Episode #401: Clay Gardner, Titan – Funding Administration Companies for The On a regular basis Investor
Visitor: Clayton Gardner is the Co-Founder and Co-CEO of Titan, a retail funding administration platform aimed on the new technology of on a regular basis traders.
Date Recorded: 3/8/2022 | Run-Time: 47:50
Abstract: In at this time’s episode, we kick it off with an summary of Titan and the companies’ funding philosophy. Clay touches on a few of their completely different choices, which now consists of crypto. We hear in regards to the firm’s content material technique, which assist each educate traders and preserve them invested out there throughout risky durations. Then we hear what different asset courses Clay is pondering of increasing to sooner or later.
As we wind down, we hear in regards to the agency’s fundraising historical past, which incorporates investments from a16z, Kevin Durant, and Will Smith.
Sponsor: Should you’re in search of the much less apparent and are curious in regards to the ever-changing world and the way it impacts investing, The Lively Share podcast is for you. Hear thought-provoking conversations with thought leaders, firm executives, and William Blair Funding Administration’s personal analysts and portfolio managers as they share distinctive views on investing in a world that’s all the time evolving. Hearken to The Lively Share on Apple Podcasts, Google Podcasts, Stitcher, Spotify or TuneIn or go to right here.
Feedback or ideas? Fascinated with sponsoring an episode? E mail us Suggestions@TheMebFaberShow.com
Hyperlinks from the Episode:
- 0:40 – Sponsor: The Lively Share Podcast
- 1:14 – Intro
- 1:54 – Welcome to our visitor, Clay Gardner
- 2:30 – Overview of Titan
- 9:57 – Titan’s funding philosophy
- 17:21 – How their funding course of has developed over time
- 21:49 – Clay’s ideas on hedging
- 27:39 – Clay’s ideas on the way forward for Titan
- 30:42 – The profile of the common Titan person
- 40:32 – Fundraising from a16z, Will Smith and Kevin Durant
- 41:30 – The Energy Regulation: Enterprise Capital and the Making of the New Future
- 43:36 – Clay’s most memorable funding
- 44:25 – Study extra about Clay: titan.com; Twitter
Transcript of Episode 401:
Welcome Message: Welcome to “The Meb Faber Present,” the place the main focus is on serving to you develop and protect your wealth. Be part of us as we focus on the craft of investing and uncover new and worthwhile concepts, all that will help you develop wealthier and wiser. Higher investing begins right here.
Disclaimer: Meb Faber is the co-founder and chief funding officer at Cambria Funding Administration. As a consequence of business rules, he won’t focus on any of Cambria’s funds on this podcast. All opinions expressed by podcast individuals are solely their very own opinions and don’t mirror the opinion of Cambria Funding Administration or its associates. For extra data, go to cambriainvestments.com.
Sponsor Message: What does a two-time World Cup-winning coach, a significant league baseball group proprietor, High Chef, and a luxurious dressmaker have in widespread? They’ve all been featured on “The Lively Share Podcast.” Should you’re in search of the much less apparent and are curious in regards to the ever-changing world and the way it impacts investing, “The Lively Share Podcast” is for you. Hear thought-provoking conversations with thought leaders, firm executives. And William Blair Funding Administration’s personal analysts and portfolio managers as they share distinctive views on investing in a world that’s all the time evolving. Obtain “The Lively Share Podcast” in iTunes, Spotify, Google, Stitcher, and Tunein.
Meb: What’s up, y’all? We received a great present at this time. Our visitor is Clay Gardner, co-founder, and co-CEO of Titan, a retail funding administration platform aimed on the new technology of on a regular basis traders. In at this time’s episode, we kick it off with an summary of Titan and the agency’s funding philosophy. Clay touches on a number of the completely different choices, which now embody crypto. We hear in regards to the firm’s content material technique will assist each educate traders and preserve them invested out there throughout risky durations. Then we hear what different asset courses Clay’s pondering of increasing into the long run. As we wind down, we hear in regards to the agency’s fundraising historical past, which incorporates investments from a16z, Kevin Durant, and Will Smith. Please take pleasure in this episode with Titan’s Clay Gardner.
Meb: Clay, welcome to the present.
Clay: Thanks for having me, Meb. Excited to be right here.
Meb: The place’s right here at this time?
Clay: So I’m in New York Metropolis. We’re catching just a little little bit of spring right here.
Meb: Man, I miss it. I must get to New York. Bryant Park, perhaps Could. It’s been a few years. What’s the vibe? It’s good.
Clay: Issues are good. Yeah, they’re beginning to get just a little bit extra reopened. So plenty of the orifices that people put up on account of COVID, there’s eating places have spilled over into the streets, all that good things. Persons are simply searching for a purpose to get out and have the New York Metropolis spring-summer. So trying ahead to that.
Meb: Effectively, I’ll be a part of you right here in a number of months, we make our manner up there. It’s nice to have you ever at this time, we’re going to speak about all types of stuff. However first Titan, inform us what Titan is earlier than we dive in.
Clay: Yeah, I might like to, we wish to say we’re constructing the subsequent Constancy. And what we imply by that’s an funding platform the place anybody can principally push a button and get invested with skilled managers throughout over time. Just about any asset class, particularly targeted on those who traditionally haven’t been accessible to retail traders. So we launched in 2018. We began with the bread and butter Reno make investments, which is public equities. We ultimately expanded into crypto final summer time. So at this time we’ve got 4 merchandise, we name them merchandise or methods.
In a pair minutes, you may obtain the app, like a financial institution, and get invested throughout these 4 methods, that are managed in-house by our group. And then you definitely’re basically using shotgun whereas your supervisor calls the photographs, buys, sells securities or crypto.
Meb: What’s the origin story behind the title by the way in which?
Clay: I used to be sitting at my co-founder Joe’s desk in his condominium and it simply type of got here to me. I believe lots of people affiliate the phrase hedge funds and PE with the phrase titan. I believe it’s like one of many extra widespread should you Google “hedge fund Wall Road Journal” or “hedge fund New York Occasions”, it’s one of many extra generally cited phrases in these headlines is “hedge fund titan XYZ buys a $50 million mansion within the Hamptons.”
And so I believe Titan for us, one, I believe it indicators to we’re in battle, type of preventing in opposition to the established order by way of legacy cash managers. But additionally Titan is type of this type of revered determine of authority and standing, whether or not its monetary standing or simply authority on the earth. And I believe it touches a nerve for lots of our traders, who’re traditionally used to not with the ability to afford to get entry to the issues that “hedge fund titans” of yesteryear have entry to.
Meb: What do you assume is probably the most distinctive proposition for you guys? As a result of we’ve had type of the digital onboarding for people, whether or not it’s a Betterment or Vanguard or Wealthfront with the allocation facet. We’ve had personal investments over right here and areas attempting to type of democratize that. What do you guys see as type of the primary, I don’t know if muscle motion’s the suitable phrase, however what’s the massive wedge or influence you guys are providing right here? Is it the precise choices themselves? Is it the supply? Is it all the above?
Clay: We’ve began with public equities as a result of the core wedge, the core drawback we’re fixing is individuals know they need to be invested in shares. However plenty of them don’t have the time, data, or assets to do it themselves. They need greater than common. They need greater than they consider they might get in a low-cost index fund. However they don’t belief themselves to day commerce their financial savings in Tesla name choices on a Robinhood. And so the contrarian concept that Titan was born on was the concept that that market is definitely not a distinct segment. It was seen as a distinct segment and nonetheless is by many, however we truly consider it’s a large market. We expect it might be nearly all of at the very least youthful generations.
Should you ship the suitable infrastructure, you construct the suitable tooling for them to understand this doesn’t must be your mum or dad’s mutual fund, which is a five-letter ticker the place you’re a 5-year, 10-year, 3-year efficiency chart and that’s the product expertise. You may be introduced alongside, as managers are going to work, going to bat doing analysis, figuring out securities, with personal’s public’s crypto. And so our development at this time is at the very least confirmed to us that it’s perhaps it’s a area of interest to many individuals, but it surely’s truly fairly an enormous and fast-growing area of interest and really profitable one.
Meb: Inform us just a little bit about your base first choices, in a world the place Vanguard is principally you should purchase the market cap index for nothing, or near nothing. I assume you guys, like us, aren’t charging nothing. So what’s it you guys are providing? What are you doing and what’s type of the framework for the way you guys take into consideration these first few methods?
Clay: We’ve got 4 merchandise at this time, three of them are in public equities. We began with the normal “blue chip,” some corporations which are family names, the FANG shares. We’re big followers of lots of these companies, they usually’re wildly worthwhile and we expect they deserve a slot on the roster of large-cap U.S. equities. There are additionally some under-the-radar names many individuals gained’t have heard of or personal of their self-directed accounts. So we name that Flagship. Titan Flagship is the biggest technique on our platform. It’s been round for just a little over 4 years now.
The technique was designed, Flagship, with the concept that we will tease out indicators to establish nice high quality compounding companies, not overpay, and simply type of do nothing. Be good and tactical with actively managing that, however we’re not reinventing the wheel. It’s only a conventional Warren Buffett, Terry Smith-like framework for figuring out nice companies. In order that’s Flagship. And that’s what we suggest most of our shoppers put nearly all of their Titan pockets share in at this time, for a handful of various causes from a danger tolerance standpoint.
The second is we’ve type of moved down the market cap spectrum. So we launched a product targeted on small-cap equities. The normal analog is just like the Russell 2000 Index, for instance. These are like very off-the-beaten-path, under-the-radar corporations. A few of the corporations we’ve identified have been acquired, some have been spin-offs, some have been activist or transformational M&A types of tales. So these are the place we’ve got an in-house analysis group that’s truly tactically and actively managing these portfolios. However that is one particularly targeted on not devalued, however like off the overwhelmed path, extra esoteric securities, roughly 15 to 25 securities. It’s referred to as Alternatives, and it is vitally opportunistic in nature.
The third we launched was Titan Offshore. Sounds precisely what you assume. It’s worldwide securities, primarily via with record equities and ADRs. So we’re not investing in any new offshore markets instantly at the moment. But it surely’s a good way for us, we expect, to present our shoppers publicity to worldwide markets the place…and I do know you’ve been an enormous proponent. I as nicely assume that plenty of People have under-invested in developed and rising markets. August of final yr, particularly, has been rocky. And it’s been a decade interval of relative underperformance between developed rising markets within the U.S. However I believe sooner or later that tide could flip, we wish to ensure that our shoppers have publicity there in some type.
After which lastly, is Titan Crypto. That is actually thrilling. This was by no means one thing we meant to get into as quickly as we did. And I do know I’m going to sound like a boomer within the scheme of issues when individuals…I used to be on Mt. Gox in 2013. I’ll admit, I used to be not that early, we weren’t that early. However candidly, on our roadmap, we weren’t planning on transferring into digital belongings this quickly. It was very a lot, it was by far probably the most demanded retail product we’ve ever had.
Folks had been successfully yanking it out of our arms. And so we employed an analyst, constructed a group round it. And the objective there may be basically blue-chip liquid cryptocurrencies, crypto-assets. So we personal Bitcoin, we personal ETH, we additionally personal different layer 1 blockchains, after which some extra esoteric cryptos. However the objective there may be we took what we consider is type of the S&P equal in crypto.
And to your earlier query, like what’s the objective from Titan? The objective is, one, monetary outcomes. So like over time, investor on our platform, we consider, for us to ship worth, ought to over a 3 to five-plus yr rolling foundation have gotten extra worth than they might do, both on their very own of their self-directed account, or a mean low-cost index fund.
And two, which we’ll most likely dig into extra, they need to really feel considerably smarter and extra educated on how their capital is invested and why. For instance, the Russia Ukraine scenario which is occurring as we’re doing this interview, individuals ought to know precisely how they’re positioned. What’s my Russia publicity? How does the U.S. ban on imported oil from Russia have an effect on? What cash ought to I be including on this volatility? Ought to I be dollar-cost averaging?
We’ve seen that really instilling confidence and explaining alongside the way in which is definitely actually vital to really getting the monetary worth. Like, you must keep invested to really reap the returns of the companies that your supervisor’s investing in. So I type of view them as synonymous. Numerous companies will use content material advertising and marketing or schooling as a type of development lever IQS or product.
Meb: You guys been at this for what is that this 4 years-ish on the primary Flagship? Inform us just a little extra. So is that this a technique? Like, what kind of turnover does this have? And are you guys…is that is simply Clay, waking up within the morning and saying, ‘You already know what, I’m the PM and these are all my decisions,’ you bought a group? After which how do you guys go about making the requires what goes in, what comes out? For most individuals, that’s a, accurately for an lively technique, fairly concentrated portfolio so inform us the way you guys put this collectively.
Clay: It’s positively concentrated, 15 to twenty securities, usually talking, we conviction-weight them. So the default for any place measurement is 5% every or 100% divided by on common 20 positions, we’ll conviction-weight for a number of completely different causes. One is for certain companies simply have a risk-reward prospect that we expect smaller measurement can justify the upside. So, for instance, as of this writing, we’ve got a small place in Coinbase in Flagship. For a handful of causes, we consider it’s each essentially low-cost and misunderstood. But additionally we consider if and once we’re proper, the upside of that safety, even at a 1% place, it deserves a slot within the portfolio. We’ve got different securities like Microsoft or Apple, that are extra considerably higher-weight, nearer to mid to excessive single-digit proportion of the portfolio.
However stepping again, I might say it’s very very like the Terry Smith or Buffett-like technique in that. It’s like three quite simple rules, like discover nice companies that we consider have entrenched aggressive moats, aggressive benefits. That is the type of sleep at evening, get up in 10 years. If the markets closed for 10 years, we gained’t bat a watch, feeling nice that we might be capable to get up and wish to purchase this portfolio each single day. And let the enterprise compounding do our work for us. Simply ensure that we don’t overpay.
After which your query on turnover, the world adjustments. And so I might draw the road between us and the normal notion of like a Buffett, I truly don’t consider in buy-and-hold, I consider, buy-and-hold, and I’m not going to say this time is completely different, 4 very harmful phrases, however this time, it type of is completely different. Take into consideration what we’re going via proper now, even since November, the overall rising charge and development drawdown we noticed after which adopted by this geopolitical disaster. There’s loads of traders who purchased and held Microsoft within the early 2000s and it took them 15 years to get again to breakeven, regardless of it being a fantastic enterprise.
Behind the hood, Meb, what occurs is we’ve got a group of roughly 60 analysts. A few of them frolicked at personal fairness funds, household workplaces, hedge funds, others at sell-side companies for his or her analysis, or knowledge analysts. And what we’re attempting to do internally is continually construct a backlog of companies which are on our purchasing record at a sure value. So validate these are high quality companies, there’s one thing particular about what they’re doing that may’t be simply replicated.
These are in secularly rising industries or markets, some could also be extra cyclical, some could also be extra secular. However usually, these are industries for fixing a transparent drawback. There’s a large tam for them to penetrate. Administration groups with incentives align like, we perceive. They’re aligned with shareholders, they’ve a observe file of delivering worth, after which a margin of security.
So we don’t wish to pay via the eyeballs for a fantastic enterprise. As a result of if something, if the previous couple of months have taught us something, it’s like I stated, you may pay 40 occasions gross sales for a fantastic enterprise for a Snowflake or a Datadog, the market goes to punish you throughout sure environments. You’re going to pay up for that high quality, maybe an excessive amount of. And so ensuring we’re not attempting to leap over 20-foot hurdles from a valuation standpoint.
So by way of turnover, it sometimes I might say traditionally, in durations of decrease volatility, it’s been solely a few trades per quarter of these 20 shares, on common in Flagship. Solely a pair adjustments per quarter. I might say the turnover has been greater of late as a result of we’ve simply seen much more alternative. Each to take chips off the desk late final yr, notably within the software program sector, the place I noticed a lot a number of enlargement, on account of QE, and unprecedented stimulus. And lots of people paying up probably manner an excessive amount of for development.
So it’s a mix of artwork and science is what I might say. Because the PM and CIO, sure, I make the ultimate calls on selections. And I’ll oftentimes spitball concepts, companies I discover via my community of founders, corporations which have IPO’d. So I’ll be a supply of concepts and serving to push again and satan’s advocacy and that type of wholesome danger administration debate internally. However I’ve a fantastic group round me that does the laborious work that’s studying the case, the cues, that’s speaking to administration groups, chatting to consultants. So I’m standing on the shoulders of giants in some ways and lucky to have a fantastic group right here.
Meb: So how does that group work? You guys do like a day by day weekly obtain assembly the place individuals had been pitching shares? As a result of plenty of hedge funds have completely different… I’m not attempting to check you on to a hedge fund however plenty of lively funds have a unique course of. Typically it’s the lone wolf PM, typically it’s group, typically they do eight-month deep dive, typically it’s a committee. Like how do you guys go about truly placing stuff in and pulling stuff out? Is there type of a framework, which you guys apply for it? As a result of I assume it’s composite that goes with one portfolio for the Flagship is all the identical shares for all the identical shoppers, proper?
Clay: That’s precisely how I give it some thought. Give it some thought type of like a mannequin portfolio. We’ve got 50,000-plus shoppers, and every of those shoppers has his or her personal SMA or individually managed account. In order that they have a brokerage account. They’ll pop in, they’ll see the securities we maintain on the finish of each month. Clearly, they’re participating usually day by day, weekly with the app the place they’ll see video updates from our group, tax updates, they’ll ask questions. There’s community-driven options so you may pop in at this time and see what questions have been requested by different traders on our platform, upvote, and so forth. It’s a extremely cool solution to keep knowledgeable and engaged.
However by way of our course of, we didn’t actually reinvent the wheel right here, having spent a while on the buy-side myself. I’ve seen what works, what doesn’t. I believe for our temperament and our funding mandate, we do a proper Funding Committee. So each choice has to have a proper memo and mannequin. The memo has to doc all of the findings of what’s sometimes a two- to three-week analysis course of. I’m usually of the assumption of everybody ought to be macro conscious, and attempt to cross-pollinate and study and be increasing your circle of competence. We should always ideally have some semblance of like a compass for focus. And in order that’s what we do internally.
So we’ve got a devoted analyst who’s targeted on shopper and media, a devoted analyst who’s targeted on our investments in software program and semiconductors, one devoted to industrials, and so forth. That’s how they information their time. In order that they have a universe of companies they’re accustomed to. They’re consistently attempting to broaden that, as a result of clearly, there’s new points, there’s corporations IPLA, there’s M&A exercise. So consistently attempting to construct out their purchasing lists after which it actually simply says, ‘Do you belong on the core? Do you belong within the beginning 5?’ so to talk.
So each analyst is continually re-underwriting and from their viewpoint, there’s this different title on my purchasing record I’ve been doing work on. Is that this the next alternative value than the corporate we already personal? Is XYZ Software program Firm now a greater risk-reward after current market volatility than this current software program title we personal? And if that’s the case, let me take that to the committee and pitch that change. And so it’s actually serving to we’ve got a chosen satan’s advocate, we’re not a yes-man, or yes-woman sort of agency. We would like wholesome debate, we wish to perceive the bear case, be capable to refute it higher than the neatest bear on the road. I believe that’s a extremely clever remark that Charlie Munger made. You need to be capable to refute your personal bull case, higher than every other bear, debate in opposition to your self, and nonetheless come out feeling excited.
After which my function is actually to step in. After which from a danger supervisor standpoint, I’m being hyper-aware of like, what are our sector overweights or underweights versus the benchmark? What are components that we could also be inadvertently lengthy? Are we tremendous lengthy momentum, are we tremendous brief high quality, are we brief worth? After which, that’s the place I’ll type of take the analysts’ collective knowledge and suggestions and attempt to measurement issues appropriately. Attempt to verify we’re not too far tilted someway. So it’s actually wholesome course of. And we’re clearly studying, we don’t fake to know all of the solutions. However up to now, it’s labored out rather well. And I believe it aligns incentives in a extremely good manner.
Meb: If I keep in mind in years again, I’ve been following you guys for some time, it’s good to see the expansion, kudos. And I keep in mind sooner or later, the method, you guys talked about different components of the portfolio, whether or not it’s hedging. We talked in regards to the screening course of, and 13F, type of diligence, and trying to see what a few of these different fund managers are doing. How does this course of evolve? Has it been constant this complete time? Are you guys type of doing the identical stuff you’re all the time doing? Do these nonetheless play a job? After which how do you consider type of incorporating the assorted items of the puzzle over time too?
Clay: I just like the phrase or the quip that there’s no unique concepts. And the rationale I carry that up, Meb, is as a result of within the early days once we had been a one-product firm, we had Flagship, like our blue-chip technique, I used to be the one analyst and PM. I’d one director of analysis who would assist me pull knowledge and construct fashions and so forth. However we had been a extremely lean, agency. And so naturally, once you’re constrained from a useful resource standpoint, it’s useful to fish in a pond that you just at the very least no different good fishermen are heading for. And so 13Fs, as you talked about, for many who aren’t acquainted, 13Fs are simply quarterly filings that almost all hedge funds or RIAs above a sure threshold within the U.S. must file. And people present all their lengthy holdings, in order that they don’t present any brief holdings or some esoteric securities derivatives aren’t proven.
However should you’re a buy-and-hold investor and a long-term buy-and-hold investor, a 13F is a fairly good proxy for like what you personal quarter to quarter or yr to yr. And so we used these within the early days, similar to I did at my previous agency at Fairlawn and the fund I used to be at simply after Fairlawn, as a great searching floor for like what are some attention-grabbing concepts. So like, there are many good individuals on the market, fund managers I like, investor letters I learn. And looking and serving to use that to tell what the purchasing record ought to be, that’s finally what helped us go from, okay, how will we begin with 10,000-plus international securities and slim it to a pool of perhaps 100, 200?
So we at the very least know which rocks are price turning over. In order that knowledgeable plenty of our funding course of for Flagship to some extent for alternatives within the early days. As we clearly raised just a little extra enterprise capital, we’ve actually bootstrapped our manner and began rising income, and received worthwhile, can we construct up the group. So we went from simply myself and a colleague to now a group of eight funding analysts, employed a analysis analytics affiliate from AQR. We constructed out an information science group internally. And so consequently, we’ve been capable of transcend simply 13Fs and be capable to fish in lots of, many various ponds and likewise entry a much wider swath of information.
On the similar time, we noticed COVID hit in early 2020. And I believe we realized that what’s a transparent, name it the fee facet of the cost-benefit of utilizing a 13F technique. The fee is during times of exceptionally excessive volatility, even getting knowledge on a 90-day delay, you’re lacking a significant image of what’s happening beneath the floor of those managers. So for instance, should you keep in mind, like, COVID actually occurred in March 2020. We didn’t actually begin to see the ramifications of how individuals would react till April, Could. Folks repositioning from the bodily out-of-home corporations to the work-from-home beneficiaries, the stay-at-home story shares, just like the Pelotons to the … and so forth, you didn’t actually seize that in Q1.
And so should you had been relying strictly on 13Fs, which once more, are solely up to date as of quarter-end, you’d be a very completely different image. You’d successfully be trying on the world as if COVID had not existed. And also you wouldn’t be capable to have a clearer, extra up to date image of the world till that summer time, after which you might argue plenty of the chance was capitalized on. So we heard from our consumer base loud and clear that they needed us to turn out to be extra lively over time.
And so it was very a lot a mix of us with the ability to fish in additional ponds and be much less resource-constrained, and be extra true and tried high quality development traders, not simply being wed to 1 particular supply of concepts. But additionally in some ways shoppers had been like, ‘Guys, we wish you to be extra tactical. We would like you to have the ability to take a look at issues that perhaps different funds aren’t , we wish to have the ability to take benefit intramonth, intraquarter, versus being a “slave” to the method’.
And so it was a mix of push and pull each client-led and internally-led. I believe we nonetheless received to a extremely enjoyable place. And actually importantly, I believe a greater place for traders long-term, which remains to be sticking to the technique of shopping for high quality compounding companies, aiming to carry them for a 3 to 5-year horizon. Typically not doing a lot except alternative value warrants it in our view. But additionally be capable to take part within the volatility and benefit from dislocations in a manner {that a} really systematic or completely quantitative technique in any other case wouldn’t be capable to do.
Meb: So are you guys nonetheless fascinated with hedging as nicely? Or is that much less of a job than at prior occasions?
Clay: No, that’s a great name out. So all the pieces I’ve described up to now, you’re spot on, is on the lengthy facet. We’re not a protracted, brief agency. However you may say we successfully provide customers brief publicity as a result of we do hedge. And so I believe we chatted about this during the last couple of years, Meb, at completely different deadlines, we don’t presently use leverage outright. So we don’t brief futures, we don’t purchase put choices. So we’re truly not taking particular leverage or shorting securities outright. However I believe it’s vital to present individuals a solution to cut back beta.
So let me take a current instance, we truly began hedging, we placed on inverse ETFs. So principally going alongside an inverse instrument that strikes each day reverse the market in a one to 1 manner on the finish of February 2020. That was, in hindsight, a fairly prescient choice. Heading into a kind of, I believe it was a 30-plus per cent peak to trough drawdown on the S&P in only a month, we must mitigate the diploma of that drawdown considerably. I believe it was solely 70% or 80%, draw back seize that our shoppers had versus had that they had been totally invested within the index.
So a working example of getting an lively analysis group be capable to monitor. We’re not macro traders however we’re macro conscious. And once we get sure knowledge factors from our community of parents who’ve simply been over in China for investor day, saying, ‘The world’s in regards to the shutdown’, that set off an alarm bell in our thoughts, and we stated, ‘Okay, we expect it might behoove us to placed on some universe CTF publicity to scale back market publicity, i.e., beta for shoppers’.
By the way in which, we additionally simply did that in January, we placed on hedges, which weren’t on as early January, you placed on full hedges, in mid-January, for a handful of various causes. We noticed technically, just about any manner you take a look at it, you don’t have particular person inventory stage or on an index stage, whether or not it was the S&P, the Russell, the NASDAQ, issues weren’t trying good. And I’m not a chartist. We’re not technicians by nature. However we do consider like charts finally do mirror sentiment in markets. And plenty of occasions they are often telling you one thing that you could be be lacking.
And so a mix of technicals, and likewise some basic knowledge we’ve been monitoring led us to consider that, opposite to the standard purchase and maintain index traders, traders in Titan ought to have their beta diminished, and they need to be ‘hedged’. So it’s one thing that we’re offering, it’s fairly distinctive within the general scheme of funding advisors. That is clearly par for the course in long-short hedge fund land like that is, most long-term traders are outright shorting securities, and perhaps they’re shorting futures as nicely.
Leveling up, I believe it’s actually thrilling to have the ability to provide one thing like this to retail traders, particularly not taking leverage. There’s something I believe we as a platform study from the GameStop, AMC period, is that there’s an actual value to shorting securities, it will probably actually take your entire agency down, if not correctly managed. So this permits us to hedge for our shoppers with out taking the kinds of dangers that might jeopardize them in our enterprise long-term.
Meb: As you consider this macro, we’ve had a ton of macro crosscurrents previous few years, is there type of like a max hedge quantity you guys would take into account, how do you consider that? As a result of shoppers, you bought 50,000 individuals along with your mobile phone quantity now, Clay. And I’m joking, perhaps it’s simply the app, however that’s plenty of traders when the world’s going loopy because it has been the previous couple of years. I imply, it’s type of all the time going loopy, in fact, however notably loopy now, is there type of a framework the place you consider that? And the way set in stone is it fascinated with that type of image of hedging as a result of it may be a subject that’s sensitive for lots of people?
Clay: I agree. I believe in a dream world, we might be 100% internet lengthy 100% of the time. And I believe each manner you chop it, empirically talking, try to be invested more often than not. Markets do go up and to the suitable. We will clearly debate, sure, the historic return the S&P has been, I don’t know, what, 6%, 7%. Is that prime? Is that low? From a go-forward foundation do we expect it’s extra like 2% or 3% going ahead? We might debate precisely the place we shake out. However I believe GDP, productiveness development, these types of issues take international economies up and to the suitable, and markets are likely to observe. So it is sensible why try to be totally invested more often than not.
To that diploma, we’ve set type of a framework in thoughts from just like the macro in a hedging standpoint, the place our internet lengthy publicity, which is only a fancy manner of claiming like, for each $100 you could have invested, how a lot are literally outright being uncovered to market danger? It ought to usually be nearly all of these $100. So for us, Meb, we ship out to 80% to 100% is type of the vary of internet lengthy publicity. I’ll caveat that we’ve launched the idea of what we name strategic money as nicely.
So it’s actually vital, I believe, for individuals to understand that money is an funding choice. It’s zero per cent yielding safety and I’m being just a little bit hyperbolic, 0.004% of no matter your native banks paying you, for all intents and functions, it’s a zero per cent yielding safety, unfavourable in actual phrases now given the place inflation’s heading. It’s a alternative that you just actively make. And we, as an lively supervisor, have added that final couple of years to our toolkit, as a solution to cut back market publicity as a result of money has zero beta.
So with that, as we discuss at this time, Meb, we’re at about 70% lengthy publicity. So for our aggressive shoppers, we’ve got a 5% hedge of these $100, about $5 are allotted to hedge. For average conservative shoppers, it’s nearer to 10% to twenty%. However we are also holding money, as a result of we fairly actually, in most of the markets we’re and lots of sectors, don’t see any alternatives the place you’re not overpaying for the standard of development you’re getting. Otherwise you’re not going down-market and shopping for “Low-cost” securities, however with all types of landmines from a aggressive dynamics from a secular development standpoint.
So, in different phrases, there’s no straightforward solutions on this market, money can typically be the perfect various. It’s a supply of dry powder in order that if and once we clearly consider when the macro image improves, we might benefit from it. So over time, I believe we’ll shake out $2 of our $100 a consumer could have invested with Titan, relying on their danger profile. They’ll see someplace between $50 to $100 of that 100 be totally in danger out there. We’ll by no means be completely market-neutral, nor do I believe we ought to be. We’re not market timers.
Meb: So that you guys have been constructing this platform, 50,000 traders, rising the AUM, look out within the horizon, what’s the long run seem like for you guys subsequent month, subsequent yr, subsequent couple years? Give us a peek backstage, what can we look ahead to for Titan and choices, neighborhood, all that good things?
Clay: It goes a lot additional past blue-chip equities, mid-cap equities, blue-chip crypto. Issues which are on our thoughts, Meb, personal belongings, large, in my thoughts, a contributor to the wealth divide but in addition simply clearly inaccessible to unaccredited retail traders. Issues I’m pondering via from a non-public asset standpoint, enterprise. Placing apart the market to market nature of the enterprise, which I believe in and of itself if correctly understood, and gauged to somebody’s danger profile, traders are human by nature, and seeing scary-looking charts daily doesn’t do any higher for his or her monetary well being. I want markets simply closed or a person couldn’t open their app, during times of volatility, they’d be higher off as a result of we’re all human.
That’s one in all, I believe, the nice benefits that the enterprise neighborhood has is there’s positively volatility in personal corporations, you simply don’t see it daily. Like I do know there are corporations within the personal markets being marked up being marked down each week, each month by way of their intrinsic worth, you simply don’t see it as an LP. Whereas I might joke and say that’s unfavourable, I truly assume it might be a constructive to retail traders.
I believe getting publicity to an asset class of personal companies, their early-stage, late-stage enterprise development companies with a correct sizing, once more, gauge to their danger profile, so this isn’t going to be acceptable for everybody. However so long as they perceive the dangers round liquidity, you’re not going to have the ability to pull your cash out daily, perhaps it’s month-to-month, quarterly, yearly, you perceive the charges, you perceive the chance profile, that’s one thing that retailers by no means had entry to.
One other huge sector is personal fairness. Actual property is one other one. I can even go deep down the crypto rabbit gap of all of the attention-grabbing issues I believe are taking place from like a staking and lending standpoint. So we’ve got plenty of work to do. It’s not going to be as straightforward as our first 4 merchandise. I’ll inform you that a lot. It’s not going to be as straightforward as rent a group from our community from buy-side, sell-side analysts, create the technique, create the analysis course of, and growth, flip a swap on. There’s much more infrastructure and tooling that must be constructed. B2B relationships must be constructed to realize a number of the stuff I discussed.
Meb: Do you foresee these being like, are they going to be separate accounts, will they be funds? As a result of a few of these are lots more durable to personal with 50,000 individuals.
Clay: No, I completely agree.
Meb: How do you consider it or you could not know but? I imply it might be it’s now within the course of.
Clay: No. Numerous the laborious work we’re doing proper now is determining what I name fund operations, plenty of that like back-end stuff. Do we have to use SPVs? Do we have to use this attention-grabbing closed-end fund construction, like what are the nuts and bolts we have to do on the again finish to really make it potential for a retail unaccredited investor to put money into SpaceX or Stripe? I consider it’s potential, it was a extremely, actually laborious drawback. That is once you get into like custodial and clearing preparations, and all types of bushy stuff. It’s very, very regulatory intensive, however I believe huge issues like this are price fixing. As a result of should you remedy it, you’re speaking about trillions of {dollars} of capital that may abruptly be unlocked for retail and I believe it might usually be a significantly better world.
Meb: It’s going to be enjoyable to observe. What’s the profile for many of your traders? Has it modified over time, as you’re onboarding plenty of digital native customers? I assume it skews youthful, however you might right me. And the place are you discovering most of those buddies, is it referrals? Is it via social channels, Tremendous Bowl advertisements, what?
Clay: It’s humorous you talked about that. We did our first Related TV marketing campaign, it was at a number of East Coast airports on AFC/NFC Championship Sunday. So we truly are testing some larger bets by way of out-of-home consciousness, however…
Meb: We had been joking on Twitter the opposite day I used to be like, we tried a pair advertisements in Barron’s. We’re very curious and wish to attempt issues out at small measurement and all the time simply questioning if anybody truly sees it. So I used to be like, ‘Does anybody truly see this?’ Everyone seems to be like, ‘No’, however I received one response. I do know we received to at the very least one individual. Okay. Effectively, inform me, TVs and airports?
Clay: Related TV, it’s enjoyable. I volunteered myself to do the business. So starring yours really, we filmed it in Brooklyn again in June, and it lastly went stay the previous couple of months.
Meb: Good.
Clay: No, it’s superior. I’ve had household buddies. I’ve had individuals I haven’t chatted with since highschool ping me on Fb saying, ‘Hey, Clay, I simply noticed you. I used to be watching a present on Hulu and it went to advertisements and I noticed a business.’ It was type of a cool second. No, however for us core demographic, the mode is 30 to 35. That’s type of the candy spot, 30, 35-year-old. I name them mid-career professionals, demographic of those lots of people from like a profession standpoint are in tech, are in finance, consulting, actual property, plenty of founders, entrepreneurs.
So these are people who usually like are actually, actually good at their craft, however aren’t good at investing. They want they had been nearly as good at investing as they’re of their craft. Possibly you’re a senior engineer, or perhaps you’re employed at McKinsey, or perhaps you’re an actual property agent. These individuals who like are actually, actually good at what they do however they want that translated to investing. And plenty of them have been spinning their wheels day buying and selling crypto or equities they usually’re like, ‘I’m out. I do know I want my cash invested, however I’m not doing this myself, it’s time to cross this to the consultants.’
We’ll additionally get plenty of people that come from the normal like robo-advisory, like taxa world, wanting extra. Like look, ‘I don’t know what’s happening, I wish to take part and be extra lively, actively concerned. Sure, I might clearly love higher than common returns.’ And so we’ll get plenty of the normal robo and likewise older cash like Legacy, Constancy, Schwab accounts, moved over to the platform. So it’s a broad swath, we’ll get 20-year-olds, we’ll get 80-year-olds on the platform, it’s actually cool to see this attraction to differing types.
However I might say individuals which are in that candy spot of, ‘I’ve tried a bunch of investing choices, I’m probably not glad with any of them. I’m actually good at my craft and aspire for experience every time I do, I want I can even have that for my cash’, is type of just like the core drawback and consumer-type that we see. Clearly, as we launch extra merchandise, and likewise account sorts like IRAs, we’ve additionally seen a extremely attention-grabbing demographic shift. So like we’re seeing individuals now open accounts for his or her spouses, or they’re asking us to open custodial accounts for his or her youngsters. They’re rolling over previous 401(ok) cash.
So I might say like the subsequent time we chat, Meb, like the patron sort, age, demographic will most likely change. And I believe one of many challenges of a platform is it’s type of like what Snapchat did or has been doing. It’s like, do you concentrate on 20-year-olds for the subsequent 20 years? So at this time’s 20-year-olds are going to be 30-year-olds in 10 years. Are you all the time targeted on that very same younger archetype? Or do you develop along with your investor base?
That’s type of an attention-grabbing drawback and problem we’re pondering via, I believe it’s going to be just a little little bit of each. I believe we’d like to verify we’re rising and being good, considerate about including different account sorts, options, to verify individuals can name Titan a spot house for the subsequent 40, 50 years. However we don’t wish to be too many issues to many individuals. We’ve got a number of various things we will do. However by way of the place we discover that, it’s largely natural, it’s largely referrals and that.
Meb: One of many cool components of constructing one thing such as you guys have is you now have a large investor base. And there’s some attention-grabbing belongings you guys I’m positive are fascinated with, about incorporating that person base as an asset for the platform too. I’ve seen plenty of attention-grabbing whether or not it’s neighborhood suggestions involvement. For many who haven’t opened a Titan account, and it’s titan.com via the app or web site, clarify what the precise person expertise on the communication is. Is it largely video, print, schooling? You talked about there’s type of like a suggestions messaging function and the way do you anticipate that to evolve within the coming brief future?
Clay: It actually runs the gamut. Our objective is like we’ve got various kinds of individuals which are from all walks of life, and have completely different life, completely different routines. So we’ve got people who do the morning commute from Jersey Metropolis to Manhattan, or from the East Bay to SF after they wish to hearken to a podcast on the practice, or on the subway or within the automotive. We’ve got day by day audio notes, we name them content material franchises. Content material franchises are principally we’re attempting to construct rituals the place we will meet clients the place they’re and meet traders, no matter their routines or habits are, get them the knowledge they should know from the portfolio managers, the suitable media, run on the proper time. So for these types of individuals, we’ve got a day by day, fast minute to two-minute audio notice. Somewhat mini podcast they’ll hearken to and get the three issues that matter for his or her portfolio at this time.
Meb: Folks hearken to that?
Clay: Folks hearken to it, that was probably the most engaged franchises we’ve got. We even have an electronic mail type. So we’ve got very first thing in your inbox daily it’s a e-newsletter referred to as ‘Three Issues’, the three most salient issues we consider it’s worthwhile to know associated to the world of enterprise investing and the way we’re managing capital.
Meb: It’s humorous to consider type of the behavioral facet of that, too, as a result of we’ve put out plenty of content material over time. And I really feel prefer it’s nearly a barbell, the place there’s the people who wish to interact that. However then there’s the opposite individuals which are like, ‘I don’t even wish to hear about it as a result of I didn’t even know I ought to be worrying about this’, you already know. And so it’s all the time an attention-grabbing contact level on is it an excessive amount of? Is it too little? After which how do you section that? Which is the cool half, as a result of if you would like it, you will get it however some individuals may be like, ‘Dude, go away me alone’. Do you guys do any type of rocketing on who will get it? Or do they type of self-select out?
Clay: We’re constructing much more personalization, so you may type of have just like the ‘person’ preferences. Like I wouldn’t say like, we’ve gotten fairly a great distance with a really half-baked rudimentary method. If you’re a Titan investor, Titan consumer, Meb, it’s like all or nothing. You get all of the content material franchises and you must…clearly you may go in and decide and select what you hearken to. However we solely assist curate that.
Like, there’s a ton of alternative for us to say, you don’t should even state your preferences. We should always Intuit primarily based in your conduct. ‘Oh, Meb hasn’t checked our opening or closing bell audio notice, perhaps let’s pull that off the house display screen.’ De-emphasize that, emphasize one thing attention-grabbing, and information that perhaps he’s keen on. After which he takes and he clicks and engages with that, we will ask him and we’ll make that a part of his habits.
Issues that we’ve got realized work rather well are video and community-based options. And I believe these are like two of probably the most underpenetrated referred to as mediums in finance, for a handful of causes. So on video, one, is simply traditionally, has not been very scalable. Like if you consider the normal cash supervisor RIA, let’s say you could have 100 shoppers, even that’s untenable, doing 100 Zoom calls a day, are you able to think about? Like there’s a purpose I believe plenty of advisors go for bigger account sizes, and it makes whole sense, it’s like the fee to serve an account is successfully the identical. And so the smaller the account sort, the decrease the margins, the extra robust for companies to construct. And then you definitely get all types of bizarre incentives.
So I believe expertise has unlocked the power for me, for instance, as a PM, to construct a one-to-many broadcast-type enterprise, the place I believe should you polled most of our 50,000 customers, Meb, I believe plenty of them would really feel like they know me on a first-name foundation. I’ve by no means met these individuals, however they see my face, they knew who I’m, they affiliate me with a model or one of many portfolios sort. So it’s attention-grabbing, as we launch extra merchandise, we’re attempting to construct extra model and character round every product. So like, for instance, Titan Alternatives, within the coming quarters, you’re going to know there’s an individual and also you’re going to know who that man or woman is on Alternatives. If you see a video or electronic mail or content material franchise from that individual, you’re going to right away set up and affiliate them with a sure a part of your pockets.
So I believe that’s…we see plenty of engagement, plenty of referrals round that. And it’s additionally saved individuals invested during times of volatility. They’re like, “Oh, my man or my woman’s caring for my cash. I do know I’m in good arms.” And that humanization of what’s in any other case is a monetary commodity monetary product and an app has allowed us to chop via the noise.
After which the opposite factor is on neighborhood. So the opposite factor you’d see within the app at this time is named ATA or Ask Titan Something. That is type of an inner beta hackathon concept, which was what are all of the questions that retail traders might be asking that they don’t have a discussion board to ask us? Traditionally, it’s like, should you discover a firm on Twitter, you may tag them and broadcast to the world and say, “Hey, I’ve a query.” Whether or not you’re Cathy Wooden otherwise you’re engine primary or any of those managers which have stated, “We wish to actively interact with retail,” you don’t actually have many choices. Are you going to write down them a publish mail letter or are you going to tweet at them? Neither of these are nice choices.
So we stated, nicely, what should you might actually add like actually sort in tweet type within the Titan app, submit that, it’ll route it to the analyst or the individual on Titan’s platform-specific to that safety? So if it’s one thing round reserving holdings or one thing round Twilio, it’ll get routed to the analysts on Titan Flagship.
They’ve a portal internally the place they’ll go into our inner Titan portal, reply that query, broadcast it out. Not solely does that unique query asker get an electronic mail saying, “Hey, we simply answered your query. Click on right here to see the reply within the app.” However all the opposite individuals on our platform accrue worth and get schooling and understanding from one thing that perhaps they gained’t even ask in these questions.
And so in a world the place a retail investor opens our app and sees, “Oh, man, my portfolio is down 5% at this time,” typical retail investor conduct is transfer to money, promote, make the bleeding cease. Titan investor conduct is, “Oh, proper appended to this chart of my cash being down 5%, I click on an data bubble. It pops to ATA requested by Brian Smith in Georgia, asking exactly why is my cash down 5%?” Which an analyst responds and rationale why it’s down and what strikes we’re making along with your cash.
So instantly, not solely did you discuss them off the ledge, however that have we’ve created methods so you may share that so you may cross-post on social media, share it to your networks. And to your earlier query, that’s been an enormous supply of referrals in natural development is individuals being like, “Wow, not solely is my cash in good arms, however I’ve a straightforward solution to share the worth I’m getting with my family and friends.”
Meb: It’ll be enjoyable to observe you guys in your journey. Inform us just a little bit about you type of went the VC route, but in addition raised some cash with some attention-grabbing names in your cap desk. That appears to be one thing that’s modified over time, definitely within the final 10 years as this a part of the cycle is having some fairly cool traders take part. How was that course of? And what are you guys going to spend all that cash on?
Clay: I believe it would final us a very long time, knock on wooden. This can final us endlessly. Within the early days, for us, it was very laborious to boost cash. I talked earlier about just like the wedge I described, how many individuals name it a distinct segment. As a result of it was such a small area of interest earlier than Titan actually began to develop, we didn’t have traders throwing cash at us. In truth, we received informed no by over 110 VCs in a row. We needed to increase cash …
Meb: …110 VCs there may be now.
Clay: Yeah, we needed to go positively off the overwhelmed path to even discover investor 51. It was not straightforward.
Meb: Effectively, you guys ended up with some names that everybody will definitely acknowledge. I had a enjoyable tweet yesterday, I used to be attempting to poke just a little enjoyable at my VC buddies as a result of it was in Sebastian Mallaby’s new e book on VCs referred to as “The Energy Legal guidelines.” However there was a quote from Andy Grove, well-known Intel result in John Doerr, the place he stated, “John, enterprise capital, that’s not an actual job. It’s like being an actual property agent.” I used to be dying laughing at it. However a fantastic e book, by the way in which, listeners, anyway. Okay, so.
Clay: It’s truly been on my record. Yeah.
Meb: Yeah, it’s enjoyable. I imply, look, for people who find themselves accustomed to that world, it’s most likely much less you might type of skim it. There are some enjoyable tales in there. For people who find themselves new to VC, it’s a fantastic historical past. So okay, I interrupted you. Sorry, preserve going.
Clay: No worries. So it was not straightforward to boost cash within the early days. However as soon as we discovered product-market match, graduate YC, raised our seed spherical, development solves all issues. There’s something I’ve taken away as an entrepreneur, it’s development solves all the pieces, from hiring, to storytelling, to elevating capital, to constructing new progressive merchandise. So for us, 2020, everybody remembers it because the yr of COVID and was a horrible yr for lots of industries, plenty of human life.
The one upshoot of it was I believe plenty of traders that in any other case perhaps would have waited years to turn out to be traders received pulled into the markets, you might say, as a result of they’re sitting at house of their pajamas and casinos or sports activities betting was closed down. Or you might say it was simply there are a lot stimulus, a lot alternative to earn cash. Regardless of how you chop it, it was a fantastic yr for FinTech, normally.
For our house, it was a interval of outstanding volatility. And so individuals needed lots of people that had been previous traders or had been DIY traders had been like, “I’m out, man, I don’t know what I’m doing. I’m transferring cash to the consultants.” And so after I talked about we begin hedging, and like, actually leaned into that a part of our price prop, noticed plenty of consumer inflow. And like I stated, development solves all issues.
In order that yr is late 2020 we raised our Sequence A. That was the primary actual type of fairness spherical at Titan, led by Common Catalyst, a tremendous agency. And we’re rocking, rolling, after which development solves all issues. It’s like once you’re not searching for cash is exactly the time when each investor desires to present you cash. And so we’re big followers of Andreessen Horowitz. Yeah, it’s about 48 hours from the time they reached out to reengage to the time we had almost $60 million within the financial institution and raised our Sequence B.
Meb: What’s been your most memorable funding? You’ve been at a profession that preceded Titan but in addition you stated you began shopping for shares once you had been 12. So something come to thoughts?
Clay: It’s not very horny, however one of many first shares I purchased within the mid-2000s was Google. Sure, it was referred to as Google again then, not Alphabet. There was different bets. It’s just a bit search firm. I truly I neglect how I sourced that. However I held it to 2008 and it wasn’t straightforward. In order that’s most likely what involves thoughts.
Meb: I used to go to the personal Google events after I was residing in Tahoe. In San Francisco I had a number of Google roommates on the time. And the quantity of sheer cash they spent on renting out Lake Tahoe, Squaw and different venues and flying in all of the Googlers from all around the world, I ought to have identified. They had been simply printing tons and tons of cash. I ought to have simply purchased it and held on to it. The previous Peter Lynch type, however anyway. All proper, my man, it has been enjoyable. The place do individuals go in the event that they wish to discover what you guys are as much as, open an account, shoot you some messages, what’s the perfect place?
Clay: Yeah, the best place is titan.com. Tremendous easy. You may study extra about what we’re constructing, methods, enroll, tremendous straightforward, $100 minimal. You will discover me on Twitter as nicely. I don’t tweet usually. I wish to preserve a excessive signal-to-noise ratio. So hopefully after I do, it’s one thing fairly worthwhile. However I’m on there day by day and I reply to DMs and so forth. So digital clay, @virtualclay is my deal with.
Meb: Superior.
Clay: Yeah, it’s been a pleasure.
Meb: Clay, thanks for becoming a member of us.
Clay: Thanks.
Meb: Podcast listeners, we’ll publish present notes to at this time’s dialog at mebfaber.com/podcast. Should you love the present, should you hate it, shoot us suggestions at suggestions@themebfabershow.com. We like to learn the evaluations, please evaluation us on iTunes and subscribe to the present anyplace good podcasts are discovered. Thanks for listening, buddies, and good investing.