number of East Coast airports on AFC/NFC Championship Sunday. So we really are testing some larger bets when it comes to out-of-home consciousness, however…

Meb: We had been joking on Twitter the opposite day I used to be like, we tried a pair adverts in Barron’s. We’re very curious and wish to attempt issues out at small measurement and at all times simply questioning if anybody really sees it. So I used to be like, ‘Does anybody really see this?’ Everyone seems to be like, ‘No’, however I bought one response. I do know we bought to at the least one individual. Okay. Nicely, inform me, TVs and airports?

Clay: Related TV, it’s enjoyable. I volunteered myself to do the industrial. So starring yours actually, we filmed it in Brooklyn again in June, and it lastly went dwell the previous couple of months.

Meb: Good.

Clay: No, it’s superior. I’ve had household pals. I’ve had folks I haven’t chatted with since highschool ping me on Fb saying, ‘Hey, Clay, I simply noticed you. I used to be watching a present on Hulu and it went to adverts and I noticed a industrial.’ It was type of a cool second. No, however for us core demographic, the mode is 30 to 35. That’s type of the candy spot, 30, 35-year-old. I name them mid-career professionals, demographic of those lots of people from like a profession standpoint are in tech, are in finance, consulting, actual property, a variety of founders, entrepreneurs.

So these are those who typically like are actually, actually good at their craft, however are usually not good at investing. They want they had been pretty much as good at investing as they’re of their craft. Possibly you’re a senior engineer, or perhaps you’re employed at McKinsey, or perhaps you’re an actual property agent. These individuals who like are actually, actually good at what they do however they want that translated to investing. And a variety of them have been spinning their wheels day buying and selling crypto or equities and so they’re like, ‘I’m out. I do know I want my cash invested, however I’m not doing this myself, it’s time to cross this to the specialists.’

We’ll additionally get a variety of people that come from the standard like robo-advisory, like taxa world, wanting extra. Like look, ‘I don’t know what’s occurring, I wish to take part and be extra energetic, actively concerned. Sure, I’d clearly love higher than common returns.’ And so we’ll get a variety of the standard robo and likewise older cash like Legacy, Constancy, Schwab accounts, moved over to the platform. So it’s a broad swath, we’ll get 20-year-olds, we’ll get 80-year-olds on the platform, it’s actually cool to see this attraction to differing kinds.

However I’d say folks which are in that candy spot of, ‘I’ve tried a bunch of investing choices, I’m not likely glad with any of them. I’m actually good at my craft and aspire for experience every time I do, I want I also can have that for my cash’, is type of just like the core drawback and consumer-type that we see. Clearly, as we launch extra merchandise, and likewise account varieties like IRAs, we’ve additionally seen a very attention-grabbing demographic shift. So like we’re seeing folks now open accounts for his or her spouses, or they’re asking us to open custodial accounts for his or her youngsters. They’re rolling over outdated 401(ok) cash.

So I’d say like the following time we chat, Meb, like the patron sort, age, demographic will in all probability change. And I feel one of many challenges of a platform is it’s type of like what Snapchat did or has been doing. It’s like, do you deal with 20-year-olds for the following 20 years? So at present’s 20-year-olds are going to be 30-year-olds in 10 years. Are you at all times centered on that very same younger archetype? Or do you develop along with your investor base?

That’s type of an attention-grabbing drawback and problem we’re pondering by, I feel it’s going to be a bit of little bit of each. I feel we’d like to ensure we’re rising and being sensible, considerate about including different account varieties, options, to ensure folks can name Titan a spot dwelling for the following 40, 50 years. However we don’t wish to be too many issues to many individuals. We’ve a lot of various things we will do. However when it comes to the place we discover that, it’s largely natural, it’s largely referrals and that.

Meb: One of many cool elements of constructing one thing such as you guys have is you now have a large investor base. And there’s some attention-grabbing stuff you guys I’m positive are excited about, about incorporating that consumer base as an asset for the platform too. I’ve seen a variety of attention-grabbing whether or not it’s neighborhood suggestions involvement. For individuals who haven’t opened a Titan account, and it’s titan.com by the app or web site, clarify what the precise consumer expertise on the communication is. Is it largely video, print, schooling? You talked about there’s type of like a suggestions messaging characteristic and the way do you count on that to evolve within the coming brief future?

Clay: It actually runs the gamut. Our aim is like we now have various kinds of folks which are from all walks of life, and have completely different existence, completely different routines. So we now have those who do the morning commute from Jersey Metropolis to Manhattan, or from the East Bay to SF once they wish to hearken to a podcast on the prepare, or on the subway or within the automobile. We’ve every day audio notes, we name them content material franchises. Content material franchises are principally we’re attempting to construct rituals the place we will meet prospects the place they’re and meet buyers, no matter their routines or habits are, get them the data they should know from the portfolio managers, the suitable media, run on the proper time. So for these types of individuals, we now have a every day, fast minute to two-minute audio be aware. Slightly mini podcast they will hearken to and get the three issues that matter for his or her portfolio at present.

Meb: Folks hearken to that?

Clay: Folks hearken to it, that was one of the engaged franchises we now have. We even have an e-mail type. So we now have very first thing in your inbox every single day it’s a e-newsletter known as ‘Three Issues’, the three most salient issues we consider you might want to know associated to the world of enterprise investing and the way we’re managing capital.

Meb: It’s humorous to consider type of the behavioral aspect of that, too, as a result of we’ve put out a variety of content material through the years. And I really feel prefer it’s nearly a barbell, the place there’s the those who wish to have interaction that. However then there’s the opposite folks which are like, ‘I don’t even wish to hear about it as a result of I didn’t even know I must be worrying about this’, you realize. And so it’s at all times an attention-grabbing contact level on is it an excessive amount of? Is it too little? After which how do you phase that? Which is the cool half, as a result of if you’d like it, you may get it however some folks may be like, ‘Dude, depart me alone’. Do you guys do any type of rocketing on who will get it? Or do they type of self-select out?

Clay: We’re constructing much more personalization, so you possibly can type of have just like the ‘consumer’ preferences. Like I wouldn’t say like, we’ve gotten fairly a great distance with a really half-baked rudimentary method. If you’re a Titan investor, Titan shopper, Meb, it’s like all or nothing. You get all of the content material franchises and you must…clearly you possibly can go in and choose and select what you hearken to. However we solely assist curate that.

Like, there’s a ton of alternative for us to say, you don’t must even state your preferences. We should always Intuit primarily based in your habits. ‘Oh, Meb hasn’t checked our opening or closing bell audio be aware, perhaps let’s pull that off the house display.’ De-emphasize that, emphasize one thing attention-grabbing, and information that perhaps he’s inquisitive about. After which he takes and he clicks and engages with that, we will ask him and we’ll make that a part of his habits.

Issues that we now have realized work very well are video and community-based options. And I feel these are like two of essentially the most underpenetrated known as mediums in finance, for a handful of causes. So on video, one, is simply traditionally, has not been very scalable. Like if you consider the standard cash supervisor RIA, let’s say you may have 100 shoppers, even that’s untenable, doing 100 Zoom calls a day, are you able to think about? Like there’s a cause I feel a variety of advisors go for bigger account sizes, and it makes whole sense, it’s like the associated fee to serve an account is successfully the identical. And so the smaller the account sort, the decrease the margins, the extra robust for companies to construct. And then you definately get all types of bizarre incentives.

So I feel expertise has unlocked the power for me, for instance, as a PM, to construct a one-to-many broadcast-type enterprise, the place I feel in case you polled most of our 50,000 customers, Meb, I feel a variety of them would really feel like they know me on a first-name foundation. I’ve by no means met these folks, however they see my face, they knew who I’m, they affiliate me with a model or one of many portfolios sort. So it’s attention-grabbing, as we launch extra merchandise, we’re attempting to construct extra model and character round every product. So like, for instance, Titan Alternatives, within the coming quarters, you’re going to know there’s an individual and also you’re going to know who that man or woman is on Alternatives. If you see a video or e-mail or content material franchise from that individual, you’re going to instantly set up and affiliate them with a sure a part of your pockets.

So I feel that’s…we see a variety of engagement, a variety of referrals round that. And it’s additionally stored folks invested during times of volatility. They’re like, “Oh, my man or my woman’s taking good care of my cash. I do know I’m in good fingers.” And that humanization of what’s in any other case is a monetary commodity monetary product and an app has allowed us to chop by the noise.

After which the opposite factor is on neighborhood. So the opposite factor you’d see within the app at present is known as ATA or Ask Titan Something. That is type of an inside beta hackathon thought, which was what are all of the questions that retail buyers could possibly be asking that they don’t have a discussion board to ask us? Traditionally, it’s like, in case you discover a firm on Twitter, you possibly can tag them and broadcast to the world and say, “Hey, I’ve a query.” Whether or not you’re Cathy Wooden otherwise you’re engine primary or any of those managers which have mentioned, “We wish to actively have interaction with retail,” you don’t actually have many choices. Are you going to put in writing them a publish mail letter or are you going to tweet at them? Neither of these are nice choices.

So we mentioned, effectively, what in case you may actually add like actually sort in tweet type within the Titan app, submit that, it’ll route it to the analyst or the individual on Titan’s platform-specific to that safety? So if it’s one thing round reserving holdings or one thing round Twilio, it’ll get routed to the analysts on Titan Flagship.

They’ve a portal internally the place they will go into our inside Titan portal, reply that query, broadcast it out. Not solely does that authentic query asker get an e-mail saying, “Hey, we simply answered your query. Click on right here to see the reply within the app.” However all the opposite folks on our platform accrue worth and get schooling and understanding from one thing that perhaps they received’t even ask in these questions.

And so in a world the place a retail investor opens our app and sees, “Oh, man, my portfolio is down 5% at present,” typical retail investor habits is transfer to money, promote, make the bleeding cease. Titan investor habits is, “Oh, proper appended to this chart of my cash being down 5%, I click on an data bubble. It pops to ATA requested by Brian Smith in Georgia, asking exactly why is my cash down 5%?” Which an analyst responds and rationale why it’s down and what strikes we’re making along with your cash.

So instantly, not solely did you speak them off the ledge, however that have we’ve created methods so you possibly can share that so you possibly can cross-post on social media, share it to your networks. And to your earlier query, that’s been an enormous supply of referrals in natural progress is folks being like, “Wow, not solely is my cash in good fingers, however I’ve a straightforward method to share the worth I’m getting with my family and friends.”

Meb: It’ll be enjoyable to observe you guys in your journey. Inform us a bit of bit about you type of went the VC route, but additionally raised some cash with some attention-grabbing names in your cap desk. That appears to be one thing that’s modified through the years, definitely within the final 10 years as this a part of the cycle is having some fairly cool buyers take part. How was that course of? And what are you guys going to spend all that cash on?

Clay: I feel it should final us a very long time, knock on wooden. It will final us eternally. Within the early days, for us, it was very arduous to lift cash. I talked earlier about just like the wedge I described, how many individuals name it a distinct segment. As a result of it was such a small area of interest earlier than Titan actually began to develop, we didn’t have buyers throwing cash at us. In truth, we bought informed no by over 110 VCs in a row. We needed to increase cash …

Meb: …110 VCs there’s now.

Clay: Yeah, we needed to go positively off the crushed path to even discover investor 51. It was not straightforward.

Meb: Nicely, you guys ended up with some names that everybody will definitely acknowledge. I had a enjoyable tweet yesterday, I used to be attempting to poke a bit of enjoyable at my VC pals as a result of it was in Sebastian Mallaby’s new e-book on VCs known as “The Energy Legal guidelines.” However there was a quote from Andy Grove, well-known Intel result in John Doerr, the place he mentioned, “John, enterprise capital, that’s not an actual job. It’s like being an actual property agent.” I used to be dying laughing at it. However an excellent e-book, by the best way, listeners, anyway. Okay, so.

Clay: It’s really been on my listing. Yeah.

Meb: Yeah, it’s enjoyable. I imply, look, for people who find themselves accustomed to that world, it’s in all probability much less you might type of skim it. There are some enjoyable tales in there. For people who find themselves new to VC, it’s an excellent historical past. So okay, I interrupted you. Sorry, preserve going.

Clay: No worries. So it was not straightforward to lift cash within the early days. However as soon as we discovered product-market match, graduate YC, raised our seed spherical, progress solves all issues. There’s something I’ve taken away as an entrepreneur, it’s progress solves all the pieces, from hiring, to storytelling, to elevating capital, to constructing new revolutionary merchandise. So for us, 2020, everybody remembers it because the yr of COVID and was a horrible yr for lots of industries, a variety of human life.

The one upshoot of it was I feel a variety of buyers that in any other case perhaps would have waited years to turn into buyers bought pulled into the markets, you might say, as a result of they’re sitting at dwelling of their pajamas and casinos or sports activities betting was closed down. Or you might say it was simply there are a lot stimulus, a lot alternative to earn money. Irrespective of how you chop it, it was an excellent yr for FinTech, on the whole.

For our house, it was a interval of outstanding volatility. And so folks needed lots of people that had been previous buyers or had been DIY buyers had been like, “I’m out, man, I don’t know what I’m doing. I’m transferring cash to the specialists.” And so once I talked about we begin hedging, and like, actually leaned into that a part of our worth prop, noticed a variety of shopper inflow. And like I mentioned, progress solves all issues.

In order that yr is late 2020 we raised our Collection A. That was the primary actual type of fairness spherical at Titan, led by Common Catalyst, a tremendous agency. And we’re rocking, rolling, after which progress solves all issues. It’s like while you’re not on the lookout for cash is exactly the time when each investor needs to present you cash. And so we’re enormous followers of Andreessen Horowitz. Yeah, it’s about 48 hours from the time they reached out to reengage to the time we had almost $60 million within the financial institution and raised our Collection B.

Meb: What’s been your most memorable funding? You’ve been at a profession that preceded Titan but additionally you mentioned you began shopping for shares while you had been 12. So something come to thoughts?

Clay: It’s not very horny, however one of many first shares I purchased within the mid-2000s was Google. Sure, it was known as Google again then, not Alphabet. There was different bets. It’s just a bit search firm. I really I neglect how I sourced that. However I held it to 2008 and it wasn’t straightforward. In order that’s in all probability what involves thoughts.

Meb: I used to go to the non-public Google events once I was dwelling in Tahoe. In San Francisco I had a number of Google roommates on the time. And the quantity of sheer cash they spent on renting out Lake Tahoe, Squaw and different venues and flying in all of the Googlers from everywhere in the world, I ought to have recognized. They had been simply printing tons and tons of cash. I ought to have simply purchased it and held on to it. The outdated Peter Lynch fashion, however anyway. All proper, my man, it has been enjoyable. The place do folks go in the event that they wish to discover what you guys are as much as, open an account, shoot you some messages, what’s the most effective place?

Clay: Yeah, the simplest place is titan.com. Tremendous easy. You may study extra about what we’re constructing, methods, join, tremendous straightforward, $100 minimal. You will discover me on Twitter as effectively. I don’t tweet typically. I wish to preserve a excessive signal-to-noise ratio. So hopefully once I do, it’s one thing fairly priceless. However I’m on there every day and I reply to DMs and so forth. So digital clay, @virtualclay is my deal with.

Meb: Superior.

Clay: Yeah, it’s been a pleasure.

Meb: Clay, thanks for becoming a member of us.

Clay: Thanks.

Meb: Podcast listeners, we’ll publish present notes to at present’s dialog at mebfaber.com/podcast. For those who love the present, in case you hate it, shoot us suggestions at suggestions@themebfabershow.com. We like to learn the opinions, please evaluation us on iTunes and subscribe to the present wherever good podcasts are discovered. Thanks for listening, pals, and good investing.

 

 



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