#7 – A Scotsman & an Englishman

Dylan and Rob - BTBS

Dylan Grice is a former economist, prop desk trader, strategist and family office investor. Rob Crenian is the former UK CEO of Renaissance Technologies, the world’s most successful hedge fund. They teamed up to form Calderwood Capital whose reason d’etre is preservation of capital in what is likely to prove a much more difficult long term environment in the next decade or two than in the last.


In this interview, Dylan Grice and Rob Crenian discuss how markets work, how “stupid” investors have been winning of late but will not do so for much longer, how quants think, how real alpha will be more difficult to come by, and how this will likely be found not by being smarter but by doing something different; and they explain how they are seeking to preserve wealth with an unconventional investment strategy at Calderwood Capital.


I met Dylan when he was working on Albert Edwards’ team at SG and I used to enjoy his weekly missive, Popular Delusions, a title he has resuscitated for his new newsletter. I hadn’t met Rob before this episode which we recorded in person in the podcast studio at my office. We really had a fun conversation in which I probably participated too much, and we carried on in the pub afterwards. Spoiler: this episode is longer than usual.

They got together to set up Calderwood Capital which is an unusual hegde fund, deploying unconventional strategies to preserev and grow wealth, as they explain in the podcast. Their principles are that diversification is the most potent tool in capital preservation yet is the least effectively used; but radical diversification requires radically orthogonal (it seems to be their favourite word – statistically independent) return streams. They talk about the evaluation of risk-return as needing to take place after the research, not before.

You get the picture…………..


Both started at Dresdner Kleinwort with Dylan going on to work with Albert Edwards at SG and Rob moving to quant manager Aspect Capital. They therefore have had very different career experience, which brings diversity to their new venture.


Family offices are attracting some really high quality investors who enjoy the relative lack of constraints. But the job, capital preservation, is much more difficult than it was say 20 years ago, because of the lack of yield.

“You don’t have to be the smartest guy in the room, but you do have to be different.”


Value investing hasn’t been working; what has worked recently is “craziness, recklessness”. Dylan mentioned when talking about SPACs and similar features of recent markets:

“it’s crazy how dreams were being priced”


I was quite surprised by some of the things I learned about quants. Good quants just connect data, and there is the analogy of continuous improvement with F1 teams, where success often depends on the data. Quant managers too have to accept that they live in an ever-changing world and Renaissance used to talk about the “half-life” of a quant model – the ability to generate alpha decays over time.


Their strategy is to build a portfolio that doesn’t depend on getting markets. macro or forecasts right. When you get into more esoteric areas of markets, you find a genuine risk premium – for example, the reinsurance industry depends on collecting more premiums than it pays out in the long term – there has to be a profit incentive. By assembling a basket of such strategies and some quants exposure, they hope to be able to survive interest rates at 20% and still make money.

I thought this was a fascinating discussion, full of gems, and it made me reconsider whether gold was a sufficient insurance policy in my portfolio and what else I should be thinking about. You should too – strategies which have been successful over the last 40 years are unlikely to work in the next 20. That’s why I am continuing this macro series with a very special guest next month.


Dylan was formerly Head of Liquid Investments at Calibrium AG, Zurich, where he helped build and establish one of the largest family offices in Europe. He started his career at Dresdner Kleinwort Benson in 1997 in the Quant, Strategy and Economics group, where he spent time as a prop trader before moving to Société Générale’s highly regarded global strategy team, working alongside Albert Edwards. He is a graduate of Strathclyde University (as is last month’s guest, Hugh Hendry) and the London School of Economics.

Altana Wealth


Rob is the former CEO of Renaissance Technologies (UK) where he ran and managed the London office responsible for the EMEA regions. He started his career in 1997 as a derivatives risk manager at Dresdner Kleinwort Benson – where he first met Dylan Grice – before switching to quantitative strategy/research. He subsequently moved to Citigroup as a quant researcher in the number one ranked team (Institutional Investor survey 2003/4) before joining Aspect Capital as Head of Product Management. He is a graduate of UCL and the Universities of Cambridge and Bristol. 

Dylan recommends

Sebastian Mallaby, More Money than God. Dylan commented that he liked his view that what works now won’t work in future. Dylan also recommends Manias, Panics, and Crashes: A History of Financial Crises by Charles P. Kindleberger.

Rob recommends

Charles Schwager’s Market Wizards and Liar's Poker by Michael Lewis. Both books were among those on his desk when he joined Aspect Capital, along with a DVD of the movie Trading Places.


Steve has known Dylan from when he worked on Albert Edwards’ team. Steve had always liked the team, including Dylan’s predecessor James Montier, now at GMO, but became a massive fan in 2008, ahead of the credit crisis, when Albert was one of the few voices to warn of the trouble ahead. Dylan’s team heard this podcast and got in touch to say he would like to come on and I hesitated for a nano-second – it’s really a privilege to produce something like this and to be allowed to chat to brilliant people. Thanks to the listeners who enable this!



00:02 – Introduction and Background
15:20 – The Role of Intelligence
27:41 – Avoiding Predictive Bets
36:41 – Adapting to an Ever-Changing World
58:21 – Investing in Niche Managers
01:12:25 – The Underlying Cause of Returns
01:19:56 – Recommended Financial Books


STEPHEN CLAPHAM: Hi, welcome to the Behind the Balance Sheet podcast where we meet leading investors and commentators and educate ourselves about the world of investing and the world. Our mission is to remove some of the mystique around investing and improve our understanding of what makes a successful investment or indeed an unsuccessful one. Our goal is to inform, educate and entertain.

STEPHEN CLAPHAM: We hope you enjoy this and every episode behind the balance sheet and affiliates and podcast guests may own shares or have an economic interest in securities discussed in this podcast which is aired for your education and entertainment only nothing in this podcast should be construed as investment advice or relied upon for investment decisions. Always do your own research.

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STEPHEN CLAPHAM: Cento saves me a lot of time and ensures my research can be done in one place. I like it because first, the data is reliable and it aggregates all content. Second, it’s easy to use and much more intuitive than some other platforms. Third, it features I have never seen in other systems. My favorite is the ability to go into a 10-K and extract the history for a particular data table if I want to see the trend in a parameter.

STEPHEN CLAPHAM: And I often do this, I snap my fingers without having to dig through multiple 10-K S. It’s much faster and easier, but most important, it’s the price, there’s a huge price advantage over other systems if you’re a smaller fund or even a larger fund equipping analysts, Cento is definitely worth looking at visit sent o dot com forward slash BT BS for behind the balance sheet.

STEPHEN CLAPHAM: For more details. Dylan Grice is probably best known as the author of popular delusions, a sideways look at the world of finance and now as the co-founder of Calderwood Capital, a hedge fund specializing in orthogonal niche and capacity constrained hedge fund strategies. Rob Crenian is his partner in Calderwood and was formerly the UK CEO of Renaissance Technologies.

STEPHEN CLAPHAM: The world’s most successful hedge fund. We covered a lot of ground in this longer than usual episode. Sorry. But I was so enjoying the conversation which we recorded in person in the podcast studio here in my offices with my brilliant sound engineer, Henry who hopefully will sort out the words from the laughter at times we cover quants, why they have a human side and how they have a half life.

STEPHEN CLAPHAM: What the answer is to the end of the 60 40 portfolio risk in China, the low risk way to play crypto and why being stupid has helped you make money in the last couple of years, but maybe less useful going forward. You’ll tell from the laughter that we really enjoyed ourselves. And I hope you enjoy this episode too.

STEPHEN CLAPHAM: So Dylan Rob, welcome. Thanks for coming on the podcast. I always start by asking guests how they got into the industry. I don’t know, Rob. Do you want to go first?

DYLAN GRICE: Yeah, great, great to be here. Steven, thanks very much for having us. And how do I get into the industry? I basically trained to become an academic. So I did what you typically have to do, which is a phd. And as I approached the end of my phd, I became rather disillusioned with academia.

DYLAN GRICE: Primarily two key reasons. One was just, I didn’t want to move around the country around Europe on constant temporary contracts.

DYLAN GRICE: And secondly, I just felt, you know, I trained for such a long time was writing references for young whipper snappers who were undergraduates and looking at what they were being offered by these big mega banks to start up working there. And I thought, well, you know, maybe I should go and try something in the real world for a bit.

DYLAN GRICE: And through a mate of mine, I met a, a kind of head hunter, you said, oh, go off to this big German bank. They’re looking for people with your background. My background was in, in statistical economics called Econometrics. And, there was this new merging area called Risk Management.

DYLAN GRICE: They said we need guys like you, I went through a few interviews and next thing I knew I was being sent off to sea on a crash course to learn lots about options and derivatives became a Risk Management. And what year was that? That was 1997.

STEPHEN CLAPHAM: And how about you, Dylan? How did you get in?

ROB CRENIAN: I mean, I stumbled into it.

ROB CRENIAN: I, I mean, I did economics as, as an undergrad and, kind of really liked it and I just wanted to be an economist really. So I was setting myself up to do a phd and, I came down to London, I came to do post grad at the L S E.

ROB CRENIAN: And all I wanted to do was a phd become a professor of economics and, and study, study the economy. But everyone in my kind of year was, was applying to, to these banks that I’ve never heard of. To me a bank was somewhere where you’d stand up in a queue and you know, wait to someone behind the class and cash a check or whatever it was. That that’s what a bank was.

STEPHEN CLAPHAM: You might need to explain to the younger members.

ROB CRENIAN: I was just thinking that as I was, explaining, I thought, anyway, I also then thought that he doesn’t have any younger listeners. Probably so, so a more mature audience. Exactly.

ROB CRENIAN: So anyway, they were all kind of applying, I asked, you know, who they were applying to what, what’s a, what’s an investment bank? And, and I, I still didn’t understand, but I did understand that it involved much more money than, than academia. So I ended up just doing the same thing applying to a bunch of these banks and ended up getting a couple of job offers, one of which was, was as an economist.

ROB CRENIAN: And I just kind of figured, well, I can do what I wanted to do, which is study the economy except I’m just going to get paid more. And, and so I took that job and and, it was actually the same German bank that, that, Rob was, was hired by, although we didn’t know each other at the time. Remember at the same time, 97 98.

ROB CRENIAN: And then from spending a few years trying to work out what the economy was going to do next, obviously, in a bank, that’s only really interesting to people if you can work out how to make money, you know, if you can work out what the markets are going to do next.

ROB CRENIAN: And so that became much more interesting and eventually it just became very, very kind of, you know, consuming and all consuming. So I moved on to the from economics, I moved on to proprietor trading.

ROB CRENIAN: And, and you know, so that was, that was me on my way to kind of, you know, towards financial markets and away from the economy.

STEPHEN CLAPHAM: You’ve both been very reticent about the name of the German bank. Is that, is there, is it highly embarrassing to, we don’t like to talk about to be honest.

ROB CRENIAN: It was, I mean, we both, I, I was originally so again, fortunately you’re more mature even even your audience may not remember.

ROB CRENIAN: Benson, that was who I originally got hired by and they got taken out by Dr and, and you know, and you know, up back then, I mean, Dresner was Germany’s second largest bank after Deutsch Bank.

DYLAN GRICE: So, you know, they were a big, big player, they don’t exist anymore.

ROB CRENIAN: And is my understanding they were, they were also completely useless. I was, I, did you watch a slow death of a, of a very, you know, a lot of talented people at that?

ROB CRENIAN: And you know, the kind of seven or eight years I was there, it was just this very slow death, you know, by the time I left, it was a disaster.

STEPHEN CLAPHAM: It was one of the preeminent merchant banks. I mean, David was, was superstar. And I remember, well, and obviously you spent time at so with Albert Edwards, and we’ll come back to that later.

STEPHEN CLAPHAM: But when you left, so ja you Dilan ended up at a Swiss family office and when I was reading about, you said you initiated a Liquid strategy portfolio and I, I was interested in that because how would you do that? Where did you start? And what were the key issues that you wanted to solve? I mean, how did you go about it?

ROB CRENIAN: So a number of things I think that you know, when I, when I was at with, and you know, we had a very kind of wide scope of things to write about and, and so I did write about a lot and, but the, the thing that, that, that interested me, I mean, as I said earlier, I had been a proprietor trader and one of the things I learned as a, as a prop trader was that I wasn’t a very good prop trader.

ROB CRENIAN: But one of the kind of funny things about that was that, when I saw these kind of, I saw a lot of prop trading activity, and a lot of, kind of risk taking and it just seemed very arbitrary to me. It didn’t seem like there was much of a, of a process and it didn’t seem like there was much of a rationale, right?

ROB CRENIAN: I mean, I did used to hear guys say like stocks of a buy in, that’s what you do with them, you buy them. And this was, these were market makers. So there was this, you know, I mean, they just had this huge bull market in the nineties. I was in the best kind of mid two thousands by this time.

ROB CRENIAN: And it just seemed like a crap shoot and I just didn’t ever feel comfortable in this kind of, you know, environment. So I kind of went back to and went back to my kind of analytical kind of research roots and, you know, wrote some kind of research with Albert.

ROB CRENIAN: But the thing that really kind of interested me is how to avoid that arbitrary decision making when you’re making investment decisions, right? Can you actually build a repeatable process?

ROB CRENIAN: And so I, I was very interested in a lot of kind of behavioral psychology, a lot of neuroscience and a lot of kind of computational ideas and computational theories. And this family office are just very kind of lucky. They kind of give me an opportunity to, to, to basically kind of build a, an investment team.

ROB CRENIAN: And I started out there building an equity team, which made kind of sense. I’ve been an equity trade, I knew something about equities. So I kind of build the equity team along the, you know, basically trying to kind of in and, and, and, and instill foundational principles that if you apply these principles, you apply these ideas on balance, you’ll get the right answer.

ROB CRENIAN: And just once you’ve got these in place, then just keep ranking the handle on balance, you got the right answer and therefore on balance, you’ll make decent returns. And that kind of went quite well.

ROB CRENIAN: And so the, the family office said, well, listen, we actually need that to be done more broadly, not just in an equity context, but cross assets. So for the whole liquid portfolio. So that’s that’s, that’s how I got interested in doing it. What we were doing really was.

ROB CRENIAN: And again, this is quite an interesting kind of intellectual problem to solve. But if you’re on a multi asset portfolio, you’ve got equities, you’ve got credit, you, you know, rates maybe some precious metals, maybe a hedge fund allocation and they’re all very, very different, things.

ROB CRENIAN: How do you compare them? You know, you’re, you’re fundamentally comparing apples and oranges, right? How do you try and put them on to some kind of consistent framework so that you can then allocate to them? How do you know if, if, if high yield is more attractive than equities, for example? Right.

ROB CRENIAN: How do you know if gold is more attractive than, than government bonds? Right. So these things get the they get it’s an interesting kind of exercise, you know, so that was something else that, that now how did you know if gold was more attractive than government bonds?

ROB CRENIAN: Well, gold is a tricky one actually because the the the the kind of common framework that you can use as expected return, right? That’s how you can and then you can go a step further and you can see risk adjusted expected return, right? So you, you can then see you’ve got a kind of expected sharp ratio if you like.

ROB CRENIAN: And then you, you know, and then you plug in the the correlation between those things and then you can come up with some kind of well, theoretically you come up with a kind of Markovich portfolio, but we all know that in the real world that doesn’t work for, for, for, for, for well well known reasons, but it doesn’t make a bad model by the way is it, it’s, you can kind of use it.

ROB CRENIAN: But when you get to something, if you’re looking at, you know, something that, that gives you a yield, whether it’s a high yield bond, a government bond or an equity, if the price goes up, all else equal the, the yields just falling, right. So your expected returns just fallen, right? And vice versa.

ROB CRENIAN: Gold, there’s nothing, there’s, there’s no anchor really your expected return. If you look at the, the historical performance of gold, it’s basically one or 2% above the rate of inflation. The problem is if so your expected return is, you know, one or 2% above the rate of inflation, that’s fine. But if it doubles your expected return is still one or 2% above the rate of inflation.

ROB CRENIAN: So it’s, it’s actually quite an intractable asset, asset class really gold. And so the way we did it, it was really just we kind of assumed that well, we had the orality, we assumed it was zero return, but it did give us some diversification and the diversification gives you effectively optionality, gives you allocation opportunities, allocation, optionality.

ROB CRENIAN: We wanted that, but we assumed it was a zero return. You know, and there, and therefore you kind of your, your model naturally lead you towards having less, rather than more but it’s not zero. And that’s the way we kind of, solve this. That was a difficult one, you know, bonds, equities but is a bit easier.

STEPHEN CLAPHAM: And gold is quite interesting, but maybe we’ll come back to gold. We talk about gold and crypto because I’d like to know why gold isn’t going up when cry. But we’ll go, we’ll return to that because this, I mean, it’s quite interesting you going to family office?

STEPHEN CLAPHAM: I mean, it’s kind of like the antithesis of a prop desk because a family office is about the preservation of wealth for future generations, keeping your capital protected. And obviously, that’s been a pretty stupid strategy in the last 10 years because what you wanted to do is, is be a trader and go borrow as much as you can and go and take the highest risk, approach that you possibly can.

STEPHEN CLAPHAM: I mean, do you have any feeling for, to what extent, family officers generally have kind of thrown that preservation of capital being the prime focus to? Well, let’s make a shed load of money in venture capital. Do you think people have been taking a much more aggressive approach?

ROB CRENIAN: In my experience, it’s, I, I would probably say no, I think you’ve got, and again, there’s a very wide spectrum, you’ve got some very, very, very sophisticated family offices, you’ve got some, some absolute dummies.

ROB CRENIAN: I think that the generally you, even somewhere in the middle, there’s a kind of Barbell approach Right. So, even though you see a lot of kind of family office involvement and venture, that’s not the whole portfolio. Right.

ROB CRENIAN: And so, and, and certainly I think some of the smartest investors that I’ve come across that I know today are actually family office managers because they’re unconstrained. And that, you know, they can do more kind of interesting things.

ROB CRENIAN: I think one of the mistakes that people make about thinking about investing in investors, they kind of assume that you have to be really smart. And you know, you do have to be like, not completely dumb, but you don’t have to be really much smarter than the next guy. You don’t have to be the smartest guy in the room.

ROB CRENIAN: But you, you do have to be different and family offices allow you to be different, you know, the good family offices allow the managers just to be different and to do the thing, right? You don’t have that kind of institutional constraint that, you know, even a hedge fund, you know, a hedge fund, the first thing you get penalized for is style drift, right?

ROB CRENIAN: You, you’re not allowed to be once, once you’ve been pigeonholed, that’s it. So family offices give people that freedom and they give investors that freedom and so you get very creative investors at family offices. But yeah, I, I, I don’t think, I mean, you’re absolutely right.

ROB CRENIAN: I, I I, I, I, I think that, the, the, the whole idea of capital preservation is, is kind of just, it, it’s never really been very sexy. You know, if you just say someone, listen, I can, I’ll give you whatever you kind of whatever capital you kind of, put in the today, you know, you’ll probably get it back in 10 years time with, you know, some kind of re return without much volatility.

ROB CRENIAN: You know, it’s one of those things that everyone likes the sound of it kind of in theory, but when you put it in front of them, they’re not that interested because they’d much rather go for a kind of 10 X and then this kind of environment that you’re in today, which is kind of rewarded gullibility and frankly stupidity, you know, over the last several years.

ROB CRENIAN: Reservation is actually really hard, especially when, you know, government, not, not government, government bonds close to zero.

ROB CRENIAN: You know, 15, 20 years ago, you could, you could have a capital preservation portfolio. Basically at zero cost, zero energy zero, mental engagement.

ROB CRENIAN: And it, it was called a you know, an investment grade bond portfolio, right? That’s all you needed, right? And you could probably get your kind of, you know, 78% you’d compound it in real terms over time, it wouldn’t need any management.

ROB CRENIAN: There’s no brain damage, it was all very, very, you know, low touch today, you know, triple C Corporates are 6%. It’s crazy. Really? So, capital division is actually quite difficult. It’s a difficult thing to do. Right.

ROB CRENIAN: But, yeah, I, I, I think that, for me the attraction was just the, the ability to be creative, the ability to be different, and the ability to really kind of build, this kind of, you know, non arbitrary decision making process, Rob.

STEPHEN CLAPHAM: You’re a rocket scientist, I mean, do you agree that you can just make money if you’re stupid?

DYLAN GRICE: Yeah. So I think there are a lot of examples of people who have made, I mean, so, you know, there’s quite a large sample size in that.

DYLAN GRICE: You know, it, it, I presume coming from the world of quant, it’s one of those things where a lot of quants take this slightly agnostic view of the world. So, you know, we often follow that maxim of, of Neil’s the very famous physicist who used to say, you know, it’s very hard to make predictions, particularly about the future.

DYLAN GRICE: And I always think that beautifully sums up kind of quant in a way that of course, you’re in the business of trying to make predictions. But really, I think the thing that always appealed to me from that perspective, I think what good quants do is they’re really in the business of just collecting data.

DYLAN GRICE: So it’s almost the slight antithesis to, you know, someone who comes out with a, with a kind of theory of saying, look when X happens, why will we act in the following kind of way according to my hypothesis? And I think what a good quant does at the end of the day is they go out there and they pick up every little bit of data.

DYLAN GRICE: It’s you know, I used to say in my old shop, I ended up the end working for a, a very large quant hedge fund called Renaissance Technologies. Who, as you mentioned are, you know, often viewed as a bit of the kings of kind of quant. And, you know, their approach would be send anyone around who’s got the interesting data for sale.

DYLAN GRICE: We never ever turn anything away. Another way of looking at that a little bit is that, you know, most traders, most money managers, most people who are involved actively in markets spend the entire day looking at huge amounts of data and most of it gets thrown away or gets wasted.

DYLAN GRICE: You know, you’ll have someone who just focuses on one particular thing and I think what a good quant does is no, they, they pick up absolutely everything and then they treat it as a bit of a scientific problem. But a very empirical scientific problem.

DYLAN GRICE: And I always think, you know, another great little way of explaining that is, you know, my old shop used to say, you know, if you go back to the 17th century, you had some major breakthroughs in in physics and astronomy related to it.

DYLAN GRICE: And in particular, you have two names that stood out. One was Newton. Newton. Of course, you know, every school kid learns about force equals mass times acceleration. So his approach to everything was to, you know, try to write on equations that describe general kind of rules that’s not quant.

DYLAN GRICE: Contrary to what people might often think really good quant is typically something which is was the approach of someone called Kepler and Kepler was one of the great 17th century astronomers.

DYLAN GRICE: And what Kepler did is he went out and got the very best people to build him the most outstanding telescopes that you could build at that time and to meticulously collect data and then look at that data and from that data, he could then make predictions about how certain, you know, planets would move and how certain kind of, you know, stellar projections effectively based around that.

DYLAN GRICE: And often say good quant is the latter. It’s more the Kepler and not the new.

STEPHEN CLAPHAM: And is that what renaissance was like? I mean, full of as astronomers.

DYLAN GRICE: And yes, actually it was there are a lot of so, you know, in that specific example, rent was they would show a strong preference for scientists that came along and had a background in empirical science where they’d taken huge amounts of data such as, you know, someone who worked in astronomy or someone who worked at and had actually, you know, looked at data and dealt with huge amounts of messy data and made sense out of that kind of course, using huge amounts of processing power as opposed to someone who came along and said, hey, I’m that wonderful mathematician who solved, you know, it, you know, last theorem or something like that.

STEPHEN CLAPHAM: No, that was just a lot less relevant to what they were doing and why, I mean, why is Rent Tech being so successful when even some other very large funds haven’t to the same extent, particularly lately.

STEPHEN CLAPHAM: So I’m thinking of like Winton, what, what’s the thing that differentiates them? Because if you talk to David Harding, I mean, he’s obviously a pretty smart bloke. I mean, he’s, you know, he’s obviously a genius and you imagine that the same philosophy will.

DYLAN GRICE: Absolutely, I think you’re spot on. I think they have the same philosophy, they’re clearly very smart, they hire super smart kind of people. I presume there is perhaps a bit of a, you know, there, there is often the case and I think this is probably true in quant, in particular that a disproportionate amount of the the kind of winnings go to the very best and often the very best.

DYLAN GRICE: It’s quite marginal. We used to use this analogy of formula one that the risk of running too many analogies. But the problem of the quant is, you know, it has this moniker of being black box investing. And of course, there is an element of black box investing.

DYLAN GRICE: It’s a little bit, even if one did open the box, you know, unless you’re really trained in, in, in advanced kind of mathematics or advanced kind of physics, you know, one probably wouldn’t fully understand what goes on within it.

DYLAN GRICE: So, hence, you know, analogies are quite useful and there’s a little bit, if you look at say formula one teams, you know, they do absolutely everything possible to eke out that tiny little advantage. And of course, nowadays, all of that advantage is gained by looking at the data, they measure everything on a, on a formula one car and the teams that are successful, it’s often done to really small marginal things.

DYLAN GRICE: So, you know, I, I, you know, it’s hard for me to tell because I was never an insider at Winton. But I suspect, you know, in the case of RTE one advantage they do have is they, they really train absolutely everything and anything that’s legal and liquid you used to say.

DYLAN GRICE: Whereas Winton on the whole, my understanding is, you know, they’re much more specific, they’re very much futures traders. And I’m sure David Harding were here. Now, he’d probably say no, no, no, no, you got that wrong. We trade a lot of equities as well. But I doubt they trade as many instruments as, as rent does. So that could be one they do, they do trade equities.

STEPHEN CLAPHAM: I can vouch for that because I met the head of research at an equities conference. Winton had to, I was quite, I was quite surprised. I, what, what are you doing here? You know, there’s no computers.

DYLAN GRICE: He kind of laugh quite trying to get some P A stop.

STEPHEN CLAPHAM: I, I think he was, I think he was there to try and understand better how fundamental investors think, which if you are trying to program a computer, it might be quite helpful to try and understand the, the range of, I mean, obviously quite difficult to program.

STEPHEN CLAPHAM: I mean, let, let’s leave quants aside for, for the minute, I’m quite interested in this whole concept which you’ve written about extensively, Dylan about the idea that we’re in a regime change. So we’ve had 40 year tailwind falling interest rates and they’re probably not going to fall an awful lot further.

STEPHEN CLAPHAM: Now, there is an argument that says, you know, we could be looking at minus 5% rates in 2025 or whatever, but I think that’s probably less likely than rates going up and particularly we’ve got inflation.

STEPHEN CLAPHAM: So if we think about that, we take that as a premise, then we’re not gonna have stock markets going up at the 8% per annum that they’ve done for the last however many years or even more than that quite recently. And I was just wondering, I mean, you’re obviously running a fund of funds. Is there, something that you, is there a fundamental difference, do you think between running, running money in a bull market, running?

STEPHEN CLAPHAM: But money in a bear market and running money in a flat market? Because it’s my belief and I don’t have any way of proving this, but it’s my belief that in a, in a flat market, your strategies are very different.

STEPHEN CLAPHAM: So somebody who might be a brilliant fundamental, long term investor will probably make less money than a trader because a trader will be much better at finessing those little 10% that is more important in a flat market. Have you thought about this at all? And, and the sort of characteristics that you would look for in a fund manager?

ROB CRENIAN: Yes, we think about it every day.

ROB CRENIAN: And have been for several years now. I think that the, the, the simple answer is that we try very hard to avoid making those kind of bets, you know, I mean, I think what you’re basically talking about, correct me if I’m wrong, but you’re saying you, are you taking a bet on which type of strategy will fit the kind of market that you expect, right?

STEPHEN CLAPHAM: Or, or the type of style or the type of manager?

ROB CRENIAN: And I mean, I think that you, you know, any environment will, will, will produce what this is the most successful strategy will be dependent on the environment. This is true in anything this is true in, in sport. It’s true in politics. It’s certainly true in financial markets. Things that strategies which are very successful and strategies which when optimal strategies are not static, they change over time.

ROB CRENIAN: Because the, because the market learns because the system learns. So you, when Warren Buffett was choosing low pe stocks, discount, cash stocks, he had to go to the library and he had to get, you know, microfiche files and it kind of helped him that he had a, a photographic memory.

ROB CRENIAN: And he could basically kind of remember what each come. Once he read the report, he, he would just remember all of that. So he kind of had that computer stored in his head and he had that computational part of that processing ability. And he could act on it.

ROB CRENIAN: And that was incredibly successful because no one else was doing it, no one else could really do it.

ROB CRENIAN: And then this kind of whole idea of value investing was, was, was, was kind of born and the academics gotten on to it. And before you know it, you know, you’ve got people doing phd S on it and you’ve got universities publishing data sets on it and then you’ve got ETF S on it and then you’ve got books at airports on value investing and you what value investing doesn’t seem to work anymore.

ROB CRENIAN: And it’s so it’s not the optimal strategy given that the the environment has changed, what is working, what has worked recently is the opposite of value investing, craziness, recklessness, buying stuff. That’s just really AAA pipe dream.

ROB CRENIAN: And we’ve seen this, I think most spectacularly in the in this back market, which is now going flat by the way. But you know, this time last year, it was, it was, it was crazy what, what, what was happening, how dreams were being priced, right? And and so, but that was a successful strategy that has been a successful strategy for several years.

ROB CRENIAN: Cathy would has built a multibillion business, I think by frankly, by being kind of dumb, but with this very, very dumb strategy. So how, but of course, it’s not dumb if it’s been very, very successful, right?

ROB CRENIAN: So the the market environment will actually select the kind of the the the the the the most successful strategy. And it will do so in a way which I think that you kind of, you can’t really predict it’s very difficult to predict. So the way Rob and I try to build a portfolio is we try to avoid putting ourselves in that position where we’re, we’re dependent on me getting that prediction right?

ROB CRENIAN: And so we tend to focus more on much more niche markets, much more niche areas for all sorts of reasons by the way. But one of those reasons is that when you get into more kind of esoteric parts of the market, what you find is that there is a genuine and fundamental risk premium, right?

ROB CRENIAN: So, and, and what do I mean by that if you think of, for example, reinsurance? So we’re involved in reinsurance markets and we have a, a kind of part of our allocations towards reinsurance and the reinsurance industry relies on and only exists because underwriters of, of, of catastrophe risk are paid more than they were then over time, they’re expected to pay out.

ROB CRENIAN: In other words, if there is a profit, there’s a, there’s a profit incentive. If there wasn’t, if it wasn’t profitable to take on the risk of a hurricane hit in Miami or an earthquake hit in California, there would be no insurance market, right?

ROB CRENIAN: So if there has to, if there is a demand for insurance, there has to be that supply, that supply is only going to come up a profit. That’s a fundamental risk premium right now, the attractiveness or unattractive of that risk premium, the way it’s priced in the market will wax and wane over time.

ROB CRENIAN: But it’s a fundamental thing, it has to be there. Now, if we can allocate to, to that risk premium and we can harvest that risk premium over time, then we don’t need to pick the, the superstar. We don’t need to pick the, the, the, the best and the brightest, right?

ROB CRENIAN: We’ve actually kind of in a way we’re really look, obviously, when we allocate to a manager, we try very hard to find the smartest ones, the ones we think are the best, the ones who think have longevity and we will survive and thrive in difficult environments, etcetera, etcetera, etcetera. We don’t, will willingly go out and pick the dummies, right?

ROB CRENIAN: So we try to avoid them, but we, you know, it, it’s actually much easier to just select a risk premium which, which you understand and whose properties are understandable. And you can see that it doesn’t correlate with other things in the portfolio, right? That’s how you build a portfolio.

ROB CRENIAN: And so if we’ve got a whole bunch of strategies, a bunch of fundamental risk premier, but do not correlate, we’re not taking the bet anymore, right? We’re not taking the bet on where interest rates go. We’re not taking the bet on who the smartest guy in the room is when, you know, because those are very difficult questions to answer.

STEPHEN CLAPHAM: Sure. I mean, you know, I, I would never call Cathy Wood a dummy but I must say for sure.

ROB CRENIAN: I mean, she, she, she can’t be, I mean, what she’s done, she’s, she’s built a business with a, with a superficially dumb strategy, but that was absolutely the right strategy and by that dumb and in comments, right? She’s clearly not a dummy. No, no.

STEPHEN CLAPHAM: But I mean, the, the, some of the stuff that she’s come out with or her team have come out with have seemed nonsensical to me and you know, the, the Tesla model.

STEPHEN CLAPHAM: Well, I mean, you laugh but it is laughable. I mean, she, she, they had the wrong number of shares. I mean, you have the wrong number of shares, you know. Can you imagine publishing a no? Well, actually I I I have got an example of a note where the analysts had to change his his price target on the basis of he got the number of shares wrong but except he didn’t change the price target or the recommendation.

STEPHEN CLAPHAM: He just said, oh, I’ve got to change but there was a, it’s funny because I was on Twitter earlier, I’ve been trying to keep off Twitter but it’s too, you know, I enjoy it too much. It’s too distracting.

STEPHEN CLAPHAM: But my pal Jamie Powell at the F T had quoted a tweet from somebody who talked about a Tesla model assumes that in 2025 which is obviously three years away now, right? There’ll be 1.4 trillion robo taxi miles driven, which is actually half the miles of the total US mileage including cars, trucks, buses, everything by 2025 by 2025. Of course, it doesn’t matter because it’s global. So, of course, of course.

STEPHEN CLAPHAM: But I mean, why somebody like that able to take people in when, I mean, it, it’s so obviously incredibly superficial to, you know, people that are used to doing proper research. I mean, I mean, she’s absolutely got the Tesla share price 100%. Right. But there’s a sort of intellectual dishonesty about the, about the research behind it that I, I, I find difficult to, to, I, I, I can, so I completely agree.

ROB CRENIAN: But, you know, I, I’d kind of flip it over, you know, I can, I can think of some brilliant investors and fundamental analysts who’ve just, who, who’ve had disastrous performance for 10 years. I don’t mean they’ve had one or two bad years, I mean, for 10 years. Right.

ROB CRENIAN: For, for, you know, for whatever reason, I think they’ve been so hung up on the kind of on, on the value thing or they’ve, they’ve, they’ve been overly hung up on it, you know, they, you know, they maybe haven’t fully, appreciated the nuance of, of value investing. Right. Charlie Munger said, if it’s not, if you’re not trying to find miss price value, what, what kind of investing are you doing?

ROB CRENIAN: Exactly. That’s not, which is not the same as just buying stuff that’s on a low pe ratio. Right. And a lot of people. And so, but I certainly know some incredibly thought they’ve had a brilliant year, by the way. But over the kind of, you know, over the, over a 10 year period they’ve had, they’ve had a disaster.

ROB CRENIAN: And so it, there’s something more than just how smart you are or how I think it’s, you know, I think it’s to do with the, the nature of the market environment. What kind of strategy is the market rewarding at any point in time?

ROB CRENIAN: And, you know, for, for reasons that I don’t fully understand that I, I had my kind of suspicions. We’ve been in one just an incredibly frothy hot market that’s kind of rewarded gullibility and recklessness, right? That I mean, that in itself was very, very interesting.

ROB CRENIAN: But, you know, as to why, you know, I, I couldn’t really tell you, Hugh Henry said, and I must say I agree with him.

STEPHEN CLAPHAM: There’s no one correct way of doing things that set in stone periodically. Managers should be open to trying different approaches. I wondering how do quants do this? Because if it, if it’s not working, they just change it, they just have to throw it out and do something different.

DYLAN GRICE: Yeah, actually that’s a very good point because I think again, you know, what defines a good quant in that sense, it really is someone who doesn’t, you know, you always say the big mistake can sometimes be that you have such faith in your models, that the market is wrong. And my model is. Right. Right. That’s almost a guaranteed recipe for disaster.

DYLAN GRICE: When we look at, you know, one of the things I focus on when we look at managers, we try to find good quant managers and, and one of the larger allocations in our portfolio is quant, we try to find managers that are prepared to accept the fact that actually what they’re doing is they’re living in an ever changing world. It’s precisely what you were saying. And again, I draw my own experience here at Rent Tech.

DYLAN GRICE: What RTE used to talk about a lot was half life of models. So it was almost this notion that just like radioactive decay has a half life.

DYLAN GRICE: Quant models have a half life. In other words, they have this almost quite smooth curve of their ability to generate alpha decaying over time and in their experience, you know, and they’ve been doing this now for, you know, 40 years. There is no such thing as a quant model that just works always, of course, at any point in time all throughout time.

DYLAN GRICE: There are probably some signals they’ve been trading that have worked for a very long time, but that’s extremely rare. The vast majority of things you have to do, you just have to refine them, work on them, adjust them because we live in this changing world and, and, and, you know, to Dylan’s Point as well, anything you find will suffer from Alfred De. Ok.

STEPHEN CLAPHAM: And what is the half life model? I mean, did they study, you know, did it, does it vary from market to market or it is just very, very individual? And how would you, how would, you know that you’re, you know, because it starts to not work.

DYLAN GRICE: Exactly. I mean, it’s, it’s actually as simple as that. It almost, it just stops working at a certain point. You have to ask is, is it not work? What’s the reason it’s not working?

DYLAN GRICE: The trick now is don’t ever throw anything away because you might take something out of your o you know, imagine you run a whole system that’s made up of lots of different underlying models and you know, you take something out.

DYLAN GRICE: So let’s say you’re training equities on a quantitative kind of approach and slightly simplistic view in that sense, but you have different groups of factors that capture different kind of phenomena and equity markets. So you might capture sentiment, you might capture, you know, all kinds of fundamental type relationships and you might be in a market environment where a specific predictor is not really working very well.

DYLAN GRICE: You don’t know if that’s just a temporary thing and might have it 345 year kind of time period. It’s a little bit, you know, back to Dylan’s Point, we’ve been very much in a market that’s been heavily sentiment driven and actually equity quant systems particularly ones that are slightly more slowly traded. So another crucial ingredient in the world of quant is this kind of timescale?

DYLAN GRICE: What kind of thing are you trying to predict? Are you trying to predict, say Tesla’s price tomorrow? Are you trying to predict in a year from now? And you know, the crucial thing there is, is actually, it’s strange as it sounds, it, well, maybe it doesn’t sound strange. It’s much easier to predict where it’s going to be tomorrow and where it’s going to be in a year’s time from now.

STEPHEN CLAPHAM: And, you know, that can make a huge difference in terms of how effective your models are because as a fundamental analyst, I always think it’s much easier to the further out you go, you know, within reason, you know, I’m a tomorrow view, toss a coin, a 12 month view, I can apply some skills and some logic and, and come up with a reasonable set of estimates.

STEPHEN CLAPHAM: Interestingly, it should be the other way around. So, in the end then the, the, the computers are down to the person driving them is the, whether, you know, how much of the, on the gas and how much on the brake, which gear you should be in.

DYLAN GRICE: Yeah, actually, you know, I think that’s a really good point, you know, in that again, it’s a little bit that, you know, airplane analogy, every single time we get in a plane nowadays, 90% of the time the flying is done by a machine by computer.

DYLAN GRICE: But, you know, would you want to get into a plane right now? That doesn’t have a pilot sitting behind the controls? The answer is probably for most of us. No. Well, Michael O’Leary says one’s enough to which I’ve had a great story with someone know that someone I know who was renting the plane, was told it comes by default with one pilot.

DYLAN GRICE: And, so they, of course, they asked, well, how much does the second pilot cost? And the response to that was well, put it this way, if that first pilot has a heart attack, you know, as you’re crossing the Atlantic, how much would you be prepared to pay for the second pilot?

DYLAN GRICE: So it, it, you know, in 100% of cases, they’d all say definitely I’ll take both pilots. So, but paramount to the, you know, the quant world. Absolutely. You always, you always want, ultimately, these things are built by humans. You have got people who build these things.

DYLAN GRICE: Yes, you let the computer run itself and a good quant system in, in my view. And our view is very much one where you don’t have that human intervention. That’s not to say it doesn’t work. But I think even the most sophisticated systems, you always allow the possibility to override the system.

DYLAN GRICE: The reason for that is that well, if you do encounter situations such as we have seen, you know, in the last 20 years where, you know, when Russia decides to invade Ukraine, when the North Koreans test a ballistic missile, etcetera, etcetera, 9 11, you know, we’re all old enough to remember 9 11 situations like that are simply not captured in any historic data.

DYLAN GRICE: And ultimately quant is about looking at historical data using that historical data to make predictions about the future.

STEPHEN CLAPHAM: So, but something you, you we’ve just touched on and it is quite interesting to me because I always think of quant is being a computer. But what you’re saying is that the person behind it is actually really important. So how do you judge the person?

STEPHEN CLAPHAM: Well, look, I’d say the following, I’d say that actually because if I’m going to judge a fund manager, so, you know, I helped a wealth manager for a couple of years pick equities and run some fund, ran some portfolios for them.

STEPHEN CLAPHAM: And they would ask me, oh, we’ve got so and so manager coming in, do you want to come along or we’re looking at? So and so manager can you come along, just tell me, tell us what you think and I would intuitively be able to do that because I could ask, ask the guy a question and say, you know, you’ve got X Y Z in your portfolio.

STEPHEN CLAPHAM: Why is it in your portfolio? And then based on the quality of that answer and I could form a judgment and it was a great surprise to me. The quality of some of the answers was appalling. But how would you do that with a quant? Because it’s a completely different.

DYLAN GRICE: Yeah, look. So I would say, you know, even, even in, in the most sophisticated quant shops, I think what you want to look for is you do want to look for people who have some markets experience. So it almost is this slight recipe for disaster.

DYLAN GRICE: And I’ve seen it many, many times in, in kind of startup world, you’ll see a bunch of very, very smart scientists who come along and say actually, we want to start trading markets and start collecting data. We’ve got money to collect data. We’ve got these powerful computers and I’m not saying it’s a recipe for disaster. But the problem with that is you’re gonna end up making some really expensive mistakes.

DYLAN GRICE: The simple reason that yes, you can have these wonderful models that describe how certain things happen in the real world. And then as you, as you kind of alluding to, you know, as I mentioned earlier on, you can have these extreme outlier events that completely take you off track and it it’s without dwelling too much on about it.

DYLAN GRICE: But I a lot of people don’t realize this.

DYLAN GRICE: My old shop, Renaissance Technologies started life as a discretionary trading shop, Jim Simons, who’s this, you know, prize winning mathematician who started it started you know, had won some prize money and was interested in trading markets and started trading futures contracts and all went very well until it didn’t they hit, you know, the infamous crash in the late 19 eighties and things went very kind of pear shaped.

DYLAN GRICE: And it was at that point, they said, well, actually, perhaps we need to be processed into this whole thing where mathematicians by background, it makes a lot of sense to start wearing our mathematicians hats and approach all of these rules.

DYLAN GRICE: Now, of course, you can say what happens, for example, even at rent, even if you went back 30 years ago, they did have some people there who came from a more traditional kind of financial background and who actually had the ability to ultimately, you know, override systems or say actually something here needs to be monitored and we need to step in.

DYLAN GRICE: So there is always that pilot in a good quan shop, call him the risk manager, call him. The kind of, you know, overlook of what happens with the systems is often someone who comes from markets background.

STEPHEN CLAPHAM: Interesting. Now, Dylan, when you were at so Jan and writing the original version of popular delusions, you were always very good at questioning the received wisdom.

STEPHEN CLAPHAM: And you continued in that vein, I wondered, you know, one of the things that I’ve been puzzling about is that if we are in this regime change. And I mean, people do seem to argue about this but it seems to me sort of self evident.

STEPHEN CLAPHAM: What happens to 60 40 funds? I mean, what are wealth managers doing today? I mean, I mean, it just seems, I, I’m slightly glad that I’m not sitting in these investment committee meetings any longer. They were, they were dreadfully dull because the meetings, I, I was doing this in the mid 20 tens and every investment committee meeting would start off with, well, when do you think they’re going to put up rates?

STEPHEN CLAPHAM: And I kept saying it doesn’t matter guys because the stock market keeps going up, you put up rates. Stock market keeps going up for a while longer. We worry about it then. But we always just have these long involved, you know, completely pointless, bizarre, sort of scenario. But I, I haven’t spoken to those people for a while. I wonder what they’re, what are they doing? You know?

ROB CRENIAN: Well, I, I, I would actually kind of go even further than, than that and say it’s not just the 60 40.

ROB CRENIAN: I think it’s pretty much the whole thing, you know, when, when, when you asked earlier our family offices kind of taken rest of doing lots of venture and, and stuff like that. And I said, well, most of them are kind of doing some kind of Barbell and, you know, they’re, they’re, you know, pretty sophisticated generally, what they’re all doing is sitting on that time bomb, that duration, time bomb.

ROB CRENIAN: Right. They’re all doing, I mean, you, the answer to your question and it was all over the, the, the, the, the papers maybe about a year or so ago when people were saying, well, you know, we can’t get any, we, we, we, we’re basically, sitting on this huge risk of, of, of interest rates, certainly rising, inflation, picking up interest rates, picking up.

ROB CRENIAN: And suddenly kind of valuations falling. How do we, how do we avoid that risk? And the answer was infrastructure funds, private equity, right. And which of course doesn’t. So why is that an answer? It’s not an answer, right?

ROB CRENIAN: You, you, you even longer duration, even longer, maturity, you even less liquid. I think it’s crazy but I think that that is actually most people’s answers and, and, you know, I said we used to think about this a lot at the family office. Rob and I talk about a lot. In fact, it, it’s, it’s one of the, it’s, it’s what we kind of talk about most days.

ROB CRENIAN: Because I think that the the, the, it’s, it’s not just 60 40 it’s, it’s pretty much everything that’s done well over the last 40 years to his venture. It’s private equity, it’s public equity, his credit, it rates as well. It’s, it’s kind of all its real state.

ROB CRENIAN: It’s all been driven by the same, underlying cause which I think is this bull market and, and interest rates, you know, interest rates have gone from kind of 20%. In the early eighties, late seventies to, to zero to negative.

ROB CRENIAN: Today. So what happens when interest rates go into a, you know, that, that, that, that tail wind turns to, to a headwind? What happens when, you get a bear market and interest rates and, and that’s not, that’s not a bad year. That’s not when interest rates go from, you know, maybe 1 to 3. Right. Or, or even to, to 3.5.

ROB CRENIAN: That’s, you know, in five years time, interest rates are 10%. Right? Or maybe 5%. I mean, in 10 years time they’re at 10 and in 20 years time they’re at 20. Right. What do you do in that kind of environment? What works? Because all the stuff that’s worked over the last 40 years I think is just dead in the water.

STEPHEN CLAPHAM: It’s not, it’s not going to work and it, it doesn’t, interest rates still need to get to 20% for the, all that stuff not to work. I mean, even just going from where we are now to five or seven, which would be a more normal, I think so.

ROB CRENIAN: I think so. I think that’s right. But, you know, here’s the problem, the the, there’s three problems really. The Foster is that, oh, there is a huge e cemetery and let’s just say that it’s very easy to make predictions or this is gonna happen. Right.

ROB CRENIAN: But the fact is, you know, as Rob said earlier, your predictions about the future quite hard. Right. But it’s very easy to see that there’s a huge asymmetry. I don’t think there’s an awful lot of of upside for bond markets here. There’s a huge amount of downside. So that’s already quite unattractive.

ROB CRENIAN: The second problem is that as a matter of fact, people have not been good at predicting the end of the, the bull market and bonds, people have not been good at predicting inflation. And I speak as someone who’s, who’s failed quite miserably at predicting inflation in the past. Right. So that’s the second problem. And then the third problem is you still have to do something about it.

ROB CRENIAN: You still have to invest, you can’t just run away and hide, you know, you can’t just say, well, I’m just going to put my money in asset class X until I’ve got some clarity because asset class X doesn’t exist, there is nowhere to hide. So you have this very, very hard problem to solve. It’s kind of intractable, it’s not forecast.

ROB CRENIAN: The risk is very, very clear, but we don’t quite know when it’s actually going to materialize or even if it’s going to materialize, you know, which might sound like a crazy thing to say when you see what central banks are doing, you see all the money printing, you see the the politization of central banks and central bank activity. You see the recent supply to etcetera, etcetera, etcetera.

ROB CRENIAN: But look at Japan. Japan did Q E way before everyone else, they went in big way before everyone else.

ROB CRENIAN: They’ve had the same supply chain problems as as as everyone else.

ROB CRENIAN: Where’s the inflation? Where is it? Right? You know, there’s, I think there’s a new book coming out with Charles Good. And and another guy saying that demographics are actually going to be hugely inflationary, right? Because it’s a kind of reduction of supply, it’s an increase in demand. Ok? If that’s the case again, Japan has gone in that demographics. Where is it inflation?

ROB CRENIAN: No, I I’m not, I’m not saying that there’s, this isn’t a problem and therefore inflation is not a problem. I’m not saying that I’m saying therefore this is clearly something we don’t very, we don’t very well understand. This is actually this is a difficult thing to get, right? So again, you go back to the beginning, what do we do about it, right? It’s not a kind of trivial thing.

STEPHEN CLAPHAM: So this is, this is why we set up the the fund and, and what have the Japanese family offices done about it because as nobody in Japan made any money.

ROB CRENIAN: That’s a great question.

ROB CRENIAN: I don’t know, I don’t actually know any Japanese family offices. I know lots of Japanese small, Japanese business owners whose stocks are trading kind of below their cash holdings.

ROB CRENIAN: And I’ve actually seen a couple of guys saying now is the time these guys have actually now got a shareholder value, a lot of these kind of, you know, small medium size companies are actually buying their own stock, you know, and a lot of the families who own those companies are actually trying to get their managers to buy their own stock.

ROB CRENIAN: And whether or not that’s true. I don’t know because I, and I’m sure you have as well. I’ve heard this story for the last 20 years.

STEPHEN CLAPHAM: Well, I seem to recall the third quarter of 2005 was the last time that I was really convinced the Japanese stock market was going to go up, but it only lasted about a month. And I, I, I, I, I have actually dabbled in the Japanese market from time to time because, you know, it, it often looks not only tempting but looks like it’s going to go up and you can make, you can make decent money in it.

STEPHEN CLAPHAM: But I’m not a huge expert on Japanese stocks. I will be though, because I’m, I’ve got a call tomorrow morning. I’m going to be doing a piece of research on a Japanese company. So, I’ll be, you know, I’ll be much more, I’ll be all over it by tomorrow morning.

STEPHEN CLAPHAM: Well, the, the, the, the, the question in Japan is quite interesting because you would imagine that there would have been a lot more buybacks of these situations. But if you were a Japanese family, you might not, for very good reason, you might not want to take any currency risk. You might want to be in the domestic market. So I wonder what you would have done.

STEPHEN CLAPHAM: I mean, because, and it’s quite an interesting avenue for me to explore as to what people in Japan have been doing in order to make themselves more successful, maybe they’re just not rich like people are in the United States, maybe there, you know, maybe there hasn’t been the same wealth creation because they just haven’t had the same tailwind. But think it is quite interesting, quite an interesting subject to.

ROB CRENIAN: Yeah, I mean, bonds have done phenomenally well, for, for the Japanese as well, right.

STEPHEN CLAPHAM: There was another aspect to it, you know, but they’ve been, they’ve had low interest rates for forever for a long time. So they kind of, I mean, your starting point would have been a long time ago for you to have done bond, you’re not paid much to, to own them.

DYLAN GRICE: So, I suppose it is a really interesting question. I’m just thinking of, you know, when they publish these lists of, you know, the largest family offices in the world. I mean, to me now, I’m no expert on that. But Japanese family offices, you’re right. Don’t seem to feature in that.

STEPHEN CLAPHAM: But it’s quite interesting.

ROB CRENIAN: It’s quite interesting because you think that, you know, it’s been an incredibly successful economy and there is a lot, you know, there’s a lot of, I mean, I think anyone who spends any time looking at Japan has to be humbled by it because a lot of the things that we think we all understand and the things that we really hang our hats on, you go over and look at what the the Japanese experience because more often than not, they’ve already been through it.

ROB CRENIAN: And, you know, I said, quantity reason is a kind of good example of demographics and, and it just hasn’t done what, you know, what was predicted, right? And again, that’s not to say, again, it’s not to say that we’re not worried about inflation.

ROB CRENIAN: It’s not to say that it’s just to say, look, we don’t quite understand this process very well, right? And, but again, it doesn’t, it doesn’t absolve us of the requirement to, to make it an investment judgment, you have to make that decision.

STEPHEN CLAPHAM: I’m curious about it because the Japanese stock market is quite lowly rated. And I mean, the same thing that applies to South Korea in a small smaller sense and, you know, very successful economies, but got very lowly rated stock markets. And could that be us?

STEPHEN CLAPHAM: You know, I mean, could that be the S And P 500 could look like the Japanese stock market? I mean, I, I’m throwing this up as a kind of question in, in the air and I hope that that’s not going to be what happens because very miserable if that’s, if that’s the case and obviously American companies have been much more successful, but it’s an interesting, an interesting one.

STEPHEN CLAPHAM: But let’s leave that to one side because if we’re right, that returns are going to be lower. There’s, there’s all, I mean, 60 48 isn’t the only problem. Another problem is in company pension funds because every pension fund that I’ve looked at is assuming that they’re gonna make 8% and what happens when they can’t.


STEPHEN CLAPHAM: No, I mean, they, I mean, we know they can, bonds and lots of them got high allocation bonds but let’s say they all go into equities. I mean, they can’t make 8%. So, what, what should we be doing? We just be avoiding companies with large pension funds, large pension, well, don’t even need to have large deficits. You just need to have large funds relative to the market cap.

ROB CRENIAN: It’s a huge liability. Yeah, I mean, these things are, I think there are, you know, they are a time bomb there. They are kind of huge time bomb. So, I you know, I, I completely agree and, and, and by the way, I, I’m not sure there’s an answer. I don’t think some, some problems don’t have an answer. I don’t think there is an answer. Right.

ROB CRENIAN: You know, Kevin Keegan once said, when he was, he just had a, a bad run of results as England manager and someone said, you know, I asked him about this and how, how secure he felt in his job.

ROB CRENIAN: And he said, well, I can see what’s around the corner, right. I just, I just don’t know where the corner is, right? And that’s kind of where we are. That’s exactly the kind of situation we are right now.

ROB CRENIAN: And as I said, I, I, I don’t really know what the answer is and I don’t know how to advise these big pension funds because I think that when you get a certain size, I, I actually think there’s nothing you can do, right, the best. Well, maybe not the best, the standard, the kind of response that I used to get when I used to speak to other family office managers and about this topic.

ROB CRENIAN: You know, what are you doing about it? And, but, but like you were you kind of your quarterly allocation meetings when you, you would start off with, with a question about, sadly they were monthly.

ROB CRENIAN: But it, you know, it’s basically just a wheel spinning, you know, you start talking about, you start asking questions, you wish you had the answer to, right. And you realize very quickly that you don’t have the answer and probably nobody does. So you shrug your shoulders and just to just move on, get about your day.

ROB CRENIAN: And that was, that was very much the impression I got from speaking to the family, office managers effectively. People were just sitting with their fingers crossed and hoping that it didn’t happen, certainly that it didn’t happen on their watch. Right. If they could just get another 10 years out of this kind of gig, then they would, it would be someone else problem.

ROB CRENIAN: And I feel that there’s, there’s, there’s an awful lot of that. I think that if you’re small and you’re nimble, and you can invest in smaller managers and you can invest in more kind of niche managers as we do, then you can actually do something different. Right. But you can’t do it. If you’re big, you can’t do it.

ROB CRENIAN: If you’re a, if you’re a, you know, a $10 billion endowment, I think it’s going to be very, very difficult. Very, very, very governments are generally a lot of the big endowments are incredibly well funded. Right. But if you’re looking, if you’re looking at, pension funds, you need to make that 8% and they’ve just about been making it over the last few years.

ROB CRENIAN: You know, for some of the kind of larger kind of us Corporates. I think these guys are going to be in trouble. The, the states, a lot of the state pension funds in yet again, these guys are going to be in trouble and I’m, I’m not sure what, what, what, what they can do to be honest.

STEPHEN CLAPHAM: So, does that mean, you know, so the companies are at risk, the employees potentially, yes.

ROB CRENIAN: Could be at risk. Well, I think that, yes, I think so. I mean, I would have thought that if you get, you know, again, I, I don’t know, I would guess that there would probably be some kind of government support. I, I mean, I think that ultimately we do end up in some kind of inflationary, disaster. I think that’s where we’re going here. Right.

ROB CRENIAN: And one of the reasons is because I think that, as you said, you’ve got this huge unfunded pension scheme, you’re gonna have, retirees, who’ve got no money who are going to go broke. And exactly the time when retirees are actually going to be politically, very important. Right. You’re in increasing waiting and the, and the, and the, of voters.

ROB CRENIAN: And so I think that the answer to, to that problem is, becomes a printing press. Right. And one of the problem, one of, well, the fact is we talked earlier about how, you know, the environment will almost select the successful strategy. You have to say the successful strategy has been printing money as a politician, that’s been the way to solve problems.

ROB CRENIAN: You spent the money because there’s been no consequence. There’s been no inflation at all. Right. Again, we can get into the arcade. What exactly is inflation? Well, actually there’s been lots if you look in the right place, right? But as for, for, for, for, for your your average politician, your average voter there hasn’t been a problem, right?

ROB CRENIAN: Which is printing more money. And so the the politicians have learned, you know, if there’s a problem, we we print the money now, ultimately, I think that does kind of become inflation. But, you know, again, as Kevin said that I don’t know where the corner is. Yeah.

STEPHEN CLAPHAM: And of course, you have people like Stephanie Carton being incredibly vociferous that there is that there isn’t a problem and it’s kind of hard to reason with these people.

STEPHEN CLAPHAM: I did a, I did a webinar with Steve keen and we, you know, we started to have a disagreement of opinion about the, you know, the level of debt and you know, his argument is we can’t add up government debt and private sector debt, which I, you know, I, I I kind of understand it is logic but the let’s not go down the modern monetary theory because, because I, I’ll just start ranting and Yeah, I would absolutely egg you on as well.

STEPHEN CLAPHAM: So, yeah, so we got lots of more interesting things to talk about. So I was writing, slides for, I, I’ve, I started a YouTube channel and I said, ok, let’s what I’ll do is I’ll do one video a week for a year. There’s this guy called Ali Abdal who is a genius and he was a medical student at Cambridge.

STEPHEN CLAPHAM: He started a YouTube channel and he’s now got a million followers and he makes like a million quid a year mainly from YouTube and selling courses about how to be a YouTube influencer. And he said, you know, just, you’ve got to just got to do 11 video a week. He said, it took me a year to get 1000 listeners, 1000 views and 1000 subscribers. And I got 1000 subscribers in like two months. I was thinking a what do you know?

STEPHEN CLAPHAM: But then I spent the next 10 months going nowhere. And I, I was thinking, oh, I’ll just give up because, you know, I’ve done the year and I’ve got a few 1000 subscribers and it was quite fun. But I happened to be in a call and Ali Abdal production manager was on the call and I said, oh, and I explained the story and she said, oh, no, you got to keep going for two years.

STEPHEN CLAPHAM: So I was just doing, I was just doing the 20 you know, what’s going to happen in 2022 I was doing the slides for China.

STEPHEN CLAPHAM: But it seems to me that China is going to be a big thing this year because the whole, well, there’s all sorts of issues aren’t there. There’s, you know, what the government’s doing to the tech companies.

STEPHEN CLAPHAM: But what interests me is the fallout from ever grand. I don’t know if this is something that either of you have looked at. But it seems, it seems to me it’s, it’s not caught as much attention as it might do because I think it’s really fundamental to the global growth outlook. So you’ve got ever grand, it’s obviously bust in some sort of sense.

STEPHEN CLAPHAM: And what’s the fallout from that? So the government can kind of bail them out. But if you’re a Chinese, if you’re a rich Chinese person, one of your main routes to saving and investment has been to buy an empty property in Shanghai or Beijing, not complete it just leave it empty and it’s gone up a lot and there’s been all this money directed into this completely pointless, worth worthless exercise.

STEPHEN CLAPHAM: And now what’s going to happen is that the rich Chinese are going to say, well, hang on a second if we put the money down and we put it down when it’s a third complete, we don’t know that in two years or three years time it will be complete and it may be that, even if our department is complete development may not be complete.

STEPHEN CLAPHAM: So, you know, it’s not a guaranteed risk, free capital appreciation. And if that happens, then there’s all sorts of other consequences because then the whole machinery, the whole cycle doesn’t work.

STEPHEN CLAPHAM: And the developers don’t have enough money to buy the land off the municipalities, the municipalities rely on land sales for 40% of the revenue. And if they don’t have 40% of the revenue or they’re missing 10% or 20% then they can’t go and build new bridges to nowhere or new subways that well, have you looked at this?

ROB CRENIAN: And what do you think about it? Well, I mean, again, I kind of carve out with my usual kind of replies. I don’t really know, but it, it the hell out of me. China really, really do. I, I, what I think is that the sequence of events which I would expect is, you know, there will be hard times economically. Mark always used to say that China would, would grow old before it grew rich. Right. And I think that’s gonna happen.

ROB CRENIAN: I think that’s happening, for the last kind of 30 or 40 years, China was reasonably kind of, well, it had been liberated, the people were reasonably free, free to kind of do kind of what they wanted, which included making money because the two, it’s difficult to separate the two, you know, this idea that you can have a kind of thriving economy.

ROB CRENIAN: But, you know, you can control people politically. It doesn’t work, you know, you either they’re either free or, or not.

ROB CRENIAN: But they were kind of free, they made a lot of money. The whole thing was completely corrupt. The whole thing was based as well as that. It was also based on a, as you said, a kind of real estate inflation.

ROB CRENIAN: But that kind of, you know, that, that kind of did lift a certain number of people out of poverty that did create some, you know, some it did create wealth may not have been as evenly spread as they wanted. But, you know, people were left out of poverty, there was a mass migration, et cetera, et cetera.

ROB CRENIAN: A mass migration from from the kind of country to the, to the city. And basically, you know, most people did OK out of it, some people did incredibly well, so some better than others, but most people did OK out of it.

ROB CRENIAN: So people kind of can go on with their lives when they think that tomorrow they’re going to be better off and that, you know, their kids are going to be better off than they are. But I think when that changes, there’s a problem and I think that that’s now changed, not just because of the demographics because because you got, you know, you’ve now got a regime which is, which is dictatorial, right?

ROB CRENIAN: You’ve got a regime that’s, that’s telling footballers that they’re not allowed to play for the national team if you’ve got tattoos, right? They’ve got shutting down tournaments because some of the players have got Fancy haircuts. Right.

STEPHEN CLAPHAM: So I’m not that familiar with the Chinese football team, but, I mean, do they have any players that don’t have a Fancy haircut or a tattoo?

ROB CRENIAN: Tattoo is a bit more difficult, but this is, I mean, it’s, it’s one of these kind of examples of, of how they’re just trying to control everything. The problem is if you try and control everyone’s kind of if you try to make everyone the same and you try and control everyone’s kind of creativity and own kind of self expression that just naturally leads into, right?

ROB CRENIAN: Because you’re not allowing people to be creative entrepreneurs, you’re not allowing people to be creative investors, right? You’re not, you’re not, you’re creating an environment that’s just not conducive to that and therefore you’re creating an environment that’s not, that’s not conducive to prosperity.

ROB CRENIAN: So they’re not going to grow the they’re not, in my opinion, they’re not going to grow that prosperity. So I think that they will, you know, China’s got a history of social unrest, totalitarian regimes have got a history of, of of, of, of coming unstuck when when the people who have had enough. Right.

ROB CRENIAN: And I think that if you’re, if the people are not improving the lot, then there’s a much higher risk that they’re actually, they’re going to complain about it. So, what did the, so what does the regime do? Well, it can’t crack down even partner. So I kind of wouldn’t be surprised if you, you end up in a kind of rerun of some kind of cultural revolution. Right. That’s what again, by the way again.

ROB CRENIAN: So this, I, I hasten to add that the views are their own, but I also use that, I don’t really know what I’m talking about. Right. And I, I, I would, you know, when Rob and I are building the portfolio, we are actually pretty kind of fastidious and avoiding exactly these types of bets, right. Avoiding exactly this type of thing so we can talk with us and it’s all very interesting.

ROB CRENIAN: We’ve all got our opinions, but would you bet on it? No way? Right. So then this is exactly, this is exactly the kind of thing we would just never bet on. Right. And if we saw a manager who said, oh, well, this is going to happen and therefore I’m sure me and Rob would be, we’d be out the rest of the story.

STEPHEN CLAPHAM: Your solution is you see that problem or potential problem in the and, and you just say, OK, I don’t want to have any exposure to that long or short So I got anybody, I’m just not going to have China in my portfolio. Is that the solution?

ROB CRENIAN: Basically, I mean, we would actually go slightly further and say we, we, we tried not to have any equity risk in our portfolio or the extent that we do have equity risk in the portfolio. We’ve actually got that equity tail offset somewhere else in the portfolio, right?

ROB CRENIAN: With, you know, with a long, you know, so we, we do, you know, we do reinsurance, we do Cryptocurrency, Atras, we do litigation finance, we do quant, et cetera, et cetera. You know, we do stuff that just doesn’t really have that. So we’ve kind of robustness is the best protection against ignorance, right? So if we’re ignorant about the future, we don’t know about that stuff, but we do know something about robustness.

ROB CRENIAN: We do know something about what this risk premium the harvesting is. We do know something about how that each, each risk Premier correlates with the other. And therefore we, we understand what the reality in our portfolio should be.

ROB CRENIAN: And therefore we can understand that our portfolio kind of doesn’t care what President Xi does or Putin does or what happens in Ukraine over the next month. It it doesn’t really make any difference to us. You know, we expect things to just kind of churn out those kind of risk premier that we’re collecting, you know, regardless would you would you?

DYLAN GRICE: Absolutely. And I think that’s the other crucial thing that portfolio construction in, in, in the entire kind of set up. And, you know, we really attempt to build this portfolio that’s proper orthogonal kind of return streams. And, you know, in, as far as we’ve done that, I think we’re, we’re getting very close to that.

DYLAN GRICE: We’ve kind of achieved that, you know, we recently did a little exercise of, you look at most traditional hedge fund strategies. What you’ll find is these things are highly correlated. You’re essentially getting very similar kind of risk premium exposures, irrespective. You know, some guys said we’re macro others say, hey, we’re equity long, short, others are all event driven.

DYLAN GRICE: But ultimately, if you look at it the date, what the data tells you these things are highly correlated and really what we’re trying to do here is build something that really is return streams that are truly uncorrelated, ultimately driven by this idea idea that we are genuinely market neutral.

ROB CRENIAN: And but there’s, there’s something again, there’s an underlying cause of those returns that we’re getting and which is not, it’s not to do with the great person video of investing, right? You know, there’s actually just there’s a process and there is, there’s a risk premium.

ROB CRENIAN: I wouldn’t even call it an alpha. Alpha is hard, right? You know, alpha is not sustainable. Alpha is very much the exception, not the rule. And but there is a risk premium, there’s a risk Cryptocurrency, arbitrage OK, for all sorts of reasons.

ROB CRENIAN: You know, you can get large and tradable disparities and the price of the same coin, right, on different exchanges, right? And because of the structure of the market, very dispersed, very decentralized, lots of different venues, but Bitcoins are fungible, right?

ROB CRENIAN: So you can, you can, if you’ve got the right expertise and this is where the quant comes in and the processing power comes in, this is where Rob’s expertise come comes in.

ROB CRENIAN: But you know, you can see that arbitrage, you can see how you can take advantage of that. A now in 10 years time, we’d be very surprised if these strategies worked right, the very short time.

STEPHEN CLAPHAM: But you’re also taking a credit risk in the exchanges, presumably. That’s right.

ROB CRENIAN: Absolutely. Yes. But this is, this is an orthogonal credit, this is an orthogonal risk. This is, we’re also taking a, a risk that an earthquake, rips open in California. Right. Yeah. But that’s another risk that we’re taking, right?

ROB CRENIAN: We’re actually taking, you know, in some of our kind of litigation funding, for example, we’re taking a risk that the, the, the, the funding of cavity wall insulation claims in the north of England, gets, gets wiped out for some reason, right? Because there’s some regulatory change and the, and actually the, the, the right. So we’re taking all the, all the, we, we take there’s a tail risk in every single thing you do.

ROB CRENIAN: Right. Right. Regardless of what you choose. The S And P fell by 86% in the early 19 thirties. Right. The, the topic, the Japanese market fell by 97 percent in 1945 right after, to be bombed. Right. 97%. Right. So, that’s your tale. That’s your one in 100 year event for equities, right? 97% right?

ROB CRENIAN: So everyone’s got a tale now, if we can understand the tails and our different strategies and we can understand that they don’t, for example, the credit risk, a crypto exchange goes down and blows up the credit, the, the, the crypto market, it’s not gonna have anything to do with the, the, the, the, it’s gonna, it’s gonna hit you by one or 2% and that would probably hit by a bit more than that, but you’d probably be talking about 5 to 10% right?

ROB CRENIAN: Which, which wouldn’t be fun, right? But it’s not going to sink the shit, right? Whereas a 60 40 portfolio or Great Depression could potentially sink the ship, right?

DYLAN GRICE: And that, so that’s, that’s where I said that that’s kind of our, our way of dealing with this uncertainty and even a classic kind of, you know, fund of hedge fund type portfolio at one point, you know, I know it’s slightly antiquated now, was a bit this panacea to the 60 40 you know, just add 20% to a well diversified fund of hedge funds.

DYLAN GRICE: Well, my previous point is they’re extremely highly correlated. So actually the, the risks you’re exposing yourself to the equity market tanks by that one in 100 year event, guess what happens to all these event driven macro and, oh, no. Hang on. We’re doing kind of, you know, all kinds of Fancy stuff in the long, short market.

STEPHEN CLAPHAM: You’re gonna get hit and do you have any gold?

ROB CRENIAN: Not in the fun?

ROB CRENIAN: Not on the farm.

STEPHEN CLAPHAM: Oh, it’s good enough for your P A but not good enough for your client.

ROB CRENIAN: That’s, well, actually, I mean, good enough is the wrong world.

ROB CRENIAN: You know, we, we, you know, we, we charge fees, right?

ROB CRENIAN: Why does someone need to pay us to buy gold for them? Right. They can buy gold, right? They can buy equities. That’s one of the another reason why we don’t have any equities, right? Lots of reasons. But another reason you don’t need to pay us to go and get your equity exposure as well. We kind of think basically all of that stuff is equities equity. So we call equities in disguise, right?

ROB CRENIAN: You put together kind of, you know, textbook and a comma hedge fund portfolio. It’s all going to correlate the tails. You look at these, they’re all down in March 2020. They’re all down in, you know, in autumn 2008 there was, it was, it was, you’re taking equity risk, you’re paying kind of fees for. Why do you need us? Why do you need to pay us to do that? And, and the answer is you don’t, we don’t take crypto beta.

ROB CRENIAN: I mean, the crypto we do is arbitrage is pure Atras, right? We don’t take crypto beta because you can get, if you’re interested in crypto, go get crypto. That’s fine, right? But the kind of stuff that we invest in that we do put in the portfolio, it’s actually pretty hard to find, it’s certainly very hard to process. And by the way, Rob and I are investors in our own funds, right? So it is certainly good enough for us.

STEPHEN CLAPHAM: And do you have any supply chain finance? Yes.

STEPHEN CLAPHAM: And you obviously looked at Green. So I read your stuff on it as well at the time and I saw actually in popular delusions that you did reference me and Mark and and you spelled the name of my company wrongly because you called it beyond the balance sheet, not behind the balance sheet, but I’d already invited you.

STEPHEN CLAPHAM: So it was too late to cancel when I noticed that. But the the the it was, it was quite, don’t worry, but it was quite an extraordinary story because when we originally wrote about that in the summer of 2020 and nobody was interested and then everybody was suddenly very interested when it all went pear shaped.

STEPHEN CLAPHAM: But what I don’t understand, I don’t know if you’ve got any observations and that we’ll finish after this. But Gupta is still in business and people are still lending him money. I mean, what am I missing? Is it just, there’s so much money in the world?



STEPHEN CLAPHAM: Ok. So we finish. We close always by asking people if you were going to recommend somebody to come into your industry, young person, coming into your industry.

STEPHEN CLAPHAM: What, what book would you recommend they read? And Rob, have you got a favorite book that you, that you like, which you, you can have more than one?

DYLAN GRICE: Yeah, I presume actually there was, there was one book that definitely had a big influence on me, which I read pretty early on and that was, you know, Jack Schwager book on Market Wizards. There’s two of them I think. Is that right?

STEPHEN CLAPHAM: Well, it’s been several actually.

DYLAN GRICE: Yeah. And, and those, those very early ones which just interviewed, you know, money managers at the end of the day traders. And I remember just reading those and just thinking, wow, this is fascinating, you know, just and that definitely had an influence on me together with li Poker.

DYLAN GRICE: Of course, actually, I did at one of the first British hedge fund I worked for, they used to do this wonderful thing, which will start doing one called Grows, which is when you arrived at the company, there were five books.

DYLAN GRICE: This is exactly what the five books were. The two Jack Schwager books, which I’d already read.

DYLAN GRICE: Bernstein’s book on Against the Gods. The Risk Management book.

DYLAN GRICE: The other two Escape. You know, I think one of them was Lies Poker. And then there was one other one which we put, we’ll put it in the, or I’ll email Anthony Todd and remind him as well. The other thing you always remember is you got a DVD as well, which was that great film, about the commodities traders, trading places, trading places.

STEPHEN CLAPHAM: That’s the one I’m gonna, I’m gonna, I’m gonna ask them if they still do that. How about Dylan? You’re a great reader. So you have loads of books to choose from.

ROB CRENIAN: Well, I think it’s, you know, if you’d asked me this question a year ago or five years ago, 10, you get a different answer each time and it does kind of change. But, and I can’t choose one. But I think that if, if someone was coming in again, if they were coming to and again, it depends what they’re coming into, right?

ROB CRENIAN: If they’re going to come into, to try and get a job at some shop, then they should probably be learning about, they should be read a book on, on, you know, machine learning algorithms and and, and Python or, or something like that, which may not have the same kind of general readership.

ROB CRENIAN: But the way the, the, the, you know, I think as part of a financial education, I would say, there’s a book by Sebastian Malay, called More Money Than God. And it’s, it’s actually a history of hedge funds.

ROB CRENIAN: Right. And it starts out, I forgot the guy’s name now. The late 1949 long short, equity Alfred Jones, right? And, right. And so it starts out with, with history with Alfred, the Alfred Jones story.

ROB CRENIAN: And he was actually, he was long short, he had a different language at the time because the, you know, the language, but he was at a just the long book and the, and the short book, he was actually paying brokers, not a fixed rate, but on the basis of the, the, the, the, the quality of their recommendations. So they basically got a performance fee on the recommend.

ROB CRENIAN: So he was kind of self selecting the actual talent on the, on, on the street with his, with, this is a kind of a very, very primitive marshall was type thing, right? And he was using some, some leverage he could realize. And he, so he was a kind of pioneer of, of, of, of, of, of, of, of hedge funds.

ROB CRENIAN: And he goes through this kind of, so he goes through from these kind of long short managers to the the kind of macro managers of the 19 seventies up to, you know, guys like so and then the tiger funds and, and, and this is very, very interesting but on a kind of deeper and he goes through as well including but the real lesson from that is what we were that you get a very, very vivid portrait of and a very, very clear understanding of by the time you finish reading it is this nature of alpha decay, you know, this, this idea that alpha is, is actually incredibly hard to find and it is ephemeral.

ROB CRENIAN: And so what, what works in a very over a period of time is almost guaranteed not to work in the future. And so this is something that really, I, I think everyone needs to read this, you know, I think everyone needs to read that, that, that book and everyone really needs to kind of understand that.

ROB CRENIAN: And, you know, as I said earlier, I, I I kind of big kind of kind of core idea that, that, that, that we have at is is that it’s not about necessarily being smart, it’s about being different, right? You can find people who are doing things which are different from their peers, that means understanding what all the peers are doing, first of all, right?

ROB CRENIAN: But if you can kind of, you said you run for the last 10 or 15 years. You’re probably not a dummy by now. Right. If you can actually make a judgment on how different certainly are, that’s actually very, very kind of, important. So I would say that one and then I, I, I think the, you know, there’s a lot of financial history books around now.

ROB CRENIAN: But the kind of, the original one really for me was, was kind book, crashes and panics. And I think just as a, just as a reminder that, you know, you do get these bubbles, you know, every, every few years you get them. Right? And, and it just isn’t different this time. And I think that that’s, you know, I, I, I, I find myself reading that quite a lot.

ROB CRENIAN: And books like it because I said there’s a few kind of different financial, but that’s a good place to start. And then the last one I think would be because I think the fundamental as an investor, you are an epi epistemologies, you know, whether you realize it or not, you are spending your time trying to calibrate your own uncertainty. In other words, you’re trying to understand the quality of your own knowledge, right?

ROB CRENIAN: And just really, really, blows a ho to me when I read it 20 odd years ago, just blew a massive hole. And this notion of, of, of, of certainty, this notion that you really know much.

ROB CRENIAN: So I would say probably those three fooled by random fooled by randomness.

STEPHEN CLAPHAM: Brilliant. Well, listen, thank you both very much. If people want to find you, where, where should they look for you website for place called capital dot com.

ROB CRENIAN: I’m on Twitter very sensibly.

ROB CRENIAN: And yeah, Twitter or linkedin or our web, you know, web pages. Ok.

STEPHEN CLAPHAM: Well, we’ll link to that in the show notes. Thank you both very much. It was really interesting, enjoyable conversation as I knew it would be.

ROB CRENIAN: Thank you for your time.

ROB CRENIAN: Thanks very much.

STEPHEN CLAPHAM: Well, we covered a lot of ground and I guess we probably had more questions than answers, but that’s what I really like about Dylan. He is one of the most thoughtful analysts around and he always questions the received wisdom. I learned a lot about quants too. We went for a drink afterwards and carried on the discussion, the three of us.

STEPHEN CLAPHAM: And honestly, I could have carried on a lot longer if Dylan didn’t have a long train journey home that evening. I hope you really enjoyed the episode as well if you did or if you didn’t, why don’t you drop me an email to info at behind the balance sheet dot com?

STEPHEN CLAPHAM: Let me know what you like or what you dislike and what you want to hear more of our macro series continues next month with a very special guest who I reckon is one of the three cleverest people in finance that will make two I’ve had in the podcast and the third will be on the month after. Don’t forget, leave that review on your favorite podcast player. And please tell all your friends.