Statement Risk

Summary

Podcast Summary: The Compound and Friends – Episode "Statement Risk"

Release Date: June 27, 2025
Title: Statement Risk
Host: The Compound (Downtown Josh Brown, Michael Batnick, and guests)
Guest: Cole Wilcox, Founder, CEO, and CIO of Longboard Asset Management

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1. Introduction and Trending Topics

The episode kicks off with Josh Brown and Michael Batnick engaging in a light-hearted discussion about unusual business ventures, specifically a footwear startup collaborating with space companies to design a shoe in orbit. This segment underscores the hosts' penchant for exploring innovative and sometimes quirky business ideas.

Notable Quote:

• Josh Brown [00:24]: "A footwear startup is teaming up with two space companies to design a shoe in orbit as part of a mission to make artificial intelligence and blockchain less expensive and more eco-friendly than it is on Earth."

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2. Deep Dive into Trend Following

The conversation swiftly transitions to the core topic: trend following in investing. Cole Wilcox introduces himself and his expertise, leading the trio into a comprehensive discussion on the mechanics and benefits of trend following strategies.

Key Discussions:

• Trend Following on Stocks vs. Multi-Asset:

  • Cole Wilcox [10:36]: Emphasizes the importance of systematic strategies to mitigate personal biases in investing.
  • Josh Brown [05:35]: Highlights that trend following works best as part of a diversified portfolio, complementing strategic asset allocation.

• Historical Context and Behavior:

  • Cole Wilcox [11:08]: Reflects on the impact of past market cycles on current investment strategies, noting how early experiences shape risk perception.
  • Michael Batnick [12:50]: Shares personal insights on how formative market experiences influence investment decisions and the tendency to seek analogies in current market conditions.

Notable Quotes:

• Cole Wilcox [13:19]: "A systematic approach doesn't have that memory [bias], you know, after you do the math."
• Josh Brown [06:15]: "Warren Buffett said it. Most turnarounds don't turn around."

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3. Methodology of Trend Following

Cole delves into the specifics of his trend following strategy, elucidating how it helps in capital preservation and managing emotional responses during market volatility.

Key Topics:

• Capital Preservation:

  • Cole Wilcox [24:48]: Explains that trend following helps avoid permanent loss of capital by rotating into low-correlated assets like treasury bills during downturns.

• Technical Indicators:

  • Michael Batnick [40:48]: Inquires about the use of indicators beyond moving averages.
  • Cole Wilcox [40:48]: Mentions the use of new highs, new lows, and Average True Range (ATR) to assess volatility and set stop-loss parameters.

• Position Sizing and Risk Management:

  • Cole Wilcox [41:07]: Discusses risk weighting based on ATR to ensure equal risk exposure across positions.
  • Josh Brown [31:09]: Praises the simplicity of using moving averages to determine trend direction.

Notable Quotes:

• Cole Wilcox [24:51]: "We are rotating more into low correlated treasury bills and preserving capital."
• Josh Brown [40:41]: "I love that answer."

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4. Performance and Comparisons

The discussion moves to the performance of Cole’s trend following strategies compared to traditional multi-asset trend funds and the broader market.

Key Insights:

• Robustness and Correlation:

  • Cole Wilcox [48:47]: Highlights that his strategy is highly uncorrelated to multi-asset trend following funds, making it an excellent diversifier.
  • Michael Batnick [56:16]: Points out that Cole’s approach differs fundamentally from other trend following strategies, which typically involve long-short positions across various asset classes.

• Long-Term Results:

  • Cole Wilcox [48:47]: Notes that his trend following on stocks has achieved three times the return of the SG Trend Index over the past decade, with lower drawdowns.

Notable Quotes:

• Cole Wilcox [48:55]: "We have lower drawdowns than this diversification."
• Michael Batnick [55:04]: "We're comparing against a multi-asset trend following basket, and Cole’s strategy stands apart."

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5. Behavioral Finance and Investor Psychology

A substantial portion of the episode explores how trend following addresses behavioral biases and emotional decision-making among investors.

Key Discussions:

• Managing Emotional Responses:

  • Cole Wilcox [25:00]: Emphasizes that by reducing drawdowns, investors are less likely to deviate from their investment plans during downturns.
  • Michael Batnick [32:42]: Discusses how price reflects the collective sentiments of all market participants, making trend following a pragmatic approach.

• Investor Behavior in Different Generations:

  • Cole Wilcox [19:10]: Observes that younger investors are more informed and disciplined, often avoiding panic selling, unlike previous generations.
  • Michael Batnick [21:22]: Notes that Generation Z investors, who entered the market during COVID-19, exhibit higher retention rates and less reactive behavior during market fluctuations.

Notable Quotes:

• Josh Brown [30:08]: "Trend following is the least bullshitty way of deciding whether or not I'm buying and staying long or I'm getting out."
• Cole Wilcox [26:52]: "You're getting invested and you're able to stay invested and stay disciplined because you don't lose so much money."

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6. Fund Structure and Future Prospects

Cole discusses the evolution of investment products, specifically the transition from mutual funds to ETFs, and how this impacts trend following strategies.

Key Topics:

• Mutual Funds vs. ETFs:

  • Cole Wilcox [50:14]: Expresses a preference for ETFs over mutual funds due to lower costs and greater accessibility for modern investors.
  • Michael Batnick [50:55]: Highlights the absence of trend following ETFs on individual securities as a market gap.

• Regulatory and Operational Considerations:

  • Cole Wilcox [51:15]: Anticipates that mutual funds will increasingly adopt ETF share classes, reducing operational costs and increasing market reach.
  • Discussion on Potential Products: Michael and Cole consider the feasibility and benefits of trend following sector-specific funds.

Notable Quotes:

• Cole Wilcox [50:51]: "If I was doing it today, I would do an ETF."
• Michael Batnick [55:13]: "We've always thought that when somebody makes a statement, price is truth."

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7. Challenges and Misconceptions

The hosts address common misconceptions about trend following and the challenges in implementing such strategies effectively.

Key Insights:

• Cost Considerations:

  • Cole Wilcox [27:57]: Distinguishes between mathematical costs and emotional costs, stressing the importance of evaluating the value proposition.

• Operational Difficulty:

  • Michael Batnick [52:43]: Points out the complexity involved in creating trend following strategies across different sectors and asset classes.

• Behavioral Deviations:

  • Josh Brown [59:26]: Discusses the temptation to sell winning stocks to lock in profits and how trend following mitigates this behavior.

Notable Quotes:

• Michael Batnick [54:44]: "We’re not showing ourselves against the core long stock ETF."
• Cole Wilcox [43:31]: "It doesn't matter if you do too short term, it's not robust and you're just trading in and out."

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8. Closing Thoughts and Future Outlook

As the episode wraps up, the hosts and Cole share their final thoughts on the future of trend following and investment strategies.

Key Discussions:

• Innovation in Investment Products:

  • Cole Wilcox [69:00]: Anticipates a surge in ETF share classes, facilitating broader access and reduced costs for investors.

• Personal Insights:

  • Michael Batnick [71:09]: Mentions upcoming projects and encourages listeners to explore related content on their Unlock channel.

Notable Quotes:

• Cole Wilcox [68:19]: "If you like the strategy."
• Josh Brown [68:42]: "This is the kiss of death."

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Conclusion

In this episode of The Compound and Friends, the hosts and Cole Wilcox provide an in-depth exploration of trend following as an investment strategy. They examine its historical performance, methodological rigor, and the psychological benefits it offers to investors seeking to mitigate risk and maintain discipline during volatile markets. Cole’s insights into the uncorrelated nature of his stock-centric trend following strategy highlight its potential as a valuable diversifier in a well-rounded investment portfolio. Additionally, discussions on the evolution of investment products emphasize the growing relevance of ETFs and the future opportunities they present for trend following strategies. Overall, the episode serves as a comprehensive guide for investors interested in understanding and potentially integrating trend following into their investment approach.

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Timestamps for Notable Quotes:

• Josh Brown [00:24]
• Cole Wilcox [13:19]
• Cole Wilcox [24:51]
• Josh Brown [40:41]
• Cole Wilcox [48:55]
• Josh Brown [30:08]
• Cole Wilcox [27:57]
• Cole Wilcox [50:14]
• Michael Batnick [54:44]
• Cole Wilcox [69:00]

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This summary is intended for informational purposes and reflects the discussions and perspectives shared by the speakers during the podcast episode "Statement Risk." It is structured to provide a coherent and comprehensive overview for those who have not listened to the full episode.

Transcript

[Josh Brown]

So are you trend following pudgy penguins? I saw an ETF file. Maybe. Perhaps. I swear to God. Yeah, so there was a headline, a tweet yesterday going around that it sounded like a joke, but it was not a joke. It was like sneaker discovery in space for the blockchain. Did you see this?

[Michael Batnick]

Wait, what? What do you mean? Sneaker Discovery in space?

[Josh Brown]

A footwear startup is teaming up with two space companies. Okay, so let me read that over. A footwear startup is teaming up with two space companies to design a shoe in orbit as part of a mission to make artificial intelligence and blockchain less expensive and more eco friendly than it is on Earth.

[Michael Batnick]

Why does anyone need this?

[Josh Brown]

That's a Bloomberg article.

[Cole Wilcox]

I feel like I even need to be high. Where are the mushrooms at?

[Michael Batnick]

Are you bullish on that, though? Generally, yeah, it sounds.

[Cole Wilcox]

Sounds great.

[Michael Batnick]

You got to see this. You got to see the specifics, but it sounds good.

[Cole Wilcox]

I've learned in the world that we live in today, the crazier and dumber the idea sounds like, the better, the better it's probably going to work out. The company's called We Block Chain Degenerate Economy.

[Michael Batnick]

We Block. That's amazing.

[Josh Brown]

Unbelievable.

[Cole Wilcox]

What's the story? I always wonder. I see the videos. What's the story with the.

[Josh Brown]

It's the dumbest. Hold on.

[Michael Batnick]

Let's actually say we're all avid croquet players, so.

[Cole Wilcox]

Oh, they're not bocce. They're croquet balls.

[Michael Batnick]

These are not bocce.

[Cole Wilcox]

I always thought they were bocce, not bocce balls.

[Josh Brown]

What's the story? Curb youb Enthusiasm.

[Michael Batnick]

No, dude, it's a visual motif.

[Josh Brown]

That's right.

[Michael Batnick]

We have behind us the same colors that are in the foreground.

[Josh Brown]

Nicole's cackling. It's a motif.

[Michael Batnick]

Can I ask you a question? Honestly? Nicole, Stay. Stay here.

[Josh Brown]

This is about to be insulting.

[Michael Batnick]

No, it's not. Not to be a dick. And most sentences that start that way are not great. Not to be a dick. Can you imagine if you designed the room that we record the show in? No, honestly, it would be like. It would be a college, like, Bob Marley poster, Blacklight poster. Maybe Pam Anderson on the wall with one piece of tape missing.

[Josh Brown]

She was my number one.

[Michael Batnick]

Right? Yeah. Okay. We'd be sitting on milk crates. No style. It'd be no aesthetic.

[Cole Wilcox]

Like an alien. Some alien thing would have to be there too.

[Michael Batnick]

Vic. Whatever. It's a podcast. Who gives a shit?

[Josh Brown]

I'm not a stylist. Josh is.

[Cole Wilcox]

Right.

[Michael Batnick]

Come on. Like we Got to. It's got to be some judge to what we're doing here. Daniel, back. Back me up as a, as the in house graphic artist. What we're doing, what we show on screen is important, right? Yes. Okay. There's got to be like a vibe to it.

[Josh Brown]

You're right. It's a motif. I'm here for it.

[Michael Batnick]

Okay.

[Josh Brown]

For sure.

[Michael Batnick]

Do you have alternative suggestions? No, I'm all in.

[Cole Wilcox]

I want to know it works. It was eye catching. I always wondered.

[Michael Batnick]

You asked the right question. I gave, I gave, I gave a good answer.

[Josh Brown]

So you might not be aware of this. Let me tell you something that you.

[Michael Batnick]

Don'T think escapes me. Nothing escapes my omnipotence.

[Josh Brown]

You know the chart that we used a long time ago showing the distribution of returns for individual stocks and how few of them beat the index?

[Michael Batnick]

Besson binder.

[Josh Brown]

No, no, no. This guy.

[Michael Batnick]

That's your shit originally actually did bass and binder.

[Josh Brown]

He lifted it from you?

[Cole Wilcox]

Lifted it from us?

[Michael Batnick]

Yes. Did he credit you? Yeah, because I'll find that son of a bitch.

[Cole Wilcox]

He's a good guy. He's. He actually lives in Arizona, so.

[Michael Batnick]

Oh really? Okay.

[Cole Wilcox]

Asu, shout out to asu.

[Michael Batnick]

So what gave you the impetus to look at that? What was the question that you had in your mind that you said I want to research this?

[Cole Wilcox]

It was kind of a random discovery actually. We were doing this study on does trend following work on stocks? And we started to look at that and then just looking at the data, it just seemed very weird that the distribution was so different than what we would learn in school about kind of normal bell curve distribution type thing. I was like, wait a minute. These student look anything like what I was taught. Okay, just kind of.

[Michael Batnick]

We'll get, we'll get into that today. I didn't realize that that was. I. I knew your paper does trend following work and then you followed it up. This trend following still work?

[Cole Wilcox]

Yeah, we had another paper called the Capitalism distribution.

[Michael Batnick]

Okay.

[Josh Brown]

That was it.

[Cole Wilcox]

That's. That's where that work, you know, kind of came.

[Michael Batnick]

What did he do in his, in his updating of your research that was different than what you guys did?

[Cole Wilcox]

The Bessembinder, he just took it. I think our data went back to in the late 80s, something like that. He took it back for the whole crisp data set to the 1950s or 30s something. So the longer data set.

[Michael Batnick]

So the goal of that is like to, to show people or the research shows people that most stocks end up being losers in the fullness of time.

[Josh Brown]

Is that so here's my interpretation and it's subjective. Most stocks are not worth buying and holding forever. Right. Most of the value creation of the United States and all stock markets are concentrated in the hands of a very few. We all know that. My only issue with the paper is that it assumes that people buy at inception and hold forever. And we know that's not good because most stocks eventually die. Right.

[Michael Batnick]

But that's not how most people invest.

[Josh Brown]

That's not how most people invest. There are still opportunities and I'm not here to advocate for day trading or heavy trading, but there are opportunities to make money from the time in between the time the company comes into the market versus the time they leave or you know what I mean?

[Cole Wilcox]

Yeah. I mean, I think index funds benefit from it though because they own everything.

[Michael Batnick]

Well, they end up with the survivors.

[Cole Wilcox]

Yeah.

[Josh Brown]

Well, the whole, the whole conclusion of the paper, not wrongfully so, is index funds are probably the way to go.

[Cole Wilcox]

I mean, I think for the average person that's probably true. I mean, if the average person is better off doing that than like picking stocks.

[Josh Brown]

Yes.

[Cole Wilcox]

Based upon the math, like it's not good odds for the average person. Pick a stock.

[Michael Batnick]

So don't be average.

[Cole Wilcox]

Don't be average.

[Josh Brown]

Exactly. Just pick the best stocks. That's my whole philosophy.

[Michael Batnick]

That's all I ever do. I mean this is a life philosophy.

[Josh Brown]

Who picks the losers?

[Michael Batnick]

Why would you pick the worst stocks? What the hell is wrong with you? I think there's a lot of people who first come into investing and their first instinct is to buy cheap stocks because. Buy low, sell high.

[Cole Wilcox]

Yeah.

[Michael Batnick]

And they think, and they think that that's like going to be their edge, is like they're going to buy the 52 week low list. It's, it's, it's maybe not the worst possible strategy, but it's got to be up there.

[Josh Brown]

It's up there. It's might be the worst possible strategy.

[Michael Batnick]

Right. But that's the instinct because people think about, oh, in real estate, like you want to buy a building that's cheap and then you want value. I think in the stock market, if your starting point is what are the cheapest stocks like? Absent everything, you're buying companies where there are chronic issues, a few of them are mispriced and will work, but most of them are cheap for a reason.

[Cole Wilcox]

Yeah. I think people, when they buy stocks, they forget that they're buying a company and they really should just be saying what is this company and how much is it going to earn and grow over Time. Because ultimately my performance in the stock is going to be dictated by that.

[Josh Brown]

So true. If you are going to bottom fish, you better be doing fundamental research.

[Cole Wilcox]

Yeah.

[Josh Brown]

And be good at it, too.

[Cole Wilcox]

Yeah. Because they're just looking at. It's. Oh, it's down off the high. It's like, well, I don't know. Was it a good company back then, Is a good company now? I don't know. That's what you should be focusing on.

[Josh Brown]

Warren Buffett said it. Most turnarounds don't turn around.

[Michael Batnick]

Yeah, I agree with that. So I was on TV today. We were talking about JetBlue. Yeah. It's a $4 stock. First of all, nobody could buy a $4 stock. Like, institutions cannot buy them. There are people that will bottom fish and buy $4 stocks. But what happens is you immediately collapse the universe of potential investors to a tiny slice of people that operate in markets.

[Josh Brown]

I'm buying it right now.

[Michael Batnick]

I dare you.

[Cole Wilcox]

Well, if you've ever flown on JetBlue, you know why?

[Michael Batnick]

It's fly on JetBlue all the time. Totally understand it. I wish there was a stock of JFK Terminal 5. I would short it. I just want to short the term. Just. If I could short the terminal, I would, so I could.

[Josh Brown]

I can't believe you still fly jfk. Let's start the show. Nicole, let's go.

[Michael Batnick]

Do we fly out of JFK as.

[Josh Brown]

Opposed to where you avoid it? Like it's aids.

[Cole Wilcox]

I have to fly in to come here. Cause there's no direct.

[Michael Batnick]

It's 20 minutes from my house. Where should I fly out of LGI every day? 40 minutes from my house, Dude. Nope, you walk right through.

[Josh Brown]

No, you're wrong.

[Michael Batnick]

No.

[Josh Brown]

So dumb.

[Michael Batnick]

I know. I do both. All right, come on, do it. Say the thing. Become Better Friends Episode 196 Ladies and gentlemen, Ms. Nicole.

[Josh Brown]

Whoa, whoa, whoa. Stop the clock. Here's a word from our sponsor. Today's show is sponsored by Public. On that platform, you can invest in almost everything. Stocks, bonds, options, crypto, ETFs, whatever you want. You know what's great, John? It's been a while that we've had these juicy yields in our cash, and they're still here at Public. You can get 4.1% in their cash account. 4.1% liquid is the ocean. So leave your clunky, outdated platform behind. Public was designed in the 22nd century. That's how far ahead they are. The experience is clean, intuitive, modern design. What else do you need? Find out [e-mail] compound that's public.com compound paid for by Public Investing. Full Disclosures and Podcast description Foreign.

[Cole Wilcox]

Welcome to the Compound and friends. All opinions expressed by Josh Brown, Michael Batnick and their castmates are solely their own opinions and do not reflect the opinion of Redholtz Wealth Management. This podcast is for informational purposes only and should not be relied upon for any investment decisions. Clients of Ritholtz Wealth Management may maintain positions in the securities discussed in this podcast.

[Michael Batnick]

All right, we are live. This is the number one investing show anywhere. I don't care what you've heard, I don't care what data you've seen. It's not true. We have a very special guest today. I'm so excited to introduce him to all of you. He is a first time guest here on the compound in France. Friends. His name is Cole Wilcox. Cole is the founder, CEO and CIO of Longboard Asset Management, specializing in alternative investment strategies. Cole has over 20 years of investment experience building alternative investment portfolios. Cole, welcome to the show.

[Cole Wilcox]

Dude, thanks for having me.

[Michael Batnick]

What part of Arizona are you from?

[Cole Wilcox]

Scottsdale. Paradise Valley.

[Michael Batnick]

You grew up there?

[Cole Wilcox]

Yeah, born there.

[Michael Batnick]

You did?

[Cole Wilcox]

Third generation native.

[Michael Batnick]

Oh, wow. Okay. I want to talk to you about your initial market experience because I think you and I are the same age.

[Cole Wilcox]

47.

[Michael Batnick]

I'm 48.

[Cole Wilcox]

Yeah.

[Michael Batnick]

So I think we've like started investing in 97, 98, 99. Like, that's my formative years, unfortunately, because I'm locked into that paradigm mentally now. But it seems like you probably had a similar experience that I did just in terms of like the stock market and what was happening in those early years. Do you find yourself to be ever defaulting back to. Well, back in 1999 as often as I do because I struggle with that.

[Cole Wilcox]

Not 1999, but the whole cycle. Yeah, yeah. If you've gone through that kind of boom bust multiple times.

[Michael Batnick]

97 to 029-7202.

[Cole Wilcox]

Yeah, you had a bust, a boom, and a major bust after that. And you saw people get rich. You saw people completely get destroyed and the impact that it has on their lives. So I don't think you. That's embedded into your early, like, DNA, like those people who grew up as depression babies, like, they experienced that. It's just, it affected how they think about life. For me, it affected how I think about risk, how I think about the risk that is involved in investing. And, you know, to. To be realistic about these sequences because I've lived through it. If you didn't live through that cycle, what came after that, well, so here's.

[Michael Batnick]

The problem for me. So in 22, it looked very similar to the early stages of 2000, 2001, and we ended up with a 35% bear market in the NASDAQ that I thought could be negative 70% because I had had that experience. And there's this idea in the markets where your experiences contribute to this long term market wisdom. And I think there is some truth to that. But also I don't. They. Okay, so I want to hear why in a second. But they like, they can also negatively color the way that you look at things. And you are looking for analogies all the time. Like this looks just like that. So when I'm living through 2022 and I'm seeing the bubble, the IPO bubble burst, all I can think about is, it's early, it's early, it's early. This is going to go way lower. And of course it doesn't. But I know exactly why I felt that way in that moment because I lived through it very early and it was formative.

[Cole Wilcox]

Yeah, well, I think it's very natural for people to build those biases and their experiences build biases. And it's very dangerous to invest or reason by analogy in anything. It is a known thing. So I know that and I know my own personal biases. And that's why I focused on building systematic strategies. Because I'm just like any other human. I have those real things. But a systematic approach doesn't have that memory.

[Josh Brown]

Exactly.

[Michael Batnick]

And that's the major benefit of it has that memory. But you're coding it in like it's a systematic approach based on historical volatility and returns the memory is there no opinions? The opinion's not there.

[Cole Wilcox]

Yeah, well, it's the, it's the math is there. It's like you just do what is statistically the most probable. You don't talk yourself out of it, you know, after you do the math, which is, I think, where the biases come in. Well, I think it's different this time when it's not different.

[Michael Batnick]

But what are you saying? You're saying that people don't have those biases?

[Josh Brown]

I'm saying they absolutely do and it hurts them.

[Michael Batnick]

Okay, so nobody disagrees with that. We all agree.

[Josh Brown]

No, I'm saying that I think that experience, experience and wisdom in life are great. I think in the market it could be treacherous. I think it was Peter Bernstein's book, who wrote about how was it Bernstein? I can't remember in the 1950s, when the yields of bonds Crossed above stocks anytime they converged. It was a sell signal for stocks. Stocks got too expensive every time it worked historically, like 10 out of 10, it was like the yield curve indicator. And then one time it just stopped working and it never worked ever again. And then forevermore, bonds yielded more than stocks. And I think that once you have that muscle memory, things change a lot over time. And especially if you have a traumatic experience early in your formative years like you did and like you did, you see that every time stocks fall. And I think that yes, there are positive lessons that you can learn from your own history, But I think people over index to what happens to experience overrated in totally. Because people become experts on an earlier version of the world. I'm stealing that from somebody, I don't know who. And I think that's what happens and it stays with you.

[Cole Wilcox]

Well, it's also the own internal ego. Like you overemphasize your own personal experience and that's all you know. If you're able to do back testing and run research and look at a hundred years of data, then you get all of these other lifetimes of experiences that you can contrast with your own personal. Like it extends the data set with which you can evaluate what you want to do. I think that's the issue is that people who don't have the data and can't do that research are not able to build a more balanced viewpoint of reality.

[Michael Batnick]

I think valuations too, like where your experience is your worst enemy because companies have gotten better at being companies. And as a result, we are systematically paying higher and higher multiples for earnings like we just are. There's a lot of fundamental reasons why. There's a lot of macroeconomic reasons why. And a lot of people got anchored to the PE ratios they remember as being a stock market bottom or margins mean reverting.

[Josh Brown]

Margins were a very mean reverting series historically. And then came the tech giants that just ripped that up. So that doesn't exist anymore. How could you have known? And so when you see, I think the most wrong people on TV are when people say, I've seen this movie before. No, you haven't.

[Michael Batnick]

Yeah. So like if you think about like an early 80s paradigm where the S&P bottoms at 10, right. It's like, well, stocks don't bottom until we get to 10. We were never gonna get to 10 times earnings. There's too much money that needs to be invested in stocks. And there's a different investor populace now with a higher risk appetite. And they're earlier in their investing careers and have high and just they're not anchored to like those historical moments. So that's the thing where I have to check myself the most often. It's like I think this because I lived through it, but it doesn't always have to be the same as things used to be. And we're going to talk a little bit about cycles and stuff like that because I'd love to get your take on this concept. But in addition to the fact that the markets change, the people investing change, businesses change, the speed of the world is completely different than what it was in the era where it was phone calls and snail mail. So we should expect cycles to speed up. So this is where I want to start. Am I imagining that we're having one month recessions and one week bear markets or do you feel the same way?

[Cole Wilcox]

I think it feels that way because of the news cycle and social media and it speeds up how we feel about the markets. But I don't think it's any just different than the time that it's ever been. I just think the speed at which information gets diffused and reacted to is at just a higher amplitude than it used to be.

[Josh Brown]

The V shaped recoveries are different though. Like that wasn't a feature of markets in the 80s and 90s as information took longer to disseminate amongst investors.

[Cole Wilcox]

I mean, I think it feels that way. 1998, huge V shaped recovery, right. We thought we were going out of business as long term capital management. Less than six months later we're back at new highs. So flash crashes even in this cycle happened like 2000, 2010, 2010 flash crash. Market's down 8, 10% intraday. So I just, it's been there like the whole time the quant crash. There's different things that you've seen different cycles that have happened. So. But I agree it feels that way. I just don't think it is really different.

[Michael Batnick]

Does it matter who's in the marketplace? Because one of the things I think, I think is that if you have a huge wave of younger people who at the margin are controlling what stock prices do and they don't, they're not saddled any of these baggage of two year long bear markets like 2002, like they don't have that as part of their history or their experience, they are more willing to buy those dips and they're more willing to turn a dip into a V shaped recovery because they can't imagine a scenario where the market spends two years pricing in bad news. So I've lived through that, but that's in an analog time. And now everything is digital and it's like, all right, here's the news. It's bad. I sell something the next day, okay, I guess I'll buy something else. I feel like it's who is in the market that's contributing to the V shape more than anything else.

[Cole Wilcox]

Yeah, well, I think that the younger generation, despite the bad rap that they get with the degenerate economy and leveraged trading and daily options, I actually see investor behavior being far. The average young person who's a serious investor is a better investor. Oh, definitely before because they. But they should be. They have more access to information. They see what works, what doesn't work. There's just a lot out there where their behavior on average I think is much better than young people of the 1980s. They're more informed.

[Michael Batnick]

The wake up call to that was like the response to the spring 2023 bank runs. Right. They didn't budge like Vanguard Data. Nobody sold anything. Like I don't know who was selling, but it was not the retail regular investor. They just like lived through it and they were just like, whatever. I don't think that you could have said that about prior eras in the financial crisis. People were actively selling stocks in 401ks. They just don't do it anymore. And I think it's because they've built on the experiences of the past. People learn lessons. They learn what happens when I panic and I do all these things to my long term investments. It looks stupid after. And now I don't think anyone does that anymore.

[Cole Wilcox]

No. And when it's. They don't do it because it's paid them not to do it. You know, we've been in a pro bull market buy the dip, you know, has worked. And until it doesn't work for them, I think you should expect them to continue to do that. They're not going to proactively change and like, oh, now I need to think about what might happen in the next 1997-2002 cycle. I'm just going to react to what my personal experience is, which is buy the Diplomat works.

[Josh Brown]

So we never had the 97 to 02 experience. But what we did have, we did have a 20 month bear market where their favorite stocks lost two thirds of their value and they didn't leave. They're still in the game.

[Michael Batnick]

What is that late 21, 2022 to the bottom of.

[Josh Brown]

It was October 23rd, it was January 22nd. That was when we topped and we bottomed in October of 23. So that was almost two full years of pain.

[Cole Wilcox]

But they've had more pain, I think also outside of the stock market. Think about the pain that they experience in Bitcoin. Right? Like molds. They're just not. Like, they're not phased. They have the laser eyes. Unbelievable. Diamond hand owners of stocks for young people who are really serious about investing these days.

[Michael Batnick]

Yeah, I think that's cool. I like that the Gen Zs kind of kicked the door down during COVID That was their moment where they all discovered investing all at once. It was an amazing thing. The amount of brokerage accounts that were opened in 2020 and 2021 broke every record we have on the books and stayed open. They didn't leave. They didn't leave. But I'm just saying, like, I can't think of another time where an entire generation all started investing at once. And that's what they did.

[Cole Wilcox]

And they have the tools. Think about the tool. Like Robinhood. My son, who's 15, all his friends have Robinhood accounts. They trade their investments.

[Michael Batnick]

Oh, yeah. And there's so much younger.

[Cole Wilcox]

So much younger.

[Josh Brown]

And public shout out to public. Sponsored the show.

[Cole Wilcox]

Screw Robinhood. Public.

[Michael Batnick]

I agree with that.

[Josh Brown]

Does the story. So you've been in this business for a while talking about systematic investing. Removing the biases like this is a good way to insulate yourself from the. What should I do? Because we'll just listen to the market. Don't worry about your opinion, your opinion, everybody else's. It's in price. And there are trends. We follow them for better or for worse. It's not perfect. There's like everything else, there's no perfect strategy. But does that story resonate more with investors today than it did when in, say, the early 2000s, when. When it was still sort of a novel approach?

[Cole Wilcox]

Oh, yeah, for sure. I think alternative investments in general, especially after 08, you know, because, like, the people saw the benefit of having alternatives and 002, 02 helped. Oh, eight really put the hammer down of like, you really should have these diversified portfolios, other risk management strategies, things that have low correlation. You can't just rely on stocks. And diversification across a wide portfolio of stocks can all just go down at the same time. Your stocks and bonds can go down at the same time. Your stocks, bonds, commodities and real estate can all go down at the same time. 08 was really, really, really, you know, everything.

[Michael Batnick]

Everything broke.

[Cole Wilcox]

Yeah. There was no place to hide.

[Josh Brown]

Even gold.

[Cole Wilcox]

Even gold. That gold rallied after after, because in the liquidity crisis, everything you know is going down. It's just a giant sucking sound for liquidity.

[Michael Batnick]

So let's talk. Let's talk a little bit about your investing FL philosophy and how you actually invest. And then I have some questions based on that. But let's just set the table for the listeners. Who is Cole Wilcox the investor?

[Cole Wilcox]

Cole Wilcox the investor is somebody who believes in a diversification. Right. You need to retain a diversified portfolio. I don't think trend following is the only thing that you should have in your portfolio. I think it's a piece of a well thought out strategy that is designed to compound wealth over time, protect you through all the different market cycles, knowing that you're probably not gonna be very good at predicting what's gonna come. So build something that can kind of get you through everything. And most importantly, and this is where I come at as an investor, the most important thing in investing is to remove the double zero from the roulette wheel of investing. You know that the oa, the wipe, the wipeout, the wipeout where you've made all of these bets, you bet every number on the board, but you still lost because it hit double zero. And it just take. They take all your chips. You have to build something that removes that because if you do it, then you've already won over the long term. You just have to run your strategy and do what you need to do. And I think that for what I do, and our philosophy of trend following and kind of our approach is an excellent tool for removing that double zero from your portfolio.

[Michael Batnick]

Why? How does trend following help you do that?

[Cole Wilcox]

Well, it's two ways. One of them is just the most important thing is avoiding permanent loss of capital in investing. And while the young people wouldn't agree with this or see it because they only have their data set. I can go back 100 years, 200 years. Look at the cycle of the stock market. There will be periods of time of absolute horrific pain. As an equity investor, we have asset bull markets, we have bear markets. We have occasionally once a generation of depression. I don't know if that is going to happen now or next year, but it will eventually happen. The trend following does an excellent job of removing the highly destructive permanent loss of capital in those massive drawdowns at 20 to 60%. And more importantly, how does it do that? Well, by preserving capital. So it's a capital preservation strategy that as we kind of rotate as trends change, we're rotating more into low correlated treasury bills and preserving capital. And just Reducing the drawdown. Right. So if my drawdown is only 20. Right. I only need a 30% return, get back to new highs. If it's 50, I gotta make 100% return to get back to new highs. So you're putting yourself ahead of the game by playing very good defense in bad markets. And just mathematically, the second part I think is even more important, goes back to the behavioral aspect of it. You're getting invested and you're able to stay invested and stay disciplined because you don't lose so much money, you don't go down so much that you deviate from your plan. Like I can't tell you how many people I saw deviate from equities like boomer generation in 08. They just freaked out like, I can't deal with the pain anymore. I'm concerned that stocks are going to go to zero and I move to bonds or I move to something else, which is super destructive. It was bad timing, it was a wrong time to panic. But going down, we know psychologically human beings just don't like losses. And the worse it gets, the more painful it is. And then that changes your behavior. And that's the like the worst thing you can do is deviate from a plan.

[Michael Batnick]

So we built a trend following strategy in house. Michael did most of the heavy lifting because that was the question we were trying to answer. How do we keep people from blowing out their entire portfolio in one of those types of market moments, which admittedly are rare, how do we make sure that people just don't throw everything away because of a moment like that? And to us there's a lot of answers. We looked at a lot of other people's answers. But the real thing is like when you are in a slow crashing market before it becomes a fast crashing market, take some exposure off and client by client, it varies how appropriate it is, how much you need to do that. The question is not, does a trend following strategy help investors hold onto their portfolio? The question is, what is the cost of it? Isn't that like the hardest part of what you do is like, hey, this ain't gonna be free. There are gonna be markets where because we're trend following, there might be a whipsaw we might have to get out of something and then buy it back higher. Like what's the cost of that relative to other ways to hedge risk?

[Cole Wilcox]

Yeah. And it's, it's, and for me, it's two kinds of cost. There's like real mathematical costs, like you actually cost you money and then there's the emotional cost and the psycho psychological cost of doing stuff where it's more in your head. It's not in your head, not really in your wallet over time. But they, but they matter because if it's in your head, it affects what you do and then it affects your wallet. Yeah, yeah. So that's, but, but that, that trade off of is it worth doing? You know, what am I giving up? What am I gaining? What do I have to pay in fees? What am I getting in return? What's the value proposition there? That's the most important.

[Michael Batnick]

Yeah.

[Cole Wilcox]

You know, kind of question. I think it depends on who you are, what your priorities are, where you're at in your life cycle. And you just got to, you know, for some people, I would say trend following and make any sense for them, you know, like the 20 years old.

[Josh Brown]

You should be buying more when this would trigger a sale.

[Cole Wilcox]

Yeah. And, and it, yeah, it just doesn't.

[Michael Batnick]

Matter dollar amount that you're protecting and.

[Cole Wilcox]

How much time and duration you have. You know, maybe if you get whacked and you lose 50% in a stock when you're 20, maybe that's a good.

[Josh Brown]

Buy more, keep buying.

[Cole Wilcox]

Or it's a good lesson for you to learn and kind of go, go through time so that you'll not do those kinds of crazy, risky things in the future when you have more money and when you have no duration left to kind of figure it out.

[Josh Brown]

So a couple things that attract me to trend following and I agree with you, it works as part of a broader diversified portfolio. It works really well in concert with strategic asset allocation. Two things. Number one, it gives you the ability to ride a bull market, which is really hard. And especially if you are an advisor and you are telling your clients this part of your portfolio is going to protect us to varying degrees from downside deviation. If that portion can't survive a bull market, it's dead. It's worthless. If the market is doubled and this thing is flat, advise clients will never stick with it. So it allows you to stay fully invested when the trend tells you to. Number two, and perhaps more important is the buy back buy buying back in trend following. We just experienced this. We bought back higher. It's not fun, but it is. It doesn't matter that it. Yeah, it doesn't feel good to buy back higher, but it's a lot better than waiting for a return to previous levels that just never happen.

[Michael Batnick]

Right.

[Josh Brown]

Like, so if you, if you were a trend follower and you sold in December 2007 and you got back in in March or whatever or April, May. This gives you the buy signal objectively and unemotionally. And getting back in after you've sold is almost impossible if it's discretionary, especially.

[Michael Batnick]

If you sold it, especially if you sold at a loss.

[Cole Wilcox]

Impossible psychologically. People don't do it. And there's all kinds of psychological studies that prove that this is not what the average. I mean there are some maybe non normal people that deviate from this but for the general bell curve of the population it's not going to happen. They shouldn't be doing it. They're just going to get themselves in trouble with it.

[Michael Batnick]

I also think trend is the least bullshitty, like the least bullshitty way of deciding whether or not I'm buying and staying long or I'm getting out. Meaning you could have all these formulas like we look at the Fed model of like you know, earnings versus like what the, what the yield is on a T bill and all this shit. You could have economic indicators that are subjective.

[Josh Brown]

Price gives you everything.

[Michael Batnick]

The economy changes. If you just focus on price to dictate whether or not you're buying and selling, you're pulling in the sum total of all of those other things. It's reflecting all everyone's opinions about everything. How could it not be the least bullshitty way of doing it?

[Cole Wilcox]

Well, not only the least bullshitty, it's also engineering wise. Just the principles of engineering is like the most elegant, right? It has the least amount of variables, it has the least amount of moving parts as the least degrees of freedom. So it's, and you're not going to like, you know, there's a lot of different ways to come up with all these crazy correlation, you know, here, there and stories and tell yourself magazine covers.

[Michael Batnick]

There's a million different things you can look at.

[Cole Wilcox]

The price is the price. It's also your trade. You're, you're investing and you're taking signals and you're doing something off of Ultimately what is the fundamental principles of accounting? If it went up, you made money from an accounting world. If it went down, you lost money. Like that's what's going to determine whether or not your P and L was positive or negative. All the rest of the stuff is just a narrative that ultimately you can trade off of those narratives but it's still going to come down to price and whether or not it went up or down as to whether or not you're, you know, what the value is.

[Michael Batnick]

So we've always, we've always thought that Way you. When somebody makes a statement, price is truth. It's not the same thing as saying the price is right. The market overprices and underprices itself and assets every day. It's not. We're not saying price is the absolute correct price all the time. Price is always the truth of how people feel about the market because that's where they're buying and selling.

[Cole Wilcox]

It's what the market's expectations are at any point of what's gonna happen in the future. But like any prediction market, the expectations can be wrong. They move, they can be right. They could be right. Correct odds, they're just a representation of the odds. That doesn't mean that they're setting the odds correctly.

[Josh Brown]

Yes. Yeah, they're gonna be wrong less times than you are if you're just making it up. I think prices are wrong. Okay.

[Cole Wilcox]

Yeah.

[Michael Batnick]

So do you believe in technical analysis in general, or are there areas of technical analysis where you say, all right, I get that there are some people who focus on this, but I've been able to throw that out because it's not really important to what I do.

[Cole Wilcox]

I don't want to knock the technical.

[Michael Batnick]

No, we're trying to get you into a fight.

[Josh Brown]

Trend following is technical analysis.

[Michael Batnick]

Trend following is technical analysis, pattern recognition.

[Josh Brown]

It's not like Ichimoku nonsense, but no offense, but it's technical analysis.

[Cole Wilcox]

To me, trend following is.

[Michael Batnick]

Oh, wait a minute. You don't consider yourself a technician. You're a quant.

[Cole Wilcox]

I'm neither. I'm just like a pragmatic person who.

[Michael Batnick]

An astrologer. What do you call yourself? Like your discipline. You don't tell people you're technical.

[Cole Wilcox]

No, I just.

[Josh Brown]

You're a trend follower.

[Cole Wilcox]

I'm just a trend follower. I'm just an investor that's its own world.

[Michael Batnick]

Basically.

[Josh Brown]

It's a universe within technicals. It absolutely is right within the cmt. Trend following is.

[Michael Batnick]

But he's not looking for patterns in my world.

[Cole Wilcox]

And like I think of market technicians, like, I have a pattern. Here's a chart. I think this is going to happen. It's like the William o' Neill can slim. You know, there's no back testing objectiveness right to these things. Like, I'm like more like an actuary, right? Where I can look at the probability distribution of all of the data and say, hey, here's the actuarial distributions. I'm coming up with the math of what I'm doing based upon, you know, that and probability distributions. I'm not like chart patterns or whatever. I'M not saying they're like related. It's kind of like they're related cousins. Like oh look, there was a breakout.

[Josh Brown]

Breakouts happen in uptrends.

[Cole Wilcox]

Yes, obviously. Yeah. But what, where they were, where they.

[Michael Batnick]

Related is that it's a focus on the price.

[Cole Wilcox]

Yes.

[Michael Batnick]

Versus a focus on the underlying business or who's the CEO or what products is the company about to launch. That's where they were leading.

[Cole Wilcox]

That's true. But for me personally, I also come back to at the end of the day, price trends are all going to come down to fundamentals. I mean like over time, companies that grow their earnings, companies that grow their competitive advantage, companies that grow their earnings power are the ones where their equities are going to go up.

[Michael Batnick]

We totally, you and I completely agree on that.

[Cole Wilcox]

It's not like magic where it's like oh, there's a chart and it goes up. Like there's a reason that this energy or this fuel exists for these massive 50 bag or 100 bag companies are solving problems in the world. They're creating real value. The marketplace is rewarding those companies with superior profit margins or whatever it be for the value they create in the world. You can't divorce those two from one another.

[Josh Brown]

You will never see.

[Michael Batnick]

You can short term, but long term, the voting machine versus the weighing machine. You're right.

[Cole Wilcox]

Yeah.

[Josh Brown]

If you zoom out even to a monthly basis, revenue, maybe not revenue, net income, free cash flow price follows that. It just does not every day, not always, but over time they converge.

[Cole Wilcox]

Yeah. And I'm different from a trend following standpoint. Most people, when you think about trend as a category or trend following, I think about commodity traders and commodities currencies. CTAs like that kind of world. That's the unit. They're multi asset portfolio. It's long, short. They're, they're, they're selling low correlation. Maybe they make money in a down market, but they're, they're just trading trends. Like if you ask well why do you, why do these trends exist? Why do you make money? I really have a great answer for that. Like what's the DNA? I just know it works. I don't know what works.

[Josh Brown]

Why are you short? Sugar?

[Cole Wilcox]

Yeah, yeah. Because, because it went down. I'm like that's fine. It can be in the data. You're like, well the math says it works. Look, it's worked historically on the stock trend following side of it. It's like, I can tell you I am supremely confident that the stuff, the system of capitalism and the taking Risk and innovation. The rest of is going to create massive winners. There are going to be companies get created and form public and they're going to be huge winners. 50 bagger, 100 baggers. And that's going to leave behind and they're going to create massive economic value and that's going to leave behind these long term trends.

[Michael Batnick]

Yeah.

[Cole Wilcox]

And a trend following strategy is going to benefit, you know, from that. And I like that's it's like a, like an ongoing system that would just pump out these things. I don't feel that same way or can't make that same argument for why is there going to be a megatrend in short corn.

[Michael Batnick]

Yeah, yeah.

[Cole Wilcox]

There are risk transfer markets, hedger speculators. I know there's this whole other argument.

[Michael Batnick]

About supply demand of the underlying. There are mechanical issues with delivery. There's like a lot more stuff kind.

[Cole Wilcox]

Of going on in the stock world though. Like I don't know, it's just very simple. I'm confident that they're going to be massive winners. I'm also confident there's going to be a bunch of shitty companies and stocks that go to zero and you have to do kind of both. And trend following is a fantastic mechanism for ensuring that you own those future winners without having to be very good at predicting them. And more importantly or equally important, it's good about clipping aggressively the losers that are going to be destructive to your life. I mean most people that are running businesses are not good businesses. Most businesses are bad businesses, mediocre managers, people that are diluting the shit out of shareholders like they're not. It's a minority of companies that actually are these great quality businesses that have real competitive advantages that grow and turn out to be mega wealth creators for shareholders.

[Michael Batnick]

So you mentioned looking at 100 or 200 years of data. Do you have to in the way that you formulate your strategies or the way you execute, do you have to update and account for the fact that as we talked about everything is faster and the length of time that it might have taken for a bear market to become a bull market again in the 1970s is going to be a very different length of time as it is now. Or can you like just look at the fullness of a data set that long and just say human nature is what it is and whatever would have worked in a backtest historically would probably still work.

[Cole Wilcox]

I think it depends on what kind of trend follower. You know, like when you say there's different speeds at which people do trend following if Somebody might have been a short term trend follower where maybe more like momentum guys I would put in the short term category. They're both buying and selling. Maybe they're average swing traders. Traders.

[Michael Batnick]

Yeah, yeah.

[Cole Wilcox]

The stocks that we own in our process are held in duration for multiple years. We're capturing mega trends, things we own for a long period of time. And by being in stocks that make new highs and just sitting on our ass and waiting for them to kind of play out as they continue to do and not interrupting the compounding of winners that you have kind of in your portfolio. So what I would say is yes, market speeds change, stuff evolves over time. But a new high a hundred years ago and the math of it is the same thing today. There's no difference between a new high a hundred years ago and a new high today.

[Josh Brown]

So that's very important. And one of my weaknesses, and I think this is common amongst all discretionary traders, is the temptation to sell your winners. Right. Because we know how hard they are to come by. So you want to lock in your gains. Josh is very good at it. Josh has been in Shake Shack for 11 years, Nvidia for a decade. Like he's very good at that. I'm not. So I have all of these stocks today hitting my screen that are at 52 week highs and I am fighting the very, can't wait to sell them. I am fighting the very human urge to lock in profits. Especially the way that we just had this V shaped rally. So how do I know when the trend has changed? Like what do you look for to know that the trend is broken?

[Cole Wilcox]

I mean there's a lot of different ways. Tell me the answer that anybody could do it, but somebody could run a very simple moving average, 200 day moving average number or 300 day or 200 week depending upon the speed and time timeframe that you're kind of looking at that you don't have to be a rocket scientist to figure out what is a trend up down to get in, to get out.

[Josh Brown]

I love that answer.

[Michael Batnick]

What indicators, what indicators other than moving averages are relevant to your work, if any.

[Cole Wilcox]

The only thing that really matters to us are new highs, new lows and what's the kind of volatility of the stock. Because if you're average true range. Yeah, like average true range you want.

[Michael Batnick]

That's a powerful tool that doesn't get talked about enough. Could you explain to the audience what average true range is and how a trend follower would utilize it?

[Cole Wilcox]

So an average true range is, is recognizing that different stocks have different volatility profiles. So if you kind of look back the last 90 days, there's 500 stocks in the S&P 500. Each one of those is going to have a different path traveled in that 90 day box. If we use volatility as a risk proxy, you know, and you want to have a portfolio kind of had equal risk between the two positions, then you wouldn't want to have the same amount of money invested.

[Michael Batnick]

So it's a stock position, a position sizing this, this particular position has an average true range, let's say of five, this one is two and a half. You would want to own double the amount of the one with two and a half because you're lowering the volatility of the whole portfolio.

[Cole Wilcox]

Correct. And you'd have equal kind of proportional risk between the two positions. Also if you think about a trend follower, it goes into the stop loss calculation. If you have a high volatility stock and you put it the stop very close in a volatile, you're going to chop yourself up, you're going to get chopped in and out of that. If you do the same stop loss and something has less volatility, it's not going to be as sensitive. So it has an effect also on the stop loss and how much you get whipsawed kind of in and out.

[Michael Batnick]

In other words, you can't use a.

[Cole Wilcox]

10% stop loss on the William O' Neill IBD thing. Because if I have 50% volatility, I'm guaranteed to get stopped out in a 10% stop loss. Maybe not necessarily in something that's much lower volume.

[Michael Batnick]

So let's take a name like Nvidia as an example. Nvidia is a stock that can go for three months nowhere and then it could go on a six month run where it makes a new high every week. Right. When it's trending higher, you look at a 21 day ATR, it's probably tight cause the stock's not going up 8% a day, it's going up a quarter of a point a day. But it's driving people crazy because it doesn't let them in. So it's got a low atr, it's making highs, it's unfortunately too far above its moving average for that to be a useful stop. Like you talk about some of these in video rallies we've seen, there have been periods of time where it was 100% above its 200 day. Like what the hell are you going to, what are you going to do? That's Your stop. Okay, so, so those are the types of stocks where you have to say to yourself, I better take a look at at least what its beta is or its average true range so that I don't put a stop in that I get hit on tomorrow. That's the kiss of death for trend following.

[Cole Wilcox]

Yeah, if the kith of death. Yeah, doing that.

[Michael Batnick]

The kiss of death. The kiss of death. All right, I'm looking at you, you taking a picture.

[Josh Brown]

That is a mouthful.

[Cole Wilcox]

All right, but you can. The other thing that you can do, and this is what we do, is you also have to remember you can be in a trade and volatility profiles change. You know, they're not static, they can be high, they then rotate to low. You can adjust the position size through the cycle. So in that world where Nvidia is way above its 200 day, like, well, the distance to stop, if my stop is a 200 day moving average is very far away and you're uncomfortable with that delta or the risk there, well, you can take some of the position off to reduce the open risk. You don't have to change the stop loss or the robustness of it. You could just change how much you're exposed to it in order to be happier.

[Josh Brown]

You know, I like the answer that you gave earlier about, you know, you're like, I don't know, 200 day, 100, whatever, whatever you like. I think people tend to overcomplicate the shit out of it. It doesn't. The more bells and whistles, the more inputs. You're not getting more precision, you're just getting more noise.

[Cole Wilcox]

It doesn't matter. I mean, it matters if you do too short term, it's not robust and you're just trading in and out. But if you get outside the noise factor, it doesn't really matter. What does matter is that you execute it consistently. Consistently and robustly and take every trade and do it. That's the part that, where people mess it up, right? They just.

[Michael Batnick]

So if you start cherry picking, all right, I'm about to get stopped out on this, but I think they have a big announcement coming Monday. Like if you start down that road, then you don't have a process anymore. You have what most investors have, which.

[Josh Brown]

Is just random, dude, you can't ignore your intuition.

[Michael Batnick]

But I'm saying you have to decide at some point early on, especially if you're a professional. This is either science or it's an art project. Some art projects turn out really well. But if you're selling that as science, that's really bad.

[Cole Wilcox]

Yeah. I personally don't recommend trend following strategies for average investor people. I think if you like the strategy.

[Michael Batnick]

All of our listeners are above average investors. Thank God. Yeah, yeah, we're safe. We're safe. I want to talk about your. Does trend following work on stocks and then why you chose to update it in January of this year? In quant circles people refer to it as a landmark paper. Do you know that?

[Cole Wilcox]

No.

[Michael Batnick]

Okay. Cause I was doing some homework.

[Cole Wilcox]

What is a quant circle? Cause that sounds like non good news.

[Michael Batnick]

There's quant circles where people talk about equity market research. There are people who have referred to your paper as landmark. So I threw that in there.

[Cole Wilcox]

Okay.

[Michael Batnick]

Why was that? When did you first write does trend following work on stocks? And why do you think there are people who look at that as a really important thing that you published?

[Cole Wilcox]

When did we do it? 20 years ago, 2005.

[Michael Batnick]

Yeah.

[Cole Wilcox]

Was the publication of that paper and for me I was doing trend following and I was allocating like running like a fund, a hedge fund fund of funds. And I was investing with trend following managers. But they were multi asset, you know, longshore currency, commodity. That's the typical traditional trend following thing that CTA world that you see from. And I asked them like how come you don't do. There's all these massive trends. Here's the data of individual stocks. Why don't you. Nobody in the entire industry. There's like hundreds of billions of dollars invested there. Nobody was doing trend following on stocks.

[Michael Batnick]

Meaning they would trend follow an index.

[Cole Wilcox]

Stock index.

[Josh Brown]

Like the futures.

[Michael Batnick]

Yeah, but you're talking about at the individual security.

[Cole Wilcox]

Very specific individual.

[Michael Batnick]

I'll tell you why nobody did it because it probably took you forever. It's probably a huge project.

[Cole Wilcox]

It was a huge project. Put the stuff together, whatever. But I mean these are multi billion dollar hedge funds. Like they can figure it out. It's not like with all these PhDs on staff, like it wasn't. They definitely could do it.

[Michael Batnick]

Okay.

[Cole Wilcox]

And they. I think it's just a bias where you know, they're in the futures world, they're comfortable with these indexes. But I was like so there was just a really untapped opportunity. Nobody had done the work. And we saw it as an opportunity to go and like let's do something that was new. Nobody needed another research paper to show you that trend following worked on corn. Like that had been done so many times by so many people and that's where it kind of came from. And I was kind of shocked that nobody had done it and then we decided to turn it into an investable product. I'm more shocked that 20 years later we're still the only firm that I know of in the world that's like actually running a fund and doing this.

[Michael Batnick]

So what happens after you publish this? What are the conclusions from the O5 paper?

[Cole Wilcox]

The O5 paper? I would say three conclusions. One, it was definitely a robust like it works effectively on an individual stocks and you can build a better stock market mousetrap better not meaning it makes more money than the stock market. After all transaction costs focused on like risk adjusted. The risk adjusted returns. You can get the same or slightly better return than being a passive diversified equity investor. But do it with substantially less drawdown, substantially less volatility, correlation beta, whatever. And then ultimately a, a better emotional experience like your behavior is going to be better if you're in a, in a you know, stabler ride along the way. So that's kind of what I mean by, by better. It's not something that's going to like double the rate of return of the stock market. But if I get something with way less risk and, and a better emotional experience and get the same and it doesn't cost me anything. It's like actually I'm getting the same thing as an index or better. That's. That was my definition.

[Michael Batnick]

What were the other two conclusions?

[Cole Wilcox]

That it was very very uncorrelated to multi asset trend following.

[Michael Batnick]

Oh wow.

[Cole Wilcox]

So you have $300 billion right now as an industry that's allocated to multi asset trend. And this multi trend following on stocks is very uncorrelated to that whole sector and it has like three times the return last 10 years. The SG trend index which is like the hedge fund index of the.

[Michael Batnick]

Yeah, it's not great 2%. Yeah.

[Cole Wilcox]

But people love it because it's or they use it because it's the most negatively to non correlated asset. So it's a great portfolio diversifier and it has the potential to make money in a market crisis like once every 10 years. So but in the last 10 years like you would have been real much happier with us as running this trend following thing on stocks and the compound annual growth rate that you got and we have lower drawdowns than this diversification.

[Michael Batnick]

Look like the other funds that are in this basket.

[Cole Wilcox]

Yeah, it doesn't look like the other funds in the basket has the same style, same risk management, same philosophy, everything but it's uncorrelated. So it makes a great diversifier like putting them together. Makes the investor experience of investing in trend like you're way happier with that experience than kind of the. I owned managed futures or systematic trend for 10 years. I was happy in 2022 and I was angry every other year because of the underperformance drag and things like that.

[Josh Brown]

Are you SMA only or a mutual fund as well?

[Cole Wilcox]

We run a mutual fund and we offer sma. People wanted to do an sma, but our primary product is a, is a mutual fund.

[Michael Batnick]

So you put the paper out and you built the fund based on the, based on the findings. So now that we know A, B, C and D, here's how we would, here's how we would build the mousetrap that people could actually put money into.

[Cole Wilcox]

Yes.

[Michael Batnick]

Okay. Now you did that in a time before active ETFs. Like there's, there's, there's really no such thing at that time. There's ETFs, but most active strategies are in mutual funds. If you were starting today, would you have built the product differently? Would you start with, with an etf?

[Cole Wilcox]

If I was doing it today, I would do an etf.

[Michael Batnick]

Okay.

[Cole Wilcox]

Only because. And we will. You know, you asked me what is the most thing that I'm most excited about, you know, in the future is the hopefully the coming potential of mutual funds being able to ETFs as a share class. I think it's great for the industry levels, the playing field. Yeah, it's going to be great for consumers. It's going to lower price, increase access.

[Michael Batnick]

Choice, the taxable ramifications, all of the above.

[Cole Wilcox]

But I would do the ETF because that's obviously like the, the, the vehicle of choice.

[Michael Batnick]

This is what people push the buy button for these days.

[Cole Wilcox]

Yeah, that's, yeah, that's, that's, that's kind of like you've vhs, you know, was the mutual fund structure, the DVD is the, is the etf and then like going even beyond that is streaming is like the next generation, maybe tokenization of stuff or whatever. You know what, we're not there yet.

[Josh Brown]

There's an ETF for almost everything except for individual trend following stocks. As far as I know there are, there are ETFs that do trend following on large cap indexes and probably other indexes. But I don't think I've ever seen one on individual securities.

[Cole Wilcox]

I don't know of any company or any manager in the, in the public world or even the private world that is doing systematic trend this way on individual.

[Michael Batnick]

Well, think about how many decisions you have to make to do this, number one, you have to say, well, if I'm only buying stocks that are in uptrends, right. What if there are no stocks and uptrends? Like that's the thing that's going to happen at some point. What do I hold when I'm not in stocks? Like what's the, what's the default risk off position or positions? Three, is there going to be a sector cap? Like what if it's all tech stocks? Do I just own all tech stocks and nothing else is an uptrend? Like you have to, you have to make each of those decisions along the way to come up with an idea which requires a ton of testing. And like a lot of companies are just going to default to doing something easier.

[Cole Wilcox]

Well, they're going to do something very simple in that way. Or they're going to try to concentrate in one sector. Can you get it down to 50 stocks? And it's like, well, I could if I knew which one of those 50 stocks are going to be the winners. The reason I have to do the Russell 3000 as a total starting point is because I don't know what the next big moment is.

[Michael Batnick]

You have to be where the momentum is. You don't know how many stocks that's going to be. You don't know what sectors do you.

[Josh Brown]

Cap weighted at all or cap adjust?

[Cole Wilcox]

No, it's the opposite of that. So we've all weighed or we risk weight each position. So we tend to have very small, equally dispersed positions across everything. The delta between our largest position and smallest position is not nearly as big as what you would see like in.

[Josh Brown]

A cap weighted in a healthy uptrend. How many stocks ish would you own?

[Cole Wilcox]

Like 500? We tend to own about 20% of the investable universe.

[Michael Batnick]

Okay. And then when you risk off, what is the portfolio look like? Is it like T bills or less stock? How do you, how do you do that?

[Cole Wilcox]

Cash and T bills.

[Michael Batnick]

Okay. Have you ever experienced a reconstitution where your gut is telling you, oh my God, I really hope the rules let me sell because I want to sell right now, every year. Okay.

[Cole Wilcox]

Hims do you think I really want to own the growth stock of hims get the growth stock.

[Michael Batnick]

Right. But your rules are your rules and you have to and you have to just knuckle through it. That's like part of the, it's like part of the deal. Yeah, if it's rules based or wait.

[Cole Wilcox]

We bought, I remember in the crazy, you know, Covid time we bought GameStop came into the portfolio break. I was like, that was.

[Josh Brown]

But on the flip side, when you, when you have a quick trend change and hims shrinks. Get it.

[Cole Wilcox]

Yeah.

[Josh Brown]

You got to sell.

[Cole Wilcox]

Kind of sell.

[Josh Brown]

Yeah.

[Michael Batnick]

Okay. What do you compare yourselves to when you're showing the fund to family offices or wealth managers? Like what box do you put yourself in?

[Cole Wilcox]

Systematic trend. But not because we do. What everybody else is doing is systematic trend. Because we're doing something accretive that adds value that's low correlated to their existing strategy.

[Michael Batnick]

So we're not showing yourself against the core long stock etf.

[Cole Wilcox]

No. And it's not really, it's kind of a waste of time to talk to an investor who doesn't believe in trend. So first we want to find people who have already invested in this space. I'm trying to convert people to this. Like you're already converted. You, you have invested in the strategy, you like it, but you're not very satisfied maybe with the experience of this multi asset trend, like the streakiness of it.

[Michael Batnick]

That's a, that's a great conversation for you. It's like, look, I know you get why this is worth doing. You just might not have the right, you have the wrong boat or you're.

[Cole Wilcox]

You, you have a insufficient, you know, kind of boat. I'm not saying multi asset trend is bad. I'm saying it's kind of incomplete. If you put in this. There's the benefit of adding trend on stocks or what. What it is that we do is that you're going to get something as a, you know, 3x higher CAGR there and it's very, very low correlated to what you're doing. But it still has all of the risk management, the, you know, the, the, the trend diversity. And so that those two component pieces blended together is going to give you a much smoother ride, a much more consistent ride relative to just owning multi asset trend standalone where you're happy once a decade.

[Michael Batnick]

John, can we see Chart 1 on screen? What are we looking at here?

[Cole Wilcox]

These are the 10 largest AUM Systematic Trend Mutual funds.

[Michael Batnick]

Okay. Over the last few years, the universe that you're comparing yourself to, basically. Okay, so I gather these look very different under the hood in terms of what they're doing. Why is yours so far away from all of theirs on the correlation matrix.

[Cole Wilcox]

And on the returns matrix, the blue thing, the SG trend is the benchmark. So that's an index of the 10 largest systematic trend hedge funds. And then the other ones are the mutual funds are trying to give you some return there. So you can see they're all very correlated to the index because they're all doing long, short, multi asset trend. So some varying degrees. There's very little differences between them. Ours is over here. We don't do multi asset. We're just doing. Specifically stock trends has had a much higher ability to generate a rate of return. And the way it makes money and when it makes money, how it makes money or loses money, underperforms, outperforms, is obviously just very different than if you have a portfolio. It's four asset classes, long, short, it's a totally different underlying.

[Michael Batnick]

It's so funny. You reach that conclusion with data, we reach that conclusion with behavior. So we know a couple of things about our clients and, and like individual investors in general, the first thing that we know is for the most part, the FOMO that causes an investor to abandon their strategy or fire their Advisor is like 90% about the S&P 500, meaning the Kospi in Korea is up 30% this year. My clients don't have FOMO about South Korea. They don't give a shit. It's not relevant. So the first thing I know if I'm building a strategy that's a risk management strategy for trend following is I'm not going to include long, short, neutral, whatever to asset classes that aren't relevant to the client's behavior. Because what we're trying to do is manage people's behavior. So in the case of fomo, we're trying to make sure that clients don't see the market galloping away from them. And why aren't I more long? Okay, so right off the bat, I'm not interested in multi trend. My clients don't know what corn is doing. They don't care what oil's doing. They're unaware of foreign markets for the most part, on a granular basis, not important to them. I will get fired. If the S and p has a 27% year and I'm way underweight 100%, I'll get fired. So I already understand that very basic premise. So adding more bells and whistles to our strategy. Oh, why don't we put Bitcoin in? Why don't we put this in? Why don't we put that in right off the bat? No. Cause that's a sep. That's its own world. This is about stocks for trying to manage people's behavior and psychology. Stocks like that. That's the first way that I thought about it and you're kind of doing a similar thing. It's like, look, yeah, there are a million things that you could trend follow. But we're doing stocks.

[Cole Wilcox]

Yeah, but our clients are all financial advisors. I mean that's who we work with. And I also ran a multi asset.

[Michael Batnick]

You've seen it up close.

[Cole Wilcox]

Yeah.

[Michael Batnick]

Fund.

[Cole Wilcox]

So I mean I. In 2012, we launched a multi asset fund. We were top performing fund. I raised over a billion dollars for the fund and then watched it go from a billion to0 from 2016 to 2020. It didn't go to zero because the performance was bad or the strategy didn't work or didn't deliver low correlated returns is because of the relative underperformance of the S&P 500 to that thing. The statement risk for financial advisors. Statement risk is really spending it every year, year and year.

[Josh Brown]

It becomes impossible.

[Michael Batnick]

Why do we own this?

[Cole Wilcox]

Why do we own this? Why do 9 years with your client going, no, you're like, you just become Chicken little and your clients don't want to hear it. And meanwhile the advisor down the street's like, your advisor's an idiot. You know, he doesn't know what he's doing. He's got you in some high fee managed futures. Like, what is that?

[Michael Batnick]

You know, but on the. But on the institutional side, statement risk is less or more because they're sophisticated and they can ride strategies through a bear market for that strategy. But maybe not as much as people would think.

[Cole Wilcox]

It's different. I think the psychology of what they're benchmarking against, they have their own psychological biases and things that are affecting that. But it's different than the kinds of emotions that are affecting in the institutional world. My experience is there's a lot of hurting. If as long as you're doing what XYZ down the street is doing, I'm cool with that. If you're all on the same club, if you're all investing in Bernard Madoff, I'm going to invest in Bernard Madoff. It wasn't. They're not even really thinking about what's the underlying due diligence. So if everybody says trend makes sense and go there and the consultants say that it's okay, they're gonna stick it in.

[Michael Batnick]

Well, I was gonna say. And it. Part of what drives the hurting is fear of reputational risks. So if everybody, if everybody believes in this manager, I'm not picking on anyone. If everyone's like, oh no Bridgewater, that's like the way to do that for Global Macro. Then everyone's in Bridgewater because no one's going to look like an asshole to their client, even if it goes down.

[Cole Wilcox]

And the decision making, I think a lot of it is just like protecting career risk kind of thing. Like I'm just going to do the thing because if, if we all invest in this and it doesn't work out, doesn't matter because everybody's kind of getting, you know, fired, then they're not the owner of the capital. See, when you guys are, you guys are working directly with the owner of your capital and then you're working with the emotions of the owner of your capital. And you can't be in a state of conflict between you and your, and your, and your investors, the actual retirees, you won't survive.

[Michael Batnick]

We will not stick with an asset manager that forces us to apologize to clients every quarter. Why are you underperforming your peers? Why are you underperforming your benchmark? Why, like it's, we can't, because we're, we're like here to have a career.

[Josh Brown]

Do you, do you notice better behavior? Speaking of behavior, do you notice better behavior amongst investors in your mutual fund versus your sma? Because inside the estimate they could be like, why is he selling Nvidia or why is he selling Tesla?

[Michael Batnick]

That's good.

[Josh Brown]

Like are they less likely to boot you if they don't see the underlying.

[Michael Batnick]

Because they don't see what you're doing in the mutual fund until 45 days after the quarter ends. But they could see what you're doing in the SMA daily.

[Cole Wilcox]

At the end of the day, I think it all comes down to did it work or did it not work relative to what they wanted it that when we see redemptions and people leave is when you have a drawdown, you know, you lose money. Maybe they recently invested and then the market goes down like, oh, I don't know about this. And then they kind of like short term turnover. But for people who kind of are in it and stick with it, this strategy. Well, I'll tell you this, compared to multi asset trend, we have a lot higher retention rates and a lot higher customer client satisfaction with this trend approach on stocks than we did with multi asset. That is like, you know, I think.

[Michael Batnick]

Because I think because it's easier to understand what you're doing, like if you're trend follower, multi asset, you could literally be doing anything. The portfolio could own like almost anything. Stocks is stocks. So I think that retention is like people get, people get what they're doing in that strategy.

[Cole Wilcox]

Yeah, but I think that if I, you know, stocks are stocks, but If I delivered a 2% return, yeah, I think they'd be very happy with that.

[Michael Batnick]

What are there certain asset classes that lend themselves better to trend following than others? And why do you think that is?

[Cole Wilcox]

Well, yes. So well, asset classes, I don't know.

[Michael Batnick]

Certain commodities or certain instruments. I think there's some that just flat out don't work.

[Cole Wilcox]

I mean historically speaking like cocoa didn't work for like a hundred, you know, it was like very long decades and decades didn't work. And then it recently worked. But you would not have liked, you would have been better off without having cocoa for those decades prior to that.

[Michael Batnick]

Worked meaning it conforms to something that you could chart and you could like.

[Cole Wilcox]

You made money trading it that way. I think Coco just constantly was like a false signal trade. You just basically did nothing but be a, you know, a money furnace. If you were doing trend following on, on Coco. For me, I think markets that are. Have large risk premiums and that are not efficient create bigger trends. But trend following works better or best on anything where you'll get large outliers that come from it like this individual stocks. You can get a 50, 100 fold return from an individual company. That's going to leave a trend.

[Josh Brown]

Speaking of large outliers, did you ever try crypto like in your personal account trend following on that because it works very well there.

[Cole Wilcox]

Well, I don't trend following crypto, I've just been like a diamond hand coddler of it. But it does work. If you just bought the high and had like the Carlos Aretini from the Concretum group who we co authored the paper with, wrote another paper, not with me but with his group that did trend following on like all of the coins and the efficacy of it. It's actually a great.

[Josh Brown]

I would imagine it worked very well.

[Michael Batnick]

Yeah but that's part of the robustness. If you, if you say this works here, this. The next question is well, does it work? International stocks?

[Cole Wilcox]

Yeah.

[Michael Batnick]

Does it work small caps, does it work? Crypto is now a legitimate robustifier if you will. If you're doing like research, does this work?

[Cole Wilcox]

Yeah, but one of like as an example in our thing, largest public company or public company has the largest bitcoin holdings as MSTR and MicroStrategy and we've owned it for years. So our trend strategy picked up and you have it microstrategy in there probably.

[Michael Batnick]

Have Coinbase right now.

[Cole Wilcox]

Coinbase, you know, other ones that exposure. But so, but the point about trans is I. You should not do trend following on something that doesn't have the propensity to have those outlier movements. So if you think like why would I want to do trend following on the S and p, like the 500 largest, most diversified kind of thing, all the world's intelligence, discounting the price on it versus doing bottom up trend on idiosyncratic trends of individual companies where they're less efficient markets. You're going to get these monster trends that kind of come out of it if you're trying to create something that is a different return stream than a market index.

[Michael Batnick]

So I want to ask you one more question on this. Why do you think we haven't yet seen trend following sector funds? Because it strikes me that that's a real opportunity that people would be interested in. Just from a marketing standpoint. I don't know if it would work. But like if somebody said, okay, I love what you're doing, I really don't care to earn the return of the s and P500 that way, but I'm really interested. Give me semiconductors, but I only want to own the ones that are going up and I want the risk management from trend following. Or give me biotechs that are trending or something like why haven't we seen those yet and should I launch one?

[Cole Wilcox]

Maybe?

[Michael Batnick]

Okay.

[Cole Wilcox]

They didn't work.

[Josh Brown]

The sector rotation funds. It got blown up. Are you describing something else?

[Michael Batnick]

I don't think I'm saying sector rotation. I'm saying picking individual stocks in those sectors.

[Cole Wilcox]

What'll happen is.

[Michael Batnick]

You see what I mean?

[Cole Wilcox]

The trend following will work on all those sectors. Let's say you just created a platform and I'm going to do trend following every sector. I'm just going to have the sector strategy. It owns top performing stocks in each one of the sectors, but a separate fund for each separate fund for each one.

[Michael Batnick]

So give me like let's do tech stocks. Give me trend following tech stocks. That would be a hot product right now. At least. Right now.

[Cole Wilcox]

Yeah, right now.

[Michael Batnick]

Well, that's all that matters. We'll worry about the future in the future.

[Cole Wilcox]

But saying so it would work. What'll happen is you'll have huge dispersion of returns from strategy A to strategy Z depending upon what was the best sector. So energy, probably in the last decade, stock would have been great.

[Michael Batnick]

Same way if you just bought the sector straight up. If I just buy. If I just buy like the oil services stocks in a sector etf. Yeah, granted it'll have great seasons. It'll have terrible seasons. This is life. But what if I said I want to own the sector. The sector's clearly in favor, but I want the extra return that comes with only owning the best stocks in that sector on a trend basis. It's just weird to me that nobody did this.

[Cole Wilcox]

We definitely could do it. We could do it for you as a custom SMA if you want.

[Michael Batnick]

Okay. Why do you think it hasn't been done? Just we haven't gotten there yet or the interest isn't there.

[Cole Wilcox]

We don't even have another fund other than us that's doing trend on individual stocks.

[Michael Batnick]

Crazy, right? All right, so you're still like a pioneer.

[Cole Wilcox]

It's still early. Still early.

[Michael Batnick]

Okay. Anything we didn't cover on the trend following side or anything that you think is like a big misunderstood piece of how this all works?

[Josh Brown]

Thoughts on the mayor?

[Michael Batnick]

Anything, Anything about the socialist paradise we're about to build in New York City?

[Cole Wilcox]

Lovely.

[Michael Batnick]

Yeah, it'll be great. What could go wrong? Any parting thoughts on trend following?

[Cole Wilcox]

The parting thoughts on trend following is I know there's a lot of investors in Trend following today that understand the non correlated benefits of it and have it in their portfolios, but I also know that they're not 100% satisfied with the experience of owning trend and call me. Got it. Yeah, exactly.

[Michael Batnick]

Dude, this is, this is so much fun. Did you have fun on the show today?

[Cole Wilcox]

Yeah, it's great.

[Michael Batnick]

Yes. All right. We always end the show by asking people what they look forward to. Your answer is ETFs is a shot share class of existing mutual funds. Isn't that already legal or they didn't approve it yet?

[Cole Wilcox]

Not yet. Not to my knowledge.

[Michael Batnick]

I think it's still in why Vanguard does it. Currently they have an exception.

[Cole Wilcox]

They had an exemption from the SEC and, and then they're. But they are, they're the only ones that have been able to do it so far. But everybody's lobbied, like, you know, everybody's filed the application. Kind of like when everybody filed the bitcoin.

[Michael Batnick]

Yeah.

[Cole Wilcox]

They're lining up. They're like, well, wait, wait, wait. So it's a hurry up and wait situation.

[Michael Batnick]

You think that's going to happen now?

[Cole Wilcox]

I do. I think in this administration it's going to happen.

[Michael Batnick]

Why does this matter? As somebody who operates a mutual fund, what will you be able to do as soon as this happens?

[Cole Wilcox]

Well, it's a cost savings. You can launch an ETF on the same wrapper. I don't have to start a new fund, take on all the extra capex associated with all the operational expenses. So by being able to have a share class of an existing fund, I can take that operational scale, offer my product and services to ETF buyers, only new generation of people. But I can also lower cost because I'm expanding my total addressable potential market without increasing the cost burden. And I'm able to transition, you know, like, why was it good for Disney? You know, had all this content when DVDs came around? Because it gave them a whole new market with the existing content. They'd have to go create new movies. They just were able to put it over here.

[Michael Batnick]

Know what I would do if I were a finance person without a job right now, looking for, like, what's the next opportunity? I would set myself up as a consultant to open end mutual fund companies. I would be like the conversion guy. Like, pay me consulting fee. I'll come in, I'll show you how we can create ETFs as a share class of your existing funds. And it'll be a project basis how you pay me. I feel like somebody could start that business right now, make themselves a couple million bucks a year. What do you think about that?

[Cole Wilcox]

Yeah, I mean, I think if there's a need, just like there's a need for AI consultants to show people how to kind of do it.

[Michael Batnick]

Like if somebody called you up and said, all right, are you ready for this? The SEC is about to let you create a share class. And you were like, well, I have some questions. That person quoted you a fee. I'll tell you what, hire me, I'll help you do this. You pay it.

[Cole Wilcox]

I'm sure that mackenzie is going to be making millions off of this. You know, for people, like a whole deck like they do within New York City, where like I saw this presentation here and it was like about millions of dollars to show them they should get containers like trash cans was crazy.

[Michael Batnick]

Yeah. Okay. Michael, what are you looking forward to?

[Josh Brown]

I am looking forward to no more travel until future proof in September. Shutting it down.

[Michael Batnick]

You were just in Chicago this week.

[Josh Brown]

Yep. Done.

[Michael Batnick]

Those overnight trips, are they. They kill you, right?

[Josh Brown]

I'm tired.

[Michael Batnick]

It's a lot of. It's a lot of turnaround.

[Cole Wilcox]

The Lake Como I'm going to, which we talked about this.

[Michael Batnick]

Yeah. When are you going?

[Cole Wilcox]

Last week of July, so first week of August.

[Michael Batnick]

Okay. I'm leaving about that. I'm leaving this coming week, so I'll let you know. I'll let you know if I come across anything I think you should know about. How long are you going for?

[Cole Wilcox]

Two weeks.

[Michael Batnick]

Two weeks. How are you able to do? All right, I'm going. My wife's going. Six nights. I'll go for six nights. Are you staying on the lake?

[Cole Wilcox]

Yes, at the. We're staying at the Mandarin Oriental.

[Michael Batnick]

So what town is that?

[Cole Wilcox]

An Oriental should cop my room for plugging them on the show.

[Michael Batnick]

What town is that in? Do you know?

[Cole Wilcox]

I don't know.

[Michael Batnick]

All right, I'm so I want to check out like all the hotels I'm not staying at. I'm staying. I think I'm staying at a good one. But I want to like make sure that I see everything.

[Cole Wilcox]

Yeah, there was. Send me that. There was another one we were going to say. I can't remember the name of. But it was like really? I found out you had to wear like a dinner jacket and be super formal. Go to dinner. I'm like, I don't want.

[Michael Batnick]

Oh shit. Is that where I'm staying?

[Cole Wilcox]

You might be staying there. It's a beautiful place. But then I found out that it was real.

[Michael Batnick]

Okay.

[Cole Wilcox]

Going to be like, all right, I'll.

[Michael Batnick]

I'll after. After the trip. I'll send you my itinerary. I'll let you know what we did. Are you flying into Milan?

[Cole Wilcox]

Flying to Milan a few days there.

[Michael Batnick]

All right, well, you and I have the same thing that we're looking forward to. So that. That's mine for today. I want to thank this week. You guys absolutely crushed it. We did some amazing stuff. Michael had Dave notting on. On the Unlock channel. If you're a financial advisor, we are putting out extremely high quality conversations on the Unlock. Make sure you check out Dave Nig talking with Michael Batnik about how AI will affect the financial advisory world. I had Rick Edelman on earlier this week. If you missed that, that was a good one. On crypto and Rick's recommended allocation. And we did a whole animal spirits. We did everything. We did it all. Guys, thank you so much for watching. Thank you for listening all week. We appreciate you like and subscribe. We'll see you soon. All right. So that was like the dress rehearsal. I just wanted to give a sense of like the give and take used to it three a break and then.